Coffee House

Thatcher’s favourite think tank backs Danny Alexander

26 November 2012

In the run-up to the Budget in March, Danny Alexander was pushing for the abolition of higher-rate relief on pension contributions, which would save the government £7 billion plus a year. George Osborne didn’t include it in his Budget, but today the Liberal Democrat gets support from a perhaps unlikely quarter: the Centre for Policy Studies. Echoing the Chief Secretary to the Treasury’s analysis, Michael Johnson’s CPS report says:

‘Today’s tax-based incentives to save for retirement are hugely expensive and, worse, ineffectively deployed. Skewed towards the wealthy, they do far less than they should to minimise pensioner poverty. Furthermore, they do little to catalyse a savings culture amongst younger workers, thereby exacerbating the looming generational inequality.’

Johnson recommends abolishing the higher-rate relief as part of a larger reform of pension tax reliefs. And indeed the CPS did suggest scrapping it back in February, as one way of paying for a corporation tax cut.

Osborne may have rejected it then, but if he’s looking for more savings to keep his deficit reduction programme on track, this is one of those rare policies that would please both the Lib Dems and Thatcher’s favourite think tank. On the other hand, the Chancellor might be afraid that any tax change with ‘pension’ in the title — even one that doesn’t affect pensioners, and only affects high-earners — risks repeating the ‘granny tax’ headlines that followed the Budget.

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  • TomTom

    but of course Danny Alexander is in clover…..

    “Just 15 years’ work could build up a pension of £24,000, a
    recent FT assessment noted, whereas private sector employees would have
    to amass £700,000 to generate the same income when they retire at 65.
    Taxpayers contribute three times more to this group’s pensions than its
    members do themselves. And should they die, their spouses receive a lump
    sum of four times their annual salary, and an annual income of
    five-eighths of their pension.”

  • Colonel Mustard

    Dancing around with semantics to connive more and different ways to steal from us to pay for a bloated state so that it can invent more ways to push us around. Micro-tweaking instead of principle. The mugger says he is going to leave money in my wallet to get home and that is a “break” for me or a “cheque”. Obscene. Obscene the way that socialism has so advanced in this wretched country that the private affairs of gentlemen are picked and pored over by the grasping bean counters of the profligate state.

  • Coffeehousewall

    In what crazy world is a tax-rise called a ‘saving’? Oh, yes, in a socialist one, where all national income belongs to the State.

    Stop wasting money on things that we can’t afford, don’t need and don’t support, then there would be no need to tax us further.

  • Noa

    “…if he’s looking for more savings to keep his deficit reduction programme
    on track…”
    He could start by oh, cutting the vanity of foreign aid, or charging non contributors for access to public services. Even simply cutting public sector expenditure across the board by 1% per annum would deliver the target savings and more.
    Another left driven, statist pensions fund tax grab is an admission of failure which will further alienate core supporters, leaving Osborne to take the blame for the fiscal malignities of the previous Labour government.

  • Memory babe

    The whole A-day thing in 2006 was just so obviously too generous even at the time

    In 2010 George Osborne cut the maximum amount that could be relieved by pension contributions in one tax year from £215,000 to…..£200,000 because you can use three prior years’ unused relief in one year

    Or putting it another way using a £50,000 pension allowance for 20 years an additional rate tax payer can save £450,000 in income tax

    It really just makes higher rate income tax optional for high earners…

    …people who have the highest capacity to save anyway

    Not a very wise use of several £ billion of government spending

  • Fergus Pickering

    Seems an excellent idea. What is the downside? These people are rich and they will continue to put money into their pensions without 50% relief. Of course they won’t like it but they will put up with it. I mean what are they going to do? Riot in the streets? I don’t suppose the Daily Telegraph will like it but I think George Osborne can bear that.

    • an ex-tory voter

      Exactly the attitude which is resulting in an exodus of entrepreneurial skills from the UK. Yes, people already domiciled here and in receipt of high value pensions will probably put up with it. But, the wealth creators are more than able to find ways of relocating themselves, their wealth and most importantly their businesses to less avaricious places. Success and wealth are “dirty words” in the UK nowadays. We are “killing the goose” and the price will not be paid by the rich, as ever, it will be “paid by the poor”.

