Chancellor Phillip Hammond only has pensions to look to as he needs to raise billions of pounds to ease government spending problems in his Autumn Budget 2017.
The only question, according to former Lib Dem pensions minister Steve Webb is how Hammond will collect the cash.
Webb, who is no longer an MP, says Hammond has a huge hole to plug in public spending and few places to look for the money.
The risk is he will look for the figures paid out with the most zeroes on the end – and that’s pension tax relief.
“He’s got to raise all the money he hasn’t raised, plus the economy is slowing, plus the spending pressure,” Webb said.
No room to tax ordinary families
“He’s a few months after a disastrous election, so he’s unlikely to raise the headline rates of income tax, national insurance or VAT, so where’s he going to look for money? Tax relief on pensions.”
Webb feels the government applies the Daily Mail test to financial planning.
If the average newspaper reader considers the tax relief a lot of money, then the chances are the axe could fall, says Webb.
Former chancellor George Osbourne lost the battle to limit pension contribution relief two years ago.
He wanted a flat rate rather than stepped levels for basic and higher rate taxpayers, but backbench MPS refused to go with his plans and they were dropped from his last Budget.
Punishing wealthy investors
But he did cut the lifetime allowance to £1 million and Webb argues that is still a figure with some margin to cut even further as few ordinary voters could ever save that amount in their working lives.
“A chancellor can always find half a billion in pensions tax relief, where the impact is not felt as heavily as if the cuts came to schools, or the NHS,” said Webb.
Axing pension relief follows the trend of other Budget rumours hinting Hammond will punish wealthy investors rather than looking to ordinary families to make up the slack in the government accounts.
Several industry figures have suggested Hammond is likely to stop generous tax reliefs on programs such as the Seed Enterprise Investment Scheme and Enterprise Investment Scheme.