Work and pensions committee chairman Frank Field has proposed cutting pension tax relief to fund delays or reductions in the planned cuts to tax credits.
Speaking in a debate in the House of Commons yesterday, Field suggested the Government could either target a smaller budget surplus by 2020 or introduce a flat-rate of tax relief for pensions to pay for an easing of the tax credits cuts.
A Treasury consultation on reforms to the way pensions are taxed closed on 30 September. The Government is set to provide a full response to the consultation in next year’s Budget.
Field said: “I am not advocating that we should abolish it [pension tax relief] overnight.
“I do not think that we should treat people higher up the income scale in the same horrible way that the Government were proposing to treat those on tax credits. When Governments start changing incentives, people need to have time.”
The Birkenhead MP argued that the abolition of tax relief would raise £34bn, while introducing a flat-rate set at 20 per cent would raise £10bn.
He said: “I do not think that this Government have taken into account the resources they are beginning to unlock now that the vast majority of people are going to be given a pension that will take them off means-tested assistance.
“Therefore, the reasons for bribing people to save in particular ways fall away, and that begins to unlock huge sums of money.”