U.K. Chancellor of the Exchequer George Osborne should reverse a tax break on the pensions of the highest-earning 1 percent of workers to help low-income families, the opposition Labour Party said.
Citing research by the House of Commons library, Ed Balls, who speaks for Labour on the economy, said Osborne had in effect given people earning more than 150,000 pounds ($234,000) a year a 1.6 billion-pound tax cut by allowing them to claim 50 percent relief on their pension contributions instead of limiting it to 20 percent, as the previous Labour government had proposed.
Osborne should use his March 21 budget to restrict the rate at which top-rate taxpayers can claim relief to 26 percent and use the money to reinstate cuts to tax credits for people on low and middle incomes, Balls told a press conference in London today.
“It shows just how out of touch this government is, that with all the pressures on lower and middle income families in our country, it is the very highest earners who have benefited most from their pension-tax changes,” Balls said.
Labour said the tax break more than offset the 1.3 billion pounds that the Treasury estimates will be raised from the 50 percent income-tax rate, which was introduced by Labour to help cut the budget deficit.
The attack comes amid signs that the government is preparing to scrap the 50 percent rate after the Liberal Democrats, the junior coalition partner, indicated they’d agree to the move in return for new taxes on wealth such as the most expensive homes. Deputy Prime Minister Nick Clegg said yesterday his party will push for a “tycoon tax” on high earners.
Balls said any move to introduce a “mansion tax” should not be used to cut the 50 percent tax rates but to “ease the squeeze” on low and middle-income families.
The Association of British Insurers dismissed Labour’s plans on pensions, saying they would discourage people from saving.
Labour’s previous proposals “were scrapped by the incoming government because they were completely unworkable, and replaced with a simpler restriction that raises the same revenues,” Director General Otto Thoresen said in a statement. “Attacking the incentive for higher earners to save into their pensions will further limit the insurance industry’s ability to invest in the economic growth and infrastructure which Labour wants to see.”
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