Clause 7
Charge to income tax on lump sum
Mr. Philip Hammond: I beg to move amendment No. 64, in clause 7, page 8, line 9, after '(5)', insert 'below'.
The Chairman: With this it will be convenient to take amendment No. 65, in clause 7, page 8, line 30, leave out from beginning to end of line 34.
Mr. Hammond: These two small amendments would clarify measures that we believe have been poorly drafted. Amendment No. 64 deals with line 9 of the clause, which states:
''For the purposes of the Tax Acts (including subsection (5)), a social security pension lump sum . . . is to be treated'',
and so on. On first reading of the clause, I and others whom I have consulted were not clear to which subsection (5) reference was being made. Looking at it more closely, it is clear that the sentence is intended to mean that
''For the purposes of the Tax Acts . . . a social security pension lump sum''
will be defined in the way set out in subsection (2) for all purposes, including the purposes of subsection (5). So, the ''subsection (5)'' referred to is not a subsection (5) in the ''Tax Acts'', which is a plural concept, but subsection (5) of clause 7. The amendment would simply insert the word ''below'' to make it perfectly
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clear—well, clearer—that the wording refers to subsection (5) below.
When I looked at the clause again this morning, it occurred to me that the wording would perhaps be even clearer if it read: ''For the purposes of the Tax Acts, including for the purposes of subsection (5) below, a social security pension lump sum'' and so on. The amendment is simply intended to clarify the not-very-clear drafting, and to make it plain that all subsection (2) does is refer the definition of
''social security pension lump sum''
to subsection (5).
Amendment No. 65 raises another small but important point. The inclusion of subsections (6) to (8) is, dare I say, revolutionary. Is the idea that at the end of every clause there will be a series of subsections telling us what future sections will do? That would be like watching a television serial in which, at the end of the week's episode, there is a series of clips showing what is coming in future. Subsections (6) to (8) do not seem remotely necessary. As far as I am aware, those provisions do not accord with precedent, and if we applied the principle consistently it would massively bulk out the volume of legislation with which we have to deal—which is already, frankly, too large—and bring yet more pages of tax statutes into force. I can see no reason for the subsections, and I am rather concerned about this architectural innovation.
Rob Marris (Wolverhampton, South-West) (Lab): Does the hon. Gentleman not think that his amendments are somewhat contradictory? First he says that the Bill is too long and that he wants to take out subsections (6) to (8) under amendment No. 65, then he says that it is too short and so tables amendment No. 64.
Mr. Hammond: Not at all; it is absolutely essential that legislation be clear. Where there are references to subsections, it needs to state clearly of what they are subsections. Much of the Bill amends other legislation and, particularly in the schedules, the references are often to clauses, subsections and paragraphs not in this Bill, but in existing Acts of Parliament.
If the principle apparently observed in subsections (6) to (8) were consistently applied, it would be burdensome. Logically, clause 1 would have subsections (1) to (71) setting out what every clause did, and so on. Only clause 72 would be spared the need to set out what future clauses did. I can see no reason for subsections (6) to (8). I have never seen such provisions in a Bill before, as far as I am aware, and I would like to understand why it is necessary to spell out what future clauses will do in an initiating clause.
The Chairman: Order. Because there is a problem with the sound, I have been asked to suspend the sitting.
11.44 am
Sitting suspended.
11.53 am
On resuming—
The Chairman: The suspension is now at an end. We were let down by technology, but hopefully it has been
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put right. I hope that none of the valuable words uttered in the debate have been missed. I think that the hon. Member for Runnymede and Weybridge had just resumed his seat and I was about to rise to my feet to propose the amendment.
I welcome to the Committee the Economic Secretary to the Treasury.
The Economic Secretary to the Treasury (Mr. Ivan Lewis): Thank you very much, Sir Nicholas.
I am delighted that the nation was not denied the opportunity to have the preceding hour of deliberations recorded—it would have been extremely disappointed.
I must also apologise, Sir Nicholas, for inadvertently stripping you of your knighthood during the debate on the Floor of the House. To do that to a living national treasure would surely be unforgivable.
