Andy Burnham's adviser, Andy Haldane, has proposed a major shift in pension tax relief policy that would require savers to invest in the UK to qualify for over £50 billion in annual tax breaks. The plan aims to address a funding gap for small- and medium-sized businesses by creating a 'home bias' in retirement savings.
Haldane's Proposal and Rationale
Haldane, president of the British Chambers of Commerce and former Bank of England chief economist, argued that the current system benefits higher-rate taxpayers disproportionately while excluding low-income earners. He stated: 'Unfettered free markets have not worked. That is a lesson of the last 30 years.'
Under the proposal, pension tax relief—worth more than £50 billion annually—would be contingent on investing in UK businesses. Haldane also noted that ISA tax relief amounts to over £10 billion per year. He suggested the taxation system is the 'perfect vehicle' to shift incentives toward British firms.
Impact on Taxpayers and Businesses
Currently, higher-rate (40%) and additional-rate (45%) taxpayers are the biggest beneficiaries of pension tax relief, while those on low incomes who cannot save are excluded. Haldane cited surveys indicating that 70% of households would prefer their savings to be invested in UK companies. He described the proposed change as 'about having a home bias.'
The policy could redirect significant capital toward small- and medium-sized enterprises, which often struggle to access funding. Haldane emphasized that the choices of specific investments would remain with asset managers and fund owners.
Political Context
Andy Burnham, the Mayor of Greater Manchester, has been speculated as a potential future Labour leader. Haldane's comments come amid broader debates about pension reform and economic growth. The proposal aligns with Burnham's previous calls for greater regional investment and economic devolution.
The plan would require legislative changes to pension tax rules, which are currently set nationally. Critics may argue it restricts savers' freedom, while supporters see it as a way to boost domestic investment and address regional inequalities.
