The highest-earning 1% should have their pensions tax relief slashed so that cuts to tax credits can be reversed, Labour's top team has urged.

George Osborne was accused of giving those on more than £150,000 a year an effective tax cut of £1.6 billion by scrapping changes to pensions relief introduced by the last Labour government.

Shadow chancellor Ed Balls called on the coalition to use next week's Budget to cut tax relief on the highest-earners from 50% to 26% and use the proceeds to help people on low and middle incomes.

He said the move would raise at least £1.25 billion, allowing the Chancellor to reinstate working and child tax credits that were cut in the Autumn Statement.

"It shows just how out of touch this Government is, that with all the pressures on lower and middle income families in our country, it is the very highest earners who have benefited most from their pension tax changes," Mr Balls told a press conference at the Royal Festival Hall in London.

Mr Balls also insisted any move to introduce a mansion tax should not be used to cut the 50p income tax rates for £150,000-plus earners, but to "ease the squeeze" on low and middle income families.

"It tells you everything you need to know about David Cameron, George Osborne and Nick Clegg that their main discussions before the Budget seem to be not about how to stop this tax credits bombshell or come up with a plan for jobs and growth, but whether and how they can give a tax cut now to the richest 1% of earners," he said.

Labour leader Ed Miliband urged the Government to take a "fairer approach" to pensions tax relief.

"Ahead of this Budget, Labour is the only party saying cutting the 50p tax rate for those £150,000 is the wrong priority for Britain," he said.

"The priority must be to reverse the damaging cuts to tax credits."

Mr Balls said Labour's original cut to pensions relief for the highest earners - due to take effect from April 2011 but scrapped by the coalition - would have raised £4 billion.

Research by the House of Commons Library showed that measures to curb the pensions relief bill - by reducing the amounts that can be paid into funds - had cost 50% income tax payers only £2.4 billion, a difference of £1.6 billion.

"This effective tax cut of £1.6 billion for those earning over £150,000 is more than the £1.3 billion the new 50p top rate of tax was estimated by the Treasury to raise in its first year," Mr Balls said.

The shadow chancellor went on to question the reliability of the Chancellor's review of how effective the 50p tax rate has been.

"George Osborne is not conducting this review of the 50p tax rate because he wants to find out the answer," he said, suggesting that the Chancellor would "cook this review".