Coalition set to debate pension tax relief cuts

Chief secretary to the Treasury Danny Alexander has reiterated the Liberal Democrats’ commitment to scrap or further restrict higher-rate pension tax relief.  

In an interview with The Daily Telegraph, Alexander suggests the Government cannot afford to continue with the levels of tax relief offered under the current system.

He says: “If you look at the amount of money that we spend on pensions tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate.”

For those with “very large incomes who are paying very large pension contributions….. the country cannot afford to give you all the tax relief”.

A proposal to scrap higher-rate pension tax relief was included in the LibDem manifesto but did not make the coalition agreement.

Instead, the coalition Government announced new restrictions to higher rate relief such as a £50,000 annual allowance, introduced last April, and a reduction in the lifetime limit from £1.8m to £1.5m from this April.

Alexander told the Telegraph that scrapping higher-rate pension tax relief altogether would save the Government £7bn whilst scrapping it for those earning over £100,000 would save £3.6bn.

The coalition will meet this week to discuss tax plans ahead of the March 21 Budget and the Telegraph suggests Alexander will be pushing for those with incomes over £100,000 to have higher-rate relief cut.

Any such move is likely to face opposition from Chancellor George Osborne and Conservative backbenchers.

Alexander also told The Telegraph the LibDems would fight the next election with the commitment to raise the level at which income tax is paid to £12,500. It is current Government policy to look to increase the limit to £10,000. It will increase from £7,475 to £8,105 for the 2012/13 tax year.

Elsewhere, Treasury sources told The Sunday Telegraph that plans to introduce a tax break for married couples, included in the coalition agreement, would not feature in this year’s Budget.

The Telegraph also reports that the Government will consider a new tax avoidance crackdown which would allow HM Revenue & Customs to claw-back money saved from “’artificial’, but currently legal, tax dodges.”

The Sunday Times reports that Osborne is likely to push ahead with his plans to scrap child benefit for couples with at least one higher rate taxpayer with limited concessions for those earning just above the threshold.