Sunak should 'step away' from pension triple lock says Gauke
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The pandemic has thrown up a world of uncertainty but one thing that seems certain is that taxes will have to be raised to cover the costs accrued from Covid borrowing over the last 18 months.
Looking ahead to the autumn Budget in November and with the UK facing a budget deficit of more than £300billion, Express.co.uk has taken a look at the tax increases rumoured to be being considered by the Chancellor Rishi Sunak
To put this figure in perspective, it is more than double the £150billion deficit faced after the last financial crash which precipitated a decade of austerity.
State pension triple lock:
Far the most controversial of any political decision will be whether to suspend the triple lock.
The triple lock guarantees that state pensions rise yearly in line with the highest out of inflation, earnings growth or 2.5 percent.
Rishi Sunak has previously hinted at a suspension of the triple lock, saying it’s a question of “fairness”.
Artificial wage growth this year after furlough reduced many wages to 80 percent of normal levels throughout the pandemic and as workers have peeled away from this support, wages have returned to normal levels, but this shows up as wage growth according to the triple lock formula.
Suspending the triple lock would be lucrative as it could lead to savings of £8billion.
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People will often save into their pension not only for the sake of financial security later in life, but also for the advantageous tax-benefits.
The cost of tax-reliefs on pension contributions comes at an estimated cost of £38billion according to the National Audit Office.
Cutting tax relief on pension contributions by limiting the tax relief to 20 percent may be a palatable option and could raise as much as £10billion.
The way tax relief on pension contributions currently work is that those paying Income Tax at the basic rate of 20 percent get a tax relief on pension contributions of 20 percent, those paying the higher rate of 40 percent on income can receive 40 percent pension tax relief and additional rate taxpayers paying 45 percent tax on income can claim 45 percent tax relief.
Essentially, the more one earns, the better the tax relief is.
It is speculated that as National Insurance (NI) is a broadly favoured tax, a rise would be more willingly accepted than other tax increases, for example an Income Tax hike.
Currently, NI is paid at 12 percent on earnings between £9,501 and £50,000 and at a rate of two percent over £50,000.
The 12 percent rate could be extended to earnings above £50,000, making it a flat rate.
Furthermore, the UK’s five million self-employed people pay NI at a rate of only nine percent on earnings over £9,501, a more favourable percentage as compared to other workers.
This, according to Rishi Sunak is “now much harder to justify” after the Government’s launch of the self-employment income support scheme (SEISS), which may be seen as an exchange for higher NI contributions.
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