DROPPING the maximum annual tax-free pension contribution limit would be tantamount to an additional income tax, the Confederation of British Industry (CBI) has said.
It is expected the chancellor will move the limit down from £50,000 to £40,000 in order to generate an additional £600m for the public purse in next week's Autumn Statement.
But CBI director-general John Cridland said in a letter to George Osborne the move would be an "income tax which would hit swathes of middle-income earners".
He also warned small business owners who invested heavily in their companies early on, leaving their pension contributions to later on would be "hit particularly hard", and would represent "a major blow" to professionals saving in defined benefit schemes receiving pay rises or promotions.
"Reducing the tax-free limit would fly in the face of the government's efforts to encourage more people to save adequately for their retirement, and its drive to position the UK as a world-leading business investment location," he said.
The government's plan to reduce the deficit and encourage growth did receive the CBI's "full support", however, describing it as "critical for the UK to keep the confidence of international markets".
Cridland added the CBI would judge the business bank's performance on whether it improves the take-up of existing products such as UK Export Finance, the Enterprise Finance Guarantee and the Regional Growth Fund and whether it plugs the finance gap for growing medium-sized businesses.
"There is a consensus emerging that a government business bank can help ease the transition to a new normal of business lending," he said.
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