Chancellor George Osborne may be lining up sweeping tax changes in next week's Budget update to help cash-strapped individuals and businesses suffering from increasing economic hardship, experts said on Tuesday.
With Osborne's strict deficit reduction plan the chancellor will have little room for manoeuvre to offer outright tax cuts but he may rebalance the tax system by reducing taxes in one area but cutting tax relief in another, PwC experts predicted.
Business secretary Vince Cable said earlier this month that large scale tax cuts or big increases in public spending to boost growth were not "under consideration".
One area the chancellor could gain some leeway to offer a certain segment of the British population some assistance would be in pension relief. Pension reliefs amount to nearly £30 billion a year allowing Osborne to put some money back in peoples' pockets.
In exchange, PwC said, Osborne could raise the threshold of 40 percent rate of income tax up to £50,000 a year.
Pensions "are always a tempting target because of the scale of the reliefs involved," Alex Henderson, tax partner at PwC, said.
"The chancellor could reason that any detrimental effect of reducing relief on income allocated to pension saving is more than outweighed by the immediate relief income tax cuts on all income would bring."
The firm also suggested that taxing lump sums withdrawn from pensions on retirement could also be an option for the chancellor when he presents his autumn statement to parliament on 29 November.
"If people think their pensions can be attacked out of the blue to raise short-term tax revenues, they'll have even less incentive to lock up savings for decades," Raj Mody, head of pensions at PwC, said.
Those most affected by this change would be those coming up to retirement but everyone would take notice because there's a clear expectation that these lump sums are tax free, the firm said.
Richard Godmon, a tax partner at Menzies, said he wanted to see the chancellor announce plans for tax simplification, staff hiring incentives, income tax cuts as well as corporate tax breaks for infrastructure investment
"As well as scrapping the 50 percent rate, we would like to see personal allowance increased to £15,000 and the 20 percent rate threshold increased to £45,000," Godmon said.
Peter Hemington, partner at BDO, has also urged the chancellor "to tackle the slowing recovery head on in his autumn statement by reforming the tax system"