Chancellor Rachel Reeves is understood to have been told by senior Treasury officials that reducing the level of tax relief on higher earners would disproportionally hit those on modest incomes who work for the state
Labour is expected to scrap plans for a tax raid on pension savings amid warnings that it would unfairly penalise up to a million teachers, nurses and other public sector workers.
Senior Treasury officials are understood to have told Rachel Reeves that reducing the current 40 per cent level of tax relief on higher earners would disproportionately hit those of relatively modest incomes who work for the state. It could, for example, hit a nurse earning £50,000 with an additional tax bill of up to £1,000 a year.
One senior government figure said it would be “madness” to inflict large tax rises on public sector workers, having just given them a pay rise. Another government source highlighted Labour ’s decision to drop plans to reintroduce a cap on the lifetime allowance on pension savings amid concerns that doing so would hit junior doctors.
“The government will take into account the impact on public sector workers,” they told The Times . It leaves Reeves with limited room for manoeuvre as she seeks to raise £16 billion in taxes to fill what she has described as a “black hole” in the public finances.
The chancellor is expected to submit her “major measures” to the Office for Budget Responsibility, the fiscal watchdog, on Wednesday. Among the changes Reeves is understood to be looking at are changes to capital gains tax, which is currently charged at a lower rate than income tax.
She is also examining closing loopholes on inheritance tax that could raise £4 billion for the Treasury, according to the Institute for Fiscal Studies think tank.
