CRITICS yesterday lashed out at Labour’s latest raid on bank bonuses and taxpayers’ pension pots, warning that the plans could undermine confidence in the City.
Ed Miliband claims that his plan to cut pension tax relief for high earners will provide £900m to fund temporary guaranteed jobs for young people and the long-term unemployed.
But the money he wants to raise will be a direct hit to the pension pots of top-rate taxpayers and could slash retirement savings.
The plan would also rely on money from a bonus tax on banks, which Labour believes could raise up to £2bn a year – but which it has already pledged to use to reverse the VAT increase and build more homes.
A Westminster think tank hit back at the plans yesterday, warning that they would undermine already fragile confidence in savings.
“It is unacceptable that the Labour Party are undermining incentives to save through pensions to generate revenue for their latest political project,” a spokesperson for the Institute of Economic Affairs said.
“We need less tinkering and more certainty in both the pensions and bonus spheres,” he added.
Labour’s shadow chancellor Ed Balls said top-rate pension savers would see their tax relief cut by 25p in the pound to just 20p. At the moment savers who earn more than £150,000 are entitled to 45p relief, the same amount they pay in income tax.
A Labour spokesperson confirmed that taxpayers who earn between £41,450 and £150,000 would still be entitled to tax relief at 40p.
Financial secretary to the Treasury Sajid Javid drew attention to Labour’s other spending commitments for money generated by the bank bonus tax, suggesting that the scheme would not be sufficiently funded.
“Labour’s sums don’t add up,” he said. “They are proposing yet more unfunded spending, meaning more borrowing and more taxes to pay for it. And Labour’s bank tax is a short-term political gimmick that they want to spend 10 times over.”
James Sproule, chief economist at the Institute of Directors, warned the policy would not stand up to scrutiny.
“High taxation has done much to destroy the pensions system in the UK, and weakening the relief so that some people end up being taxed multiple times on their contributions would further undermine the system,” he added.