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When Rachel Reeves became Chancellor, she made a lot of promises about improving the long-term prospects of the British economy. She was meant to be ‘fixing the foundations’ and ‘unlocking investment’ to boost growth. And yet as figures emerge showing almost three million workers will be hit by her tax raid on pensions, it turns out that the very opposite is true. Reeves has come to represent short-termism at its worst – and will make the task of her successors far harder.
In her last Budget, Reeves capped the amount that employees could put into ‘salary sacrifice’ schemes. Previously, people could stash money into their pension and therefore pay less National Insurance (NI) upfront. Reeves decided that was a bad thing and limited the amount that could be exempt from NI to £2,000 a year, which will raise an estimated £4 billion a year in extra tax.
Reeves is undermining the foundations of the economy
The trouble is, it will also mean people save less for their pension. New figures from HMRC estimate that 2.9 million people will reduce their pension contributions after the raid. It won’t just be what Andy Burnham would probably call ‘the rich’; a quarter of them will be basic-rate taxpayers. The result? The overall level of pension savings will be significantly reduced.
