BREAKING: Labour Chancellor Rachel Reeves is reportedly planning a significant alteration to pension contributions by targeting salary sacrifice schemes. This potential move could generate up to £2 billion annually to help address an alarming fiscal deficit.
Just announced, the plan may limit tax breaks on pension contributions for both employers and employees. Current regulations allow individuals to contribute up to £60,000 to their pension pots without incurring income tax. However, under Reeves’ proposal, the amount an employee can sacrifice without incurring national insurance payments could be capped at just £2,000 a year, raising concerns among employees and employers alike.
Critics warn that this strategy might penalize individuals attempting to save for retirement. For instance, an employee earning £50,270 who contributes 6% of their salary could see an additional £80 in national insurance annually, while setting aside £5,000 could lead to an increased burden of £240 per year.
Experts, including Steve Webb from pension consultancy LCP, argue that increasing national insurance costs for firms may ultimately be passed down to employees, hindering pension contributions at a critical time when boosting savings is essential.
“Introducing a cap would increase national insurance bills mostly for employers and hits the very firms who are doing the right thing,” Webb told The Times.
The urgency surrounding this issue intensifies as Labour peer Thangam Debbonaire publicly questioned why the party committed to not raising income tax, hinting at an impending shift in policy. Reports indicate that Reeves may propose a 2p increase in income tax as part of the upcoming budget on November 26, a move that could reverse a key manifesto pledge.
Despite reassurances from Cabinet Minister Steve Reed that the party is focused on delivering its manifesto, the internal debate within Labour over tax increases is heating up. Reed suggested that increasing income tax wouldn’t erode public trust, directly contradicting remarks from Deputy Labour Leader Lucy Powell, who insisted the party should adhere to its commitments.
As Labour grapples with a potential deficit of up to £30 billion following a downgrade in productivity forecasts by the Office for Budget Responsibility, the proposed changes signal a profound shift in fiscal strategy. The Chancellor is also contemplating a cut in national insurance for those earning below £50,270, with a clear intention to ensure tax contributions from landlords and pensioners.
The Treasury has been contacted for further comments as the situation develops. With significant implications for millions of workers and businesses across the UK, all eyes will be on Labour’s next steps as they navigate these challenging fiscal waters.
This evolving story highlights the delicate balance between fiscal responsibility and the impact on individuals’ financial futures. Stay tuned for further updates as this situation unfolds.
