Billions spent to stop 15,000 workers from retiring is a ‘huge giveaway to the richest’

A multi-billion pound tax break to stop around 15,000 high earners leaving the workforce has been criticized by Sir Keir Starmer as a “huge giveaway to the richest”.

On Wednesday, Chancellor Jeremy Hunt announced the scrapping of £1.07m of lifetime pensions, using a bigger-than-expected budget.

It will also increase the tax-free annual pension allowance from £40,000 to £60,000 as part of measures to boost the workforce by removing disincentives to working longer.

The total cost of the policy is estimated to exceed £1.1 billion a year by 2027/28, according to official estimates.

The reforms to the NHS have been welcomed as a boost to help retain experienced staff, but experts have pointed out that millions of savers will not be affected by the measures.

Paul Johnson, director of the Institute for Fiscal Studies think tank, said the change would “incentivize fewer well-off workers to stay in the labor force longer.”

“These changes to pensions tax are unlikely to have a major impact on overall employment,” he added.

Economists at the Resolution Fund warned that pension payments could lead to some workers taking early retirement or using their “currently unfunded pensions to avoid inheritance tax”.

Chief executive Thorsten Bell said the measures were “extremely regressive and wasteful”, adding: “This is a big win for NHS consultants but little value for money for the UK.”

Labor leader Sir Keir described the move as a tax cut “for the richest 1%”.

The only permanent tax cut in the budget is for the richest 1%.

Sir Keir Starmer

“We needed a fix for doctors, but today’s announcement is a huge gift to some of the wealthiest people,” he told the House of Commons.

“Indeed, our labor market is an iron example of a fundamentally weak economy. Our crisis of participation has never happened anywhere else, not to this extent; this is a feature of Tory Britain and global excuses simply do not wash.”

The Office for Budget Responsibility (OBR) estimated that the two policies would boost employment by 15,000 workers.

Mr Hunt described the move as a bid to prevent doctors from taking early retirement, but Treasury officials could not say how much of the NHS’s doctors’ jobs would be.

A 2019 survey for the Royal College of Surgeons found that 69% of consultant surgeons had cut their hours due to pension taxation rules.

These pension tax changes are unlikely to have a major impact on overall employment

Paul Johnson, IFS

Officials have argued that the blanket change is the fastest way to keep doctors in the NHS.

People generally pay tax if their pension savings are greater than their lifetime allowance, and people can be taxed at up to 55% on pension savings above this.

But Mr Hunt scrapped the tax, saying “Conservatives see work as a virtue” in an effort to reduce the number of unemployed adults with measures to encourage retirees back into work.

He also unveiled an increase in the annual superannuation allowance – the cap on how much money someone can put into their pension in any tax year using tax relief – from £40,000 to £60,000.

Mr Hunt told MPs he “doesn’t want any doctor to take early retirement” because of pension rules and said: “No one should be forced out of the workforce for tax reasons”.

“These changes will stop more than 80% of NHS doctors from paying tax, encourage our most experienced and productive workers to stay in work for longer and simplify the tax system by removing thousands of people from the complexities of pension tax,” he said. said.

According to figures on the HM Revenue and Customs website, 8,610 lifetime allowances were reported under the schemes in 2020-2021.

The change has been welcomed by some in the health service, including membership organization NHS Providers.

Chief executive Sir Julian Hartley said the policy was needed “to prevent senior NHS staff from taking on extra work for fear of early retirement or punitive tax bills”.

“Abolishing the lifetime allowance today will help retain highly valued, experienced NHS staff in the health service, who play a vital role in providing and guiding patient care, as well as training and developing the next generation of the workforce,” he said. .

“The increase in the annual allowance cap will also mean that senior NHS staff will face lower annual tax bills.

“At a time when the government is trying to get more people back into work, including those unable to work because of health conditions and medical care backlogs, the value of retaining highly skilled workers cannot be underestimated.”

But Phil Brown, director of policy at People’s Partnership, the People’s Pension provider, said the changes would not affect the vast majority of pension savers.

He said: “At a time when the NHS is facing serious challenges, any measure to encourage valuable and experienced doctors to continue working is welcome, but today’s announcement on lifetime allowances and annual allowances will do nothing to address the problem of undercoverage. – Savings in the UK.

“These changes to pension benefits will have no impact on the vast majority of hard-working savers and will have very little impact on the millions of people saving through auto-enrolment. Job security reform will be the only way to ensure that millions of people can save enough for retirement.”

James Kirkup, director of the Social Market Fund, added: “Abolishing the living allowance would cost the Exchequer around £2.75bn over five years, and would only benefit a small group of workers lucky enough to have pension funds of more than £1m.

“Many of these workers are doctors, so it may help keep NHS staff, but it’s a lot of money to allocate to the few people with big pensions.”

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