Latest news with #NIESR
Telegraph
6 days ago
- Business
- Telegraph
HMRC plans for tax raid on pensions
Millions of pension savers are at risk of a stealth tax raid under Rachel Reeves after officials launched an inquiry into workplace retirement schemes. His Majesty's Revenue and Customs (HMRC) is exploring a shake-up of the salary sacrifice systems used by employees at around half of British companies. The money could be used to plug the black hole in the public finances, estimated at tens of billions of pounds, left by the Chancellor's October Budget and tariffs by Donald Trump. But the reforms could cost the average earner more than £500 a year in extra income tax and National Insurance, significantly reducing the size of their pension pot. The National Institute of Economic and Social Research (NIESR) think tank warned on Tuesday that the Chancellor could have to raise taxes by up to £30bn in the autumn Budget to fund benefit giveaways and the rising cost of borrowing. Labour MPs are calling on the Government to relax its fiscal rules, which say that debt must be projected to fall as a percentage of GDP in five years' time. They have also called for reversals of Sir Keir Starmer's planned cut in benefits. The Prime Minister has already changed course on planned cuts to the winter fuel allowance, and may also scrap the two-child benefit limit, which would cost £2.5bn a year. Sir Steve Webb, the former pensions minister, said HMRC's consultation put a potential tax raid 'firmly on the agenda', while Jonathan Watts-Lay, a financial wellbeing specialist, said it would cause people pain either 'now or in retirement'. The warnings come after it emerged that higher earners were increasingly using salary sacrifice to stuff their pensions and avoid tax 'cliff edges'. Salary sacrifice allows an employee to voluntarily give up part of their earnings in order to avoid paying income tax and National Insurance on that portion. The Government is thought to be considering taxes on the wealthy ahead of this year's Budget, when the cost of tax rises last year will be laid bare by the UK's fiscal watchdog. As many as half of businesses offer a salary sacrifice scheme as a method of making pension contributions, which can provide workers with substantial savings and boost their retirement pots. The documents, published by HMRC, showed that 51 firms, 41 of which already offered a scheme, were consulted on three possible changes to salary sacrifice. Under one of the proposals, income tax and National Insurance relief would be removed. Someone earning £35,000 a year and paying 5pc into their pension would lose £560 a year in total, while it would cost their employer £241 more. A second option proposed removing only National Insurance relief, costing the employee £210 and their employer £241. In the third option, where National Insurance relief would be removed on any amount sacrificed over £2,000, the report said someone earning £45,000 would lose £30 a year and employers would spend another £34. Employers viewed each option negatively, with some seeing the removal of both types of relief as a threat to salary sacrifice itself. They are also likely to be unpopular with the public, after a series of raids on the better-off, including through increases in inheritance tax, capital gains tax and VAT on private school fees. As a backbencher, Ms Reeves campaigned to reduce all pensions tax relief to a flat rate of 33pc. Sir Steve, now of consultants LCP, said it was 'very revealing' that HMRC had paid for research into the response of employers. He said: 'Although the research was commissioned under the previous government, the desire to raise additional revenue is, if anything, even more acute today. 'With a chancellor reportedly looking to make up a multibillion-pound hole in the public finances in her autumn Budget, this research suggests that changes to salary sacrifice are firmly on the agenda, and likely to be considered as a potential revenue-raising measure.' Mr Watts-Lay, of financial wellbeing and retirement specialists Wealth at Work, said the move was a 'stealth tax'. He said: 'It would be bad for everyone. Whether they just do National Insurance or National Insurance and income tax, the fundamental of all those scenarios is that [people] have less money going into their pension unless they up their contributions. 'You're basically saying to someone you either need to pay more money, or you carry on and your pot will be smaller when you get to retirement. 'There's no positive impact of it. They either take the pain, or they take the pain when they get to retirement.' Experts this week warned that Labour's pledge to restore many pensioners' winter fuel payments and review the two-child benefit cap had piled more pressure on the Chancellor to raise more money. Stephen Millard, of the NIESR, said Ms Reeves could be forced to break a manifesto pledge not to increase income tax, National Insurance or VAT as the amount she was forced to raise hit between £10bn and £30bn. The number of people earning just under £100,000 is also rising as people look to restrict their earnings with four-day weeks, more holidays and higher pension contributions. Currently, earning over that amount can lead to someone paying an effective income tax rate of 60pc and losing their entitlement to free childcare. A Treasury spokesman said: 'These claims are totally speculative. HMRC regularly commissions independent research on all aspects of the tax system. 'We are committed to keeping taxes for working people as low as possible.'
