Rishi Sunak ‘plans tax raid on pensioners’ to pay off Covid debts
Rishi Sunak ‘plans tax raid on pensioners’ to pay off Covid debts: Chancellor could freeze lifetime allowance in next week’s Budget leaving savers facing extra 25% levy on income
- Rishi Sunak is considering freezing lifetime allowance for the rest of parliament
- Freeze would push thousands above cusp and slap future payments with 25% tax
- But it could also net £250million for the Treasury and help reduce debt burden
Thousands of affluent pensioners could be stung by a ‘stealth tax’ under Rishi Sunak‘s Budget plans to start patching up the blackhole in the nation’s finances.
The Chancellor is considering freezing the lifetime allowance for the rest of this parliament, according to The Times.
The lifetime allowance is the threshold below which pensioners can swell their pension pots without paying tax – and is currently at just over £1million.
A freeze would push thousands outside the tax-free bracket and slap future payments with a 25 per cent levy, or as much as 55 per cent if paid as a lump sum.
But it could also net the Treasury £250million and help the Chancellor bring the finances on to a more even keel after high levels of Covid public spending.
Rishi Sunak is considering freezing the lifetime allowance for the rest of this parliament
David Davis said raising the tax burden ‘will do damage to the economy, that will do damage to my constituency’. Esther McVey, another ex-Cabinet minister said: ‘We desperately need to grow the economy and you can’t tax your way to economic growth’
The lifetime allowance usually rises with inflation and would be due to increase by £88,900.
If it is frozen, around 10,000 people with larger pensions are estimated to slip above the threshold.
The Chancellor, who recently marked one year in the job, will next Wednesday unveil the Government’s spending plans as the UK emerges from the crisis.
Government borrowing this financial year has hit £270.6billion – a reflection of the unprecedented peacetime spending to mitigate the economic harm of lockdown.
Boris Johnson has said ministers ‘will not pull the rug out’ and the £50billion furlough scheme and VAT and business rates cuts for tourism and hospitality are expected to continue until the end of June, as is the stamp duty holiday.
But Mr Sunak is expected to signal future tax rises and show the Government is fiscally prudent.
A Tory source said Chief Whip Mark Spencer had ‘read the riot act’ to MPs over the issue at a private meeting recently and made clear that he would not tolerate rebellions on the Budget
Corporation tax and capital gains tax (CGT) are both thought to be in the Chancellor’s crosshairs.
Corporation tax could increase from 19 per cent to 25 per cent, while CGT could be brought into line with income tax.
Speculation of such tax rises has spurred the rumblings of a possible revolt from Tory MPs worried they could stymie growth and innovation.
Former Cabinet minister David Davis last night vowed to oppose any increase in the tax burden, which he said was the highest for half a century.
Esther McVey, another ex-Cabinet minister said: ‘We desperately need to grow the economy and you can’t tax your way to economic growth.
Sir Keir Starmer has also suggested ministers should not announce tax rises, paving the way for an unlikely alliance between Labour – which has historically favoured higher levels of public sector spending – and the Conservative rebels.
Downing Street last night moved to squash any rebellion by warning that votes on the Budget would be treated as a ‘confidence issue’, suggesting that any tempted to rebel would lose the Tory whip.
A Tory source said Chief Whip Mark Spencer had ‘read the riot act’ to MPs over the issue at a private meeting recently and made clear that he would not tolerate rebellions on the Budget.
No10 was not helped by a rare intervention from David Cameron, who said tax rises ‘wouldn’t make any sense at all’ in the wake of the pandemic.
The former prime minister told CNN: ‘So piling, say, tax increases on top of that before you’ve even opened up the economy wouldn’t make any sense at all.’
Mr Johnson has previously described himself as a tax-cutting Conservative and Tories typically prefer lower levels of state spending.
Indeed the Conservative 2019 election manifesto ruled out rises to VAT, income tax and national insurance payments.
But government borrowing throughout the crisis has increased the national debt, and although, interest rates are currently at historic lows, ministers are believed to be keen to redress the financial imbalances.