      • HooksLaw

        Its a reasonable idea to give tax breaks to encourage saving for pensions. But it seems to me its not unreasonable to limit the allowance to only encourage a pension level that would not but a burden on future welfare payments.
        The problem may be that the higher rate starts too low.

        • TomTom

          It is not reasonable to defer income best take it all now in times when money is debased and let City Pension Funds collapse rather than buy Gilts

      • Fergus Pickering

        So, my friend, all the rich are all those with entrepreneurial skills, are they? People like Lord Patten, the Governor of the Bank of England, the Head honcho at the Beeb, another dozen honchos at the Beeb, higher grade civil servants, The Duke of Westminster, the late Jimmy Savile, those people. eh? ,

    • TomTom

      Why ? Pensions are a really bad investment with poor returns and crappy Annuities. Private Sector Pensions are based on Annuities – Public Sector pensions are not. Remove tax relief and it makes more sense to take it ALL as salary and let the State pay for pensions

      • Fergus Pickering

        But he is not removing tax-relief. Just higher rate tax relief. There is still tax relief at the lower rate for everybody. How big a pension do you require? You can’t take it with you, you know. The point of a pension is to keep the old from want, not to keep them filthy rich. The avarice and greed is not George Osborne’s but that of the overpaid whose (mostly ill-gotten) gains he is removing for the greater good..

        • TomTom

          No. It is a Subsidy on the City like most tax allowances whether ISAs or TESSAs or MIRAS or whatever. Pension Funds are stuffed full of Gilts at 300 year highs and when Interest Rates rise Pension Funds will go bust. They are simply means of recycling Incomes into Government Bonds and Equities – if there is no difference between Income Today and Income Tomorrow Long Term Savings will collapse.

  • the viceroy’s gin

    Will this LD ginger rodent even be around 2 years from now? No? Then why worry what he’s jabbering?

    If the Cameroons are looking for a tax to increase, let them stand up and ask for it. No need to give them cover while sprinkling some Thatcher cachet on it.

  • Fernando5

    Why not abolish all tax relief on pension contributions, but make the pensions tax free? This would give an immediate boost to the Treasury.
    In effect, it would be the similar as someone putting their money into ISAs and then taking it out later.
    The problem with Alexander’s scheme is that many middle or high income earers would have their income taxed twice: once when they earned it and again when they took it out as a pension.

    • Andy

      Better still lets just have a Flat Tax.

    • TomTom

      That is the German System because their Civil Servants get non-contributory pensions and tax-free pensions paid out

  • TomTom

    The principle that Pension Contributions are tax-deductible and Pensions are taxed is coming under pressure. To impose tax on contributions and tax inside the pension fund on dividends then to tax the pension and annuity itself should lead to the total collapse of long-term savings now Annuity Rates are to be gender-equalised and returns are paltry under QE. It looks as if the Cult of Equity is well and truly dead and that Bank Shares in Lloyds TSB and RBS will be in State ownwership forever.

    Only the Public Sector will offer Non-Contributory Pensions where tax relief is not an issue

    • dalai guevara

      One-sidedly favouring one section of society with 40% tax relief (this is not your money) whilst offering everyone else only 25% or less, would only widen the income inequality that is measurable in Anglo America today.

      • TomTom

        Bring in Flat Rate 50% Tax on ALL incomes so tax relief is equal and tax paid on pensions is equal

        • dalai guevara

          Adjusting taxation as you describe it falls short of accounting for the fact that a vastly larger amount of tax (VAT) is not an ‘equal’ affair either. May I give you an example: although I would be prepared to pay my fair share to the treasury, after eight pints in the pub, I just could not face the fact that I had not yet reached my deserved tax footprint…

          • TomTom

            When you add Beer Duty taxed on Wort with no allowance for wastage you find beer tax in the UK is huge compared to Germany……VAT is not larger than Income Tax but ironically is levied on such things as lawyers’ fees when you need to defend yourself against anyone taking you to court

            • dalai guevara

              To avoid confusion, VAT is NOT levied unless you are a Fat Albert.

