The "legislative paralysis" since June's snap general election and the dominance of Brexit debates means the Chancellor could tinker with "monstrous" tax relief in his Autumn Budget in November, Sir Steve Webb has said.
As votes are now more difficult to get through Parliament in a very limited legislative agenda, Philip Hammond may seek tax changes to balance the books, the former pensions minister suggested.
As tax changes do not need approval from the House of Lords, these types of legislation will be easier to pass in the House of Commons, particularly with the support of the Democratic Unionist Party (DUP), which has said it will not vote against the government on financial matters.
The government will have to find additional sources of revenue to fill holes arising from unfreezing public sector pay and March's U-turn on raising national insurance contributions for the self-employed, potentially leading to these changes.
Speaking at Barnett Waddingham's defined contribution (DC) snapshot conference on 21 September, Webb, who is Royal London's director of policy, said "complete and utter legislative paralysis" could force pensions tax relief into November's Budget.
"We will see tax changes affecting pensions," he said. "We are going to see a broke chancellor. The ‘get out of jail free' card has been the public sector pay freeze. On the spending side, there are all these pressures, and on the revenue side they have some holes.
"Before [Hammond] starts, he is short of the revenue he thought he was going to get and spending more than he thought he was going to. Which bit of government has got loads of zeros on the end? Pensions. Specifically pensions tax relief. Surely they couldn't go any further.
"The cost of pension tax relief grew by £3bn pounds in the last year alone. It is a bloated expensive monstrous area of public spending. If you are the chancellor, where are you going to fish? Pensions tax relief."
Webb also argued the industry could see the threshold for the tapered annual allowance come down, while the taper itself could go up.
He also said the defined contribution (DC) landscape could see a lot more change coming from regulatory bodies, which are quasi-lawmakers, if the government feels it is unable to specifically legislate in parliament.
"They can… bypass parliament altogether," he continued. "Because there are bodies which are effectively lawmakers. I'm thinking of the regulators. The Financial Conduct Authority is a government-in-exile. What that means is regulators can still ban stuff and make it compulsory without it getting anywhere near parliament.
"All of that together means the DC world is not going to be static. We are going to see regulatory change."
Sir Steve said these methods of law-making dodge proper scrutiny, but commended Work and Pensions Committee (WPC) chairman Frank Field MP for his wide-ranging probes over the past few years.
"Frank Field deserves a medal because over the last two years, he has been the only effective opposition in Parliament," he said.
"Clearly, the select committee will have that tough power of influence, but it is only influence.
"Select committees are powerful and influential but it is, what I would call, soft power."
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