Jeremy Hunt’s huge pensions giveaway for the wealthiest 1% may have no impact on increasing the number of people in work, while opening a loophole for avoidance of inheritance tax, a leading economic thinktank has warned.
The Institute for Fiscal Studies said the surprise measure in the chancellor’s budget “probably won’t play a big part, if any” in increasing the number of people in work.
Paul Johnson, the director of the IFS, said: “It was disappointing that other over-generous aspects of pension taxation – not least complete freedom from inheritance tax – were not reined in.
“The lack of any coherent strategy here remains deeply disappointing. Don’t forget these changes are largely a rowing back on changes made just a few years ago by this government.”
In an attempt to encourage older skilled workers not to retire early, Hunt announced plans to scrap the £1m cap on tax-free pension savings. With employers struggling to recruit staff, holding back the economy, he argued the change would discourage NHS doctors in particular from quitting.
Labour warned the tax giveaway would benefit only the wealthiest top 1% of earners, while promising that it would reverse the chancellor’s decision to scrap the pensions lifetime allowance.
In its verdict on the budget, the IFS said it was “implausible” for the government to argue that it could not increase public sector pay on affordability grounds.
“You can’t keep cutting the pay of teachers, nurses and civil servants, both in real terms and relative to the private sector, without consequences for recruitment, retention and service delivery,” Johnson said. “Money will have to be found from somewhere.”
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