A letter being issued by the Treasury concerning a new tax introduced in the Autumn Budget has revealed MPs have not been told the full story about the change, according to Royal London director of policy Steve Webb.
Prior to the 2017 Budget, people with money invested through insurance companies benefited from a tax break that meant any investment growth that simply kept pace with inflation was not subject to tax. Last November, however, Chancellor Philip Hammond announced this ‘indexation allowance’ would no longer apply from January 2018. In papers published on the day and still displayed on the gov.uk website, the government claimed: “This measure has no impact on individuals or households as it only affects companies.”
When the measure was announced, Royal London argued more than three million of its policyholders would, in fact, face increased tax on their policies as a result of the change and it has been estimated more than 11 million people in total could lose out in the region of £250m.
Royal London has now obtained a copy of a standard letter being issued by the Treasury to members of the public who write in to complain about the change, which admits the change “will impact some insurers, but the impact passed on to individual policyholders is likely to be small”.
“The letter offers no evidence for this assertion and directly contradicts the continued assertion there is ‘no impact’ on individuals or households,” said Webb.
He went on to argue that, since the measure is contained in the Finance Bill, which is still under consideration by MPs, Parliament should revisit it in the light of this new information and the impact on millions of small savers – “the large majority of whom are basic-rate taxpayers”.
“MPs have clearly been misled by the information the Treasury has put out on this issue. Far from having ‘no impact’ on households, this stealth tax will hurt around 11 million savers,” he added. “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.”