Rachel Reeves is facing criticism over her potential plan to introduce a significant tax change that could amount to a £4 billion cut by reducing a benefit that helps workers enhance their pension savings.

The Labour Chancellor is reportedly considering the elimination of tax incentives provided to both employers and employees who contribute to workplace pensions. This move aims to address a substantial shortfall in the nation’s public finances.

Accusations of engaging in a class war have been directed at Ms. Reeves following her acknowledgment that higher taxes for the wealthy in the UK would be a component of her upcoming budget on November 26.

However, this proposed measure, targeting ‘salary sacrifice’ schemes, could adversely affect ordinary workers, potentially costing the average employee around £210 annually.

Currently, these schemes allow workers to bolster their retirement funds by contributing before their earnings are subjected to income tax or National Insurance. As a result, employers also benefit by paying reduced National Insurance contributions, since the tax is only applied to the salary remaining after pension deductions.

Employers pay lower National Insurance contributions if staff choose to follow the scheme as the tax is only charged on the pay which remains after the pension payments.

But the Chancellor is reportedly planning to impose a limit on how much can be put into a pension tax-free. 

Sir Mel Stride, the shadow chancellor, said: ‘If Rachel Reeves really is planning to cap salary sacrifice relief, it’s another reckless hit on business and jobs. 

Rachel Reeves has been warned against implementing a ‘reckless’ tax raid of up to £4billion by slashing a perk that allows workers to boost their pension pots

‘Starmer and Reeves promised no more tax rises after their disastrous Budget last year – if they break their word again, the Chancellor has to go.’

Removing the salary sacrifice in its entirety could save up to £4bn but it could cost millions of workers hundreds of pounds, reported The Telegraph. 

Pensions consultants LCP suggest more than three million basic rate taxpayers could be impacted.

The Government has previously admitted it was considering scaling back the tax break.

A move would be contentious as many workers are already failing to set aside enough funds for their retirement.

Ms Reeves has already stated that those with the ‘broadest shoulders’ will be most affected by her upcoming budget.

But wealthy Brits who want to flee Labour tax raids could be slapped with a new ‘settling up’ charge if they emigrate. 

Ms Reeves is said to be targeting £2bn in savings by charging those leaving the UK with a 20 per cent charge on their business assets.

Those exiting the country can currently sell their British assets without being liable for Capital Gains Tax.

But under the Chancellor’s new scheme, emigrants would need to pay up at their point of departure.

Ms Reeves has been accused of waging a class war and she admitted higher taxes for wealthy Brits would be ‘part of the story’ of her November 26 budget

However, the payment could be delayed for several years if they did not want to liquidate their assets immediately.

Around 16,500 millionaires are expected to leave the UK this year as Ms Reeves imposes a string of new levies. 

Many have already left the country in response to Ms Reeves scrapping the centuries-old tax privilege for non-doms, under which they were taxed on income and gains brought into Britain. 

Fears are also mounting that the Chancellor will deal another hammer blow to the economy by piling on taxes at the budget.

Ms Reeves could effectively torch the Labour manifesto as analysts warn that she needs to fill a black hole in the public finances of up to £50billion. 

Keir Starmer refused to rule out increases to income tax, national insurance and VAT at PMQs on Wednesday. 

Ms Reeves has insisted Britain can ‘defy’ grim economic forecasts but issued a fresh warning of looming tax rises. 

The Office for Budget Responsibility (OBR) watchdog is reportedly preparing to downgrade its productivity forecasts by 0.3 percentage points.

It is estimated this will leave a gap in the public finances of more than £20billion, with ex-Tory chancellor Sir Jeremy Hunt describing it as a ‘hammer blow’ to Labour’s plans.

Ms Reeves piled the blame on Brexit, austerity and the Covid crisis for leaving ‘deep scars’ on the British economy.

She also paved the way for another huge tax raid as she warned of ‘necessary choices’ and vowed to ‘take the long-term decisions that are in the best interests of our country’.

‘These decisions – and the decisions I take at the Budget – don’t come for free and they are not easy,’ the Chancellor added. 

There is speculation that Ms Reeves could break Labour’s manifesto pledges and raise income tax next month, while the Treasury is also considering proposals for a ‘mansion tax’.

The Institute for Fiscal Studies (IFS) think tank warned earlier this month that Ms Reeves could need to find £22billion of tax rises or spending cuts.

This would be to restore the £10billion of headroom she left herself against her debt targets in the Spring.

That gap is the result of higher borrowing costs, more persistent inflation and weaker growth, along with having to fund Labour’s U-turns on winter fuel payments and welfare cuts.

But the hole in the public finances could be even bigger than feared, amid expectations the OBR will make a larger-than-expected cut to its trend productivity forecast.

A Treasury spokesperson said: ‘We do not comment on speculation around changes to tax outside of fiscal events.’