Yahoo
26-05-2025
- Business
- Yahoo
Labour giveaways risk sparking £30bn tax raid
Rachel Reeves is being forced towards a tax raid of up to £30bn by benefit giveaways and her struggle with rising borrowing costs. Experts fear higher taxes are now inevitable after Labour pledged to restore winter fuel payments and review the two-child benefit cap, piling costs on the beleaguered Chancellor. The growing pressure risks driving the Government to break a manifesto pledge not to increase income tax, National Insurance and VAT, economists warned. Stephen Millard, acting director of the National Institute of Economic and Social Research (NIESR), said: 'It is pretty much inevitable now that she will have to raise one of those big taxes.' Mr Millard said the amount the Chancellor will be forced to raise could range anywhere from £10bn to £30bn. It follows record tax increases of £40bn by Ms Reeves last year, which the Chancellor has promised not to repeat. Mel Stride, the shadow chancellor, said Ms Reeves was 'out of her depth', adding: 'Rachel Reeves, our tin foil Chancellor, has folded at every turn – rewriting fiscal rules and then constantly teetering on the edge of breaking them, while at the same time fuelling speculation over welfare U-turns.' Ms Reeves left herself only a wafer-thin margin of error of £9.9bn at the Spring Statement against her fiscal rules. Around £4.4bn of this buffer has already been wiped out by Donald Trump's trade war pushing up borrowing costs, according to Capital Economics. Meanwhile, Sir Keir Starmer last week bowed to pressure from backbenchers and abandoned steep cuts to pensioners' winter fuel payments, an about-turn that will cost the Treasury up to £1.5bn. The Prime Minister is also understood to be pushing for the abolition of the two-child benefit cap, which experts widely blame for a rise in child poverty, potentially costing a further £3.5bn by the end of the decade. Public sector pay deals will cost the Treasury around £2bn more than previously budgeted for, although the Government intends to try to make departments offset this with savings elsewhere. A crackdown on migration will also plunge the Chancellor £7bn further into the red against her fiscal rules, previous analysis by the fiscal watchdog suggests. The combined cost to the Treasury stands at more than £18bn, with the risk of another blow if the Government's fiscal watchdog downgrades estimates for productivity growth that are widely regarded as over-optimistic. Ms Reeves will come under heavy pressure from her own party to fill the gap with tax rises rather than spending cuts. Last week The Telegraph disclosed a leaked memo by Angela Rayner, the Deputy Prime Minister, calling for a raft of tax increases on higher earners and the wealthy. Treasury figures on Monday sought to cast doubt on Ms Rayner's maths, suggesting she had overestimated how much could be raised by the tax grab. Richard Tice, deputy leader of Reform UK, said: 'Labour has lost control of the economy, mainly due to Reeves's wild public sector pay rises. More taxes will ruin what's left of the economy and more entrepreneurs are leaving her car crash by the week.' Ms Reeves is in danger of a further blow when the Office for Budget Responsibility (OBR) next assesses the UK's productivity, potentially forcing her to raise taxes even further. A downgrade to its productivity forecasts would mean the economy is projected to grow more slowly than currently expected, decreasing the predicted tax take. Figures from the Office for National Statistics (ONS) on Friday showed that the private sector is 0.7pc less productive than it was before the pandemic, in a development that is unlikely to help the Chancellor. Even a 0.1 percentage point cut a year to productivity forecasts from 2025 to 2029 could knock £10bn off the fiscal headroom. Yael Selfin, chief economist at KPMG, said: 'The OBR assumption of longer-term productivity is relatively optimistic. It is possible that they may decide to revise that assumption downward, in which case there'll be less fiscal room.' Ms Reeves will hope that trade deals with the EU, India and the US will help buy her back some breathing room. But if the Chancellor is tens of billions of pounds in the red by