The chancellor announced the U-turn on self-employed tax hikes last week after being accused by his own Conservative Party politicians that he is breaking one of the party’s key election pledges.
The measures, which would have seen NICs for the self-employed rise to 10% in 2018 and 11% in 2019, were expected to raise around £2bn for the Treasury.
Hammond has now put pensions “at the top of his list” to plug the black hole which has arisen from his U-turn, the Sunday Times reports.
“That’s what is being talked about. What else is there? There isn’t much else. What else can you do? He’s not going to compromise the government’s reputation on fiscal integrity and we’re not going to be borrowing more. That’s very clear,” a source told the paper.
One policy under consideration and widely reported by International Adviser is a flat-rate of tax relief on pension contributions, likely to be less than 30p in £1.
However, according to the Sunday Times, the government is concerned a flat-rate of tax relief will alienate middle class voters so is likely to introduce a potential cut in the annual allowance from £40,000 to £35,000 or as low as £30,000.
Pension a 'soft target'
Steven Cameron, Pensions Director at Aegon said: “In the face of a U-turn on NI, the chancellor may view pension tax relief as a soft target to balance the government books. Doing so might paper over a crack but risks undermining the country’s long-term savings framework.
"Barely a week goes by without reports of the increasing strain being placed on our social care system. If there’s limited incentive to save for old age, the government will find that a saving now will be met with bigger costs later as fewer and fewer people are able to meet these costs themselves.
"The lifetime allowance for pensions has already been reduced to such a level that many middle income earners are likely to reach the savings limit and effectively be penalised for taking responsibility for their futures.
"While not everyone understands pensions tax relief, it’s important people take note of any discussion on possible changes as any cut could have just as much impact their finances, if not more, as a tax rise.”