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The Chairman: Order. I hope that the hon. Gentleman is not seeking to include in his remarks matters relating to amendment No. 67, which we shall reach later, because I should be loth to call it a day.
Mr. Hammond: Depending on the Economic Secretary's response, that may indeed be appropriate. However, since we have discussed clarity of legislation, wording and whether the architecture of ''referring forward'' under subsections (6), (7) and (8) was appropriate, it would be good if he could explain how the definition is imported into the Bill. I think that the issue will arise throughout the Bill. Depending on his response, you might well decide that we have had that discussion, Sir Nicholas.
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12.30 pm
Mr. Lewis: Sir Nicholas, it may be helpful to you and to the Committee to respond directly to the hon. Gentleman's point; it might defer some of the agony that we would face later if we did not make things clear at this stage. ''Tax Acts'' covers all tax Acts, which is covered by the definitions. I hope that makes it clearer. These issues are covered by the definitions. That deals with the hon. Gentleman's point.
The hon. Gentleman expressed disappointment that this legislation did not create a vehicle whereby at a later stage we could adopt his suggestion of deferred partial payment. Conservative Members frequently say that one problem is that there is not sufficient opportunity to scrutinise changes that the Government seek to make. By doing things this way, and not jumping to create a vehicle that would allow us to go for deferral, in a future Finance Bill, if we were minded to adopt his proposed reform, we would be able to have full and proper scrutiny of that change of policy. It would not be appropriate in this Bill to jump from where we are to where he suggests we ought to be in the future.
Mr. Field: Although I understand the Minister's comments, and that the watchwords are innovation and imagination, equally there is a need for flexibility. That is what we are getting at. We cannot foresee everything and there is no doubt that this area will be fast-moving. There are ideas of deferred payments and the interlinking, as my hon. Friend the Member for Runnymede and Weybridge rightly said, between the Treasury and the Department for Work and Pensions. We will see that debated in the next couple of weeks in the Bill relating to land registration, which again covers issues that are in a state of flux. Does the Minister not understand our concern that flexibility is needed as well as innovation and imagination?
Mr. Lewis: I am always up for flexibility as well as innovation and imagination, but I am not prepared to endorse an approach that might lead to unintended consequences before we test this policy out and ensure that it influences people to make decisions in a way that we believe is consistent with their best interests.
Mr. Philip Hammond: The Economic Secretary's point is a good one. We certainly would not want the primary legislation dealing with deferment of pensions to allow the Government scope to make endless changes to it. It is quite proper that if a partial deferment regime is to be introduced, it should be considered properly in the House.
This Finance Bill simply deals with consequential changes to the way the tax system works, to accommodate a policy announcement that has been made by another Department and dealt with in different legislation. All I am suggesting to the Minister is that it might have been a good idea—if the consequential legislation was drafted widely enough—to use wording to such effect that any changes made to the principal legislation at a later date would not make it necessary to revise the consequential legislation as well.
Mr. Lewis: Before we consider the consequences, let us remember that if we were to adopt deferment of
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pensions as a policy, it would first have to be in a pensions Bill. Things could be the wrong way round. To give even an indication in this Bill that that was somehow a decision that the Government have made, when it is not, would send out signals to individuals, financial advisers and others that could turn out to be exceptionally misleading.
I have said to the hon. Gentleman that we are not ruling out for ever the option of partial deferment. It is worth considering, but we must ensure that the changes we make are introduced in an integrated and sensible way, allowing people to make the right choices. We believe that a modern pensions policy would enable them to do so.
Rob Marris: Does the Minister agree that the premise put forward by the hon. Member for Runnymede and Weybridge—namely, that there has been a policy announcement by Government to allow partial deferral—was wrong? He referred to it as a policy, but I am not aware that any such policy has been announced.
Mr. Lewis: As ever, I thank my hon. Friend for spotting that; the Opposition are not in a position to announce Government policy, and will not be for many years to come.
