The equalisation of pensions tax relief for higher and lower rate income taxpayers has been listed as part of a major tax shake-up proposed by the Liberal Democrats.
Speaking on The Andrew Marr Show yesterday, 17 September, Liberal Democrat leader Vince Cable said pensions tax relief should be treated equally between high earners and low earners.
Currently, those paying the lower rate of income tax at 20 per cent receive 20 per cent tax relief on their pensions contributions. Those paying the higher rate of income tax at 40 per cent, receive 40 per cent tax relief.
Former Liberal Democrat MP Steve Webb, who served as Pensions Minister between 2010 and 2015, previously suggested introducing a 33 per cent flat-rate pension tax relief amount.
The plan to reform pensions tax relief is part of a wider proposal to reform tax by the political party. Cable was also questioned on plans to scrap inheritance tax and replace it with a gifts tax.
“We’re proposing getting rid of inheritance tax and replacing it with a tax on people’s gifts through their lifetime. The problem we’re trying to address here is that the inequalities of wealth are massive and growing, and one of the major sources of underlying dissatisfaction.”
Cable said the party would use the revenue generated from the tax to put into a sovereign wealth fund that can be used to invest in the longer term. He said the proposed gift tax is used by the Irish and it “works quite well”.
Talking generally about the economy, Cable believes that the banks are safer from another financial crash than when the last crisis occurred in 2008. However, he warned that there are “a lot of other financial institutions that haven’t remembered the lessons of the crash”. He also noted that there are “dangerously” high levels of debt in the British economy amongst households and companies.