BIRMINGHAM England (Reuters) - British finance minister George Osborne will announce on Monday that he will scrap a tax on inherited pension savings as he lays out the Conservative Party’s pitch to win the next election on the back of its economic policies.
Ahead of what is expected to be a close-run ballot next May, Osborne will use a key speech to try to persuade voters that only the Conservatives can be trusted to keep Britain’s economic recovery on track.
The Conservatives are rated by voters much more highly than the opposition Labour party on the economy. But they lag narrowly behind Labour in opinion polls less than eight months before the election.
In a move aimed at the party’s aging supporter base, Osborne will commit to abolishing before the election a 55 percent tax levied on pension pots of savers when they die.
“People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free,” he will tell the Conservatives’ last conference before the election, according to advance extracts of his speech.
Osborne has focused on bringing down Britain’s massive budget deficit since he took over the finance ministry in 2010. With the public accounts still deep in the red, he has little room to offer major tax cuts ahead of the election.
The new pledge to be announced on Monday is expected to cost around 150 million pounds (244 million US dollar) a year, according to a Conservative briefing note.
Nonetheless, his offer to scrap the pension pot tax strikes a contrast with the latest ideas from Labour.
Last week, Labour promised to levy new taxes on homes worth more than 2 million pounds ($3.3 million) and on tobacco firms in order to pump cash into healthcare if it wins the election.
Britain’s economy has staged a much stronger-than-expected recovery since mid-2013 and Osborne, in his speech on Monday, will seek to remind voters that keeping the economy growing will be vital to create jobs, build more houses, fund healthcare and raise living standards.
“That’s why it’s the economy that settles elections,” he is expected to say, “The Conservatives are the only people in British politics with a plan to fix the economy.”
Osborne has long sought to remind voters that Labour was in power during the 2007-08 financial crisis that plunged Britain into its deepest post-war recession. He says the increasingly left-wing ideas of its leader Ed Miliband threaten the push to eliminate the budget deficit before the end of the decade.
“The idea that you can raise living standards, or fund the brilliant NHS (National Health Service) we want, or provide for our national security without a plan to fix the economy is nonsense,” Osborne will say.
Last week, Miliband gave a conference speech in which he forgot to mention the budget deficit. Labour’s would-be finance minister Ed Balls has said the party will tackle the deficit with a plan that is less aggressive than Osborne’s.
Labour dismissed Osborne’s planned speech as failing to tackle the issues they say matter to ordinary Britons.
“George Osborne claims he has fixed the economy, but he’s only fixed it for a privileged few at the top,” said Chris Leslie, Labour’s finance spokesman.
Osborne’s pledge to scrap the tax on pension savings has echoes of how, when in opposition in 2007, he promised to cut inheritance tax, a popular move which was widely credited with dissuading the Labour prime minister at the time, Gordon Brown, from calling a snap election he had looked likely to win.
Osborne turned his attention to elderly voters again earlier this year, scrapping a requirement that most pensioners buy annuities on retirement and allowing them to spend their pension savings as they wanted.
The Conservative Party saw a small boost in opinion polls after those reforms were announced.
That shake-up hit shares in firms such as Legal & General , Aviva and Standard Life which sell annuities.
Ros Altmann, a pensions campaigner and former government adviser, said the changes to be announced on Monday could deal another blow to the industry.
“These new measures are ... another nail in the coffin for annuities,” she said in a statement. “Any money that has been used to buy an annuity cannot normally be passed on to the next generation (unless there is a guarantee attached) whereas funds in drawdown can pass on free of tax in future.”
Additional reporting by Simon Jessop; Editing by Susan Fenton