The chancellor is understood to have decided against the move, which had been considered as one of a number of tax rises designed to repair the hole in the public finances….reports Asian Lite News
Rachel Reeves has decided not to raise tax on pensions contributions in this month’s budget, after public sector unions warned that doing so would hurt their members.
The chancellor is understood to have decided against the move, which had been considered as one of a number of tax rises designed to repair the hole in the public finances.
Reeves had been considering reducing the 40% rate of tax relief that higher earners enjoy on pension contributions, in a move that could have raised £10bn a year. Public sector unions warned, however, that doing so would hit almost 1 million of their members, erasing much of the pay increases that the government has just agreed.
One government official told the Times, which first reported the decision, that it would have been “madness” to increase taxes on public sector workers in this way. The Treasury refused to comment on the budget.
Reeves has been weighing up a number of revenue-raising measures as she looks to avoid sharp cuts to public services, which had been assumed under the previous government’s spending plans.
One of them had been to cut the higher rate of tax relief on pension savings, which is currently enjoyed by those earning more than £50,270 a year.
A paper earlier this year by the left-of-centre Fabian Society recommended creating a single rate of tax relief for all earners, which could have been set between 20% and 30% instead.
Such a move would have disproportionately hit public sector workers, however, who often have more generous pension arrangements than those in the private sector.
Vishal Sharma, chair of the pensions committee at the British Medical Association, said: “Attacking our pensions in this way would completely reverse this progress [on public sector pay deals] by once again taking money away from doctors in a different way. Not only would this negate the recent hard-won pay rises but it would probably reignite the recent pay disputes that have been seen across the NHS.”
Other tax-raising options remain available to the chancellor, however, including reducing the amount that people can take out of their pension pots tax-free when they retire.
Reeves is also considering making changes to capital gains tax and inheritance tax. One option proposed by the Fabian Society is to levy inheritance tax on unspent pension pots, which can currently be passed on untaxed.
Treasury officials will continue to work on the main budget measures for the next few weeks until they finalise their decisions in the week before the announcement on 30 October.
This week, however, Reeves will have to give the Office for Budget Responsibility an indication of what she intends to do in order for its forecasters to create their first “post-measures” analysis, which will be presented to the chancellor next Monday.
One major decision still to be finalised is whether Reeves will change the official definition of government debt to allow her to borrow more without violating her own promise to have debt falling by the fifth year of the forecast period.
Britain’s defense sector vies for stretched finances
British defense officials are vying to secure more funding as Finance Minister Rachel Reeves’ upcoming Autumn budget risks exacerbating already beleaguered efforts to boost military investment.
Maria Eagle, the U.K.’s minister of defense procurement, joined a chorus of voices that called on the sector to prove that it could be more efficient under the new government, as the Treasury grapples with allocating its stretched finances.
“We’ve got to make sure that there is an understanding across government — and especially in the Treasury — that spending money on defense is a good way to spend it,” Eagle told a packed room of delegates at the Labour Party conference over Sept.22-25.
“Let’s try and make sure that we can persuade the Treasury that we’re good enough custodians of the 2.5% that we’re aiming at,” said Eagle, who assumed the post in July. “If we show we can spend the money better, we cut the waste, and we have a common understanding of what we need and how to get it.”
Prime Minister Keir Starmer in July reiterated his commitment to increase U.K. defense spending to 2.5% of gross domestic product (GDP) — a goal mirrored by many fellow NATO members — but he has not yet set a time frame for that objective.
Meanwhile, the war in Ukraine has cast a spotlight on deep inefficiencies within Britain’s defense sectors, provoking calls for reform.
A 72-page House of Lords report published Thursday last week warned of “burdensome bureaucracy” in military recruitment and “cumbersome” procurement processes. Unless “laser-sharp priorities” are set, even 2.5% might not be enough to meet the country’s defense needs, it said, adding that the government must acknowledge the essential need for higher defense spending and communicate that to the public.
The industry is now awaiting Reeves’ Oct.30 budget statement, during which she will provide an update on spending plans for the Ministry of Defense (MoD) and other departments over the coming years.
The chancellor has already made clear that there will be cross-department budget cuts and few, if any, giveaways, after saying her party discovered a £22 billion ($29 billion) “black hole” in the public finances and with national debt now running at 100% of GDP. Reeves’ predecessor Jeremy Hunt from the rival Conservative Party has denied the claims as “fictitious.”
The measures are expected to pile the pressure on already stretched military spending. The U.K.’s National Audit Office last year warned that the armed forces face the largest deficit since records began in 2012 — an issue exacerbated by inflation. As such, the MoD last month reportedly asked industry suppliers to identify areas for immediate budget cuts.
“The MoD already is in a budgetary crisis this year,” Malcolm Chalmers, deputy director general at defense and security think tank RUSI, said last week.
“The budget for this year is substantially overcommitted because of its significant pay rises for the armed forces, because of the rising cost of the nuclear program, and because there are a number of other programs which are unfunded,” Chalmers said.
A strategic defense review is now underway to identify shortcomings in the U.K.’s military capabilities, with Starmer saying in July that the overhaul should ensure the armed forces can counter rising geopolitical threats and that defence spending is “responsibly increased.”