No 11 in Pensions U-Turn
Faced with a backlash from Tory heartland ahead of June’s ‘remain/leave’ EU referendum in June, Treasury sources have confirmed that the Chancellor will not go ahead with a proposal to introduce a flat rate of pension tax relief in his annual financial statement on 16th March.
He had been considering the measure to pare up to £10 billion a year from the Government’s record deficit, but critics warned that at least half a million middle-income savers could have been thrust into a higher tax bracket overnight by the overhaul.
Analysts suggested that higher-rate tax payers could have lost up to 15% of their pension savings under the shake up.
Treasury sources said Mr Osborne had decided to clarify his intentions well in advance of Budget day because of the high level of speculation about the issue.
‘Having poked the Tory tiger, Mr Osborne may find his leadership ambitions further diminished’
The Chancellor is believed to have received fierce opposition from a number of Tory MPs and the Confederation for British Industry was understood to have been forcefully opposed to the measure warning that firms could suffer an additional burden as a result of a sweeping overhaul of the pensions system.
One option being examined by the Chancellor was a new ‘pension ISA’, but officials advised him that the change could lead to a drop in pension savings that would result in an overall fall in investment across the economy.
Minister of State for Pensions, Baroness Altmann, was opposed to sweeping changes, publicly voicing her support for keeping the current system.
“It’s clear the current system offers very good incentives to higher earners but is also clear that those who are not higher earners may need more incentives,” she said.
This is Mr Osborne’s second U-turn over a key Budget measure after he was forced to scrap tax credit cuts worth £4.4billion last year following widespread protests.
Having poked the Tory tiger, Mr Osborne may find his leadership ambitions further diminished following disappointment among the party grassroots about his support for Britain’s continued EU membership.