Think tank The Fabian Society is targeting cuts to pensions tax relief and a reduction in the amount people can take in tax-free cash in order to fund extra spending in the next parliament.
The Fabian Commission on Future Spending Choices, chaired by former Treasury select committee chair Lord John McFall, published its final 2030 Vision report today.
The left-leaning think tank, closely associated with Labour, argues for a spending increase of 1 per cent a year, or £20bn extra, to be funded by better than forecast growth, higher taxes or slower deficit reduction.
It says higher taxes should be focused on the wealthy with cuts to pensions tax relief offering “large savings” which would only affect those on higher incomes.
It uses Pensions Policy Institute figures to show reducing pensions tax relief to 20 per cent for all, including those who pay higher rates of tax, would save £13bn to £16bn every year.
The paper also suggests the tax-free lump sum for pensioners could be capped at £36,000, which PPI figures show would save £2bn a year.
The commission says: “Sizeable savings could be made, for instance by reducing the tax foregone on highly regressive pension tax reliefs.
“Tax rises for higher income groups could make a significant contribution to paying for [£20bn more spending than currently planned] even if economic forecasts are not revised upwards.”
In its wide-ranging paper, the Fabian Commission also calls on all parties to review universal pensioner benefits and the triple lock on state pensions.
It says: “Our work has shown that even if spending in the first two years of the next parliament is higher than current plans, tough choices will be required.
“We illustrate this with one possible combination of social security entitlements: means-testing the winter fuel payment, ending the ‘triple lock’ on the state pension, extending recent disability benefit reforms to older people and taxing certain disability benefits.”