Scottish government unveils plan to ease pension tax crisis as BMA urges UK-wide action

The Scottish government has unveiled plans to divert employer pension contributions into the basic pay of some NHS staff to tackle the tax crisis devastating health service capacity across the UK.

NHS pensions (Photo: Andrew Brookes/Getty Images)
NHS pensions (Photo: Andrew Brookes/Getty Images)

Doctors' leaders and accountants have been warning for months that the government's failure to address the impact of tax penalties on pension contributions on the NHS workforce would severely undermine capacity - and the BMA believes the health service is now heading for its most difficult winter ever.

A damning report published earlier this month showed that NHS organisations across the UK were struggling to maintain services as doctors across multiple specialities were forced to reduce working hours or refuse extra shifts to avoid heavy tax penalties.

In a statement, the Scottish government said that 'from 1 December 2019, an interim policy will give eligible NHS staff the option to get their employer pension contributions paid to them as part of their basic pay'. BMA leaders in Scotland called for UK-wide tax reform.

The Scottish proposals came as details emerged of plans to tell doctors in England that their tax bills would be covered by the NHS. The BBC reported that doctors would be able to 'take money out of their pension pots to pay the tax bills they get next year'.

Tax penalty

It reported that the NHS 'will then top up their pension pots before retirement, meaning the cost of the measure to the health service will be spread out over time while doctors will not be out of pocket'.

The Scottish government statement, meanwhile, said this 'new temporary policy will provide eligible staff with an alternative option to restricting their hours in order to reduce financial penalties and will ensure crucial services are maintained as demand on the health service continues to increase'.

The scheme, which will be available to any NHS staff who can demonstrate that they are at risk of breaching their annual allowance limit on pension growth for 2019/20 and to face tax penalties as a result, will apply until the end of the current financial year, 31 March 2020.

Scottish health secretary Jeane Freeman said: 'Our hard-working staff should not face a financial penalty for working to provide vital services for patients, and I have repeatedly called for action from the UK government on this as this matter is reserved.

'Our staff are valued and they should be supported and able to work for our NHS and its patients for as long as they wish. This is just one of the steps we are taking to ensure we retain and build a sustainable medical workforce.

NHS frontline

'This will make a significant contribution to supporting frontline services and medical specialities who are working round the clock to deliver the highest possible quality of care.

'This new option will also help to support recruitment and retention of staff, encouraging health professionals to build their careers here in Scotland’s NHS.'

The Scottish government said the interim rules would apply until the UK government announced the outcome of an ongoing consultation on pension flexibilities, and while the Treasury considered whether to change or scrap the existing annual allowance mechanism.

The government is currently consulting on plans that health and social care secretary Matt Hancock has said will create the 'most flexible NHS pensions ever' by allowing doctors to reduce their contributions and slow the growth of their pension pots.

Annual allowance

However, experts have called the plans 'uninformed tinkering' and warned that unless the Treasury scraps the annual allowance doctors will continue to face effective cuts to their overall remuneration.

The rules regarding pension taxation are wholly reserved to the UK Government and any changes to the NHS pension scheme require the consent of HM Treasury.

Under the Scottish plans, staff who qualify will be paid 'in lieu of pension contributions and will pay tax and national insurance on this payment'.

The BMA said earlier this year in response to the UK government's consultation on NHS pension flexibility that it was 'extremely disappointed that the consultation does not include a specific proposal for the mandatory recycling of employer’s pension contributions'.

BMA Scottish consultants committee chair Dr Graeme Eunson welcomed the move and said it would 'hopefully provide some urgent short-term relief to some senior doctors who are facing harsh punitive pension taxation charges'.

He added: 'We have pushed the Scottish government hard to act within the limited powers it has on this issue. Of course, this scheme does not deliver everything we have asked for, but it is absolutely a step in the right direction.

'Most importantly, as we enter the crucial winter period it will help protect patient care, keep our emergency departments staffed and deal with challenging waiting lists. These are the vital NHS services that have been suffering as doctors are forced to cut their hours out of fear of a perverse tax system that essentially makes them pay to go to work.

'However, while we welcome this move, more fundamentally we need UK-wide tax reforms before the end of this financial year in order to prevent these bills from hitting doctors again next year.'

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