Osborne Under Pressure to Moderate Pension Reforms
Ahead of his next Budget announcement on 16th March, George Osborne has been coming under pressure to reduce the impact of pension reforms that would have affected the highest earners in a bid to avoid alienating a section of loyal Tory voters.
Initial plans involved moving from a system where pension tax relief is scaled directly in line with the rate at which income tax was paid during an individual’s working life, to a system where tax relief is offered at a flat rate of 25-33% for everyone and is rebranded as a government contribution or ‘top up’.
The move would have raised a large amount of money for the treasury and would have hit the country’s highest earners hardest.
It would, however, be welcome news for those on basic rate who currently pay half of the total sum of pension contributions while receiving just under a third of the tax relief given out.
As a result, it would have figured as something of a conciliatory gesture to the lower earners who have considered themselves at the wrong end of some of Osborne’s past policies including his attempted severing of tax credits.
However, while such a bold pension reform would be welcomed by a cross-section of lower income households, there is a danger of alienating higher income conservative voters.
An unnamed source for the Financial Times close to the Prime Minister said that Osborne has been urged to “tread very carefully and sensitively” on this particular issue and another warned of a “riot” and “explosion” from within the party, should his reforms hit hard against loyal voters.
In particular, Osborne has been urged to “play it safe” in order to not jeopardise David Cameron’s anti-Brexit campaign. The Financial Times source made it clear that at the moment, “Europe is the only game in town,” and that as such “now is a time for caution.”
Support for Cameron’s position on the EU from within the Tory party is already on tenterhooks, with around 50% of MPs currently in favour of leaving. Should Osborne further alienate more MPs by hitting higher income voters with bold pension reforms, this could spell disaster for the in campaign within the party.
Despite resistance, and even if initial proposals are somewhat softened, Osborne will not relent entirely and has assured that in this next Budget, he will reveal the outcome of his pensions review.
How exactly Osborne will manage to reach a compromise between legitimately appeasing lower income households and persuading them that the Conservative party will work in their interest, and not sacrificing the support of higher income voters remains to be seen.
Various options have been floated including the introduction of a Pensions ISA that would reshape the way in which tax relief is granted, and the removal of an upper limit on the amount of tax relief, but it has not yet been made clear which, if either, of these options will be pursued.
What is certain is that, as the FT quote a Treasury source as promising: “this won’t end up being a boring budget.”