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Rachel Reeves is reportedly set to drop plans for a tax raid on pensions over fears it could unfairly affect public sector workers.
The Chancellor has been warned that a scheme to reduce the 40 per cent tax relief on higher earners could disproportionately impact teachers and nurses, the Times reported.
Treasury officials told Reeves up to a million workers, some on relatively modest incomes, employed by the state would be affected by the policy change, the newspaper said.
A nurse earning £50,000 a year could face an additional tax bill of up to £1,000 annually, for example.
The move would come just weeks after the government agreed a series of public sector pay increases in a bid to put an end to strike action across the rail system and the NHS.
It was reported last week that No11 was mulling what could amount to a £24bn pension tax raid as the Chancellor tried to fill what she calls the £22bn black hole in the public finances.
She was reportedly looking at tax relief on pension contributions, specifically, employers’ national insurance relief, which is set at 13.8 per cent and not applied if the money is paid in via a salary sacrifice scheme.
Pensions providers have reportedly been asked to discuss the possibility of scrapping this relief with the Treasury, despite warnings it could “have harmful effects on pension saving”.
On Wednesday, Reeves is expected to submit her most significant Budget measures to the watchdog, the Office for Budget Responsibility (OBR).
Changes said to be under consideration include capital gains tax, inheritance tax, and pensions reform, such as reducing the sum people can take out tax-free on retirement.
A Treasury spokesperson told the Times the department does “not comment on Budget speculation”.
