Labour U-turns on pension tax after ‘NHS exodus’ threat

Labour has U-turned on plans to reintroduce the pensions lifetime allowance, which the British Medical Association said would have triggered an “exodus” of senior clinicians.

Shadow chancellor Rachel Reeves has dropped the proposal from the party’s election manifesto due to be published this week, the Financial Times has reported.

Chancellor Jeremy Hunt abolished the allowance – the amount an individual can save into their pension across their lifetime before incurring tax – in his Budget in early 2023.

The move was aimed at encouraging relatively high earners – particularly medical consultants – to keep working, return to the workforce, and carry out extra shifts. Mr Hunt also raised the pensions annual allowance – the amount which can be saved into a pension each year before incurring tax – by 50 per cent from £40,000 to £60,000.

At the time, Ms Reeves vowed to reverse the changes, describing it as “the wrong priority, at the wrong time, for the wrong people”. Its estimated cost is £800m a year, and the financial benefit is to high earners.

BMA consultants committee chair Vishal Sharma warned last month that reintroducing the lifetime allowance could lead to an “exodus” of senior clinicians.

He said: “Since Labour announced its initial plans to reinstate the lifetime allowance, the BMA has been lobbying the shadow team to warn them of the risks to the NHS of doing so.”

Last night he said it was welcome that the party “has listened to our concerns and has reconsidered these plans”.

Retaining staff and encouraging them to work more overtime will be important to Labour’s target of significantly reducing the elective waiting list.

Senior managers, and other senior staff in other clinical groups, were also sometimes affected by the allowances.

Separately, another change will mean top NHS earners will now pay less into their pensions each year after the government halved the number of contribution tiers, from 11 to six. The highest contribution rate has also been reduced from 13.5 per cent to 12.5 per cent.

At the same time, employers’ contribution rate has risen from 20.6 per cent to 23.7 per cent.

Other changes include contribution tier thresholds being automatically increased to avoid pay awards creating so-called “cliff edges”, where some staff suffer a cash fall in their take-home pay.