This morning's Telegraph Business newsletter features these comments:
This is not the restriction on pension tax relief for the wealthiest that I propose in the Taxing Wealth Report, but it would be a start. I would simply eliminate all higher rate tax relief instead, raising £14.5 billion as a result. This proposal does, instead, raise a much smaller sum.
There are a number of issues to mention here.
First is the fact that this might even be under discussion.
Second is the fact that the move is so timid, and retains as a result a massive inherent bias towards the wealthy.
Third, there is the framing. This will apparently ‘cost' the wealthy money when it in fact removes a subsidy they have unjustifiably enjoyed.
Fourth, there is no link between this and the dominant issue of the day, which is the relief of child poverty. The Telegraph is howling at the possibility of reducing a massive state benefit for the wealthy, but not at the failure to provide benefits for children in need.
And sixth, let's see if this happens. I suspect the story is well sourced. A leak has happened. So, will Reeves do it? I doubt it. Time will tell.
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Once the idea that tax relief does not automatically happen at your marginal rate it won’t be long before it gets down to “basic rate”…. IF Reeves does actually make this change. So, come on, get on with it!!
What I fail to understand is the “dance” we have to go through. We know the Child Benefit cap WILL go eventually… so why the pantomime? We know (I hope) that Pension tax relief will be curtailed… so why the leaks and delays?
All of it is silly games
They have a super majority
Use it, FFS
“…All of it is silly games
They have a super majority
Use it, FFS”
What for? To tighten-up the rules on fox-hunting?
There is precedent…….
As I recall MIRAS (mortgage interest relief at source – full deduction against income at marginal rates -essentially a tax subsidy to people who could afford a mortgage) went the same way. Restricted in stages by the Conservatives from 1994 until the residual relief was abolished by Labour in 2000.
Thank you.
Fun fact: Lawson was minded to abolish MIRAS in the late 1980s. Carol Thatcher then bought a flat in London and, upon hearing Lawson’s musings about the forthcoming budget, Maggie Thatcher went bonkers, threatened to sack Lawson and threatened to deliver the budget herself as first lord of the Treasury. No 10 and Treasury officials then scrambled to get confirmation that Lawson was still chancellor.
As I understand it, MIRAS was introduced in 1983, and the abolition started after Thatcher left office, but it supplemented long-standing tax rules allowing income tax deductions for mortgage costs since the 1960s, and before then for interest on all personal loans (at a time when few could afford to borrow, or persuade a bank manager to lend). I may be wrong, but I suspect this relates to charges on income.
There was a special mortgage regime – the option mortgage – from the 1960s to the 1980s that more explicitly gave a direct subsidy to mortgage lenders (and indirectly to borrowers).
The cost of MIRAS spiralled from a couple of billion to nearly 8 billion pounds per year so you can absolutely see the reason to restrict and then abolish it. Why should the tax system privilege people buying with mortgages over those renting?
Thanks for your 2,500th comment
Jeepers!
Thank you for providing this forum. Not least for the contributions of other commenters.
I think the bigger story is how weak and feeble they are. But then are they? I am minded to think the labour party is now owned by the ‘one nation’ (laughable) conservatives. Their loyalty was always to the wealthy when the push came to the shove.
But at least with those people they were honest. You knew who they were.
The SS Starmer brigade are completely dishonest. I detest them entirely.
This shows she has read the Taxing Wealth Report”. Well done Richard. It’s great to see all the original thinking and deep analytical work finally achieving real influence. You are a true voice of the left and inspiration to us all. Carry on the good work!
This is weird Emily. 7 minutes later you appeared here again, as Peter, being thoroughly abusive. Trolling is very easy to spot.
Many a true words spoken in jest, “Emily”
I have emailed my new MP about this. I pointed out that the tax relief for higher rate tax payers on pension contributions is a gift from the country. They (like anyone else paying into pension schemes) already get a 20% gift from the country. I finally asked him this question to ponder:
So do you really want to keep this largesse for the richest so that you can keep penalising the poorest families?
Thanks
I actually got a reply – despite an earlier auto-response suggesting it might be a while as they expect to be snowed under with emails and time constraints due to finding out where everything is.
Unfortunately it is the usual fob off, saying yes we consider child poverty important, and we will do something about it as soon as we can find the money. He did not directly address your suggestion I forwarded, about cancelling the tax relief for higher rate tax payers on pension contributions – it literally would be the answer to his sad plaintive cry for where can we find the £3bn needed…
Oh and a little dig at the SNP for not fixing it themselves. However of course, the SNP has provided extra child benefit in Scotland, and nice little touches like the baby box.
