Pensions are the least vaunted candidates for tax rises in the October 30th budget. Though, as we come on to later, taxing large pensions (pension wealth) is quite alright.
This is an extraordinary chart , put together for Dan Niedle and The Tax Associates by Gabriel Milland of Portland Communications
Which is reinforced by the people who want to pay higher taxes , typically “not us”. There is a little more nervousness here about pensions with “large” pensions being a category that most people seem rather calmer about when it comes to “them”. Cutting pensions is much more popular as long as its other people’s (large) pensions that pay-up.
Joe Public is having a laugh , joking that MP’s expenses is up there with unemployment benefit and interest on Government debt. While the NHS is acknowledged as the big sump, claiming that money spent on migrants suggests that prejudice plays a big part in people’s thinking.
The reality is much more prosaic
We actually have our money spent for us on day to day public services, social security is about a quarter of this (and includes the cost of pensions)
If we really believed that money raised from taxes was making things better, I suspect we’d be happier to pay it , but right now we remember the 40 hospitals that never got built and we are damned if it’s our taxes that fill the black hole the last Government left us.
This is the key to me of why the Government will not tax retirement savers, through NI on employer contributions. Remember, we don’t mind large pensions being taxed but we won’t have cuts to our retirement saving.
What is clear is that people do not fall for the tax on employer’s national insurance being anything other than a tax on us. Taxing pension contributions will be as unpopular as taking away the winter fuel allowance. Only the nobs fear a cut in tax-free cash and inheritance tax allowances, most people have an interest in employers paying into their pension.
My takeaways
People don’t want any tax on their pensions but they’re happy enough if the tax is on inheritance tax or on large pensions where they’re not involved.
People see taxes on employment costs like NI as a tax on the employer’s capacity to pay them.
In short , people are happy for taxes on other people but not on them.
So what would you do if you were Rachel Reeves?
No Chancellor wants to rile the home terrace and I’d be surprised if a smart Chancellor taxed ordinary people’s pensions via the back door (especially as people see NI as a tax on them whether it comes as a payroll deduction or not).
Make sure that the bulk of the budget is about capital expenditure on the things the Tories didn’t do (and didn’t properly cost). Make sure that the bulk of the taxation is on other people.