The government has been amassing a large debt these past Covid filled months.

A leaked treasury document dated 5 May considered how to fill this gap.

“To raise fiscally significant amounts, we would either have to increase rates/ thresholds in one of the broad-based taxes … or reform one of the biggest tax reliefs (eg pensions tax).”

A change to the system of tax relief could offer an opportunity to address the philosophy of the current system.

It might also allow for the opportunity to alter the parameters to lower cost, better target incentives, or close loopholes.

For a lower cost it would be possible to offer a higher benefit to basic-rate taxpayers through a flat rate of tax relief, while still retaining some tax advantage for higher and additional rate taxpayers.

This would improve outcomes achieved by a large proportion of the new pension savers brought in through automatic enrolment.

Women, in particular, would stand to benefit due to their higher likelihood of being a basic rate taxpayer.

However, implementing any change to the tax relief system would present challenges and could be associated with significant cost to industry.

It would introduce uncertainty and confusion, at least in the short term.

Right now, in the midst of a global pandemic, it would be reasonable to consider what capacity industry has for any additional uncertainty and confusion.

Share Story: