The spirit of hypocrisy is alive and well in the government’s approach to contractors, as has been proven by its unprincipled raid on high-earning contractors’ pension pots, announced in the Chancellor’s April Budget.
In fact, judging from MPs’ views on protecting their own extremely generous parliamentary pension scheme, the charge of hypocrisy can be levelled at politicians of all parties.
A key principle of tax legislation is that it should not be retroactive. MPs seem keen to stick with this principle when, for example, discussing their expenses claims. After all, how many have we heard recently saying words to the effect of, “There is no need for me to repay anything, because all my claims were within the rules at that time.”
It’s a shame they cannot be just as principled when it comes to the citizens (and contractors) they claim to represent. But new retroactive tax and pension rules introduced by the April budget will leave many high-earning contractors hit hard in their pockets.
The new rules say that if you earn over £150,000 per year, you’ll only be able to invest £20,000 tax free into your pension pot. Now, using some very basic numbers, £20,000 per year for 20 years will build a pot of around £700,000, assuming about 5% compound interest. For those who are at the top of their game and working incredibly hard to earn their good salary, that pension pot would mean them suffering a huge drop in living standards on retirement.
That’s hardly an incentive to contractors, who are not only the motor of UK plc’s economic booms, but are also those who help get the country’s economy through the tough times, such as we’re now facing.
So, contractors who have used legitimate means to mitigate their tax liabilities in the past (when those means were legal and actively encouraged by the government) will be forced to pay back taxes in future, because the rules have been changed to make the contractors’ actions illegal.
Such retroactive tax legislation does sometimes take place, justified on the grounds that the previous tax law created a ‘loophole’, and that those legally exploiting the loophole were ‘not doing so in the spirit of fair taxation’.
There are two key lessons from this change in the pension tax laws. The first is well summed up by Steve from Bromley in his response to a recent blog on this site: “Let's not forget retrospective taxes. A favourite of our current PM, ie turning something legal into something criminal after the fact – because it violated the 'spirit' of the law. Should not the same be applied to MPs?”
However, the other key lesson is rather more frightening. We have a government that has been telling us all to make adequate provision for our retirement, because future governments won’t be able to do so. This ‘save for your own future’ message has generally been supported by politicians of all major parties.
As a result, hundreds of thousands of contractors have taken on board that message, stashing into their pension pots their hard-earned cash. Yet now they are being told, ‘Save for your retirement, but not too much or we’ll penalise you for it.’
This is a shocking example of double standards, even by the extremes of what we have come to expect from many elected representatives of all parties in recent weeks. One thing that is transparently at work is unbridled hypocrisy on the part of those elected to represent us.