autumn, she must choose between tax rises, spending cuts or tweaking her fiscal rules. Loosening Ms Reeves's 'iron-clad' fiscal rules would threaten another gilt meltdown pushing up borrowing costs, if bond vigilantes sense the Chancellor's discipline is slipping. Britain's tax burden is already at a 75-year high, after the Chancellor raised taxes by a record £40bn last autumn. In a further headache for the Chancellor, the Government's borrowing for the year ending in March overshot OBR forecasts by £11bn. A Treasury spokesman said: 'The fiscal rules are non-negotiable. We put them in place to create stability and support investment and have seen what happens when fiscal rules are put to one side. 'We are delivering growth built on strong and secure foundations through our Plan for Change, and we've seen the fastest economic growth in the G7 in the opening quarter of the year. At the same time, we're also protecting payslips for working people by keeping our promise to not raise the basic, higher or additional rates of Income Tax, employee National Insurance or VAT.' Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Gulf Today
18-05-2025
- Business
- Gulf Today
£25bn prize at stake in Starmer's Brexit reset talks with EU
Alicja Hagopian and David Maddox, The Independent A £25bn annual boost to British exports is at stake for Sir Keir Starmer as he tries to secure a Brexit reset deal at a crucial summit on Monday, analysis shared with The Independent reveals. Removing trade barriers on goods, including food and drink and electrical items, could result in a 2.2 per cent uplift in gross domestic product in the long run, boosting the economic growth the prime minister so desperately wants to deliver, financial analysts Frontier Economics found. And a separate assessment by the National Institute for Economic and Social Research (NIESR) warns that a failure to land a deal for easier trading could lead to a 2.7 per cent drop in exports by 2027, costing the UK economy almost £30bn. The impact on the British economy from such a deal is expected to dwarf that of the agreements recently signed with India and the US. On Saturday night, Sir Keir said it would be 'good for our jobs, good for our bills and good for our borders'. Gordon Brown's former economic adviser Lord Jim O'Neill summed up the importance of Sir Keir's summit in London: 'Obviously, the closer and more serious we can get, the better it is for reversing our net trade losses, and importantly, net investment from EU areas. 'Given the shock from Trump (tariffs) to Europe, especially on Germany, on top of the Ukraine shock and China slowdown, I think Germany (will be) more open to pro-UK trade issues than before. 'Also, I suspect the EU is going to give more than lip service to cross-border services sector reform now. Given UK net advantages in service sector exports, this is important to us.' Such reforms could make it easier for the UK to sell services to the bloc by allowing mutual recognition of qualifications so UK professionals can practice in the EU and vice versa without having a retrain. NIESR's interim director Stephen Millard said the value of Monday's deal should not be underestimated. He said: 'In 2024 we exported roughly £6.5bn to India, roughly £53.5bn to the United States and roughly £159bn to the European Union. It is fairly clear from those numbers that a trade deal with the European Union is much more likely to shift the dial than the deals with India and the United States.' His assessment was echoed by Chris Southworth, director general of the UK's largest business organisation, the International Chambers of Commerce, who noted that the trade deal signed with Donald Trump, which saw tariffs slashed on UK car and steel exports, was a 'damage limitation agreement' and only accounted for 13 per cent of international gross domestic product (GDP). But he fears the deal to be unveiled on Monday 'may not be ambitious enough' especially if it only focuses on goods rather than the future growth areas of digital services. It is a view shared by the Labour chair of the Commons foreign affairs committee Dame Emily Thornberry. In an interview with The Independent, she called on Sir Keir to be more 'courageous', adding: 'We should