Tax plans being put forward by both Labour and the Conservatives in the run-up to the General Election risk having a ‘long-term malign influence’ on the economy, the Institute for Fiscal Studies (IFS) has warned.
Specifically, the think-tank claims that proposals from both main parties to cut tax relief on pension savings have the ‘potential to be complex, damaging and counter-productive.’
Earlier this month the Tories announced their intention to slash the pension annual allowance from £40,000 to £10,000 for additional rate taxpayers who earn over £150,000.
The Conservatives said the measure would fund an inheritance tax (IHT) cut, which would exempt homes worth up to £1 million from IHT.
Meanwhile, the Labour party said it would remove the current system based on income tax bands and cut pension tax relief to 20%.
However, the IFS has warned that ‘we risk rushing towards something like chaos in the taxation of pensions for those on high incomes.
‘While only affecting a relatively small number of high-income individuals, both sets of proposals have the potential to be complex, damaging and counter-productive.’
It added: ‘The undesirable distortions to savings behaviour and to work incentives have the potential to be significant… there is a danger that the tax proposals being put forward through this General Election campaign will have a long-term malign influence on our tax system and economic welfare’.
