The government is allegedly planning to fund tax cuts for younger people by cutting the money spent on tax relief for older workers – a policy AJ Bell warned was a “nightmare to implement”.
According to The Telegraph, Hammond (pictured) is understood to be examining ways to link tax to age to promote intergenerational fairness in next month’s Budget.
The Telegraph claimed tax breaks would be offered to workers in their 20s and 30s, paid for by cutting reliefs for older and better off workers.
AJ Bell senior analyst Tom Selby warned the idea would be “a nightmare to implement both practically and politically”.
He said: “On a practical level, 60% of pension tax relief is received on employer contributions, rather than individual contributions.
“So while it would be relatively simple to restrict higher rate tax payers from reclaiming additional relief via their tax return at a certain age, changes would need to be introduced to catch employer pension contributions, including salary sacrifice arrangements, so that they can’t be used to circumvent the new rules.”
Selby also said final salary pensions would have to be looked at to ensure they are treated on an equal basis to money purchase pensions.
“It is not simple, would take years to implement and is unlikely to deliver the immediate budget injection the Chancellor is seeking to help younger people,” he said.
Thin ice
Selby said politically Hammond “would be treading on very thin ice,” pointing out the older demographic still held the key to electoral success and so “raiding their pensions” would risk alienating core Tory voters.
He said: “This speculation further strengthens the argument for moving pension tax relief policy out of politics. Rather than altering the framework at a whim in order to make short-term political gain, an independent commission should be established to review the system with a long-term time horizon and consider what, if any, changes need to be made.”
Meanwhile former pensions minister Ros Altmann said the potential measure seemed “fraught with danger”.
“The suggestion that older people should be punished to provide more money for the young could harbour potentially lethal political damage,” she said.
“The Tories core voters are older people, it would be rash in the extreme to risk alienating them in the coming Budget. The lesson from the election manifesto is that punishing the old is not a sensible way to attract younger voters, but is a recipe for losing support of older generations.”
The Conservatives failed to secure the majority pollsters had predicted in June’s general election.
One of the biggest hiccups in the party’s election campaign was the Conservative’s U-turn on their care policy, which saw their popularity dip in the polls.
It was the second major U-turn the Tories undertook in less than six months after Hammond dropped proposals to raise National Insurance Contributions (NICs) for the self-employed as announced in the spring budget.
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