be going further than the government currently seems to have the ambition for doing.' The deal is expected to include closer defence cooperation, goods and services, and a youth mobility agreement, which would allow 18- to 30-year-olds to live and work in the UK and Europe for a time-limited period. It has also been reported that it will include an agreement to allow EU trawlers to fish in British waters. Two immediate big wins could be to include the UK in the €150bn (£126bn) EU defence procurement fund, which would allow the government to bid for military equipment contracts and invite them to join the EU data hub. The latter is being championed by Poland, who currently have the presidency of the EU. A special report from earlier this year found that Brexit had cost the UK £30.2bn in settlement costs, stopped 16,400 businesses from exporting to the EU, and could lead to a 15 per cent long-term loss of trade. From the £24.8bn export boost for the UK estimated by Frontier Economics in a report commissioned by pro-EU group Best for Britain, farm food exports alone could see a £3.2bn increase. Agricultural exports have suffered since Brexit, with food and drink exports down by more than a third, according to trade bodies. The EU, meanwhile, would also benefit, with a £22.4bn boost to exports in goods and services from a closer agreement, selling £5bn more in agricultural products. Amar Breckenridge, senior associate at Frontier Economist, said that some of the economic damage caused by President Trump's tariffs could be offset by the benefits of a closer EU trading relationship. While tariffs could still cost the UK £4.3bn in GDP under the new US trade deal, Mr Breckenridge estimates the UK could claw back £8.1bn from closer trading with the EU. The long-awaited youth mobility scheme alone could boost GDP by 0.45 per cent in the next decade, according to a separate study from the Centre for European Reform. But recent reports suggest that the deal might hit speed bumps in a row over high student fees for EU students coming to the UK, in addition to a lack of flexibility over the amount of fish EU countries can take from British waters.
Yahoo
17-05-2025
- Business
- Yahoo
The £25bn-a-year prize at stake in Starmer's Brexit reset talks with EU
A £25bn annual boost to British exports is at stake for Sir Keir Starmer as he tries to secure a Brexit reset deal at a crucial summit on Monday, analysis shared with The Independent reveals. Removing trade barriers on goods, including food and drink and electrical items, could result in a 2.2 per cent uplift in gross domestic product in the long run, boosting the economic growth the prime minister so desperately wants to deliver, financial analysts Frontier Economics found. And a separate assessment by the National Institute for Economic and Social Research (NIESR) warns that a failure to land a deal for easier trading could lead to a 2.7 per cent drop in exports by 2027, costing the UK economy almost £30bn. The impact on the British economy from such a deal is expected to dwarf that of the agreements recently signed with India and the US. Gordon Brown's former economic adviser Lord Jim O'Neill summed up the importance of Sir Keir's summit in London: 'Obviously, the closer and more serious we can get, the better it is for reversing our net trade losses, and importantly, net investment from EU areas. 'Given the shock from Trump [tariffs] to Europe, especially on Germany, on top of the Ukraine shock and China slowdown, I think Germany [will be] more open to pro-UK trade issues than before. 'Also, I suspect the EU is going to give more than lip service to cross-border services sector reform now. Given UK net advantages in service sector exports, this is important to us.' Such reforms could make it easier for the UK to sell services to the bloc by allowing mutual recognition of qualifications so UK professionals can practice in the EU and vice versa without having a retrain. NIESR's interim director Stephen Millard said the value of Monday's deal should not be underestimated. He said: 'In 2024 we exported roughly £6.5 billion to India, roughly £53.5 billion to the United States and roughly £159 billion to the European Union. It is fairly clear from