Labour plans fairer society by reducing tax relief on pensions

 

Political Editor

Labour is to consider a plan to reduce tax relief on pensions by £2bn a year by ending people’s automatic right to take a quarter of their pension pot tax-free.

The move was recommended today in a blueprint for a “good society in tough times” which was launched by Ed Miliband and will heavily influence Labour’s manifesto at next year’s general election.

In its “Condition of Britain” report, the IPPR think tank argued that the £24bn a year spent on tax relief on pension contributions — which is worth 40 per cent for taxpayers on the 40p tax rate –“disproportionately benefits those on higher incomes rather than those who need a stronger incentive to save.” 

The IPPR said a review was needed because of George Osborne’s sweeping pensions reforms, which will abolish the requirement to buy an annuity on retirement to provide a guaranteed annual income for life. The think tank argued that this made the tax-free lump sum “the biggest anomaly” in the pensions system, saying it costs the Government between £2.5bn and £4bn a year.

“Now that savers can withdraw all their pension pot from the age of 55 without penalty (other than paying income tax at their marginal rate), the justification for this policy is weak,” said the report. “Capping the value of this lump sum at £36,000 from April 2015 would increase tax revenues by around £2bn a year.” The IPPR proposed that the savings be invested in early-years support for families.

Labour has already announced plans to reduce pension relief for people earning £150,000 a year from 45 to 20 per cent to raise £1.3bn for its jobs guarantee scheme for the long-term unemployed.

A Labour spokesman said: “We have already set out proposals which would help to fund our compulsory jobs guarantee. We will look at these other proposals.” It is believed that Labour has no plans to go further on pension tax relief at this stage. But the £2bn identified by the IPPR could be a tempting target for an incoming Labour Government which, Mr Miliband admitted, “won’t have money to spend”.

Any move by Labour to restrict pension tax relief further would be seized on by Tories as a back-door tax rise.

Mr Miliband confirmed that Labour would embrace the IPPR’s plan to end out-of-work benefits for 18-22-year-olds without the skills needed to get a job. Those who took part in training would receive a means-tested “youth allowance” if their parents’ joint income were below £42,000 a year. The Labour leader said that such young adults should “sign up for training, not sign on for benefits”.

But the proposal ran into immediate controversy. Leslie Morphy, chief executive of the Crisis charity for the single homeless, said: “For many young people, living with their parents is not an option. Their relationship with their family may have broken down; they may have been abused or there may simply be no room for them in the family home. Without the safety net of benefits, many more could be left at risk of homelessness.”

Steve Turner, assistant general secretary of the Unite union, said: “The rhetoric of sanction and punishment is not a message that Labour should be taking to the country. Our young people did not cause the economic crash and shouldn’t be made to pay for it.”

Neal Lawson, chair of the left-wing Compass pressure group, said: “Labour can never win on who kicks down hardest on the poorest. In a world of increasing job insecurity and precariousness , conditionality makes less sense.”

Condition of Britain report proposals

Proposal: One-off £450m levy on consumer credit industry to fund independent Affordable Credit Trust to make low cost loans
Labour response: Miliband welcomed it, but Labour favours annual levy on profits of payday loan companies

Proposal: Councils to negotiate lower rents with private landlords and reinvest some of the savings on housing benefit to build new homes
Labour response: “We want to shift spending from benefits to bricks over time”

Proposal: Child benefit to rise in line with prices for children under five, but frozen for school-age children; savings to fund guaranteed affordable full-time child care for one to four-year-olds
Labour response: “This is not our approach”

Proposal: Restore contributory principle by raising £71-a-week higher rate of Jobseeker’s Allowance by £30 a week
Labour response: Plans to make higher rate available to someone who had been in work for five years, instead of two, and to raise rate by £20-£30 a week.

Proposal: Carers should have right to adjust their working arrangements rather than rely on benefits
Labour response: Will consider

Proposal: Keep young adult offenders out of prison by expanding work of youth offending teams to 18-20 year-olds; tougher community sentences
Labour response: Miliband welcomed it

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Technical Author / Multimedia Writer

Negotiable: Recruitment Genius: This recognized leader in providing software s...

Recruitment Genius: Clinical Lead / RGN

£40000 - £42000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: IT Sales Consultant

£35000 - £40000 per annum: Recruitment Genius: This IT support company has a n...

Recruitment Genius: Works Engineer

Negotiable: Recruitment Genius: A works engineer is required in a progressive ...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent