UK's Osborne launches Conservative election pitch with pension tax cut

By William James and William Schomberg

BIRMINGHAM, England, Sept 28 (Reuters) - British financeminister George Osborne will announce on Monday that he willscrap a tax on inherited pension savings as he lays out theConservative Party's pitch to win the next election on the backof its economic policies.

Ahead of what is expected to be a close-run ballot next May,Osborne will use a key speech to try to persuade voters thatonly the Conservatives can be trusted to keep Britain's economicrecovery on track.

The Conservatives are rated by voters much more highly thanthe opposition Labour party on the economy. But they lagnarrowly behind Labour in opinion polls less than eight monthsbefore the election.

In a move aimed at the party's ageing supporter base, Osborne will commit to abolishing before the election a 55percent tax levied on pension pots of savers when they die.

"People who have worked and saved all their lives will beable to pass on their hard-earned pensions to their families taxfree," he will tell the Conservatives' last conference beforethe election, according to advance extracts of his speech.

Osborne has focused on bringing down Britain's massivebudget deficit since he took over the finance ministry in 2010.With the public accounts still deep in the red, he has littleroom to offer major tax cuts ahead of the election.

The new pledge to be announced on Monday is expected to costaround 150 million pounds (244 million US dollar) a year,according to a Conservative briefing note.

Nonetheless, his offer to scrap the pension pot tax strikesa contrast with the latest ideas from Labour.

Last week, Labour promised to levy new taxes on homes worthmore than 2 million pounds ($3.3 million) and on tobacco firmsin order to pump cash into healthcare if it wins the election.

Britain's economy has staged a much stronger-than-expectedrecovery since mid-2013 and Osborne, in his speech on Monday, will seek to remind voters that keeping the economy growing willbe vital to create jobs, build more houses, fund healthcare andraise living standards.

"That's why it's the economy that settles elections," he isexpected to say, "The Conservatives are the only people inBritish politics with a plan to fix the economy."

Osborne has long sought to remind voters that Labour was inpower during the 2007-08 financial crisis that plunged Britaininto its deepest post-war recession. He says the increasinglyleft-wing ideas of its leader Ed Miliband threaten the push toeliminate the budget deficit before the end of the decade.

"The idea that you can raise living standards, or fund thebrilliant NHS (National Health Service) we want, or provide forour national security without a plan to fix the economy isnonsense," Osborne will say.

Last week, Miliband gave a conference speech in which heforgot to mention the budget deficit. Labour's would-be financeminister Ed Balls has said the party will tackle the deficitwith a plan that is less aggressive than Osborne's.

Labour dismissed Osborne's planned speech as failing totackle the issues they say matter to ordinary Britons.

"George Osborne claims he has fixed the economy, but he'sonly fixed it for a privileged few at the top," said ChrisLeslie, Labour's finance spokesman.

TAX ABOLISHED

Osborne's pledge to scrap the tax on pension savings hasechoes of how, when in opposition in 2007, he promised to cutinheritance tax, a popular move which was widely credited withdissuading the Labour prime minister at the time, Gordon Brown,from calling a snap election he had looked likely to win.

Osborne turned his attention to elderly voters again earlierthis year, scrapping a requirement that most pensioners buyannuities on retirement and allowing them to spend their pensionsavings as they wanted.

The Conservative Party saw a small boost in opinion pollsafter those reforms were announced.

That shake-up hit shares in firms such as Legal & General, Aviva and Standard Life which sellannuities.

Ros Altmann, a pensions campaigner and former governmentadviser, said the changes to be announced on Monday could dealanother blow to the industry.

"These new measures are ... another nail in the coffin forannuities," she said in a statement. "Any money that has beenused to buy an annuity cannot normally be passed on to the nextgeneration (unless there is a guarantee attached) whereas fundsin drawdown can pass on free of tax in future." (1 US dollar = 0.6158 British pound) (Additional reporting by Simon Jessop; Editing by Susan Fenton)