Labour could be plunged into a new crisis as Rachel Reeves’

The British Medical Association union has written a letter to the Chancellor warning that the tax grab in her upcoming budget will leave doctors with “little option” but leave their posts.

The hammer blow comes as she is believed to be mulling a full-fronted attack on pensions next week, as she seeks to raise billions in extra cash.

The influential health union has warned Ms Reeves that doctors will either reduce their workload or leave the profession altogether if she changes the lifetime pension cap.

The cap was previously set at £1.073m, before Jeremy Hunt abolished it last year as a way of incentivising well-paid public sector professionals to keep working.

If reintroduced at the previous level, it would mean anyone withdrawing savings above that limit is taxed at a whopping 55% if taken out at a lump sum, or at 25% on top of their income tax rate if cashed out gradually.

Reintroducing the cap would hugely disincentivise anyone from continuing to work once they had hit the £1 million limit.

Labour previously promised to reintroduce the lifetime allowance, slamming the Tories for introducing a tax break for society’s wealthiest.

The BMA’s new letter warns that any moves to reintroduce the cap – or introducing a flat rate of tax relief, or reducing the tax-free lump sum – will “completely derail” Labour’s dreams of bringing down waiting lists.

Pensions committee chairman Dr Vishal Sharma also argues: “After many years of doctors being left with little option but to take action, such as reducing their workload or leaving the NHS entirely, to mitigate the disproportionate impact of pension tax policy, the last thing that the NHS needs is further detrimental changes.”

On behalf of his union’s members he further demands that the Chancellor makes changes to the annual allowance and taper rate, further helping doctors and other well-paid public sector workers.

An NHS pensions specialist at Quilter agreed, telling the Telegraph: “I appreciate the Government needs to come up with a fair tax policy, but consultants have been very much caught in the crosshairs of pension taxation over the past few years.

“£1 [of extra] income could trigger £22,500 in tax. It is as absurd as that.

“The BMA has highlighted things that would be a problem to the workforce. You don’t want to motivate these people to retire if you want to reduce your waiting lists.”

Ms Reeves is similarly facing wrath from the private sector ahead of the budget, after it was reported she will raise national insurance employer contributions, but exempt the public sector.

This has also sparked fury from the BMA, who warn that the move would lead to the closure of even more GP practices.

Tom Selby, of AJ Bell, said: “Rumour and speculation about possible changes to pensions taxation are deeply damaging to trust in retirement saving. The Government has an opportunity at this Budget by making a firm commitment to delivering stability in the pensions tax system, rather than pursuing ill-advised reforms that would be complex, unpopular and potentially result in another round of public sector strike action.”