those numbers that a trade deal with the European Union is much more likely to shift the dial than the deals with India and the United States.' His assessment was echoed by Chris Southworth, director general of the UK's largest business organisation, the International Chambers of Commerce (ICC), who noted that the trade deal signed with Donald Trump, that saw tariffs slashed on UK car and steel exports, was a 'damage limitation agreement' and only accounted for 13 per cent of international Gross Domestic Product (GDP). But he fears the deal to be unveiled on Monday 'may not be ambitious enough' especially if it only focuses on goods rather than the future growth areas of digital services. It is a view shared by the Labour chair of the Commons foreign affairs committee Dame Emily Thornberry. In an interview with The Independent, she called on Sir Keir to be more 'courageous', adding: 'We should be going further than the government currently seems to have the ambition for doing.' The deal is expected to include closer defence cooperation, goods and services, and a youth mobility agreement, that would allow 18 to 30 year olds to live and work in the UK and Europe for a time-limited period. Two immediate big wins could be to include the UK in the €150bn EU defence procurement fund, which would allow the government to bid for military equipment contracts and, invite them to join the EU data hub. The latter is being championed by Poland who currently have the presidency of the EU. A special report from earlier this year found that Brexit had cost the UK £30.2bn in settlement costs, stopped 16,400 businesses from exporting to the EU, and could lead to a 15 per cent long-term loss of trade. From the £24.8bn export boost for the UK estimated by Frontier Economics in a report commissioned by pro-EU group Best for Britain, farm food exports alone could see a £3.2bn increase. Agricultural exports have suffered since Brexit, with food and drink exports down by more than a third, according to trade bodies. The EU, meanwhile, would also benefit; with a £22.4bn boost to exports in goods and services from a closer agreement, selling £5bn more in agricultural products. Amar Breckenridge, senior associate at Frontier Economist said that some of the economic damage caused by President Trump's tariffs could be offset by the benefits of a closer EU trading relationship. While tariffs could still cost the UK £4.3bn in GDP under the new US trade deal, Mr Breckenridge's estimated the UK could claw back £8.1bn from closer trading with the EU. The long-awaited youth mobility scheme alone could boost GDP by 0.45 per cent in the next decade, according to a separate study from the Centre for European Reform. But recent reports suggest that the deal might hit speed bumps in a row over high student fees for EU students coming to the UK, in addition to a lack of flexibility over amount of fish EU countries can take from British waters. On youth mobility, John Springford, associate fellow at the Centre for European Reform, noted: 'The youth mobility scheme would raise GDP by bringing more young EU workers into the UK labour force - although the final numbers will depend on how many are allowed to come and how long they can stay for.' Introducing it could amount to 31,000 more young people a year coming to the UK at the highest end, which would mean more people working and contributing to the economy. But EU officials want lower fees for their students, according to reports, which is causing tension ahead of Monday's talks. International students currently pay around £12,000 more in fees on average a year than domestic students. The number of EU students at UK universities has dropped to nearly half since Brexit, with 75,000 EU nationals enrolled in British colleges and universities in the 2023/24 academic year - down from 148,000 in 2019. The Independent estimates that UK universities generate around £1bn a year in extra fees from EU students, which is likely why the government is facing domestic pushback over lowering fees. Lowering fees would have a positive impact because EU students spend around £61,000 here over the course of their studies, research from London School of Economics found, on top of their tuition fees.
