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If the Government are serious about protecting the yield, there has to be a trade-off with fairness. The Government have hinted at using the annual allowances as a way of raising that money, rather than our way, and if they introduce that change those on incomes of less than £130,000 will be dragged into the tax net. We wished to avoid that with our solution, so, if the reduction in annual allowances that the Government are considering turns out to be their final decision, in response to the debate will the hon. Lady tell us how many people it will affect? The Government have hinted that that is their preferred way, but our amendment would ensure a distributional analysis of the measure's effect. Given that we legislated for a particular approach to raising that yield, and given that the Treasury did a great deal of work on developing that system, it would be entirely appropriate for the Treasury to produce some comparisons between that and the preferred approach at which the hon. Lady and, certainly, the Red Book have hinted. How great will the sudden tax liability be of people who earned less than £130,000 a year and would not have been affected had our approach to raising the yield gone ahead? How low down the income scale will the restrictions on tax relief go?
Geraint Davies: For clarity, does my hon. Friend agree that the Government's proposal consists of a multi-billion-pound giveaway for the richest 2% of people in this country at a time when the rest of the country faces massive financial penalties due to the actions of international bankers? Those very bankers will be given the extra bonus by this Government, and that is an absolute disgrace.
Ms Eagle: Again, my hon. Friend makes an important point in his characteristically acerbic way. I was going to ask the Minister, in a slightly more polite way, how much of the income that the very richest would have paid will now be paid, under the new plans, by those on lower incomes. I hope she can give us that figure.
The key issue with annual investment allowances is that they drag people into paying the extra tax regardless of income. For example, a modest earner might receive a bequest from a deceased relative and make a big payment into a pension, and under our system they would have been able to pay in up to £225,000 without incurring tax. Alternatively, a modest earner might receive a redundancy payment and wish to put it away, and we clearly want to encourage that if they do not have a pension. If the hon. Lady's system is to be of the sort hinted at in the Red Book, that person would be much more affected, regardless of their ordinary income; they would be deterred from putting anything other than the annual investment allowance into a pension fund because of the nature of the tax. I hope she will at least admit that that is an implication. Has she any numbers that relate to this issue?
It is important that we should be able to compare the two systems. That is why the amendment calls for a distributional analysis to be laid before the House before the paving legislation is repealed by order. It calls for the Government to give the House more than a few vague hints about the shape of the new regime that they are planning to introduce.
Reading between the lines, it appears that the Government have chosen to pay a price for increased simplicity. That price appears to be that to reduce the tax burden on the very richest, those on lower-but still good-incomes will be hit. Once more, we see a Government choice that protects the very richest at the expense of those who are not as well off. The Liberal Democrat manifesto identified this regressive tax relief and pledged to restrict it completely to the basic rate. Somehow, through the mysterious and convenient process involved in the so-called coalition agreement, that manifesto pledge has been translated into saving the very richest-perhaps even bankers, as has been said-from large tax burdens and paying for that by clobbering those below them in the income distribution. That definition of "progressive" is even more peculiar than that applied to the VAT rise.
Will the Minister deal with a couple of other questions? There is only a short time before the new financial year. She has said that it is now anticipated that the measure will not be introduced until the Finance Act 2011. How will she protect the £3.6 billion yield, given that that will come in a year earlier? How will we avoid a situation in which the order has to be made before December this year? The new system will not be legislated for and might not even be designed. Surely there will be a space in which the £3.6 billion yield will be at risk, and there will be no approach to ensuring that we can maintain it.
Will the Minister also assure the House that the new regime will be put before us properly and in detail? Will there be consultations, especially with those lower down the income scale, who, it would appear, will now be affected by the changes? Will she also tell us what is happening to the anti-forestalling legislation, which is not repealed by the clause? Will the new regime put the burden of compliance on HMRC rather than on pension providers, which bore the brunt of the approach that we took on this issue? At a time when the Chancellor is boasting of very large cuts in departmental budgets, does the hon. Lady feel that HMRC can cope with the extra burdens that this very sudden, very late, policy change will impose on it?
