The OTS’s report on pensioner taxation has aroused a fair amount of debate on some of its recommendation. Here’s a summary of some of the main questions – plus our responses.
When are the changes coming in?
That is up to the Chancellor. We have had a very extensive consultative process to develop our recommendations, including input from HMRC and HM Treasury. Significant changes will be subject to consultation but we anticipate an initial general response in the Budget.
Are the recommendations going to raise money for the Treasury?
The OTS has to be revenue neutral in our package of recommendations but we have to balance that with a drive for simplification. We think the two recommendations are broadly revenue neutral but it does all depend on how the ideas are taken forward. If the administrative recommendations are taken forward, they will cost the government money initially to develop DWP60s and consolidated coding notices though we think there is a real efficiency gain possible as well as achieving our main objective – making life easier for pensioners.
Doesn’t abolishing the 10% savings rate penalise the poor?
Our research showed that few people actually benefit from this relief: the unrepresented in particular usually fail to claim their rebate. Many who do benefit do so via a self assessment tax return but it is complex and little understood. At today’s interest rates, anyone who gains an amount of any significance must have a fair amount of capital, though that isn’t a reason to scrap the rate of course. But we think those with savings would be better served by a pragmatic increase in the ISA limit – 0% tax rather than 10% on savings.
The DWP60 and P2C seem very sensible but they won’t actually mean that all pensioners’ tax bills are right, will they?
No, but it will mean that pensioners get better information about their tax affairs, understand more and have a better chance of making sure their bills are correct. Plus it will improve HMRC/DWP liaison.
How can you recommend abolishing a relief that helps blind people?
Do look carefully at our reasoning and recommendation. Our starting point is that only around a fifth of those potentially eligible actually benefit. It seems to us better that instead help is given by direct grant. That would cost more money of course, so if that is not taken up, we have suggested some improvements to the way the relief is organised which will help ensure more people benefit.
Tax Director, OTS