The Treasury is considering making change to pension tax relief in order to fill a £2 billion funding gap left by the decision to drop increases in national insurance contributions (NICs) for self-employed people.
Chancellor Philip Hammond (pictured) dropped the planned NICs rise last week after he was accused of breaking the Conservative party's tax lock manifesto pledge.
The measures, which would have seen NICs for self-employed rise to 10% in 2018 and 11% in 2019, were expected to raise around £2 billion for the Treasury.
As a result Hammond is now considering making changes to pension tax relief rules, the Sunday Times reports.
A source close to Hammond told the paper pensions were 'at the top of the list' when considering how to raise the £2 billion.
'That’s what is being talked about. What else is there? There isn’t much else. What else can you do? He’s not going to compromise the government’s reputation on fiscal integrity and we’re not going to be borrowing more. That’s very clear,' they said.
One policy under consideration is a flat-rate of tax relief on pension contributions. This idea was considered by previous chancellor George Osborne before the 2016 Budget, but was eventually dropped.
According to the Sunday Times, the government is concerned a flat-rate of tax relief will alienate middle class voters so it is looking at other pension measures to raise the money. One such measure is a potential cut in the annual allowance from £40,000 to £35,000 or as low as £30,000.
Any such move is still likely to cause controversy. Since coming to power as part of a coalition government in 2010 the Conservatives have cut the annual allowance twice, including the introduction of the tapered annual allowance for high earners in 2016.