What’s the secret to fixing the UK’s public finances? Here’s what our panel of experts would do

Posted on 15 August 2025 • Arts and social sciences

Unexpected growth in the UK economy isn’t enough to detract from the gaping hole in the country’s public finances. Speculation is ramping up about what steps the chancellor of the exchequer, Rachel Reeves, might take to plug the gap come the budget in autumn – and there are no shortage of ideas. The trouble is, each comes with risks and unknowns. The Conversation’s experts have weighed up the evidence to offer their suggestions.

Cutting tax relief for pensions could be a hidden pot of cash

Debates about tackling government debt typically centre on cutting spending or raising taxes, says Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, Open University. But a third option, often overlooked, is restricting tax reliefs. An obvious candidate is pension tax reliefs over and above the basic rate, which benefit the better-off and are skewed towards men (since women’s ability to save is often suppressed due to unpaid care work).

The various income tax and national insurance reliefs for pension schemes (tax relief on contributions, tax-free income and gains for pension funds and tax-free lump sum at retirement) cost the government £52 billion in 2023-4.

By design, any system that gives people tax relief up to their highest marginal rate is regressive (it benefits the better-off more than those who are less well off), and around two-thirds of pension tax reliefs go to higher-rate and additional-rate taxpayers.

Advocates may argue that tax reliefs are necessary to encourage people to save for retirement. But the evidence does not support this. First, the only step up in UK pension saving in modern times has been due to the introduction of auto-enrolment in 2012 – not tax reliefs.

Second, research suggests that when tax-relieved savings schemes are introduced, they prompt a shift of existing savings. That is to say, people tend to move other savings into their pensions for the tax benefits rather than actually putting more money away overall for the future. But clearly, tax relief does not help people to save more if they don’t have the extra funds in the first place. And on social justice grounds, does it make sense for the mass of taxpayers to subsidise the relatively well-off who can readily save anyway?

Read the full article on The Conversation

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