Finally, what will happen if it all goes wrong? The Minister has hinted that if the Government feel that they cannot intellectually work something out between now and December this year to replace the yield, they will maintain the current system. My experience is that one can have an intellectually coherent approach to a tax change that looks fantastic on paper until one tries to turn it into actual approaches. That stage might well come after the stage that her new policy is able to reach by December this year.
What is the plan B if it all goes wrong? We spent nearly two years ensuring that we could turn our approach into a reality that worked, even though it was not popular among those who were going to have to pay it. The hon. Lady does not have that amount of time. Will she reassure us that the whole thing will not collapse in a heap? I look forward to her response on that point.
Mr Kevan Jones:
Over the past few weeks since the coalition came into being and the announcement of the Budget, the rhetoric that we have heard has been all about fairness. The Prime Minister and the Chancellor have said on many occasions, "We're all in this together." The other phrase is, "There's no alternative." We have
heard the accusation that the previous Labour Government did not have a deficit reduction strategy. Well, this element was a key part of that-£3.6 billion of it.
I am quite sad that only one Government Back Bencher is in the Chamber, and I notice that the Liberal Democrats have not been here throughout this debate. During the election, we heard nothing about the VAT rises, but we also heard nothing about the fact that one of the things that the Government would do in their first Finance Bill would be to give a £3.6 billion tax give-away to the richest 2% of pensioners. I am sure that that would have gone down very badly with the electorate if the Government parties had been honest with us at that time. During the past week, the Liberal Democrats and the Conservatives, in their great coalition together, have been arguing that VAT is not regressive, although a key exception is the hon. Member for St Ives (Andrew George), who has found this policy very difficult. However, one cannot say that the measure we are debating is progressive at all.
Sammy Wilson: Does the hon. Gentleman accept that if the amendment, which would require a distributional analysis of any changes, were accepted, we would be in a position to make a judgment on whether a system that is complicated, as the shadow spokesman said, was at least being replaced with a system that was fair and did not, as the hon. Gentleman says, give a huge amount of money to the very richest people?
Mr Jones: I entirely agree with the hon. Gentleman. There seems to have been confusion from the Minister in the sense that she is saying, "Nudge nudge, wink wink, say no more"-in other words, that the Government might not actually introduce this measure. If this change is to be made, we need to know who it will affect lower down the income chain. If the top 2% are not going to carry their share of the burden, people lower down the tax scale will be affected, such as pensioners, who are already being hit by VAT and other implications of this Budget.
This proposal affects 300,000 people-2% of pension savers and 1% of working age taxpayers. We are being told that it is fair, just and progressive to abolish what was put forward by the previous Labour Government, which would have raised £3.6 billion to help to reduce the deficit that was created because of the lending we had to provide following the economic crisis. I am sorry, but I do not accept that that is fair, and I think that if this were explained to most members of the public, they would agree. Currently, no one who earned under £130,000 a year would be affected by this measure. If someone is in a Cabinet packed full of millionaires, that perhaps skews their perspective on what poverty is and what income buys. However, the average member of the public, certainly in North Durham, would be appalled by the fact that we are going to let off people who are earning what is not just a good wage but, for most of my constituents, a fantastic, unimaginable wage.
My hon. Friend is obviously very much in touch with the north-east of England. Would he care to speculate as to whether, among the 2% of the population who will benefit, there will be an equitable
distribution across the UK, or whether the vast majority who will benefit will be located in certain parts of the country not too near his constituency or mine?
Mr Jones: My hon. Friend raises a good point. Clearly the net beneficiaries will not be in the north-east of England, Northern Ireland or Scotland. They will be those in the south-east of England. The disposable income of those individuals will be a lot greater than that of a lot of our constituents, who will be hit by the VAT increase.