Mr. David Ruffley (Bury St. Edmunds) (Con): Resign!
Mr. Lewis: That call normally comes from the Benches behind me.
The previous time I appeared in a Committee such as this was during the consideration of the Higher Education Bill. I sat there for three weeks alongside the then Minister for Lifelong Learning, Further and Higher Education, my right hon. Friend the Member for Kingston upon Hull, West and Hessle (Alan Johnson), and after three and a half weeks I got to speak on a clause. He subsequently became the Secretary of State for Work and Pensions and is now the Secretary of State for Trade and Industry. If my right hon. Friend the Paymaster General and my hon. Friend the Financial Secretary stick with me, I am sure that they will have a bright career ahead of them.
I shall quickly say something about the purpose of the clause, which provides for the taxation of a social security pension lump sum. It is also important to say that the rules in clauses 7 to 10 ensure that pensioners are not put into a higher tax bracket and do not lose any of their age-related income tax allowances as a direct result of taking the lump sum.
Turning to the amendments proposed by the Conservatives, I understand the concern of the hon. Member for Runnymede and Weybridge, but amendments Nos. 64 and 65 are genuinely unnecessary. The insertion of the word ''below'' by amendment No. 64 would add nothing to the clause. The reference to subsection (5) of the same clause is perfectly clear without the additional word proposed in the amendment. As my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out, amendment No. 64 contrasts with No. 65, which seeks to remove subsections written in a particular way—in the tax law rewrite style. There are already three Acts that demonstrate that approach and are designed specifically to signpost later clauses, thereby increasing understanding of how the four clauses sit together.
It would be a retrograde step to remove something that is designed to make legislation far more fit for purpose, understandable and clear, so that
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stakeholders and others can understand how it is put together. I ask the hon. Member for Runnymede and Weybridge to withdraw the amendment.
Mr. Philip Hammond: Clearly, there are some things to die in a ditch for, but this is not on my list. I find the Minister's explanation somewhat baffling. The phraseology in subsection (2) is not at all clear, and as for the idea of signposting what is in subsequent clauses, that concept has not even been consistently applied throughout the Bill. We are all in favour of trying to get clarity in the Bill, but later I shall raise, for example, the definition of ''Tax Acts'', which is integral to an understanding of clause 7 but is not defined in the Bill.
Although I hear what the Minister says, I suspect that we shall have to agree to differ about the best approach to architecture and achieving clarity. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Philip Hammond: I beg to move amendment No. 66, in clause 7, page 8, line 34, at end add—
'(9) In this section ''total income'' shall mean total income after deduction of the relevant personal allowance mentioned in section 257 ICTA 1988'.
This is a more substantive issue, although it is a matter of clarification. The clause introduces the concept of total income, which is not defined in the Bill, unless I have missed the definition. It might seem obvious what a person's total income is, but for the purposes of this clause, and in order to give effect to what the Government have announced on several occasions and clearly intend to do, ''total income'' must mean total income after the deduction of all applicable personal allowances.
12 noon
The intention is clearly to use an individual's top rate of tax as the rate that should be applied to the lump sum. Somebody aged 66 whose income is £7,500 would have a top rate of tax of 10 per cent., because their taxable income would be £410 after the personal allowance. The £410 is comfortably within the lower 10 per cent. tax bracket currently of £2,090. The question for the Minister is whether the Bill makes that clear. Total income, we understand, is defined in section 835(1) of the Income and Corporation Taxes Act 1988 as the income from ''all sources''. From that, under section 257 of that Act, the taxpayer is entitled to deduct his personal allowances. The Act goes on to present a mechanism for charging tax at the various rates.
The Minister will have seen the briefing by the Law Society on the issue. It thinks that the problem is that the clause has been based on the terminology used in the 1988 Act and because of the way sections 257 and 835 taken together work, it is possible that the definition of ''total income'' could be misconstrued to mean what it would mean to you or I, Sir Nicholas: the individual's total income. The Government's intention in this case is clearly that we must have a definition of ''total income'', which is to be income taken after the deduction of the appropriate personal allowances.
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