View more on these topics

Which Budget levers can Osborne pull after pension tax rethink?

BHD628 Multicolored levers on wall

Chancellor George Osborne’s decision to ditch a radical overhaul of pension taxation at the Budget could see him pursue alternative “nuclear” reform options to raise cash, experts warn.

Since July, the Treasury has been consulting on a move to either a flat rate of tax relief or a more dramatic change to tax pension contributions in line with current systems for Isas.

It is understood last week Osborne went as far as sending the flat-rate and pension Isa plans to the Office for Budget Responsibility to be costed before the Treasury issued briefings at the weekend that the plans had been dropped.

So what was behind the dramatic halt to preparations for reform? And where will the Chancellor turn on 16 March as he seeks to raise much needed funds?

The Daily Mail effect

Cicero executive director Iain Anderson points to “the Daily Mail effect” as critical to the Treasury’s decision to park radical reform.

He says: “The headline that Osborne wanted was about a massive boost for Middle Britain, with the tax advantages of higher earners extended across the piece, but concern has been increasing for a while that this wouldn’t be the headline Osborne would get.

“While the decision might have come late last week, nervousness around the potential changes has been gathering since the early part of February, and it’s been ramped up as a result of the EU referendum.

“Politically and mentally, there is a commitment and an excitement around real fundamental reform, but the context of the referendum and the management of Government right now has made it harder.”

MRM head of public affairs Havard Hughes says the move shows concern around the perception of the Government among older voters in particular.

He says: “Older people are more likely to vote, and the research suggests older voters are much less supportive of the EU generally than the younger voters are.

“The Chancellor realises if you aggravate those voters, then they are not going to back you when it comes to the referendum.

“This was all about a perceived risk that change could make people anti-Government in the referendum.”

However, Hughes adds the Chancellor’s desire to move on from the events of the last week increases the chances of a Budget surprise.

“Osborne will want to pull something out of his hat to move on from this point, so a lot will depend on how he manages to discuss it in the Budget, and what surprises he can bring through.”

The rabbit in the hat

Earlier this month the Chancellor told the House of Commons a reduction in the top rate of income tax had raised substantial sums for the Exchequer.

He said: “Numbers from HM Revenue & Customs, which for the first time show the income tax data for 2013/14 when the 50p rate was reduced to 45p, show there was an £8bn increase in revenues from additional-rate taxpayers.

“This completely defies the predictions and shows what we have are lower, competitive taxes that are paid by all.”

Hargreaves Lansdown head of retirement policy Tom McPhail says the Chancellor’s comments make a direct pledge to move to a 40p rate more likely, as it will be seen as a “win-win” for both savers and Osborne’s efforts to reduce the deficit. However, he adds the imm-
ediate need for progress means Osborne may also be minded to introduce a National Insurance charge on employers’ pension contributions.

“If the tax relief debate is on hold, Osborne still needs to raise that money. The only really rewarding target available to him appears to be NICs, and he could effectively says that NI is now payable on employer contributions.

“That would be a nuclear option. It would raise a lot of money, and lots of businesses would be pretty unhappy. But I don’t think Osborne has any options that are cost-free.”

AJ Bell chief executive Andy Bell says the Chancellor may seek to extend the Conservatives’ controversial annual allowance taper to lower earners.

Under existing plans, those with adjusted income over £150,000 will see their annual allowance reduce from £40,000 to £10,000 for those earning over £210,000 from 6 April.

Bell warns Osborne could lower the point at which tapering begins to either £125,000 or even £100,000, describing such a move as a “retrograde step”.

He says: “If I was desperately looking to save some money on tax relief, I would go after that.
“Higher-rate tax relief would still be available, but it would limit some of that perceived generosity. Plus it could have effect from midnight on 5 April and it will limit people planning to avoid it.”

Similarly, he notes current carry forward rules allow the annual allowance to be calculated over a maximum of three years, meaning savers can make a substantial contribution in one year without breaching limits. He says: “They could reduce that down to two years instead of three. That will start hurting self-employed people who get to look at their earnings some time after the year end.”

When, not if

Nonetheless, few suggest the Chancellor will not return to his ambitions to reform the broader system of tax relief, perhaps as soon as the Autumn Statement.

Hughes says: “These changes are probably things they want to introduce to the market, and still plan to introduce because the Chancellor is desperate to make some progress on eliminating the deficit.

“What you have here is a situation where for political reasons the changes are now on pause, but it’s a question of when, not if.”

Anderson adds the Chancellor is likely to make this clear from the dispatch box next week.

He says: “We may end up with a line to the effect of ‘we have had lots of responses but we are going to continue to look at reform’. As long as Osborne remains Chancellor, I don’t think this will go away.”

Adviser views

Jonothan McColgan, director, Combined Financial Strategies

We would all be happy for a bit of respite on pensions at the Budget, so anything that stops the Chancellor from making silly short-term decisions has to be a good thing.

