Labour has promised to reverse chancellor Jeremy Hunt’s £1bn pensions tax ”giveaway for the wealthy” if it wins power at the general election expected in 2024.
Shadow chancellor Rachel Reeves said the party will seek to force a Commons vote next week on the Budget decision to scrap the lifetime pensions allowance (LTA).
Scrapping the so-called “doctors tax” is designed to prevent senior consultants retiring early from the NHS because the current pension rules mean it is not worth them carrying on working.
But Ms Reeves said a Labour government would reinstate the lifetime allowance and create a more targeted scheme just for doctors rather than allowing a “free-for-all for the wealthy few”.
Mr Hunt accused Labour of shifting their pensions allowance position “overnight” – pointing out that shadow health secretary Wes Streeting called for its abolition in September.
“If you talk to anyone in the NHS, they will say doctors leaving the workforce because of pension rules is a big problem,” he told Sky News. “It is something – incidentally – that Labour advocated last September. Wes Streeting said we should get rid of the cap on pensions.”
Mr Streeting said in September that Labour would abolish the “crazy” cap on doctors’ pensions. But he was referring to doctors specifically – rather than opening up the changes to all earners, as Mr Hunt has done.
The British Medical Association (BMA) previously estimated that a targeted removal of the pensions cap for NHS staff would cost only £32m. But the OBR estimated that Mr Hunt’s move to help all high earners move will cost close to £1bn.
“We could have a bespoke scheme for doctors … without spending a billion pounds on helping people with more than a million in pensions savings – that can’t be the right priority,” Ms Reeves told Sky News.
Mr Hunt insisted he was “systematically” removing the barriers to work – arguing that the pensions move could help to reduce the amount spent on locum and agency staff in the NHS.
But he admitted on BBC Radio 4’s Today programme that it was “impossible” to know exactly how many doctors would be encouraged to return to work or take on extra shifts because of his decision to ditch the lifetime pension allowance.
The chancellor announced at the Budget that the cap on the amount workers can put in their pension pot over their lifetime before they have to pay extra tax – currently £1.07m – will be abolished.
The Office for Budget Responsibility has estimated that the move – combined with an increase in the pensions annual tax-free allowance from £40,000 to £60,000 – will increase overall employment by 15,000 workers.
But the Resolution Foundation think tank said the pension move was “hugely wasteful” costing around £80,000 for everyone added the labour market.
“It’s a big victory for NHS consultants but poor value for money for Britain,” said chief executive Torsten Bell – saying the rich now have no limit on how much they put into their pension pots and can pass it on to their children with no inheritance tax.
“The more you think about this policy the worse it is,” said Mr Bell – adding that Mr Hunt had “basically ignored” Britain’s public services, which now “implausibly tight spending plans”.
Sir Keir Starmer attacked the pensions move as “huge giveaway to some of the very wealthiest” and a tax cut “for the richest 1%”. The Labour leader asked how it could “possibly be a priority for this government”.
Ms Reeves added: “At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people,” she said.
Unite general secretary Sharon Graham said it was a “budget of betrayal”, noting there “wasn’t a penny for the NHS pay in the budget”.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said it had been a “political choice” by Mr Hunt to scrap the pensions allowance cap freeze fuel duty and rather than fund pay awards for striking nurses and teachers.
Phil Brown, director of policy for People’s Partnership, provider of the People’s Pension, also criticised the plan. He said the changes “won’t impact the vast majority of hard-working savers”.
But Treasury sources insisted the policy was the “quickest and most effective way” to stop so many experienced doctors from retiring early.