              • TomTom

                VAT is levied on clothing, telephone charges, many food items, parcel delivery, ….your point is ?

                • dalai guevara

                  That in a base load scenario (everyone needs to eat, cloth themselves, fill up the car), the levy is disproportionate.

    • telemachus

      Yes but why should the rich have a 50% contribution from the Treasury to their already impossibly high pensions while you and I get only 20%?

      • HooksLaw

        That’s shut him up, and i’m not a socialist. In fact if some of the money were to go to help the lowe rpaid with their pensions it would be a winner, as well as reminding everyone about how Brown ruined the common man’s pension.

        As it is the BoE say
        ‘The rise in asset prices as a result of quantitative easing consequently also raises the value of the pension pot, providing an offset to the fall in annuity rates. The impact of quantitative easing on those approaching retirement is thus more complex than it seems at first blush.’
        ‘…close to 60% of the assets held by company pension schemes have
        seen very large increases in value in the period since asset purchases
        began. That rise in values continued over the shorter period since asset
        purchases were resumed in October of last year.’

        • TomTom

          So what Asset Prices are rising through QE other than BTL ? Bond Prices are at 300 year highs which means they have a long way to fall with huge capital losses

        • TomTom

          “That’s shut him up, and i’m not a socialist.” You are certainly stupid enough to be a Socialist so you might as well sign up

      • TomTom

        Why should they pay 50% and get NO tax allowances on incomes of £150,000 when Germans don’t pay 45% Tax until 500,000 Euros ?

        • Andrew Meldrum

          technically, its 50.5% including ‘solidarity tax’. And you only get the 500k tax band if you are married and your partner doesn’t, because you can share tax bands in Germany. A single person pays 50.5% at 250k Euros. the 42% band below kicks in at 50k euros, or 100k if you’re married. Essentially, the big difference is the marriage recognition. Ignore that and our bands aren’t dissimilar.

          • TomTom

            The allowances however are dissimilar since Pensions are tax-free unlike the UK and the Solidarity Tax applies to businesses not just individual households…….

      • rubyduck

        How is it a contribution ? A mugger choosing not to nick your iPhone isn’t contributing an iPhone.

        We might as well say that you already have a 30% ‘contribution’ from the Treasury on your taxable earnings in addition to the ‘contribution’ that is your personal allowance.

        • telemachus

          Glad you can afford an iPhone
          Most pensioners will never be able to do that with the exception of the rich folk with the 50% Treasury contribution

          • TomTom

            Really ? It costs about the same as a BT line rental and iPhones are most common among people on welfare ironically – must be the icons for the illiterate that appeal

            • gladiolys

              “iPhones are most common among people on welfare”… and where did you find that little nugget of dis-information? Apple, maybe? The DWP? They’re wasting money on who uses what phone among people on welfare?

              • TomTom

                Observation gladiolys, I clearly have more contact with people whose days are filled with leisure and the need for iGadget Stimulation… really should move to the more “challenging” and “vibrant” parts of the country to broaden your sadly restricted horizons

                • gladiolys

                  You ask everyone you see with a iPhone if they’re on welfare or do you just make assumptions?

                  As for your assumptions about me, I volunteer at a credit union in a central London borough with high levels of poverty… people turning up to take the last £2.17 out of their account to get through the day. I’d say that was challenging, if hardly vibrant, but these people are invariably polite. I don’t ask what phones they use but the most numerous I have seen people using are standard Nokias and Blackberrys.

                • TomTom

                  Blackberries are good especially the £5/month extra on the monthly charge to use BBM…….I would like to think everyone with as iPhone is on welfare – especially the 4S……but I do know people with them who probably work for a living……then again you do learn a lot in Carphone Warehouse from the staff about contract users…..and I am sure they are very polite as you put it……

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