We have seen that give-away, but there is something else in the Budget that I find absolutely amazing. We heard the other night that under the corporation tax proposals, the banks will be given a cash-back of £400 million. The same individuals will no doubt benefit from the proposals that we are currently discussing. We have been hearing the mantras in the past few weeks that there is no alternative and that Labour left the economy in the mess.
Mr Jones: Let us not forget that one. However, the proposal in clause 5 will leave a big black hole in the deficit reduction strategy. The Economic Secretary hinted, "Well, we might not do it, or we might do something different." I am sorry, but if we are to have a thought-out plan to reduce the deficit, that is not the way to approach the matter. What we need is firm figures that do not make the poorest in society pay, which the proposal clearly will. She needs to explain to the House why neither she nor the Liberal Democrats went into the election saying that they would make this change. A lot of pensioners will find it very difficult to stomach.
Ms Angela Eagle: Does my hon. Friend agree that neither partner in the coalition Government went into the general election telling pensioners that they would change the definition of indexation from the retail prices index to the consumer prices index, either?
The Temporary Chair (Mr David Amess): Order. I hope that before the hon. Gentleman responds, he will reflect on the fact that the point that has just been made is not really relevant to the matter being discussed.
Mr Jones: I would not want to go against your judgment, Mr Amess, but may I say that my hon. Friend's point is another example of how hard-working pensioners in my constituency will be affected by the Budget? However, I defer to your wise counsel and would not want to get on the wrong side of you.
Distributional analysis is needed before anything is done. We also need to know, if the relief charge is not going to go ahead, where the money is going to come from. It will affect pensioners lower down the income scale. Many on quite small incomes, who have saved all their lives for their pensions, will basically be paying for a give-away to the richest 2% in the country.
I hope that we can get the message out loud and clear from today's debate that we have a Government who are clearly taking care of their friends, the top 2%. They have to start being honest with the British people-this
Budget is not about deficit reduction. It is about an ideological approach to where the burden of taxation should fall and to the size of the state, and it will not help many of my constituents in North Durham.
Geraint Davies: It is a great pleasure to follow my hon. Friend the Member for North Durham (Mr Jones), who puts his finger on one of the key points. Obviously, the previous Government were attempting to raise £3.6 billion to tackle the budget deficit. They targeted the top 2% of people-those earning more than £150,000, including employer contributions. Those people anticipated that increase and budgeted for it and now, in the ashes of the economic downturn imported from the United States, the impact of raising the £3.6 billion is being spread across a much wider pool-10% of the people.
As has already been said, the suggestion that we are all in it together rings hollow. Public sector workers are on pay freezes and the incomes from their pensions, like those from private sector pensions, will be reduced by 16% over 20 years through the other change that has been mentioned-the link to the consumer prices index. On top of all that, the tide of the £3.6 billion will break over them. The impact will be great, and I very much regret it.
Mr Kevan Jones: Does my hon. Friend also agree that the 2% of taxpayers who will get the £3.6 billion cash give-away are also in a position to take tax and accountancy advice, which could reduce their tax liabilities? That will not be open to pensioners who are paying the VAT increases or the public sector workers to whom he referred.
Geraint Davies: My hon. Friend is right. The status quo proposal of getting the £3.6 billion from the top 2% was based on standing back and considering whether there should be greater tax relief for those who are already the richest. The answer was no. At difficult times, those with the broadest shoulders should bear the greatest burden, but now, the burden is being taken from them and placed on much weaker consumers. That will undermine the attractiveness of pension schemes among larger numbers in middle income groups.
In essence, the proposal is to reduce the tax allowance from £255,000 a year to some £30,000 to £45,000. That creates an enormous difference in how many and which people are captured, and generates great anxiety in the industry-the providers that it represents and consumers whom it serves.
Justine Greening: May I confirm that I have understood what the hon. Gentleman prefers? Would he rather have tax relief at 20% for people who can afford to pay up to £250,000 into a pension fund in one year?
