New tax rules on pension contributions favour Ministers

Bill Dodwell, head of the tax policy group at Deloitte suggests that HMRC's analysis of the tax gap could have a previously overlooked reason for non-collection: "daft law"

Bill makes the point in the January issue of Tax Adviser magazine after referencing the new extension to restricting tax relief for pension contributions in respect of high-earners. He points out this led to a 115 page document to explain how the rules will work and asks, quite reasonably:

"Didn't it occur to anyone that if the chancellor wanted to restrict tax relief, a simple flat-rate amount would be the solution?"

This tax change was announced in Budget 2009 last March and included what were called 'forestalling measures' which led me to write a piece last May: Pension tax changes that hit high earners NOW.

I remain of the view I first expressed last May that the new rules were refined to reduce the potential impact on ministers and civil servants. In effect this is another example of taxing 'real people' without impacting those in power. But it's been done in such a way that Ministers can deny that they are receiving beneficial treatment - unlike the position with MPs' severance payments and MPs' expenses. With the pension tax changes there is no specific exemption - it's just that Ministers and civil servants are among the very few high earners still in final salary pension schemes and are thus unaffected.

Special tax rules for MPs are wholly indefensible in all but the most extreme cases and those who argue otherwise are clearly unaware of what goes on in the real world.