Darling warned of pensions backlash from public

By SIMON DUKE FOR MAILONLINE
Updated:

Pension problem: Alistair Darling's controversial Budget plans have come under more fire

Pension problem: Alistair Darling's controversial Budget plans have come under more fire

Chancellor Alistair Darling came under mounting pressure last night to ditch his planned assault on middle-class pensions. 

Two of Britain's biggest business lobby groups warned of a huge public backlash if Darling presses ahead with a 'cheap and dirty' pension raid in this Wednesday's Budget.

In a bid to help plug the gaping hole in the public finances, the Treasury is considering scrapping higher-rate income tax relief on pensions.

The move would raise between £5billion and £7billion, but would leave an estimated 3.6million middle-class taxpayers out of pocket.

Richard Lambert, head of the Confederation of British Industry, described the mooted plan as 'political madness'.

And Stephen Haddrill of the Association of British Insurers said: 'This is a direct attack on the hard-working people of middle Britain.'

The warnings came as Darling was putting the finishing touches to the Budget, which will expose the dramatic deterioration in the economy over recent months.

The embattled Chancellor is expected to predict that the economy will grow by a respectable 1 per cent in 2010 following a crash of more than 3 per cent this year. 

That compares to his November forecast for a drop of between 0.75 per cent and 1.25 per cent in 2009 and a growth of between 1.7 per cent and 2.5 per cent next year. 

But even these downgraded forecasts may prove to be overly optimistic.

The business lobby group predicted that the economy will contract by 3.9 per cent this year. Any recovery will be 'slow and fragile' at best, meaning the economy will grow by just 0.1 per cent next year, it said.

An anaemic bounce will put even greater pressure on the public finances.

Darling is expected to sugar coat Wednesday's budget with a number of 'giveaways'.

These could include a £50billion plan to kickstart the housing market and subsidies for green cars.

But with borrowing set to balloon to as much as £170billion this year, he'll have to introduce a number of painful tax hikes to kick in from 2011. 

Lambert said: 'I hope that he'll be able to resist a cheap and dirty tax whack.' 

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