The Economic Secretary knows that the distributional impact of the proposals is, as I have said, to spread the £3.6 billion burden from the top 2% to 10%. It is as simple as that. She knows that that is the case, and there is no way that she can wriggle out of that political and economic fact. Before the election, there was a promise that million pound estates would avoid inheritance tax-the top 5,000 households. At the last moment, the Chancellor stepped back and said,
"Oh no, at such difficult times, we won't give billions of pounds to the top few thousand households. Don't worry. Vote Tory." However, their secret plan was to have a word behind the scenes with their rich mates, telling them, "Don't worry, we'll reverse the Labour party's old plan to make sure that the top 2% pay most."
Chris Leslie: My hon. Friend is making several important points. The clause appears to reinstate an enormous tax relief capability for the wealthiest, yet the Economic Secretary guffaws at questions from Labour Members about taking it away. Surely the Treasury should clarify the position.
Geraint Davies: My hon. Friend is right. Only yesterday, he lucidly pointed out that, when we went into the election campaign, the Conservatives were saying, "We won't help the rich with inheritance tax, and we'll get those bankers with the bankers levy", but that the levy of £400 million will be nullified by the corporation tax give-away to the bankers. On top of that, we hear not only that the bankers will not pay a levy because they get corporation tax back, but because of this proposal they will have the £3.6 billion in pension contributions. That is an absolute disgrace.
The Government argue that the measure is both fair and effective. I have already argued that it is clearly not fair and will not labour the point any longer, but is it effective? That the previous scheme was complex has been acknowledged, but the new system is also complex. There is enormous uncertainty within the industry, which is asking how pensions can be accrued in defined benefit schemes, how they will be valued under the proposals, and what will be the impact of the proposal on the provision of such schemes and what will be the impact on basic rate taxpayers. There are also compliance and delivery questions, and all sorts of other questions, and the measure must be delivered within a very tight time frame. We are therefore playing fast and loose with our economy and public finances, and with the confidence of the international community, in order that the Tories can bail out their rich friends. That is quite outrageous.
The Government say that the matter will not be done and dusted immediately, but that the measures give them various regulatory powers to withdraw Labour's well thought out proposals and to leave a void. Specifically, it is said that there will be a discussion document in the summer of 2010, meaning that there will be a big discussion among the stakeholders on how the Government are going to recover the £3.6 billion that they would have made from the top 2%. The Government say, "We'd better not take that £3.6 billion because we'd be taking it from our friends, but we don't know how we're going to recover it, so we'll have a stakeholder discussion in the summer," which will presumably take place in the Maldives or somewhere similar.
Chris Leslie: Again, the Labour party was trying to close the loopholes for the very richest and to reduce some of the tax give-away for the millionaires. The Minister is asking the House to trust her while she shuffles the rules-that is what clause 5 effectively means-but does my hon. Friend think that the Government, given their track record, can be trusted on this matter?
Geraint Davies: I certainly do not think that the Government can be trusted but, more importantly, do the industry, consumers and the wider financial community trust them to get their ducks in a row and recover the £3.6 billion? Much was made of the Chancellor saying, "We've got to get all this money and get the deficit down, otherwise we might be re-rated," but suddenly we do not know where a key component of that-£3.6 billion-is coming from.
I mentioned that there will be a discussion group of stakeholders in the summer. The previous Labour Government considered reducing the annual allowance and all the other options. It is on the record in Hansard that the annual allowance proposal was rejected partly because it was less well targeted-as has been said, we wanted to focus on those who are able to pay most easily and without great pain rather than make the weakest pay more-and partly because of its complexity.
