Labour says those earning over £150,000 per year should only be able to claim 26 per cent tax relief on their pensions so cuts to tax credits can be reversed.
At a press conference yesterday, Labour leader Ed Miliband and Shadow Chancellor Ed Balls called on the Chancellor to reverse his decision made in last year’s Budget to allow the highest rate tax payers to claim the full marginal amount in pension tax relief. The policy of restricting relief was originally proposed by the previous Labour Government and would have affected anyone earning over £130,000. However, it was heavily criticised for its complexity and the administration costs involved and was axed by the coalition Government in favour of cutting the annual allowance from £255,000 tn £50,000.
Miliband said closing a loop hole which allows people to buy homes through an offshore company and avoid stamp duty would raise £1bn and fund a reversal of the “iniquitous” decision to take tax credits away from 200,000 people made in last year’s Budget.
Balls added that adopting a “fairer approach” to pensions tax relief would mean the Government could also reverse cuts to tax credits made in last November’s Autumn Statement.
Balls claimed Labour’s proposed pensions tax relief restrictions would have saved £4bn, compared to the £2.4bn saved thorough cutting the annual allowance.
He said: “Reversing this tax cut for people earning more than £150,000 would allow the Government to reinstate the cuts to working and child tax credits the Chancellor chose to make in his Autumn statement when he announced his borrowing plans were £158bn off track.”
He added: “It shows just how out of touch this Government is, that with all the pressures on lower and middle income families in our country, it is the very highest earners who have benefited most from their pension tax changes.”