View the article online at http://citywire.co.uk/money/article/a882008
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.
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.
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