Another key point I wanted to make-I do not think it has been made clearly enough-is that primary legislation is necessary to reduce the annual allowance. The proposal in the Bill is half-baked. It gets rid of a system of gathering £3.6 billion and the Government are incapable of replacing it with an alternative. I object to the clause not just because of the discussion with stakeholders and the uncertainty, but specifically because section 282(2) of the Finance Act 2004 states that the annual allowance set by Treasury order must not be less than the preceding year. Given that the allowance is £255,000, it cannot suddenly become £30,000 to £45,000 without changing that legislation. Such a measure is not included in the Bill, which is another indication of how half-cocked the proposals are. We are discussing a Finance Bill now, but we would need another one before April 2011 to change that allowance. The proposal is incomplete and will mean uncertainty; it demonstrates ineptitude and incompetence; and it undermines confidence among industry providers and consumers. After all, we want more people to save with certainty, so that they have comfort rather than hardship in what we hope will be their long and happy retirements. This will undermine those prospects. People will be less likely to subscribe to sensible, robust pension schemes for the future.
The Government are giving themselves the power to repeal primary legislation by order without knowing exactly what will be put in its place. That is a half-baked approach. Amendment 60 calls for an analysis of "the likely impact". I tabled an amendment that was not selected, but it simply suggested that this clause should be scrapped. We have looked at the issue, and we know what the distributional impact will be, albeit not in detail. We know that the rich will be let off the hook, and more widely it will cause massive uncertainty about the future. There may also be a question mark over whether we can fulfil our financial obligations as set out in the Budget.
Towers Watson, which is a leading consultant on pensions, says that lowering the annual allowance to £30,000 would lead to tax charges for long-serving final salary scheme members. That means that employers would pull the plug on such schemes. That is not my claim, but that of industry experts. We have already seen across British industry the loss of reliable and robust final salary schemes. Towers Watson says that the changes will undermine final salary schemes because they will not be as useful in retaining staff if they have a
tax bill attached. The Minister has not thought this through. If big employers have these final salary schemes, their staff stay with the company because they know that each year they gain a little more benefit, instead of going to a predatory competitor company.
Towers Watson argues that the Government can either introduce a simple system or a fair system, but not both. A rough and ready approach was fine when a few were worried about the annual allowance, but the Government's proposals would have an impact on hundreds of thousands of people. All the stakeholders will be running around wondering what the changes will mean for them and providers will wonder whether they should provide a different scheme. I mentioned KPMG before, and I will not go through all the consultants in terms of their support for my position, but KPMG says that the number of pension savers affected has widened from 2% to 10%. PricewaterhouseCoopers says that the level will need to be £30,000-as opposed to £30,000 to £45,000-to raise the £3.6 billion needed. The movement from £255,000 to £30,000 is a radical change and we are still consulting on it.
"Employers need certainty over the regulatory framework for pensions if they are to be remotivated to provide quality workplace pensions."
The Government's proposals are unfair, unclear, half-baked, fast and loose and a massive new multi-million pound bankers' bonus to pay back many of the people who put us in this mess in the first place. They are disgraceful and should be withdrawn.
Sammy Wilson: I have only a few points to make. The Conservative party's fortunes or misfortunes do not really affect us in Northern Ireland so I am not seeking to score political points or to say that the Tories are bad people, even though they may be considered to be so by many people. However, the basic issue that hits everyone in the face in considering this measure is how it sits with the claim by the Government that the Budget is fair.
The core of my argument is this: is this a fair way of dealing with this particular issue? Perhaps the Minister can confirm whether the Government have decided that the current system is so complicated that it needs changing to such a degree that the £3.6 billion will be unrealisable. If simplicity will result in less money, we are obliged to know where that money will come from. On the other hand, if the change is intended to raise the £3.6 billion-but not in the way that it is currently raised-logic dictates that it can be raised only by distributing its collection among people who are not currently paying towards it, which means going down the income scale. That is where the issue of fairness comes in.
