Chancellor takes a wrecking ball to current tax system

Household savings could be in the front door and straight out the back, says ii's head of pensions and savings Rebecca O'Connor.

On changes to the Health and Social Care levy, National Insurance and income tax:

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “Many working households will see an immediate uplift from the measures announced today - lower taxes mean we keep more of our own money. But in reality, any money saved from lower taxes will come in the front door and straight out the back door in the form of higher energy bills and rising mortgage payments.

“Although the government has helped on energy bills, households still face a dramatic increase. So whatever they may now save in income tax, National Insurance and for home movers, stamp duty, is still unlikely to go towards discretionary spending.

“Indeed, as inflation remains high, confidence low and interest rates rise, if any spare money does appear at the end of the month, it might well go straight into savings and investment accounts rather than into the economy. And crucially, these changes seem unlikely to reverse inflation, which could take as much from households as these tax cuts free up.” 

On extra support for unemployed over-50s:

Becky O’Connor said: “The government was clearly dismayed to see the numbers of older workers choosing to leave work altogether, especially during the pandemic. 

“Efforts to support the over-50s who want to work but can’t find the right jobs are welcome. But the jobs available need to be right for people in this demographic, which means more flexible and part-time work. 

“The over-50s were leaving the workforce because work didn’t work for them – unless the jobs on offer improve, efforts to get them back to work are unlikely to be effective.”

On plans to accelerate the removal of the pension charge cap to free-up infrastructure investment:

Becky O’Connor said: “For some time, the pension charge cap has been labelled as a blocker to private investment by pension funds in big infrastructure projects, because investment managers haven’t been able to deliver them and also keep charges for workplace savers under the 0.75% cap. These big investments, are costly but also have the potential to deliver growth for the economy and also for investors.

“There is no guarantee that removing the pension charge cap will lead to either more investment in big projects or better returns for pension savers.

“Higher charges can only be justified if the investments that result do benefit pension savers with more growth in the value of their pension pots. It would be good to see more guarantees and reassurances about how the removal of the charge cap will lead to this win-win scenario, before pension savers can celebrate the move.”