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Labour raises pressure on Govt over £2bn pensions tax leakage

Labour MPs have attacked the Government over the lack of a response to the accusation the Budget pension reforms could potentially deprive the Treasury of billions of pounds.

Speaking during the second reading of the Taxation of Pensions Bill, Labour MP for Middlesbrough South and East Cleveland Tom Blenkinsop said it was “profoundly worrying” the Government had failed to give an estimate of how much it expected to lose if people exploited a loophold to avoid paying National Insurance.

He referred to Corporate Adviser editor John Greenwood’s evidence at a Pension Schemes Bill committee meeting last week, where Greenwood explained how employees could avoid paying National Insurance by putting their income through their pension scheme.

Greenwood said if everyone exploited the loophole the Treasury would lose £20bn a year but that experts had estimated the figure would probably be closer to £2bn.

Blenkinsop said he found it “profoundly worrying” that the Treasury could not say what the possible impact would be.

He said: “We do not know what the implications of this are, what we do know is that the Treasury’s policy at the moment is not to respond to Mr. Greenwood.

“I think that is profoundly worrying if we’re potentially looking at quite a considerable amount of money – we’re talking about £2bn to £3bn if it’s 10 per cent – from the Treasury’s coffers.”

Labour MP for Edmonton Andrew Love added that the “most deeply worrying thing” during the Pension Scheme Bill evidence session “was the attitude of the pensions minister, who didn’t think there was a problem”.

Financial Secretary to the Treasury David Gauke claimed Greenwood’s figures were “based on some quite extraordinary assumptions” and that the Office for Budget Responsibility would be producing a cost estimate for the Autumn Statement. However, the Government has not provided its own estimates of the possible tax leakage.

Gauke said: “Mr Greenwood set out some eye-watering numbers in his evidence, but those numbers were based on some quite extraordinary assumptions as to behaviour.

”We don’t recognise some of the numbers that have been floated in terms of the cost here but at this stage numbers have not been certified by the OBR.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Yep good old salary sacrifice, which has been around for how long? Remind me as my memory is not what it used to be, was this loophole not around when Labour were in power?

  2. As Martin said salary sacrifice has been around as long as I can remember.

    It is quite worrying that our supposed betters weren’t aware of this perfectly legal way of arranging your tax affairs.

    The emotive use of ‘loophole’ suggests that salary sacrifice might be next on the radar for desperate administrations to make it look like they are doing something.

  3. Does the OBR or any other government body have any real idea of just how much money is channelled into pension plans by way of Salary Sacrifice arrangements? In theory, such arrangements are supposed to be reported to HMRC (I’d thought that such arrangements below a certain threshold [£8,000 p.a. rings a bell] are exempt though there seems to be nothing about this online) but I’d bet that most aren’t, especially when they involve irregular bonuses.

    In my experience, most employers take the view that SS is a private arrangement between them and selected employees. So what if the tax office asks whether any exist? Failure to report isn’t concealment of anything illegal so all the employer need do is say Oh, yeah, sorry, just an oversight and that’s that.

    It is a bit mean, though, if the employer refuses to allow the employee the benefit of his 13.8% saving in NIC. Most don’t but a few do.

  4. Julian I think the reporting bit was removed a few years ago which is why you can’t find any guidance on it now.

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