UK households are bracing for tax raids in the Budget – and experts are warning which ones is likely to be announced on the day.
With Labour’s first budget drawing near, Brits are anxiously anticipating what measures Chancellor of the Exchequer Rachel Reeves might introduce.
It’s anticipated that she will take aim at workplace pensions after previously announcing many other taxes such as income tax won’t be touched. But while the focus of any such move would be to target employers, there are concerns that it would also affect workers.
The nation is bracing for what’s been dubbed a “painful” announcement with worries for many over potential bombshells like the already enforced Winter Fuel Payment cuts.
Reeves emphasised that this this controversial step was essential to address the whopping £25 billion “black hole” left by her Conservative predecessors.
Observers are betting that workplace pensions will be in Reeves’ sights as she hunts for funds without further burdening working-age individuals or retirees post-Winter Fuel saga – and business and employers seem likely targets now.
There’s chatter in finance circles hinting at a possible hike in national insurance for employers, a move that would bypass impacting workers – directly, at least.
Pension guru Steve Webb of LCP suspects the strategy might entail slapping tax on contributions to workplace pensions. He told the ‘i’: “It could be argued that this is simply closing a loophole where remuneration packages are explicitly structured to minimise NI liabilities.”
LCP’s calculations suggest that a 2% introductory rate could raise £2billion through this method, and it’s been hinted that the government may test this technique with a relatively low percentage like 2%.
However, a new tax charge of this nature could lead to companies reducing their contributions to their employees’ pensions or potentially even deter people from getting pay rises to avoid the added national insurance.
Another speculative outcome that could directly impact savers is the introduction of a flat rate of pension contribution tax relief.
Currently, all workplace pension contributions are completely free of income tax, but a flat rate of 30% has been proposed to ensure people on the basic income tax level still enjoy this benefit while those on higher and additional rates will be paying the government as part of their pension savings.
