LONDON: Britain’s opposition Labour Party vowed today to reverse the government’s planned pension changes, saying they were a giveaway to the top 1% of pension savers at a time when many households are being hit by tax increases and high inflation.
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.
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 (US$1.7 million) in their pension pot would pay a total of around £150,000 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 pensions bung for the 1%, a move that will widen the cost-of-living chasm.”
Hunt defended the changes, saying their cost was dwarfed by £94 billion worth of government support for households to soften the surge in the cost of living.
He added that the pensions changes were urgently needed to address a shortage of doctors. Some long-serving senior doctors have cut back their hours or retired early as they near the lifetime pension limit, adding to strains in the National Health Service (NHS).
“I don’t think it is the wrong values to support our NHS,” Hunt told BBC radio when asked about criticisms that the government was helping higher earners.
“If you’re asking what will have an impact on ordinary families up and down the country, it is getting their NHS operation done more quickly. And this is the simplest and quickest way to resolve that issue.”
Labour said it would provide a more targeted scheme for doctors.
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 from £40,000, combined with the scrapping of the lifetime allowance, would cost the government £1.2 billion.
The Resolution Foundation also said it could lead to an increase in employment of 15,000 – but at a cost of around £80,000 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.