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Rachel Reeves is plotting a tax raid of as much as £4bn on pension perks as she targets higher earners in the Budget.

It is understood the Chancellor is preparing to strip back tax breaks offered to staff and employers that pay money into workplace pensions in a move that could cost the average worker £210 a year.

The raid will be targeted at so-called “salary sacrifice” schemes, which allow workers to put money into their retirement pots before it is subject to any income tax or National Insurance.

Companies benefit from lower employer National Insurance contributions when staff take advantage of these schemes, because the tax is only levied on pay left over after pension contributions.

Ms Reeves is preparing to target the National Insurance relief by restricting the maximum amount that can be put into a pot tax-free.

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HMRC has previously admitted it was exploring ways to cut back the generous benefit. Analysis in May showed that someone on £35,000 a year – the median UK wage – who contributed 5pc of their wages into a pension pot through salary sacrifice would pay £210 more National Insurance if exemptions were scrapped. Employers would face an additional £242 hit if they matched the contribution.

Ms Reeves has insisted those with the “broadest shoulders” will bear the brunt of higher taxes in the Budget as she looks to raise up to £40bn to plug a hole in the public finances and increase her buffer to balance the books.

Treasury insiders have noted that the National Insurance savings made through salary sacrifice mainly benefit larger employers because of the administrative costs of running such a scheme.

Official figures also suggest that more than three quarters of income tax relief on salary sacrifice goes to higher and additional rate payers.

However, making savers pay more will prove controversial given experts say workers are already not putting aside enough to cover their retirements.

Sir Steve Webb, a former pensions minister and LCP partner, said: “Previous governments have allowed salary sacrifice for pension contributions to encourage firms to provide good pensions.

“If it was abolished it would penalise the best employers and make it less attractive to offer decent pensions. A more modest reform would be to cap the amount which can be sacrificed, and HMRC have tested employer opinion on this option as well.”

While abolishing salary sacrifice entirely could save Ms Reeves more than £4bn a year, officials have raised concerns that it would lead to millions of average workers losing hundreds of pounds.

Analysis by pensions consultants LCP suggests more than three million basic rate taxpayers could lose out if salary sacrifice was abolished.

Capping the relief at £2,000 per year would shield the average worker and their employer from paying National Insurance on pension contributions. It would also cushion the blow for higher earners.

HMRC said someone earning £45,000 who sacrificed 5pc of their salary would pay an additional £30 under this system, while their employer would face only an additional £34 bill.

Sir Mel Stride, the shadow chancellor, said: “If Rachel Reeves really is planning to cap salary sacrifice relief, it’s another reckless hit on business and jobs.

“Starmer and Reeves promised no more tax rises after their disastrous Budget last year – if they break their word again, the Chancellor has to go.”

Cap on contributions most likely option

There are concerns that a broader restriction of National Insurance relief would also amount to another raid on business just a year after Ms Reeves’s record £25bn increase in NI contributions.

Andy Summers at the Centre for the Analysis of Taxation said: “Some employers would reduce their contribution rate, resulting in smaller pension pots for workers. Others may keep existing contribution rates but hold down pay or employ fewer workers to cover their extra costs.”

A cap is understood to be the most likely option being looked at by the Chancellor.

Experts said middle-class parents would not be dragged back into a costly tax trap by the restriction of salary sacrifice. Tens of thousands of workers use these schemes to keep their earnings below the £100,000 threshold at which childcare benefits are removed.

Families could still keep this support so long as they continue to pay the required amount into their pensions, though they would no longer enjoy National Insurance relief.

Reform of salary sacrifice schemes has been advocated by several think tanks, including the Resolution Foundation, which was until recently run by pensions minister Torsten Bell, and the Institute for Fiscal Studies (IFS).

Salary sacrifice schemes were previously used to cover a wider range of tax-free benefits, including gym memberships and shopping vouchers, though the perks were removed by Philip Hammond in 2017. One source suggested electric vehicle tax breaks could also be closed as the Government seeks to tax EVs more.

A Treasury spokesman said: “We do not comment on speculation around changes to tax outside of fiscal events.”