The Finance Committee has called on Chancellor Rishi Sunak to “urgently” reform the government’s “entire approach” to relieving pension taxes.
In their report on post-coronavirus taxes, MPs noted that due to the “regressive” nature of the benefits savers derive from the current pension tax relief regulations, a comprehensive reform was required.
The committee found that the problem particularly affected those in the upper earnings decile.
The pension tax break is the second most expensive tax break, according to the committee, costing an estimated £ 20.4 billion in 2018/19.
MPs argued that lowering the cost of covid-19 pension tax relief could make a “significant contribution” to public finances.
The committee said it had received various opinions on tax breaks, some of which were supportive while others called for a restriction.
“These are politically and economically sensitive matters that will be difficult to reach consensus on and where technical issues from various disciplines interact with policy decisions,” stated the Chartered Institute of Taxation.
“People’s expectations have evolved over many years and it is clearly undesirable to hack and switch too often. However, a full public, consultative review seems long overdue.
“This seems worth revisiting under the current circumstances. It may also provide a way to address the absolute tax breaks of the current system without having to attack one or more of them in isolation.
“Undoubtedly there were good reasons for the thumbs down given to the earlier consultation, but since then we have had the Covid-19 crisis and the partial withdrawal in the 2020 budget from the piecemeal complex measures taken over the past 12 years in order to reduce the weighting of the services in the system compared to the higher paid. “
A previous finance committee had asked the government to improve the system through “incremental changes” including replacing the lifelong allowance with a lower annual allowance, introducing a flat rate relief, and promoting an understanding of tax relief as a bonus or additional contribution.