The Independent
17-05-2025
- Business
- The Independent
The £25bn-a-year prize at stake in Starmer's Brexit reset talks with EU
A £25bn annual boost to British exports is at stake for Sir Keir Starmer as he tries to secure a Brexit reset deal at a crucial summit on Monday, analysis shared with The Independent reveals. Removing trade barriers on goods, including food and drink and electrical items, could result in a 2.2 per cent uplift in gross domestic product in the long run, boosting the economic growth the prime minister so desperately wants to deliver, financial analysts Frontier Economics found. And a separate assessment by the National Institute for Economic and Social Research (NIESR) warns that a failure to land a deal for easier trading could lead to a 2.7 per cent drop in exports by 2027, costing the UK economy almost £30bn. The impact on the British economy from such a deal is expected to dwarf that of the agreements recently signed with India and the US. Gordon Brown's former economic adviser Lord Jim O'Neill summed up the importance of Sir Keir's summit in London: 'Obviously, the closer and more serious we can get, the better it is for reversing our net trade losses, and importantly, net investment from EU areas. 'Given the shock from Trump [tariffs] to Europe, especially on Germany, on top of the Ukraine shock and China slowdown, I think Germany [will be] more open to pro-UK trade issues than before. 'Also, I suspect the EU is going to give more than lip service to cross-border services sector reform now. Given UK net advantages in service sector exports, this is important to us.' Such reforms could make it easier for the UK to sell services to the bloc by allowing mutual recognition of qualifications so UK professionals can practice in the EU and vice versa without having a retrain. NIESR's interim director Stephen Millard said the value of Monday's deal should not be underestimated. He said: 'In 2024 we exported roughly £6.5 billion to India, roughly £53.5 billion to the United States and roughly £159 billion to the European Union. It is fairly clear from those numbers that a trade deal with the European Union is much more likely to shift the dial than the deals with India and the United States.' His assessment was echoed by Chris Southworth, director general of the UK's largest business organisation, the International Chambers of Commerce (ICC), who noted that the trade deal signed with Donald Trump, that saw tariffs slashed on UK car and steel exports, was a 'damage limitation agreement' and only accounted for 13 per cent of international Gross Domestic Product (GDP). But he fears the deal to be unveiled on Monday 'may not be ambitious enough' especially if it only focuses on goods rather than the future growth areas of digital services. It is a view shared by the Labour chair of the Commons foreign affairs committee Dame Emily Thornberry. In an interview with The Independent, she called on Sir Keir to be more 'courageous', adding: 'We should be going further than the government currently seems to have the ambition for doing.' The deal is expected to include closer defence cooperation, goods and services, and a youth mobility agreement, that would allow 18 to 30 year olds to live and work in the UK and Europe for a time-limited period. Two immediate big wins could be to include the UK in the €150bn EU defence procurement fund, which would allow the government to bid for military equipment contracts and, invite them to join the EU data hub. The latter is being championed by Poland who currently have the presidency of the EU. A special report from earlier this year found that Brexit had cost the UK £30.2bn in settlement costs, stopped 16,400 businesses from exporting to the EU, and could lead to a 15 per cent long-term loss of trade. From the £24.8bn export boost for the UK estimated by Frontier Economics in a report commissioned by pro-EU group Best for Britain, farm food exports alone could see a £3.2bn increase. Agricultural exports have suffered since Brexit, with food and drink exports down by more than a third, according to trade bodies. The EU, meanwhile, would also benefit; with a £22.4bn boost to exports in goods and services from a closer agreement, selling £5bn more in agricultural products. Amar Breckenridge, senior associate at Frontier Economist said that some of the economic damage caused by President Trump's tariffs could be offset by the benefits of a closer EU trading relationship. While tariffs could still cost the UK £4.3bn in GDP under the new US trade deal, Mr Breckenridge's estimated the UK could claw back £8.1bn from closer trading with the EU. The long-awaited youth mobility scheme alone could boost GDP by 0.45 per cent in the next decade, according to a separate study from the Centre for European Reform. But recent reports suggest that the deal might hit speed bumps in a row over high student fees for EU students coming to the UK, in addition to a lack of flexibility over amount of fish EU countries can take from British waters. On youth mobility, John Springford, associate fellow at the Centre for European Reform, noted: 'The youth mobility scheme would raise GDP by bringing more young EU workers into the UK labour force - although the final numbers will depend on how many are allowed to come and how long they can stay for.' Introducing it could amount to 31,000 more young people a year coming to the UK at the highest end, which would mean more people working and contributing to the economy. But EU officials want lower fees for their students, according to reports, which is causing tension ahead of Monday's talks. International students currently pay around £12,000 more in fees on average a year than domestic students. The number of EU students at UK universities has dropped to nearly half since Brexit, with 75,000 EU nationals enrolled in British colleges and universities in the 2023/24 academic year - down from 148,000 in 2019. The Independent estimates that UK universities generate around £1bn a year in extra fees from EU students, which is likely why the government is facing domestic pushback over lowering fees. Lowering fees would have a positive impact because EU students spend around £61,000 here over the course of their studies, research from London School of Economics found, on top of their tuition fees.
