Finance minister Jeremy Hunt surprised his Conservative Party by announcing in a budget statement on Wednesday that he would no longer impose tax penalties on lifetime pension contributions beyond a threshold of around 1 million pounds. Hunt said the reform was part of his bid to keep more older people in work and address a shortage of workers in Britain.
The Labour Party, which is well ahead of the Conservatives in opinion polls before an election that is expected in 2024, said the move was the "the wrong priority, at the wrong time, for the wrong people".
Labour said the policy would mean that people with more than 1.4 million pounds ($1.7 million) in their pension pot would pay a total of around 150,000 pounds less in tax, at a time when basic rate taxpayers are facing higher tax bills.
"The budget was a chance for the government to unlock Britain's promise and potential," Rachel Reeves, Labour's would-be finance minister said. "But the only surprise was a 1 billion-pound pensions bung for the 1%, a move that will widen the cost-of-living chasm." Labour said it would provide a more targeted scheme for doctors. Some long-serving senior doctors have cut back their hours as they near the lifetime pension limit, adding to strains in the public health service.
The Resolution Foundation, a think-tank which focuses on issues facing low- and middle-income households, described the tax change to discourage early retirement as hugely regressive and wasteful. It said raising the annual tax-free pension contribution allowance to 60,000 pounds from 40,000 pounds, combined with the scrapping of the lifetime allowance, would cost the government 1.2 billion pounds.
The Resolution Foundation also said it could lead to an increase in employment of 15,000 – but at a cost of around 80,000 pounds per extra worker. Even that employment gain could be overstated as the support could "actually encourage some people to retire earlier than they otherwise would have done," the think tank said.
The focus on tax support for the wealthiest had echoes of
the criticism that met the "mini-budget" of former Prime
Minister Liz Truss and her finance minister Kwasi Kwarteng in
September. They were later forced to reverse their plan to scrap
the top rate of income tax for Britain's highest earners.
($1 = 0.8285 pounds)
(Reporting by Kate Holton
Editing by William Schomberg and Toby Chopra)
