Bid to tackle doctor shortage could see tax break for thousands of high earners

Thousands of high earners could end up being given a tax break as part of efforts to get doctors to take on more shifts, it is being reported.

The Treasury has refused to comment on a Times report that it is preparing to give tax relief on pension contributions worth hundreds of millions of pounds to all people earning more than £110,000 a year.

The move would be designed to tackle the issue of doctors turning down work because taking on extra hours can see them hit with an increased tax bill.

The issue has been blamed for an increase in NHS waiting lists, but the doctors’ union the British Medical Association said the “half measure” reportedly being planned by the Treasury “does not fix the fundamental problem”.

Changes introduced by former Tory chancellor George Osborne mean that people who earn more than £110,000 face higher taxes on pension contributions.

This has landed some senior NHS consultants with unexpected tax bills of tens of thousands of pounds, prompting some to opt to work fewer hours.

The Times reported that the Treasury plan would involve raising the threshold from £110,000 to £150,000, a move that could reportedly free up 90% of consultants to take on extra shifts.

But the tax break would apply to all high earners, not just those in the health sector.

And Dr Vishal Sharma, chair of the BMA’s pensions committee, said: “It does not fix the fundamental problem of doctors being forced to limit the work they do to prevent being hit with significant charges on their pensions and many will still in effect be paying to go to work.”

He said the move could see a “deplorable” situation in which “talented clinicians avoid seeking leadership or educational roles” to avoid pension tax bills.

“Doctors and our patients desperately need an immediate solution that is simple and solves the problem completely – the NHS cannot cope with further half-measures,” added Dr Sharma.

IMF head
George Osborne introduced pension rule changes when he was chancellor (Stefan Rousseau/PA)

Currently, if earnings cross the £110,000 threshold, different rules come into force under the tapered annual allowance changes introduced in 2016.

All workers start with a tax-free annual pension allowance of £40,000 but, when earnings hit the £110,000 mark, for every additional £1 earned above the threshold, 50 pence is taken off the allowance. This continues until the tax-free allowance stands at £10,000 for the year.

The BMA said due to the NHS system for working out pension contributions, some junior doctors and consultants who take on more hours or extra responsibilities only find out at the end of the tax year that they have crossed the limit and find themselves lumbered with a hefty tax bill.

Former Lib Dem pension minister Steve Webb said the Treasury would be better off scrapping the “capricious” taper.

Steve Webb
Former pensions minister Steve Webb (Martyn Hicks/PA)

“My argument would be, yes these changes would reduce the number affected but it retains a really capricious and unpredictable part of the tax system,” said the director of policy at Royal London.

“If you had a lower limit for everybody, that would be so much clearer and everyone would know where they stood,” he added.

A Whitehall source said a review of the tax “taper” was on-going.

If the Treasury does decide to introduce new measures in a bid to solve the problem, an announcement is expected to be made by Chancellor Sajid Javid in the Budget on March 11.

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