Reports of the death of pensions tax relief have, like Mark Twain nearly wrote, been much exaggerated.
I’m more guilty than most, given I’ve written a lot of those reports, inevitably on the eve of a Budget as Treasury mandarins put the feelers out to gauge the press and public’s appetite for reform.
Time and again, incumbent chancellors have scrapped their plans at the eleventh-hour in the face of outrage at this attack on the British middle classes.
But this time, I’m convinced it is different. Coronavirus is going to cause the worst economic slump for 300 years, estimates the Office of Budget Responsibility, going all the way back to the Great Frost of 1709 when famine and riots drove Europe to despair.
Corporate advisers know better than anyone that these dire predictions really are not overblown. Unless something very dramatic happens, a huge proportion of British workers will be unemployed, once the life support of the Government’s salary guarantee is turned off. Firms, both big and small, are at the mercy of banks who are doing their best not to lend.
In the face of such catastrophe, what vested interests are safe?
The measurements outlined by Rishi Sunak are extraordinary and come with an extraordinary bill – according to my colleagues on the Telegraph economics desk, the Treasury may borrow as much as £300bn this year alone.
Already, we know that Sunak is going to use the crisis to hike National Insurance rates for the self-employed, bringing this rapidly growing group into line with employed workers. This longed-for Conservative Party reform, last abandoned by Philip Hammond in 2017, is explicitly the quid pro quo for bringing freelancers into the crisis bailout scheme.
Last time, the media saw off Hammond’s proposal, branding it an attack on entrepreneurs.
When Sunak’s version goes through Parliament, there won’t be a murmur, I suspect. This is not the time to call for a small state and low taxes.
Tweaking National Insurance rates is clearly not in the same league as fundamental reform of the pensions tax relief system. The complexity of the latter – my learned friends in the technical departments of stock brokers, life companies and actuarial firms tell me – is mind-bending.
Yet, framed in the right way, my money’s on the Chancellor’s next “proper” Budget, that is, one that is not entirely devoted to combating coronavirus, containing this most controversial of pension policies.
It will be part of a broader package that promises to “share the burden” of the whopping coronavirus bill. A flat rate of relief might come alongside overdue revision of council tax rules (which would see bigger homes pay far more), a levy specifically for funding the NHS, and perhaps even that anathema to the British establishment, a wealth tax.
While the elderly are in the crosshairs of the virus, they are also the most likely to emerge
economically unscathed. With mortgages paid off, membership of lucrative final-salary schemes and in receipt of index-linked state pensions, their wealth will grow ever further beyond the working population.
Although cuts to pensions tax relief would hit those of working age rather than the retired, it will be lumped in under the flag of redistribution. Who, after such a devastating blow to Britain’s health, would dare lobby against that?
At a net cost of around £35bn a year, the most cash-strapped of all cash-strapped chancellors surely will not pass up the tax relief prize that has evaded his predecessors. In normal times, slashing relief to a flat 30pc or flipping to an Isa “top up” model would go down about as well as a rendition of The Red Flag in Tory heartlands.
At the next election, however, the Conservatives will be courting what could be the most hostile electorate in history, seething in mass unemployment and resentment at the state the NHS was left in after years of underfunding. Taking billions of pounds in top-ups for higher and top-rate taxpayers would be one way of appealing to voters.
