Government responds to Treasury Select Committee report on tax post-Covid.
A government response to a Treasury Select Committee report: ‘Tax after Coronavirus’, which proposed wide-ranging tax reforms, was published this morning.
The Select Committee had recommended a number of measures including changes to VAT, business taxation, income tax and NICs, pension tax relief and a one-off wealth tax in a report published in March.
Myron Jobson, Personal Finance Campaigner, interactive investor, said: “While changes to the tax regime were always unlikely to be made outside a Budget statement, the government’s wishy-washy response to the Treasury committee’s recommendations illustrates just how delicate the situation is.
“Taxes are and will always be a political hot potato, and while the modest increase in corporation tax will help to chip away at the colossal bill for Covid-19 support measures, it is only a matter of time before the need to balance the books will hit our back pockets – particularly as wage rises drag people over frozen income tax thresholds.
“It is important to consider recent as well as potential changes to the tax regime now and how you can mitigate some of the adverse effects. Making full use of the different tax reliefs – on pensions, ISA allowance and capital gains tax for example – while they are still available, is key.”
Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “The tone of the government’s response to recommendations for major tax reform was: ‘we’re on the case’.
“The response highlights the measures the Treasury has already taken to support the public finances, including freezing tax thresholds such as income tax and the Lifetime Allowance for pensions, which it said were ‘progressive and fair’ measures. It also states that recovery rather than reform is its main priority.
“On pension tax relief, the response suggests that no sweeping changes are imminent but that the possibility of reform would be kept under review. The government stated that even small changes could have a ‘profound’ impact, so radical changes to pension tax relief would require ‘careful consideration’.
“For people planning how to invest for retirement, no news is good news here – for now. Stability of pension policies has been sorely lacking in recent years, so in some respects, further tinkering is the last thing anyone wants. However, reform is still on the table – and it’s important for the government to consider whether pension tax relief is incentivising those who need most encouragement.
“The response highlighted that the government is due to report on its consultation on tax relief for low earners and how to address the issue of some workers who are in ‘net pay’ schemes missing out on tax relief because they don’t pay tax. This looks like the one area of pension tax relief the government might do something about reasonably imminently.”
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