Tax relief on pensions for higher earners would be reduced to pay for Labour’s plan to cut university tuition fees from a maximum of £9,000 to £6,000 a year, Ed Miliband announced on Friday.
The Labour leader said the cap on fees in England would be cut by a third in September next year at an annual cost of £2.7bn if his party wins this May’s election. The tax relief on pensions enjoyed by people on annual incomes of over £150,000 would be reduced from 45 to 20 per cent. The amount of pension contributions attracting tax relief would be lowered from £40,000 to £30,000 a year and the lifetime limit would be cut from £1.25m to £1m.
Speaking in Leeds, Mr Miliband disclosed that higher earning graduates would pay a slightly higher rate of interest on their loans – 4 per cent instead of 3 per cent. Maintenance grants would be increased from £3,400 to about £3,800 a year --at a cost of £200m-- for students from families with an income of below the 40p income tax rate.
These changes are designed to answer strong criticism from university vice-chancellors, the Conservatives and Liberal Democrats that Labour’s fees cut would help better off graduates the most because they are more likely to pay off their loans.
The proposed curbs on pension tax relief will be controversial but Labour officials argued that very high earners should relieve the £44,000 average debt burden on graduates when they leave university. They said that the top 1 per cent of earners currently enjoy 7 per cent of pensions tax relief.