General election: IFS attacks parties' pension proposals

Plans for curbs on pension tax relief drawn up by both main political parties in the UK have been lambasted by an independent think-tank, which accused them of wanting to "dismantle an important and relatively sensible part of the tax system".

The Institute for Fiscal Studies said the proposals that will "dramatically" reduce the value of tax relief for top earners "look like short-term ad hoc changes which we will come to regret".

The criticisms were part of a scathing assessment of proposals for tax and benefits changes ahead of the general election. Paul Johnson, IFS director, said: "There is nothing we think will help the good functioning of the economy and several things that will do the reverse."

The IFS said the big gains pencilled in by the parties from tackling avoidance and evasion were "plucked from thin air to make their plans add up". It added: "All these parties seem to have a desire to raise tax revenue in vaguely defined, opaque and apparently painless ways."

The IFS said none of the parties was suggesting sorting out real problems in the income tax system.

Labour's proposal for a 10p rate, paid for by scrapping Tory proposals for a married tax allowance, would amount to replacing "one small complication in the tax system with another" and be "worth a princely 50p a week", the IFS said.

The IFS also criticised policies on the taxation on housing as lacking "coherence". Homeowners with houses worth more than £3m are likely to face a mansion tax bill under Labour of £16,600 on average, the IFS estimated.

The think-tank criticised Conservative plans to increase the inheritance tax threshold to £1m for married couples handing a home worth at least £350,000 to their children or grandchildren, saying "it was hard to see a good economic or social rationale for such a policy".

James Browne, a senior research economist at the IFS, said: "There is a limit to the extent that we can continue to pretend that tax revenues can rise while protecting the vast majority of people. Just because a tax rise hits 'the rich' or is labelled 'anti-avoidance' does not necessarily mean it is harmless."

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It said the Conservatives were proposing small net cuts to taxes and large cuts to benefits. Labour was proposing a rise in taxes and little change in benefits spending; the Lib Dems were in both respects somewhere in between.

The IFS said the number of earners dragged into higher and additional rates of income tax was likely to increase as the threshold rises more slowly than inflation. It predicted that almost 6.5m taxpayers could be paying higher rates by 2020, up from 4.9m this year. Even if the Conservatives implemented their pledge to raise the limit to £50,000, the figure would probably grow by about 300,000 to well over 5m.

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