A raid on pension tax relief by Rachel Reeves could hammer the nation’s savings by £50billion and hit investment, growth and income in retirement for millions, an expert has warned. New analysis claims if the Treasury goes after tax relief for higher earners in the Budget on November 26, then it could have “severe” consequences for the economy as a whole.

Tax relief on pensions under the current system works out at 20% for most earners, but for higher earners over £50,000, it is around 40% to 45%. Previous studies have discussed the Treasury setting a flat rate of relief for everyone, for example, at 25%. Lower earners would benefit from more relief, but the change would mean higher earners have less

It’s reported the Chancellor could be seeking a raft of tax hikes and spending cuts at her next Budget as she seeks to plug a £50billion black hole in the economy.

However, according to wealth management firm Rathbones, hitting retirement pots could stop people investing in their pensions which in turn would mean less capital available to be invested by funds in UK businesses and infrastructure. Oliver Jones, head of asset allocation and author of the report, said: “Policymakers should consider the wider consequences before making changes that could drain £50billion from the UK’s investment engine.

Mr Jones told the Mail Online: “The long-term consequences could be severe: undermining business investment, weakening retirement security, and ultimately slowing economic growth.”

Malvee Vaja, financial planner at Rathbones, added: ‘”For individuals planning for retirement, the proposed changes to pension tax relief could mean significantly lower pension pots; it could even mean many rejecting pensions entirely.

“People should be incentivised to save for later life so they can live from their own resources. Further cuts in pension savings relief will achieve the opposite.”

Ms Reeves is also reported to be considering hitting the amount pensioners could withdraw as a lump sum tax free. Under current HMRC guidelines, people can usually take 25% of the amount built up in any pension as a tax-free lump sum from the age of 55, up to a limit of £268,275. It’s been rumoured the Chancellor may look to slash the threshold to just £100,000 before the taxman takes a cut.

Elsewhere an investigation into Ms Reeves’s admission that she fell foul of local housing rules when renting out her family home is “not necessary”, Sir Keir Starmer has said. The Prime Minister gave his backing to Ms Reeves after consulting his independent ethics adviser, Sir Laurie Magnus.

The Chancellor admitted to Sir Keir she did not obtain the required “selective” rental licence for her south London home when she moved into No 11 Downing Street after Labour won the election. In a letter to the Prime Minister, she “sincerely” apologised for her “inadvertent error” of not obtaining the licence, which was revealed by the Daily Mail.

An exchange of letters between the PM and Ms Reeves revealed they had met to discuss the matter on Wednesday evening, after it came to light.