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Pre-election pledges ‘damaging’ to UK tax system, warns IFS


Tax plans being put forward by both Labour and the Conservatives in the run-up to the General Election risk having a ‘long-term malign influence’ on the economy, the Institute for Fiscal Studies (IFS) has warned.


Specifically, the think-tank claims that proposals from both main parties to cut tax relief on pension savings have the ‘potential to be complex, damaging and counter-productive.’


Earlier this month the Tories announced their intention to slash the pension annual allowance from £40,000 to £10,000 for additional rate taxpayers who earn over £150,000.


The Conservatives said the measure would fund an inheritance tax (IHT) cut, which would exempt homes worth up to £1 million from IHT.


Meanwhile, the Labour party said it would remove the current system based on income tax bands and cut pension tax relief to 20%.


However, the IFS has warned that ‘we risk rushing towards something like chaos in the taxation of pensions for those on high incomes.


‘While only affecting a relatively small number of high-income individuals, both sets of proposals have the potential to be complex, damaging and counter-productive.’


It added: ‘The undesirable distortions to savings behaviour and to work incentives have the potential to be significant… there is a danger that the tax proposals being put forward through this General Election campaign will have a long-term malign influence on our tax system and economic welfare’.