The first question I want answered, therefore, is whether it is the intention to raise that £3.6 billion. If so, how will it be distributed? The shadow Minister admitted that the system put in place by the previous Government was complicated-that is probably one of the things exercising Treasury Ministers at present-but if there were a simpler method, I assume that it would have been tried already, because nobody wants to put in place an unnecessarily complicated system. It might
well be that something that previously escaped the people who designed the pension tax relief has suddenly appeared to them. If so, perhaps a way can be found to keep the same distribution but collect it differently. Were that the case, however, I suspect that it would have been found already.
A second issue, on which the amendment is quite clear, needs to be addressed. The Minister indicated in an intervention that the power being asked for might never be exercised, but I suspect that it is being requested because it will be exercised at some stage. If that is the case, and if the Government have nothing to fear from the amendment, in the interest of ensuring a collective and positive response to the Budget, and so that it can be seen to be fair, a clear distributional analysis, which the amendment asks for, should not be something that the Government walk away from-the amendment should be easily accepted. I would be interested to hear from the Minister whether that part of the amendment will be accepted, or whether there is some fear about the Government's doing so. In our earlier debate about insurance, the Exchequer Secretary said that the amounts are so minimal that we do not need a full impact assessment, but the amount here is not minimal-it is £3.6 billion-so a distributional analysis should be called for.
The third comment I wish to make has already been made by other Members. We are going to have the current arrangements until the end of the year, then we will have the previous Government's amendments for the next year, and then we will have new arrangements for the following year. In this industry, people, including all of us as pension contributors, want some certainty about where our pensions are going, what kind of contributions we will have to make and so on. It therefore strikes me as odd that a Government who say they want to make the running of the economy more simple-by reducing red tape and bureaucracy for industry-should be having three systems in three different years. That seems to go against the arguments that the Government have put forward about how they wish to deal with industry and the economy generally.
For all those reasons, Opposition Members have legitimate grounds for wanting to raise their genuine concerns about the clause and move amendments to it, and are not doing so just as an exercise in political point scoring. I would prefer the clause simply to be removed, rather than the amendment be accepted, but I shall be interested to hear the Minister's response to the points that have been made.
Thomas Docherty: I shall be relatively brief. It is perhaps worth noting that since my hon. Friend the Member for North Durham (Mr Jones) first commented on the lack of interest from those on the Government Benches, there has been a flurry of-I suspect-BlackBerry messages going out, so that we are now being treated to no fewer than five Conservative Back Benchers. They have joined us for the afternoon, yet not a single Liberal Democrat has arrived in the Chamber.
It would be wrong of me to suggest that the Liberal Democrats are simply uninterested in the Budget, so could it be that the Chancellor, having been thwarted in his plans for a millionaire's inheritance tax break, came up with a new wheeze after the coalition deal? How could he help his friends in the City? Unsurprisingly, the Chancellor's new wheeze is to reverse the previous Government's policy of trying to find a more equitable
approach to pensions. That, I suggest, is the reason why our Liberal Democrat colleagues have not been advised of the importance of this debate. For if they saw the skilful manoeuvre that the Economic Secretary is trying to perform on the Committee today, they would surely rush to the Chamber to show their outrage at this terrible scheme.
It is a slightly unusual situation when a Minister as artful and articulate as the Economic Secretary tells us this afternoon that the current system is terrible-that it does not work; that it is unfair and unclear-yet has not been able to articulate what would replace it. It strikes me, as a perhaps naive and innocent new Member, that the starting point for any Government-particularly a Government who are so terribly keen to reduce regulation and bureaucracy-should be as follows: rather than introducing legislation that has no purpose except to give them some wriggle room, the Government would have been better off spending their time coming up with an alternative proposal for the Committee to examine, instead of giving the Minister the opportunity to spend her summer and that of her civil servants coming up with a new scheme.
To conclude, although I look forward to the Minister's reply, I suspect that we will hear no detail whatever about what the Government plan to replace the current system with, and that in six months' time she will not have been able to find a suitable replacement.
