Conservative proposals for cutting tax on savings have come under fire from a leading think-tank as being regressive and resulting in tax loopholes.
Under plans outlined in the Tory manifesto, tax on savings and dividends would be abolished for all but higher-rate taxpayers. The Institute for Fiscal Studies says this is the single most expensive element in the party's overall tax-cutting policy.
Describing the proposals as radical, the IFS concludes that the overall distributional imp-act is “regressive”. According to its projections, the richest 10 per cent would see gains of 1.1 of disposable income, whereas the poorest 30 per cent would hardly benefit at all. However, it admits the Tory reforms go some way to correcting the distortion of double taxation on savings.
It says people investing inheritances of up to £242,000 would benefit “substantially” over earners. The self-employed could also avoid income tax by remunerating themselves with shares rather than wages.
Conservative social security spokeswoman Jacqui Lait says: “At the moment, people have to pay tax twice on any income they choose to save. Our proposal will remove the penalties on people with modest incomes who want to save and provide for their future.”
IFS senior research economist Carl Emmerson says: “Essentially, you need to be an income tax payer and to have saving to gain from this policy. There is also an issue of fairness here. If people were more efficient with their money, they would not have to pay this tax.”
Holden Meehan director Richard Hunter says: “Loopholes need to be addressed but we need also to actively encourage saving. If something is done, it needs to be done well so that most people can benefit.”