The former Conservative Chancellor Ken Clarke has pressed George Osborne to slash the “extremely generous” pension tax breaks for the wealthy in the upcoming Budget.
Just last week Mr Osborne warned that he may have to make fresh cuts to public spending at the Budget in March. He said that global economic turmoil and slower growth meant “we may need to undertake further reductions”, before adding he wanted to "root our country in the principle that we live within our means".
Mr Clarke, who was Chancellor of the Exchequer under John Major between 1993 and 1997, said to the Times that the country could no longer afford the pension tax reliefs if the government intends to eliminate the deficit by the end of this parliament.
According to the newspaper, Mr Osborne is weighing up reforms to the way pensions savings are taxed. One option is to set up “pensions ISA” and scrap rules that exempt earnings put into pensions schemes from tax. The second option is to slash pensions relief for higher-rate earners, which could bring in an additional £22 billion per year to the Treasury.
“People will always tell you that it’s not the right time to do difficult and unpopular things. The fact is that we still have a deficit to clear and are in uncertain times with many potential shocks,” Mr Clarke said.
“I have always thought that sooner or later a Chancellor is going to have to tackle the extremely generous system of tax relief on pensions which subsidises the rich.”
Mr Osborne slowed the pace of public cuts in the last spending review but further cuts are to be expected in his March 16 statement to the Commons as figures have shown the UK economy was growing at a smaller rate than previously anticipated. He also said the global ecnonomy had got “markedly worse”.
He added to the BBC: "Because of all of those things, we have to respond to those events. So that's what our plan is rooted in and it may require further reductions in spending.
"I'll address that in the Budget but people should know this of me: I will do what is required to keep our country safe and secure."