The Treasury is refusing to review possible tax avoidance from new pension freedoms, claiming it would be “counter-productive” to draw attention to loopholes.
In a tabled amendment to the Taxation of Pensions Bill, published last week, Labour called for a review of pension freedoms next year focusing on possible tax avoidance.
From April anyone aged 55 or over could use pension salary sacrifice to pay no national insurance and income tax and then withdraw the money from their pension pot the next day. Anyone who accesses pensions flexibly will see their annual tax relief allowance drop from £40,000 to £10,000 but experts still predict the loophole could create a £2bn loss to the Treasury.
Labour has repeatedly pushed the Government to examine how the new freedoms could change behaviour and whether individuals could use them to avoid tax.
Responding to the opposition amendment this week, Treasury financial secretary David Gauke refused to review tax loopholes claiming it would be “counter-productive”.
He said: “The publication of detailed behavioural analysis relating to tax measures has the potential to be counter-productive, because it can itself alter behaviour.
“For example, if we put out analysis suggesting a particular course of action that people could take to minimise their tax bill, that would draw attention to that particular behaviour. It clearly would not be responsible to do that.”
He added: “That is a general and long-standing approach that the Treasury has taken with regard to detailed behavioural analysis. That is not to say that we do not take account of behavioural effects when calculating the costings that we have published—of course we do.
“The analysis is based on those behavioural effects, but, as I said, if we start to break down that analysis into every small detail, that can be counter-productive.”
Gauke repeated his warning that he would monitor the tax impact closely and said analysis would be published in the normal way. Conservative MPs suggested the Treasury select committee or Public Accounts Committee could review the impact of the reforms.
Responding for Labour, shadow Treasury financial secretary Cathy Jamieson said: “I do not think that any of us would want the publication of material to encourage or allow people to go down a line that meant that they avoided paying the tax that was due—far from it.
“However, as we have said repeatedly during debates on the Bill, some behaviours might lead to unintended consequences.”
The amendment was defeated by 10 votes to six at House of Commons committee stage of the Taxation of Pensions Bill.
Earlier this week, the Government U-turned on “unworkable” demands that savers had to inform all pension providers they were accessing their pot flexibly within 31 days.