Ed Balls' proposal to engage in another tax raid on pensions could cause more problems than it solves, writes George Bull
NEWS THAT Ed Balls is proposing another Labour tax raid on pensions brings back to mind one of Gordon Brown’s early actions as chancellor when his own pensions tax raid – affecting all employer and personal pension plans and therefore most potential private sector retirees in the UK – raised billions for the Exchequer at the expense of people’s pensions.
With memories of the Brown tax raid still lingering, it’s odd that Ed Balls seems to be leading on a Robin Hood-style approach, robbing what he defines as the rich to help those without jobs.
Of course, every reasonable person would like to see as many people as possible benefiting from regular work. But why is it that politicians seem incapable of leaving pensions alone? Every year (twice in some years), new pension tax changes create further uncertainty and difficulty for those doing their best to plan for their retirement. The latest proposal will restrict tax relief to 20% on pension contributions of up to £40,000 per annum paid by individuals with taxable income of more than £150,000.
Two things are striking about these figures.
First, this will cost each person affected by the proposed change up to £10,000 per year in extra taxes. It will raise an estimated £1bn. With 129,400 people out of work for 24 months or more, that equates with funding of £7,728 per job which might be created. If the scheme works as intended by Mr Balls, that means each top rate tax-paying pension contributor will support new temporary jobs for 1.3 long-term unemployed.
Second, there is no suggestion that the proposal will affect people with marginally less taxable income. On that basis, whereas a person with taxable income of £150,001 will suffer additional taxes of up to £10,000, a person earning £149,999 will not. Another fiscal cliff?
George Bull is a partner and chair of the professional practices group at Baker Tilly.