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During a Parliamentary debate on the government's benefits cap, the South Shields MP said cutting pensions tax relief further would save the government more money and take from wealthier people than holding benefits at the same level as wages.
In a speech some commentators believe signals his return to frontbench politics, the elder Miliband brother said: "The Chancellor has cut tax relief for pension contributions, but only by £200m in 2013/14 rising to £600m in 2015/16.
"The cumulative saving between now and 2015/16 from the richest is £1.1bn, compared to £5.6bn for those on benefit and/or receiving tax credits.
"The government has made a great deal of the point that no one should receive more from benefits than the average wage of £26,000, but it offers tax relief of £40,000 for those with £40,000 to spare. That costs £33bn a year.
"If we limited tax relief on pension contributions to £26 000 a year, we would have no need for this bill. This rancid bill is not about fairness or affordability."
The speech comes after Labour leader Ed Miliband and shadow chancellor Ed Balls unveiled a proposal to cut pension tax relief for people in the 45% bracket to 20% if Labour was elected.