"MPs have been misled about a new tax introduced in the Autumn Budget which the government promised would have no impact on savers but could actually affect up to 11 million people, according to Steve Webb, former pensions minister and director of policy at Royal London."
Prior to the 2017 Budget, individuals with money invested through insurance companies benefited from a tax break which meant that any investment growth that simply kept pace with inflation was not subject to tax. But in November 2017 the Chancellor announced that this ‘indexation allowance’ would no longer apply from January 2018.
In papers published on the day and still displayed on the government website, the Government claimed that ‘this measure has no impact on individuals or households’.
When the measure was announced, Royal London said more than 3 million of its policy holders would face increased tax on their policies as a result of the change, and it now estimates that more than 11 million people in total will lose out to a total of £250m.
Royal London says a letter being issued by the Treasury to members of the public who have complained about the change sdmits that there will be a 'small' impact on individual savers.
As the measure is contained in the Finance Bill which is still under consideration by MPs, Steve Webb is now calling for Parliament to revisit this measure in the light of this new information and the impact on millions of small savers, the large majority of whom are basic rate taxpayers.
Steve Webb said: "MPs have clearly been misled by the information which the Treasury has put out on this issue. Far from having ‘no impact’ on households, this stealth tax will hurt around 11 million savers. If MPs had been told this from day one there would have been much more opposition to this measure. There is still time for Parliament to scrutinise this new tax and stand up for small savers up and down the country."