We have had a wide-ranging debate today and I will do my best to answer a number of the issues that Opposition Members have raised. However, it would perhaps be best for me first to set out the background to this debate, as the shadow Minister did. This issue was first looked at by the previous Government, and we have returned to it as a new Government. The coalition Government inherited from their predecessor the largest budget deficit of any economy in Europe, with the single exception of Ireland. One pound in every four that we spend is borrowed. The gap stands at £149 billion for this financial year alone.
The previous Government had planned to raise extra revenue through the restriction of pensions relief for higher-rate earners. As we have heard, that approach was due to raise £4 billion to £5 billion a year by 2014-15. Given the appalling state of the public finances that we have been left as a new Government, it is something that we cannot ignore.
On Second Reading, my right hon. Friend the Chief Secretary set out our commitment to fairness. This is a progressive Budget that ensures that every part of society makes a contribution to deficit reduction, while protecting the most vulnerable, especially children in poverty and pensioners. The Budget has a number of measures to support pensioners, not least the triple lock guaranteeing an annual increase in the state pension in line with earnings, prices or a 2.5% increase, whichever is the higher.
Returning to clause 5, the Government have considered pension tax relief issues and believe that reform is a necessary part of their commitment to tackling the fiscal deficit. It is worth citing the views of Robert Chote, who heads up the Institute for Fiscal Studies, following the Budget. He spoke about this measure on 23 June:
"Perhaps the most welcome change was the decision to rethink the last Government's complex, unfair and inefficient plans to limit pension contributions relief for high earners."
Ms Eagle: On that point, does the Minister also agree with the IFS analysis of the Budget, which pointed out that it was not progressive, but regressive, and that the most progressive elements of it were those that she inherited from the previous Government's Budget?
Justine Greening: Many people on the minimum wage will not view it as progressive for someone who can afford to pay upwards of £100,000 a year into a pension fund to be given a 20% marginal rate tax break. In fact, that was not the only problem. Having listened to the concerns of the pensions industry and employers, this Government have real reservations about the approach towards pensions tax relief that was adopted in the Finance Act 2010. We believe it could have unwelcome consequences for pension saving, bring significant complexity into the tax system and damage UK business and competitiveness. The director general of the CBI said of the previous Government's measure, brought forward in the Finance Act 2010:
"This will have serious consequences-it will make it much harder for UK business to attract and retain global talent... In every way, it's a bad move."
In addition, a number of features of the approach adopted in the Finance Act 2010 were unfair. For example, it included a very complicated income test, which made it difficult for individuals and advisers to understand. It also made it difficult for individuals to plan, as they would not know their final income until the end of the tax year so they would not know until then whether or by how much they would be affected. The income test also created many perverse incentives, avoidance opportunities and anomalies. For example, different charges could arise, depending on whether an individual or their employer made the pension contributions.
Under the approach in the Finance Act 2010, individuals on the highest incomes, who are able to put in very large pension contributions-upwards of £100,000 to £200,000 in one year-would have continued to get pensions tax relief, as they would still have been able to get relief at the basic rate rather than the higher rate. That is worth up to £51,000 a year. Given our concern for fairness, we believe-
Justine Greening: We are proposing a different approach, which would address that very measure. The decision for the hon. Gentleman to take tonight is on whether people who are able to pay £100,000 to £200,000 a year into their pension fund should be able to get tax relief at the basic rate. That is the question for him to answer.
Ms Angela Eagle:
There are hints in the Red Book about the annual allowance taking the strain, so will the Minister tell us whether that is the only approach that is going to be looked at, or is she considering a range of
different approaches? She is comparing a system that was legislated for and consulted on with a replacement about which the House has no real information. As I say, there is a hint in the Red Book, but nothing else. Will she help us focus on the comparison by doing us the courtesy of telling us what her Government are going to develop as an alternative?
