Budget 2023: Pensions tax cut for wealthy is wrong priority, Labour says

  • By Becky Morton
  • Political reporter

Image source, Getty Images

Labour has said it would reverse plans to scrap a £1m cap on how much workers can accumulate in their pensions savings before paying extra tax.

Shadow chancellor Rachel Reeves said the move, announced in the Budget, was a “tax cut for the top 1%” and “the wrong priority, at the wrong time”.

The government said the policy was aimed at stopping doctors and other professionals retiring early.

The plans are part of a wider drive to get people back to work.

In Wednesday’s Budget, Chancellor Jeremy Hunt announced he would scrap the pension lifetime allowance – the maximum amount of pension savings an individual can build up over their career without having to pay an additional charge. The current cap is £1.07m.

The annual tax-free allowance on pensions will also increase from £40,000 to £60,000.

The financial watchdog, the Office for Budget Responsibility, estimated the two policies would increase employment by 15,000 workers.

The combined cost will be more than £1.1bn a year by 2027/8, according to official estimates.

Ms Reeves said a Labour government would reinstate the lifetime allowance and create a targeted scheme for doctors rather than allowing a “free-for-all for the wealthy few”.

“We have consistently said there needs to be a fix for doctors,” she said.

“But you don’t need to have an across the board change for pensions that is helping some of the very wealthiest people.”

The party plans to force a vote on the issue when MPs debate the Budget measures in the Commons.

Labour said it would encourage doctors to stay in work by creating a targeted scheme, .

Mr Hunt defended not limiting the move to doctors, adding that it was “impossible” to know how many doctors would be encouraged to return to work or take on extra shifts following his Budget decision to lift the cap on the tax-free lifetime pension allowance.

The Chancellor told BBC Radio 4’s Today programme: “What we want to do is solve the issue for doctors.

“It is impossible to know the exact number, but what we do know is what doctors are telling us.

“We do know that we have a shortage of doctors and we know we have a very big backlog, and that is why we’ve decided this is a very important measure to get the NHS working.”

Mr Hunt pointed to Royal College of Surgeons statistics, saying the organisation had found that 69% of their members had reduced their hours because of the “way pension taxes work”

The announcement was welcomed by NHS Providers, which represents hospitals in England.

Chief executive Sir Julian Hartley said it would help “stem the flow of senior NHS staff either taking early retirement or not taking on extra work for fear of punitive tax bills”.

But the independent Institute for Fiscal Studies said the change would “encourage a relatively small number of better-off workers to stay in the workforce a bit longer” and was “unlikely to have a big effect on overall employment”.

The Resolution Foundation think tank, which focuses on people on low to middle incomes, described the policy as “hugely regressive and wasteful”.

Chief executive Torsten Bell said: “It’s a big victory for NHS consultants but poor value…

Read More: Budget 2023: Pensions tax cut for wealthy is wrong priority, Labour says

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