George Osborne is to launch a raid on the pensions of Britain’s wealthiest savers this week as he delivers a downbeat autumn statement.
The Chancellor is expected to lower once again the annual limit of tax relief that can be claimed on pension contributions in a move which could bring in between £600million and £1.8billion.
He is understood to have fought off, however, a Liberal Democrat push for a new property tax on the highest-value homes. Ministers do not expect a mansion tax, extra council tax “bands” or higher stamp duty to feature in his statement.
Mr Osborne will also meet a key demand of Conservative MPs by scrapping the planned 3p-a-litre rise in the cost of fuel which was pencilled in for the start of January.
The statement, to be delivered on Wednesday, will see the Chancellor claiming he is doing what he can to help hard-pressed families, struggling with cost-of-living increases, in troubled times.
“We know things are hard and we want to help where we can,” a government source said.
There will be more help for businesses, too, with an extra £1billion in loans to help small and medium-sized enterprises win contracts in the world’s fast growing emerging export markets.
However, those on working-age benefits can expect a tough regime - with ministers predicting a wide-ranging freeze in payments, although this will not affect pensioners.
Government sources said last night that the main planks of the statement were already in place although there was still some last-minute wrangling between Tories and Liberal Democrat ministers.
The Chancellor is keen to avoid a repeat of his Budget earlier this year which was widely considered a fiasco and led to embarrassing U-turns over taxes on pasties, caravans and charity giving.
Lib Dems had this weekend given up hope of the statement including any form of new property tax on the wealthiest homes - such as a mansion tax on properties worth £2million or more, or new council tax bands kicking at current values of £1million or more.
The decision means a win for a group of senior Conservative ministers who strongly opposed the Lib Dem suggestion. It is understood David Cameron also came out firmly on what he saw as a move which would be extremely unpopular in Conservative-voting heartlands in the south of England, where property prices are highest.
One government source said: “A property tax is complicated. You would have to order a revaluation of properties for council tax. That would be cumbersome, take a long time and be deeply unpopular. Moving again on pension relief is far more straight-forward.”
The wealthiest will have their pension savings just two years after Mr Osborne lowered the annual limit of tax relief on contributions from £255,000 to £50,000 in his first Budget two years ago.
A new cut to the threshold of £40,000 would raise £600 million a year for the Treasury. A bolder reduction to £30,000 could bring in as much as £1.8billion a year, but would attract strong opposition from many Conservative backbenchers.
Danny Alexander, Mr Osborne’s Lib Dem colleague at the Treasury, has previously called for such a cut on tax relief for wealthy people. Any attack on pensions will be deeply unpopular in the business world.
A spokesman for the Treasury would not discuss plans to cut tax relief on pensions, but said that the Chancellor had already declared that it was important that those with the “broadest shoulders” did the most to rebuild Britain’s public finances.
Mr Osborne will unveil a gloomier outlook for Britain, with official forecasts now expected to show the economy will grow by around 1.2 per cent next year - down from 2 per cent predicted back in March.
The Chancellor will argue that the weak state of the European, US and Chinese economies is hampering Britain’s recovery. He may have to declare he will miss one of his golden rules - that debt will be falling as a proportion of the economy by 2015-16.
A Treasury source said: “While it was always going to be a hard road to recovery and it may be taking longer than we hoped to put things right, Britain is on the right track and turning back now would be a disaster.
“The credibility we have earned is still paying off: the deficit is down by a quarter, business has created a million jobs and the world has confidence that Britain can pay its way.
“We’ll be showing at the Autumn Statement that we are serious about being one of the winners in the global race.”