Tax relief on pensions looks set to become a key battleground at next year’s general election with Labour and the Lib Dems both mulling a raid on well-off savers.
Steve Webb, the pensions minister, told us in an interview that he was optimistic that a cut in tax relief for higher-rate pensions would be in the Lib Dem manifesto.
Mr Webb said that the idea was gaining traction within the party leadership in the run-up to the manifesto being finalised later in the year.
Introducing a new system of flat-rate tax relief would penalise the well-off but could benefit many savers on lower incomes, giving them a greater incentive to save. “A significant majority of pension savers would get more tax relief, which seems like a good thing to me,” he said.
As such the policy would fit the Lib Dem narrative of helping low-income workers, having fought for several increases in the income tax threshold throughout the current Parliament.
Nick Clegg, the party leader, is understood to be sympathetic to Mr Webb’s idea, subject to further modelling work on the implications. “I’ve found the idea being increasingly well-received, both within and beyond the party,” said Mr Webb.
Labour has already promised to cut pension tax relief for those earning £150,000 from 45 per cent to 20 per cent.
Ed Balls, shadow chancellor, believes the move could raise £1.3bn a year, which Read more