To stick to the point, I acknowledge and recognise that the hon. Member for Runnymede and Weybridge made a perfectly reasonable point about partial deferment, but I made it absolutely clear that that is not Government policy at this stage, as we believe that it may—only may—lead to confusion, ambiguity and unintended consequences. I feel strongly that it would be inappropriate at this stage to suggest that that is Government policy by putting it in this Finance Bill. The provision has not even yet formed part of any pensions Bill, which, in the circumstances, would be the place where we would ordinarily start with such a measure. On that basis, I ask the hon. Gentleman to allow the Committee to make progress.
Question put and agreed to.
Clause 7 ordered to stand part of the Bill.
Clause 8
Meaning of ''applicable year of assessment'' in section 7
Question proposed, That the clause stand part of the Bill.
Mr. Lewis: The clause deals with the rules for deciding in which year the tax charge will occur. That year is referred to as the ''applicable year of assessment''. It may be useful to the Committee if I place on record the implications of the clause. In the majority of cases, the applicable year of assessment is the tax year in which the person becomes entitled to their social security pension, and it is based on the first day that a state pension is payable, as established by the Department for Work and Pensions.
The clause also provides rules for establishing the applicable year of assessment in specified circumstances. Crucially—the hon. Member for
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Cities of London and Westminster will approve of this—it provides flexibility by allowing people to take the lump sum in the year following what would be the normal year of assessment. That will help people who choose this option for the year following their retirement. That will become possible once the Secretary of State for Work and Pensions lays the necessary regulations enabling that choice; I understand that that will happen later this year. The provision may mean that a lower rate of tax is paid than would have been the case if a person had been assessed in the year of retirement. In this way, the tax rules are not a disincentive to taking the lump sum.
The clause also establishes the applicable year of assessment in cases where a person dies before taking a lump sum. There are rules that provide for cases in which the surviving spouse inherits the right to the lump sum, and also cases in which it is paid to the person's estate. This flexible approach to taking the lump sum underpins a real choice on taking retirement benefits, and I commend the clause to the Committee.
Mr. Philip Hammond: I welcome the Economic Secretary's remarks, and I welcome the flexibility given to the taxpayer to defer assessment by a year; that is a sensible measure. We all know what we are trying to do under this clause. The problem, as is so often the case with tax, is that it is easy to announce in one sentence what the Government want to achieve—namely that no one should pay a higher rate of tax than they otherwise would have paid simply because they got a lump sum payment. However, it is much more difficult to translate that into reams of written words that give effect to the measure.
I do not wish to rehearse an argument that we have already had, but as the Economic Secretary said, the applicable year of assessment is the year of assessment in which the first benefit payment day falls. Without necessarily making the case for keeping open the options for partial deferment—although that would be a beneficial outcome of what I am about to suggest—one is compelled to ask why the year of assessment is not the year in which the lump sum is paid. That year, or indeed the following year by election, would seem to be the more obvious year of assessment. Why do we have this rather tortuous mechanism under which the year of assessment is the year in which the pension is paid, not the one in which the lump sum is paid, or when the first benefit payment date for the pension falls, rather than the day on which the lump sum is paid? That gives rise to a concern about clause 8(8), which says:
''For the purposes of determining the applicable year of assessment, it does not matter when the lump sum is actually paid'',
and also a concern about clause 7(1). I should be pleased if the Economic Secretary would rule out the possibility that someone could be assessed to tax in a period of assessment on a lump sum that they had not received, and that a pensioner could find that they were presented with an assessment to tax in respect of what could be four or five years' deferred pension—quite a lot of money—that they had not received: a tax bill which they therefore had no way of paying. Such a situation could arise, for example, if somebody opted to defer their pension for four years and at the end of
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the four-year period the ''first benefit payment day'' fell in that period. That person would, on that day, become liable to pay the tax on the lump sum, but what if the Department for Work and Pensions could not find them? What if they had moved home or disappeared?
We know that the Treasury has difficulty tracing people and paying them the right amounts of money. It is not inconceivable, as any hon. Member will recognise—and even a brand new Member will have had enough post so far to recognise—that people do not always get the payments that they are meant to get from the Government when they are meant to get them. Is it not possible that elderly and vulnerable people may suddenly be presented with a bill for a tax liability that they cannot pay, because they have not had the lump sum in question, which is presumably accruing interest due to HMRC? That is a problem.
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