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Osborne faces backbench 'riot' over pension tax relief reforms

Chancellor George Osborne faces a rebellion within his own party over plans to cut pension tax relief, reports suggest.

 
Osborne faces backbench 'riot' over pension tax relief reforms

Chancellor George Osborne faces a rebellion within his own party over plans to cut pension tax relief, and has been warned there will be a ‘riot’ from backbench MPs if he presses ahead with the reforms.

Osborne (pictured) is due to announce proposals for reforms to pension tax relief ahead of this year’s Budget speech in March. He is expected to want to press ahead with a flat rate of relief, set at around 25% to 33%, which would mean higher and additional rate taxpayers, who currently can claim 40% and 45% relief respectively, would see their reliefs slashed.

However, speaking to the Financial Times, one Tory MP said: ‘there will be a riot’ if the relief cut is pressed ahead with.

The paper also reported a figure close to Downing street as saying there would be ‘a very big backlash from our own MPs. They are going to be very annoyed.’

Alan Duncan, a former Tory minister, said: ‘The one thing we need for pension planning is stability. Raiding pensions like this destroys people’s planning and I think it will prove very explosive.’

Jacob Rees-Mogg, Conservative MP for North East Somerset, said the chancellor could face a ‘rough ride’.

‘People who don’t trust the system in which they save they will not make regular savings,’ he said. ‘I do not think having the same level of relief for everybody regardless of how much tax they have paid is in any sense fair.’

However, Steve Baker, Tory MP for Wycombe, supported the reforms.

‘It is important that the government is seen to be looking after the interests of all the people of this country,’ he told the paper.

‘It is always difficult for me to look people in the eye when they are suffering benefit cuts and when better-off people are continuing to enjoy these advantages.’

The government launched a review of pensions tax relief in its July 2015 Summer Budget asking for views on how the system could be reformed.

For example, the chancellor mentioned in his Budget speech that pensions, which give tax relief on contributions and growth but not withdrawals, could be taxed like ISAs, with contributions being taxed but growth and income tax free.

In August we said the Treasury was looking at scrapping the 40% and 45% rates of relief.

The government consultation closed in September and in October Osborne confirmed the Treasury would not respond formally to it until the 2016 March Budget.

However, Osborne at the same time also promised a 'genuine green paper' laying out firm options for reform.

Higher rate tax relief is estimated to cost the government around £7 billion a year.

8 comments so far. Why not have your say?

Redundant (Old Timer?)

Feb 12, 2016 at 14:18

I wonder if Osbourne facing a riot from backbench MPs has anything to do with them being higher rate (and not in frequently) additional rate taxpayers?

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Neil K

Feb 12, 2016 at 14:25

As with most pension changes if they're likely to be detrimental to MP's then they will probably just exempt themselves from it.

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TDR

Feb 12, 2016 at 17:52

It beggars belief that, in these financially challenging times, anyone (let alone MPs) should object to a reduction in the taxpayers’ contribution to the pensions of higher earners.

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Frank Frank

Feb 13, 2016 at 00:27

I always found it remarkable that the rich fought much more fiercely to preserve their privileges than the poor facing benefit cuts.

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colin overton

Feb 13, 2016 at 10:55

Pigs always react when the trough is not filled up to the top.

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geoffrey mulford

Feb 14, 2016 at 08:53

I agree with the comments above. It's amazing how us human beings can see the VI (vested interest) in other people, but are incapable of seeing our own VI. The WASPI women are another good example of this.

But then I have got my own VI's. I have a life time tracker mortgage at less than 1% which I think is fair, it was the agreement I signed up too. I can quite see why others would disagree with me.

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Stephen B.

Feb 14, 2016 at 10:41

I can't see it harming GO overall if he has rich people complaining that he's being too tough on them ... anyway it's a fairly narrow band of people who would care, given that the £40k annual limit and 1 million total are fairly small amounts for the seriously rich.

My personal vested interest is what happens to the limit for people with no earnings, which has been stuck at £3600 for about 20 years. It would be nice if that went up to £10k which is the "recycling" limit once you start drawing from a pension.

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Chris Powell

Feb 15, 2016 at 10:53

I think the biggest mistake was made by a socialist called Gordon Brown. In 1997 he should have reduced the relief and a flat rate tax relief of 30% should have been imposed. Instead, off taxing pension funds on their dividends. I thought at the time Gordon got it wrong if he wanted to raise money to spend without any one noticing. It effected all pension and future pension savers.

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