The Chancellor is rumoured to be considering a long list of radical changes ahead of his Autumn Budget including:
• Removing pensions higher rate tax relief
• Making changes to the state pension triple lock
• Increasing corporation tax from 19% to 24%
• Increasing the rates of Capital Gains Tax to bring them in line with income tax
• Revamping inheritance tax
• Increasing income taxes for the self employed
“The Treasury’s pre-Budget kite-flying list of possible tax increases or benefit cuts would impact different people and businesses in different ways. While no politician wants to make unpopular announcements, the Chancellor can’t avoid upsetting some groups as he starts the process of getting the UK’s finances back on a sounder footing. He does, however, have control over how radical any particular change is, how he mixes and matches in as fair a way as possible, and how quickly changes are brought in.”
Pensions tax relief
“Ending higher rate pensions tax relief would be a particularly harsh change for anyone contributing to a pension and paying 40% income tax or above, many of whom don’t regard themselves as ‘high earners’. Cutting the Government top-up from 40% to 20% would half this important incentive to save for retirement at a time when it’s more important than ever to be saving for an uncertain future. A more modest reduction to say 30% would still mean the Chancellor collects significantly more income tax, without risking higher rate taxpayers thinking twice about their retirement savings.
State pension triple lock
“Simply scrapping the triple lock would be seen as a major U-Turn on a key Manifesto Commitment which would go down very badly with pensioner voters. But leaving the formula unchanged when average earnings are falling this year and may rocket next, could grant state pensioners a huge increase in 2022 which would not go down well with the working age population who pays for this through National Insurance. Adjusting the formula for example by averaging out earnings growth over 2 years could strike a fair balance, while retaining the principles.
Timing
“With the full economic and financial implications of COVID-19 still far from clear, the Chancellor could legitimately defer announcing too many radical changes in November. Some changes such as to pensions tax relief are complex and launching a consultation in the Autumn on a variety of options could make sure any changes work across the full range of pensions, including defined benefit schemes, and avoid unintended consequences.”
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