David Hearne, wealth management adviser, Satis Asset Management

I would like to see the Chancellor scrap the reduction of the personal allowance which takes place above £100,000 and sees people paying up to a 60 per cent tax rate. At the moment we have a lot of people who are deliberately generating £99,000 of income to avoid that band, but you could simplify that and generate more revenue.


This is not the first time the Conservatives have been forced into an embarrassing U-turn by their insolent backbenchers.

And it comes because pension tax relief is not the only game in town. Indeed, for many MPs, it is a lesser concern.

David Cameron has been continually battered in his efforts to secure a renegotiated relationship with the EU.

First the Prime Minister conceded on the wording on the referendum question, switching from a yes/no question to leave/remain. And then he backed down over timing, guaranteeing four months of notice to ensure the neutrality of the political machine in the immediate time around the vote.

Since then, it’s become clear Cameron and Osborne have been yet further surprised by the scale of the opposition on Europe.

So while backbenchers are uneasy with plans to cut tax relief to higher earners, the real goal for Osborne and Cameron is winning some good favour before 23 June and shoring up votes for the Government this side of the referendum.

Is it any wonder that Cameron has reportedly been warning his Chancellor not to rock the boat in the Budget, by far and away the biggest political event before the vote?

Of course, the question remains whether this pause on pension reform will be enough to win over a growing portion of “Outer” MPs, especially those who question the decision to block Brexit campaigners from using Government resources.

And the Chancellor also has a habit of pulling the rug from underneath us in each Budget.

So there may be more to come next week from a man whose political ambitions extend to more than just Number 11 Downing Street.

Secure just enough backbench goodwill and Osborne could soothe some of the anger over Brexit, while also improving his own long-term prospects.

The alternative? As one Westminster insider told me this week: “If the Outs win, we could easily see Boris Johnson as Prime Minister by Christmas.”

Marks Sands is politics reporter at Money Marketing



NHS Trust referred to regulator over cash-for-pensions deal

An NHS Trust has been referred to The Pensions Regulator over a deal to offer nurses better wages in exchange for opting out of a pension scheme. According to the FT, the NHS Pension Board has formally raised the issue with the regulator over concerns relating to south-east London’s Oxleas NHS Trust. Under automatic enrolment […]


Osborne prepares to unveil pension Isa in Budget

George Osborne is set to announce sweeping changes to pensions tax relief that will see withdrawals made tax free. According to The Telegraph, the Chancellor is preparing to unveil the controversial pension Isa in his 16th March Budget. Under the plans up front tax relief would be removed entirely and replaced with a 20 per […]

Tony Wickenden: Casting the anti-tax avoidance net wider

The recently published disclosure of tax avoidance schemes regulations (The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) (Amendment) Regulations 2016) give us the new hallmarks for arrangements involving standardised tax products and loss schemes, as well as an update on the planned next steps for inheritance tax schemes. Broadly speaking, the new regulations seek to expand […]


Old Mutual Wealth directors exit

Old Mutual Wealth chief information officer Jeremy Charles and customer director Carlton Hood are stepping down from their roles. Charles is to retire in the first half of this year, which the firm says was agreed when he joined in 2012 while Hood’s role is to be made redundant. Hood – a former Channel 4 presenter […]

Tax year-end planning with the family

From the Technical team at Prudential Let’s face it, many aspects of financial planning involve a lot of technical detail. At our face-to-face events, we’ve had great success bringing these technical topics to life through the use of practical case studies. Meet the family Prudential’s Planning Matters hub brings together a fictional family and explores […]


News and expert analysis straight to your inbox

Sign up


There are 5 comments at the moment, we would love to hear your opinion too.

  1. Of course if he was truly radical he could reduce the AA to £20k. He could sweeten the pill by abandoning the tapered AA, allowing carry forward for up to five years and then with a flourish state, “now that I have limited the amount that can be invested, which is still well above the average contribution I can today announce I am abolishing the Lifetime Allownce”

  2. Decision? Which “decision” was that? All I have seen so far is media quoting Treasury sources. Having said that, I suspect John’s comment above might be prophetic.

  3. It’s interesting and perhaps a bit unsettling to read that Cameron has been warning his Chancellor not to rock the boat in the Budget, on the grounds that if it’s not a nice one it may upset the vote he wants in respect of Britain’s continuing membership of the EU. The two issues are completely separate, yet the way that Cameron’s playing his hand suggests that he’s trying to use one to influence the vote on the other, as if it’s a case of the Government vs. the Outers, even though a large proportion of the Outers are Conservative MP’s. Does he think he can bribe the electorate round to his way of thinking with a soft budget? It certainly looks that way to me and makes me even more determined to vote OUT.

  4. Well there is one lever he could pull that will bring in extra cash in the short term and at the same time do something for house price affordability and first time buyers.

    Double the tax on buy to let income and at the same time impose rent control.

  5. Christopher Petrie 13th March 2016 at 7:30 am

    Rent controls were tried in the 1960’s. They were abolished because landlords were unable or unwillng to maintain their property properly.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm