‘Tax traps’ warning for managers and doctors after pay rises
Senior medics could be discouraged from working extra hours due to the threat of excessive pension tax charges and losing childcare benefits, after the government’s latest pay award.
Doctors will receive a 6 per cent pay uplift this year, and senior managers 5 per cent, as the government has accepted the recommendations from independent pay review bodies for all NHS staff groups.
However, ministers have been warned the “pincer movement of two significant tax traps” is impacting consultants and could undermine the new Labour government’s pledge to introduce 40,000 more appointments every week.
Graham Crossley, an NHS pensions specialist at wealth management firm Quilter, told HSJ that staff with an adjusted net income of just above £100,000 were at risk of reduced take-home pay and the loss of free childcare benefits.
For example, a parent in England with a one-year-old and a two-year-old could see their disposable income fall by £14,500 if their pre-tax salary exceeds £100,000. Meanwhile, a parent earning £130,000 could have less take-home pay than someone on £99,900. Therefore, those who earn close to that level could now be discouraged from taking on extra work.
As this affects staff where taxable income is over £100,000, senior managers are also at risk.
Mr Crossley said the annual allowance taper in pensions tax would also continue to disincentivise some consultants from working extra hours, despite former chancellor Jeremy Hunt increasing the annual allowance (the amount which can be saved into a pension each year before incurring tax) to £60,000 last year, alongside abolishing the lifetime allowance.
Despite the increase, the latest pay award means high earners will breach the threshold sooner, which can result in charges running into tens of thousands of pounds.
Mr Crossley added: “A review of the sensibility of these tax traps [would be] timely, as their current implementation disincentivises essential workers from increasing their workload during a crucial period for the healthcare system.
“Addressing these tax traps could encourage consultants to work more hours, ultimately aiding in reducing waiting lists and improving care.”
Issues need ‘addressing urgently’
Vishal Sharma, chair of the BMA’s pensions committee, welcomed this year’s pay award as a “step in the right direction” but warned there would be “consequences” for taxation, pension taxes, and childcare allowances.
He told HSJ: “These latter two specifically are a real problem and are part of the issue that we’ve been raising for years, whereby doctors are penalised for taking on additional work.
“For those consultants where the increase in pay takes them over £100,000, they are hit with the combination of the personal allowance taper and the loss of childcare allowances, where they are left worse off financially if the cost of lost childcare exceeds the increase in take-home pay.”
Dr Sharma said the situation was “even more absurd as crossing the taper threshold, even by £1, can result in additional tax charges of £22,500”.
He added: “In short, we have a situation where consultants are paying to work.”
“The Labour government has promised 40,000 extra appointments through extra weekend and evening working. However, the impact of these taxation policies is that many consultants will not take on additional work or may even be forced to go part-time, meaning this pledge will simply not be met.
“These issues, therefore, need addressing urgently to ensure doctors are able to provide the appointments that the government has promised and the care that they want to give.”
Jon Restell, chief executive of the Managers in Partnership trade union, said the uplift was a “concerning consequence of a reasonable pay award for some members”.
He added: “It will be important for employers and [the NHS Business Services Authority] to give clear, accurate information about any likely charges and the options open to people.
“This situation reminds us how crucial it is for the new government to preserve the improvements in the tax position made by the last government: it was a necessary step in removing disincentives to undertake extra work to reduce waiting lists.”
The Department of Health and Social Care referred HSJ to the Treasury, which said in a statement: “Our mission is to get the NHS back on its feet and fit for the future, which is why we agreed to increase consultants’ pay by 6 per cent just last week.
“The lifetime allowance on pensions has been abolished to ensure consultants can work their full hours, a move supported by the medical community.”