Looking Ahead series: Autumn Budget 2024 - article seven
Within hours of the March 2023 Budget announcing that the LTA would be abolished, Labour pledged to “reverse this move”, which they branded “a Tory tax cut for the top one per cent”[1]. Soon after, they said they would do so “immediately”[2]. In the event, Labour’s manifesto was silent on the LTA – so they have neither promised to bring it back nor committed themselves to not doing so.
Abolishing the LTA has proved challenging: one set of correcting regulations[3] was laid little more than three weeks before the new regime came into force and a further set halfway through the tax year[4]. In April 2024, HMRC suggested that some people might need/wish to delay accessing their pensions[5] until the legislation has been corrected – again, this was still standing halfway through the tax year. The disruption to pensions administration and consequent impact on service standards should not be underestimated.
If anything, restoring the LTA would be harder than abolishing it: the Government would have to decide what to do where people had paid contributions expecting no LTA to apply, or where benefits had crystallised without being tested against the LTA. It could not simply say that if someone had used £X of their lump sum allowance, they can be treated as having used £4X of their LTA. Some people will take less than 25% as cash - for example, if they regard defined benefit commutation terms as unattractive, for estate-planning reasons, or to preserve tax-free investment roll-up for now where they would not be spending the money immediately. Others may be in schemes which honoured protected pre-2006 entitlements to take more than 25% tax-free based on assurances about what the final legislation would look like.
HMRC and HMT would likely counsel the Government against reintroduction of the LTA and if reintroduction was to proceed nonetheless, would certainly counsel against rushing it. That could then mean layering further complication on the regime either or both in the form of anti-forestalling measures, to protect against people bringing forward savings before the regime generosity was cut (an LTA returned ) and a new LTA protection regime, based on benefit values at Budget day.
Perhaps most importantly, the Government would need a way to ensure that NHS capacity was not seriously affected. Labour initially promised a doctors-only solution when pledging to restore the LTA, but this invited questions about other public and private sector jobs. Restoring the LTA would also prompt questions about Sir Keir Starmer’s pension from his time as Director of Public Prosecutions, which is outside the LTA regime.
The technical and political challenges which combined to keep LTA restoration out of Labour’s manifesto also make it look an unlikely candidate for a Budget announcement.
Labour’s manifesto also said nothing about the AA. Their main pre-manifesto policy document had said that they would “reverse the changes made by the Government to pension allowances,”[6] with the plural potentially referring to Jeremy Hunt’s decision to increase the standard AA from £40,000 to £60,000, and to begin to taper it down further up the income scale[7].
Again, the effect on doctors’ work incentives would weigh heavily in any calculation.
