Maybe Lin Homer is just pensioned out?


We find ourselves rather amused by this retirement of Lin Homer from HMRC. Because, while this is to a large extent just idle speculation from ourselves, there is still a nub of truth under the idea that it's as a result of the tax treatment of pensions. And it's going to people who have done well in the public service who are going to get so hard hit by those tax changes. We could, of course, just say "Aw, diddums" and go off for a celebratory pint but it's still true that this interaction of public sector pensions and the restrictions on tax relief, the taxation of amounts over the pension cap, which are going to hit those public services hardest.

So, the basic news is that Dame Lin is off:

The country's top tax collector who has faced intense criticism from MPs, is quitting her post in April, the Government has announced. Dame Lin Homer, the chief executive of HM Revenue and Customs, was due to give evidence to MPs on Commons Public Accounts Committee on tax evasion on Wednesday afternoon this week. HMRC sources said Dame Lin had told Sir Jeremy Heywood, the Cabinet secretary, last summer of her intention to leave her job at the end of the tax year.

That explains the when of the DBE at least. However, consider this career path:

She qualified as a lawyer in 1980 whilst at Reading Borough Council. In 1982, she joined Hertfordshire County Council where she stayed for 15 years, rising to director of corporate services. She then left to join Suffolk County Council as chief executive in 1998. After four years at Suffolk, Homer went on to be the chief executive of Birmingham City Council in 2002[1] and joined the civil service in 2005.

There's a 36 year public sector pension pot there. And we've now got the new rules about pension pots that exceed £1 million in capital value. And those rules now bite on final salary schemes as well as defined contribution schemes. And once you've got up into the rarified atmosphere of the upper echelons of the civil service a £1 million pot is easy peasy to achieve. Which means that rather a number of those up there are in the same situation as this doctor:

With just two years to go until her minimum retirement age (55), having had the benefit of the generous salary-linked NHS scheme, Gillian has broken through the £1.25m maximum lifetime pension allowance. Anyone whose pension is valued at beyond that sum (which falls to £1m next April) faces penal tax.

When the penal taxation on the accrual of greater pension benefits is taken into account then the marginal tax rate starts to approach insane levels of 70 and above percent. At which point our old friend the Laffer Curve comes into play again and people become subject to the substitution effect. Why spend the Golden Age shuffling paper if I'm not in fact increasing my lifetime income by very much by doing so? So, they don't.

As we say, this is speculation on our part about Homer herself. But it is a real change in the incentives faced by such people. And there's a certain joy to all of this as well: the people who have been calling loudest for these reductions in the gentle tax treatment of pensions are those over on the left. Those who also tend to believe in the idea that senior civil servants are very important people indeed who should be well paid. Rather than what we think they are, our hirelings there simply to handle society's scut work.

These tax changes will fall hardest upon those civil servants. Simply because they cannot opt out of greater pension accrual, unlike everyone in the private sector. Any one of us, when our pot limit is reached, can reach agreement with our employers to not add any more to our pensions: instead, just give us the cash. Not something possible for those locked into government and union approved contracts. Aw, diddums.

And perhaps this should be a lesson for those who scream loudly about tax reform: it's a complicated system, just as is the economy, and fiddling with one bit of it is highly likely to have unexpected effects elsewhere. You know, stop the fat cat FTSE directors amassing vast pension pots and you find senior civil servants all bailing out at 55.