Thinktank questions Hunt's billion pound pension giveaway

Labour has already said they will bring the million-pound cap back if they form the next government. 

The Chancellor defended the measure this morning, insisting it would help boost the economy by easing labour shortages, particularly in the NHS where the so-called “tax trap” has led to doctors and dentists retiring early, and turning down extra work, rather than losing out. 

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The Office for Budget Responsibility (OBR) watchdog has estimated the policy - forecast to cost the Treasury more than £1.1bn a year by 2027-28 - could increase the workforce by 15,000 people.

Though in interviews on Thursday morning, the Chancellor said it was “impossible to know the exact number,” he said.

However, in his analysis, Paul Johnson, the director of the IFS, said the change “won’t play a big part, if any, in increasing the number of people in work.”

Mr Johnson said the OBR prediction was “optimistic” and said it was disappointing that “over-generous aspects” of pension taxation were not being reined in, “not least complete freedom from inheritance tax”.

Speaking at a briefing on Thursday morning, he added: “I do think that if the fundamental problem it was trying to address was doctors, then it was a rather large sledgehammer to crack a very small nut, and a billion-pound sledgehammer at that.”

Isaac Delestre, an IFS taxation researcher, added that some may “even end up retiring earlier” thanks to the policy because they will need to put away less to reach their savings goal.

He said those who will benefit are those with the ability to “build up very large pension pots” or who can contribute more than £40,000 a year to their pensions.

“Pension pots are entirely exempt from inheritance tax so those are additional subsidies that are going to be handed out to people making very large savings under these reforms,” he added.

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Economists at the Resolution Foundation also warned that the “unneeded tax break for wealthy pension savers” could see some workers choosing to retire early or using their now uncapped pensions savings to avoid inheritance tax.

Torsten Bell, the think tank’s chief executive, said: “It’s a big victory for NHS consultants but poor value for money for Britain.”

In the IFS’s assessment, Mr Johnson said projections suggest disposable incomes will be barely higher in 2027 than in 2017 in what he described as a “lost decade for living standards”.

“Finally, what households are going to feel over the next year will be continuing pain. Inflation may be coming down, but prices remain much higher than two years ago. Earnings haven’t caught up,” he said.

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Labour's Shadow Chancellor Rachel Reeves said: “The Budget was a chance for the Government to unlock Britain’s promise and potential. But the only surprise was a £1bn pensions bung for the 1%, a move that will widen the cost-of-living chasm.

“At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people.”

Mr Hunt defended not limiting the scrapping of the cap to doctors, telling BBC Breakfast: “The other options, if we had a scheme that was just for doctors, it would actually be more aggressive because what we’ve announced doesn’t help the very wealthiest doctors.

“The NHS at the moment spends about £3bn a year paying for locum doctors and agency nurses because of these staffing shortfalls. This will help to reduce that, it will free up more resources.”

Harriett Baldwin, Conservative chairwoman of the Commons Treasury Committee, told a Resolution Foundation event she was “very surprised” that the abolition of the cap on the lifetime pensions allowance had not been limited to NHS schemes, as she had expected.