Thanks
Mortgage Interest Relief (MIRAS) was left over from when the tax on the notional rent income paid by owner occupiers to themselves (which was the justification for it) went many years previously (1950s?) – though the notional rent is still counted in GDP.
What irritates me most of all is the fact that the Labour Party don’t ‘apparently’ have any plans in place to do, well, anything at all quickly. And there is a lot that needs to be done.
It has been clear for a couple of years at the very least that the Tories were dead men walking, so to speak, so there was an enormous amount of time to get proper plans in place and be ready to really start to make a change from the off. Instead, we’re faced with lots of consulations, information gathering, creation of ‘task forces’ etc etc, none of which will make a blind bit of difference for months at best. Just what have their policy wonks, such as they are, actually been doing for the past few years?
It is staggering that there is, apparently, nothing Labour can do without a consultation now – simply to reach the point where they might start deciding what to do
What did they do in all those long years in Opposition?
It’s all a matter of inclination and frankly Starmer and his cronies in my view never had much to tackle social inequities. They are quite frankly con artists!
Clearly Labour in opposition had no time to do serious research and planning on what to do for the country, once they were in power. They were too tied up with deciding who should lead them (result: Starmer); what kind of party they are (result: a neoliberal one); and hunting down anti-Semites and any other nonconformists to be purged.
But now they’ve formed a new “government of service”.
“You don’t need a weatherman to tell which way the wind is blowing.”
It’s not bad though for lower rate taxpayers although I suspect that the biggest beneficiarys will be at the top of the standard rate
I certainly agree with Richard’s discussion points, but isn’t there a far bigger problem with pensions. As I have understood it, the long years of low interest rates have produced a long term funding shortfall for pensions out into the future. This is on top of the multi-decade decline in UK growth. (The growth for an individual year is not a good indicator, you need to look at the trend over a long period of time, eg since 1945).
As most of us rely on the ‘investing skill’ of the financial services industry, it is far from clear to me that, in the middle future and beyond, pension providers will be able to provide the expected/required income for pensioners to have the income needed to live. Now add on top the growing possibility of large losses in productivity due to climate change effects plus supply chain disruption from our world fracturing into a multi-polar state, and I see real difficulties in the future – and see no easy solutions, at least for us in the West.
Low interest rates should allow high investment and so big profits. I think you have your logic quite wrong.
This smells a lot like trolling.
So in your mind, Richard, when risk free interest rates as high, you get a lower return from taking risks. But when risk free rates are low you get much higher returns from taking risks?
It’s an interesting theory. Obviously not one that has been proposed in theory, or one that has been borne out in practice over an extended time period.
But maybe the real world (and common sense) is wrong and you are right?
It would certainly be worth you investigating and writing a (peer reviewed) paper on this…
My point is glaringly obvious and was the supposed reason behind QE
If risk free rates are low more money goes to risky investment, in theory, and the hurdle rate is low so the quantum of investment is high and growth should follow, including therefore in stock prices, in theory
If you don’t get that you clearly are out of step with mainstream rational thinking that drove this process
Of course it may not happen that way as people are not rational – but you feel like the sort of person who would claim they are I.e. troll
The Tories introduced the two-child benefit cap seven years ago in 2017. Amongst the many lies Starmer has told to get the Labour leadership he said he supported lifting the cap. Now his lying has allowed the SNP to target him! You can’t get more stupid!
Hello Richard I’ve just ‘re-watched your video on QE and inflation. If I’ve got this correct are you saying through taxation we can control inflation? If this is the case does that mean if we equalise tax relief on pensions the money saved could be used to ending the two child cap,employing the 6-7000 unemployed doctors even cutting inflation?
P.S. Maybe I should re-read your book “the joy of tax,and what do you think of the book The defiet myth,a sample says basically why we worry about spending on welfare there’s no problem when it comes to war.
“Hello Richard I’ve just ‘re-watched your video on QE and inflation. If I’ve got this correct are you saying through taxation we can control inflation?”
Yes
“ If this is the case does that mean if we equalise tax relief on pensions the money saved could be used to ending the two child cap,employing the 6-7000 unemployed doctors even cutting inflation?”
The figure is too small to have any serious inflation impact
Business commentators in the right wing press have been predicting a change to higher rate tax relief for something like a dozen years, certainly since Osborne was Chancellor.
