Rishi Sunak and Jeremy Hunt are planning a stealth tax raid on pensions as part of a dash to balance the books and restore Britain’s economic credibility, according to reports.
The prime minister and chancellor are looking to find tens of billions a year to fill a hole in the public purse, with a mix of tax rises and spending cuts being considered to increase market confidence after the catastrophic impact of Liz Truss’s unfunded mini-budget.
Reports suggest much of the money could be raised through so-called stealth tax-rises which allow people to drift into paying more to the Treasury without ministers having to take the political hit of announcing a rate increase.
One measure set to be revealed later this month is a freeze in the pension lifetime allowance, according to The Daily Telegraph.
Two million savers would be left paying more under a plan to delay a rise in the tax threshold for retirement funds, the paper reported, at a time when the future of the pensions triple look remains hazy.
The threshold for the pension lifetime allowance is frozen at £1,073,100 until 2025, with savings over the limit taxed at 55 per cent if the money is taken as a lump sum, or 25 per cent plus income tax rate if taken out gradually.
The reported plan would extend this freeze for another two years.
Mr Hunt and Mr Sunak risk alienating large parts of their party with a slew of tax rises, stealth or otherwise, planned for the chancellor’s 17 November fiscal statement.
The pair are believed to have agreed to a 50-50 split in tax rises and spending cuts to bring borrowing down, though they have been warned by the United Nations against a return to the austerity imposed in the earlier period of the Conservatives 12 years in power.
Other tax threshold freezes, affecting the different rates of income tax and national insurance, and a rise in capital gains tax have already been agreed, The Telegraph reported.
It comes after Mr Sunak said inflation is the “number one enemy”, as he vowed to rebuild trust in the Government following Liz Truss’s calamitous tenure in No 10.
With the UK facing an estimated £50 billion black hole in the public finances, Mr Sunak told The Times it was important the Government was honest with voters about the “trade-offs” the country faced in Mr Hunt’s forthcoming autumn statement.
“Everyone appreciates that the Government cannot do everything,” he said. “
How does government do everything? It just does it by borrowing money which ultimately leads to, as we saw, high inflation, a loss of credibility, spiking interest rates.
““I completely acknowledge that trust has been damaged over the past few weeks and months. I realise that trust is not given, trust is earned. My job is to regain people’s trust.”