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MPs call on Govt to review pensions tax relief cut

The Treasury Select Committee has called on the Government to monitor the effect of the removal of higher rate tax relief on pensions contributions and consider an alternative if it has a negative impact on pension savings.

In its Budget report published today, the TSC said the Treasury should consider introducing a cap on annual contributions as an alternative to scrapping higher rate tax relief.

It said: “We note that this Budget marks a departure from the long-standing principle that tax relief for pension contributions should be given at an individual’s highest marginal rate.

“We urge the Treasury to monitor the effect of this changes on pension savings and to keep under review the possibility that a cap on annual contributions might be a more equitable way of reducing the percentage of tax relief that benefits the highest earners.”

The TSC also called on the Government to report on the revenue raised from the 50 per cent income tax rate in the 2011 pre-Budget report and to assess the yield obtained from the higher rate against its disadvantages.

It added: “Finally, we were concerned that the Chancellor lacked a robust basis for selecting the threshold from which the new top rate of tax would apply and for choosing what that rate should be.”

The report also called on the Government to work up contingency plans to finance national debt if the gilt markets fail.

The TSC said the cost of financing debt could rise to “perilous levels” if demand for gilts dropped off.

The report says: “We believe there are strong reasons why the costs of financing the Government debt could well remain low. But if the gilt market were to lose its appetite for Government debt, which is by no means impossible, the cost of financing that debt could climb to perilous levels.”

The TSC also said there was little constraint on the fiscal decisions made by the Chancellor under the Temporary Operating Rule and called for an overhaul of the UK fiscal framework.

The report says: “It is clear to us that the only real financial discipline that is currently imposed on the Chancellor is the opinion of the gilt market on the sustainability of the public finances.

“We believe that the Chancellor should now engage in what we regard as a crucial debate about the future of the UK fiscal framework.”

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