It is possible that the Treasury has briefed this each year as a red herring to distract from the actual plans, but somehow it seems more likely that those with vested interests in the status quo are getting their attacks in early in the hope of heading off change.
There is no justification for the extra subsidies for those on higher tax rates, and it does need someone to seize the nettle and change it. 30% seems a very high substitute pension tax relief – reports in previous years tended to home in on 25% but as you say it would establish the principle. Personally I see no reason why the tax relief shouldn’t be limited to basic rate, and to the size of the basic rate band. Particularly when there is the additional bonus of the 25% of pension funds which can be withdrawn free of tax.
In general this makes perfect sense.
Personally, though, with the fiscal drag inflicted by frozen tax thresholds, it is hard to be over the moon about it.
I’ve saved into a pension since 18 years old. Which has grown, albeit it slowly. My wife and I have worked hard and we are both, recently, higher rate taxpayers. My wife in the public sector, and only just over the 45% threshold. We both have more years to contribute behind us, rather than in front of us.
And although we are very fortunate, in that we have been able to weather the cost of living crisis and as things currently stand, we might be able to retire comfortably, we still make big sacrifices, to live within our means.
There is a huge difference between someone earning just above the higher rate threshold and earning just below the additional rate threshold.
We are both from working class backgrounds. My wife was the first in her family to go to university and has only just finished paying off her student loans. We don’t stand to inherit anything and we are just about to see a big increase (almost doubling) in our mortgage payments. On top of that, we support our parents, because the cost of living means they can no longer live within their means.
Saving a small amount of tax each year because of pension contributions is a small comfort, and means that we might enjoy some reward when we get to retirement age.
I do think that the growing inequality in the UK needs to be addressed, and as part of a package of reform that addresses that this would be very welcome. But as an isolated measure that affects those brought into higher rate earnings by fiscal drag, I am not overjoyed.
If I had confidence that this Government were going to take the profit motive out of our public services and not turn to private finance to renew infrastructure, I would probably feel less negative about it, but the trend of using the public purse as a vehicle to enrich the already rich looks set to continue.
So, your wife earns more than £125k and you are a higher rate taxpayer. Your household income likely exceeds £200k, but you say:
“ And although we are very fortunate, in that we have been able to weather the cost of living crisis and as things currently stand, we might be able to retire comfortably, we still make big sacrifices, to live within our means.”
Every now and again someone with considerable privilege writes this sort of nonsense here. Do you really think you make ‘big sacrifices ’ to live within your means. What are they precisely? Please tell. You clearly think it true.
And, might you explain how you might get along on median wages, or on 60% of that sum? What do you think those living on those sums sacrifice?
Sorry Richard, I think you misunderstand.
I said higher rate tax payer.
Not additional rate tax payer.
So your assessment of ‘privilege’ is incorrect.
We have for most of our working lives earned less than the median average, so yes I can very much relate to that. It seems that whatever comforts we thought we might enjoy, as a result of pay increases and promotions have been eaten away by the cost of living crisis, with significant sums over the last few years diverted to help relatives who would have fallen into poverty without help.
Apologies. I wrote 45% when what I meant was 40%.
My wife is a higher rate taxpayer, just.
And working in the NHS, she works very hard for it, with the stress taking a considerable toll on her life. Most people in her profession, leave before reaching 8 years of service. My wife has managed 20.
Ok
I accept that may be different
But you still gave way above average household income
Richard,
I don’t disagree.
And I don’t disagree with the premise of removing additional tax relief on pensions for higher rate earners in principal.
For public services that work, I would happily pay more tax. But I cannot see how Labour are going to deliver that, in the long term, if they choose rely on private finance over public borrowing.
With good public services, the prospect of reaching retirement age without excess pension accrued, is a much more comfortable one. As things currently stand, when in need of medical treatment, the stark choice is pay to go private (and take your chances) or face a long wait.
We bought hearing aids for my mother, privately, because the alternative was waiting two years for an audiology appointment.
I would much rather have publicly funded healthcare, free at the point of use with no profit motive for healthcare providers (because that benefits everybody), than be making extra provision to pay for private healthcare in our dotage.
Do you trust this Labour Government to make good spending decisions?
As a side note, I completely agree with your recent post about the potential increase to workplace pension contributions creating an asset bubble, as I do completely agree with most of what you write (I have been reading your blog daily for a long time now).
I have not commented before because I do usually find myself in agreement with you and if there is anything further to be said, one of the other regular commentors will generally have already made that point.
All noted
Thanks