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Should 40 per cent tax relief on pensions go?

Latest news on pensions, released nicely in time for the weekend papers to make a big thing out of is the suggestion that 40% tax relief on UK pension contributions should be limited to 20%. The timing is interesting not just because of its focus on the current dissatisfaction with the higher paid, but it also nicely distracts from the current mess over the NHS in which some Conservatives have even suggested Andrew Lansley should be shot. Cameron of course, the great PR man that he is, knew he had to come up with some other eye catching story that would hit the headlines. What better than a class issue of rich v poor?

Let’s look solely at pensions though (playing into Cameron’s hands I know, but pensions are a lot simpler than the NHS). Is it a good idea? Well, is the economy in a mess? Do we need to save money? Cutting Higher Rate tax relief on pension contributions could save £7 billion a year. That’s £35 billion over a Parliament. That’s a lot of money.

Alternatively the money (or at least some of it) could be used, as LibDem Chief Secretary to the Treasury Danny Alexander wants to do in the future, to take more of the lower paid (up to £12,500 a year) out of tax. This means those on the minimum wage, which does sound fair. It should also make it easier and thus cheaper for businesses to administer their payments to these workers which would be a stimulus for jobs. Give the low paid more spending money, and they’ll spend it – all of it – thus stimulating the economy which would be good for business.

Use it for tax relief for the rich and they’ll spend it in 30 years time when they retire. The economy needs a stimulus right now. If at the same time it costs nothing to do, or actually saves money, then surely it’s a no-brainer? Don’t forget, taking the tax threshold up to £12,500 benefits everyone, even the higher paid because they get that benefit too.

Trust a Liberal Democrat to come up with a sensible idea that helps everybody. Except the 1%. Sounds like a good idea to me.

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