Labour vows to reverse “huge giveaway” of pension allowance abolition

The debates began immediately after the Budget statement on Wednesday, continued on Thursday and will run into Monday and Tuesday next week. MPs will vote on the resolutions at the end of the debate on Tuesday. You can read the full Budget policy paper here.

Labour reaction

Labour leader Sir Keir Starmer said the Budget was a “sticking plaster” that left the UK “13 years stuck in a doom loop of lower growth, higher taxes and broken public services”.

He claimed the Government had missed the opportunity for a “proper windfall tax” which Labour has called for. He said the Government were right to go for investment allowances rather than acut to corporation tax, but he criticised the lack of stability to the Government’s approach: “The number of times they have changed corporation tax policy: 22. The Government could have used sensible taxation policies on non-doms or oil and gas companies and made the money work for working people.”

Starmer said changes to pension allowances will “benefit those with the broadest shoulders,” with many working people struggle to save any money in their pensions. He said: “We needed a fix for doctors, but the announcement today is a huge giveaway to some of the very wealthiest. The only permanent tax cut in the Budget is for the richest 1%.”

Shadow Chancellor Rachel Reeves said Labour would reverse the changes to tax-free pension allowances, adding: “It is the wrong priority, at the wrong time, for the wrong people. Instead, we would create a targeted scheme to encourage doctors to work overtime and not to retire early.”

She added that by failing to abolish non-dom tax status “yet again”, the Government was missing out on £3 billion every year, which Labour would put towards the NHS.

Pension reform

The announcements on pension reform were largely criticised by Labour MPs, with Dame Margaret Hodge saying they would benefit the rich, with the entire Budget a “tragically missed opportunity”. She said: “It will be not only the doctors, but the bankers and the millionaires. Is it really right to prioritise them in the middle of the cost of living crisis?”

Steve McCabe said although the pension plans will help with doctor retention, “in reality they will benefit those with existing large pension pots, and will do nothing for those on smaller incomes”, while Sir Stephen Timms, Chair of the Work and Pensions Committee, said pension tax relief is “already massively skewed in favour of the best-off”.

Dame Meg Hillier added: “Abolishing the lifetime allowance helps the richest 1%, but it does nothing for poorer workers. It will also do nothing to reverse the exodus from work. It might stop some people in their tracks and make them think, but many will have already made their pension plans.”

On the other side of the House, Andrea Leadsom said the pension cap and annual allowance measures were “fantastic news”. She said: “Although those sums sound like a lot, they do not actually deliver a decent pension, so I think that the measures are essential.”

Ranil Jayawardena added: “By abolishing the lifetime allowance, and by increasing the annual allowance and the money purchase annual allowance, we are helping people to provide for their own futures and supporting our NHS.” However, he said there is “always more to do”, with some doctors affected by the 62.5% “tax trap” between earnings of £100,000 and £125,000.

Kevin Foster said it is “absolutely clear” that many doctors would still be working in the NHS today if they had not already hit the lifetime allowance and “were penalised through their taxes for carrying on working”, with Mel Stride, Secretary of State for Work and Pensions, agreeing that it was a “myth” that older people will never return to work. Nigel Mills said previous difficulties overhauling the pension system meant there was “no alternative but to change the lifetime allowance significantly”, though he admitted surprise that it was abolished completely.

Corporation tax

Reaction to the increase in corporation tax was mixed, despite heavy criticism in the build-up to the Budget. However, there were some criticisms levelled at the decision by Conservative MPs. John Redwood said while the full expensing allowance will be “helpful”, it was actually replacing a more generous allowance, while the rate of business taxation was going up.

He said: “Any first-year allowance or initial allowance would make a positive difference, but if over the 20 or 25-year life of the factory or project under consideration we would be paying 31% more profits tax, it would clearly not look nearly as good as it does this year in the United Kingdom, when we have one of the lower tax rates in the world.”

Richard Drax (Conservative) said increasing corporation tax was a “regressive and regrettable move”, while oil and gas companies face “punitive” tax rates including the 50% corporation tax rate and a 35% windfall levy.

Craig Mackinlay (Conservative) said his worries about the corporation tax rise had been “broadly tempered” by full expensing but what concerns him “more than anything” is the proposal for the tax-free dividend amount to be reduced to £1,000 for 2023-24, and £500 in 2024-25.

He said: “Do we realistically want to catch people with fines through the door, because they have not realised what has happened and what has changed? Do we really want to drag potentially hundreds of thousands of retired taxpayers, who have never had to worry about a tax return, into the tax return system? I believe that the £500 threshold is unduly parsimonious.”

Priti Patel (Conservative) welcomed many of the measures but said the wider approach to corporation tax should be kept under review. She also said the introduction of a proposed global minimum tax on large enterprises should be paused, adding: “We know that the introduction of the minimum effective tax rate will be delayed in Washington and in other countries, so I would just ask him again to think carefully about the timing of this. Why now? Let us focus on the budgetary measures he has announced today and ensure we do everything possible to unleash the business potential and economic growth that we desperately and rightly want to see.”

Draft beer duty

Hillier said while the 11p reduction in duty on pints was “great”, this would be overshadowed by the huge business rates and energy bills being paid by many pubs. She said: “Add to that rent increases and other bills going up, and 11p a pint will not make the difference.”

Alun Cairns (Conservative) added: “Of course, we need to recognise that that duty is paid for by the brewers, and we need to call for the brewers to pass that benefit on to the pubs, because the pubs in our communities act as the fabric of society.”

Dave Doogan (SNP) welcomed the cut to duty on draught products, but said they “need to go further” and target the other issues affecting pubs such as VAT rates and energy costs. He said: “All of us in this place have pubs in our constituencies that are extremely valuable to our communities. We should all realise that when they are gone, they are gone and not coming back. So proper fiscal intervention to support pubs is the right thing to do. Failing to do that is penny wise, pound foolish.”

Lloyd Russell-Moyle (Labour) agreed that the “problem in our pubs” is business rates, land values and planning laws, which he said “allow speculative breweries to sell pubs and chuck out landlords, because they get better amounts for other uses.”

Other issues

Angela Eagle (Labour) said freezing income tax thresholds will create a “stealth tax”, reducing take-home pay and exacerbating the cost of living crisis for those “teetering on the brink”. Sammy Wilson (DUP) agreed that income tax threshold freezes would see more people “dragged” into the tax regime.

Jacob Rees-Mogg (Conservative) said many of the measures appeared to have been “picked out of a jar of sweeties”. He criticised the failure to uprate tax thresholds, meaning “everybody will have a real-terms increase in their tax”. He added he was disappointed at rising taxes since the Conservatives took office in 2010, adding: “Lower taxes raise more money. Let us for once move away from the old-fashioned and update ourselves to a modern age with tax cuts and economic growth.”

The House was broadly supportive of the continued cut in fuel duty, though Caroline Lucas (Green) said over several years, the freeze has seen emissions go up by 5%, while the Treasury has lost out on billions in funding. She instead called for a wealth tax on the richest 1% of people, which could raise up to £70 billion, with Clive Efford (Labour) agreeing that “a failure to tax the assets of the super-rich is leading to widening inequality”.

Harriet Baldwin (Conservative) criticised the continued inclusion of fuel duty in the Budget, branding forecasts behind the duty as “fiction”. She said: “We need to think long and hard about why a tax that is inflationary, that harms growth and that is heading the way of the dodo, as we all move to electric cars, is still in the forecast numbers.”

Read the full debates from Wednesday and Thursday.