State sector employers will be protected from a tax raid in the October 30 Budget.
Chancellor Rachel Reeves giving a speech at the Treasury in London, to an audience of leading busine
Sir Keir Starmer was accused of planning “two tier” pension reforms in the Budget with special protections for the public sector.
A tax on the contributions made by employers is expected to be announced next week but the NHS, schools and government departments are among organisations that will be reimbursed.
Experts warned the move would increase the gap between generous public sector pensions and those in the private sector.
Former pensions minister Baroness Altmann said the Prime Minister’s plan was “astonishing”.
Writing in the Express, the peer said: “Some recent Budget rumours have been truly jaw-dropping.
“None more so than the latest suggestion about pensions.
“Hurriedly removing National Insurance relief on employer contributions is bad enough, as it could up-end auto enrolment scheme administration, but exempting public sector employers is absolutely astonishing.
“Forcing these extra costs only onto private sector employer contributions would worsen our existing two-tier pension system.
“Public sector employees already enjoy much better pensions than private sector employers can afford. This suggested change would widen the disparity, damaging private sector workers pensions, while forcing them and their employers, who will suddenly see their pension costs soaring, to pay for even more advantaged public sector pensions.”
Sir Steve Webb, a former pensions minister and a partner at the pensions consultancy LCP, told the Times there was a danger that private employers will offer less generous pension packages in the future.
He added: “There is also the risk of unintended consequences; that this could hit salary sacrifice schemes and ultimately affect the take-home pay of workers who currently benefit from such schemes.”
Chancellor Rachel Reeves will deliver her Budget on October 30 after tensions with Cabinet colleagues over her plans.
Ms Reeves said she is “sympathetic towards the mess” her Cabinet colleagues have “inherited” and insisted it was “perfectly reasonable” that ministers “set out their case”.
“I’m very sympathetic towards the mess that my colleagues have inherited,” she told Radio 5Live.
“I understand those challenges, but also my colleagues understand the challenges that we face as a government in making sure that the sums add up.
“It is perfectly reasonable that Cabinet colleagues set out their case, both to me as Chancellor and to the Prime Minister, about the scale of the challenges that they find in their departments. It’s been a really constructive process.”
Ms Reeves said “you can’t just sort of pretend that the sort of fiscal position that we’ve inherited is all fine and there won’t be any pain in fixing it.”
She insisted the government had been “really clear” that there would be “difficult decisions” to come on welfare and taxation, adding: “I’m not going to say that all of those problems can just be magicked away.”
Labour promised in its manifesto that there would not be tax rises on VAT, income tax and national insurance, as part of a promise that it would “not increase taxes on working people”.
Ms Reeves said that the Government would not increase the “main taxes” that working people pay.
She said: “We said that because working people had already paid the burden under the last government, we wouldn’t increase the taxes, the main taxes that working people pay, so income tax – all rates – national insurance and VAT.
“So those taxes that working people pay, we’re not increasing those taxes in the Budget.”
Economic growth for this year has been upgraded but Government borrowing is also higher than predicted.
Stuart Machin, chief executive officer of Marks & Spencer, raised concerns about Ms Reeves’ Budget plans.
He said claims that raising taxes are “difficult decisions” are wrong.
“Raising taxes is a short-term, easy fix,” he said. “The much harder decisions are around fundamentally re-engineering the British economy, tackling the issues that have held us back for decades.”