Justine Greening: I was just about to come to that. One thing that we know right now about the existing plans is that if they came in from April 2011, they would curtail, but still give, basic rate tax relief to people who can afford to pay hundreds of thousands of pounds into a pension every year. Our alternative approach looks principally at significantly reducing the annual allowance to curtail that effect. We think that the annual tax relief available will potentially be restricted to less than half that available under the previous Government's plan, significantly curtailing the ability of the super-rich to benefit from pensions tax relief. That alternative approach is supported by the pensions industry, including the National Association of Pension Funds, as well as employers and their representatives, including the CBI. The Government are keen to continue to engage with the pensions industry, employers and other interested parties to specify the level of the annual allowance, and other relevant design features.
Let me leave no uncertainty about our fiscal objectives. The Government are clear that a reduced annual allowance approach would have to raise no less revenue than the existing plans to restrict pensions tax relief in order to enable us to meet our commitment to deficit reduction. That is why we are not repealing the existing regime at this point, while we are finding a better way of achieving our objectives.
The hon. Member for Wallasey (Ms Eagle) asked for more detail. Our provisional analysis suggests that the appropriate level for the annual allowance could be in the region of £30,000 to £45,000 in order to deliver the necessary yield to the Treasury. However, the level required would be influenced by a number of policy design features in the revised regime. Once those have been decided, we can repeal the measures in the previous Government's Finance Act 2010. Clause 5 therefore gives the Treasury a power to make an order repealing section 23 and schedule 2 in that Act.
Those measures, which are known as the high income excess relief charge, restrict pensions tax relief to the basic rate for high-income individuals, with effect from 6 April 2011. Let us be clear, however, that they still give basic rate tax relief to high-income individuals. The Government want to consult on a new approach. We want to discuss how best to design an alternative approach to make sure that it can operate fairly and effectively. The power to repeal is time-limited, because we recognise the need to resolve the design of the restriction of pensions tax relief as quickly as possible. We have already begun discussions with groups, which will continue through the summer.
Amendment 60 proposes that we should publish a report outlining the new arrangements and details of the yield implications and distributional impacts. I have
some sympathy with the thrust of the amendment, but it will ultimately be unnecessary, because there will clearly be a chance for people to look over the draft legislation, and we will not repeal the high income excess relief charge until details of the alternative regime have been finalised and set out in public.
Ms Angela Eagle: I thank the Minister for giving way on this important point. Will she undertake to provide a distributional analysis so that we can compare directly the effects of the system that she wants to repeal, with the system that the Government finally settle on if she can find an alternative? That is the essence of the amendment, so her answer to this question is quite important.
Justine Greening: A whole range of analyses and impact statements will come out with the legislation. I suspect that, as my hon. Friend the Member for Chelsea and Fulham (Greg Hands) behind me is saying, any work that is done would give an answer that Opposition Members would not like, because it would show that we are no longer going to give basic rate tax relief to people who can afford to pay hundreds of thousands of pounds into a pension pot every year.
Let me address some of the issues that have been raised. I have set out the time frame within which we want to progress towards a better alternative to the current system. We all agree that, for pensions tax relief to remain affordable, we have to limit high levels of tax-privileged pensions saving, but we think that there is a better way of doing it than the one set out by the previous Government. We believe it is important to reduce the annual allowance to prevent people from saving £255,000 a year tax free.
The hon. Member for Wallasey mentioned instances of people suddenly being able to pay a large amount into a pension fund on a one-off basis. She was right to raise that matter, and we shall be looking at options for protecting basic rate taxpayers and supporting any hard cases caused by such one-off spikes in pension accruals. She also asked about the lifetime allowance being changed. We have not ruled that out, but it is obviously a key mechanism that sits alongside the annual allowance. We shall therefore have to look at it in the context of where we end up going with the annual allowance limit. I should say that all this is subject to being able to work with key stakeholders to get something that we believe we can rely on. That is why the provisions will give us the power to repeal that measure, if we can find a better way.
I particularly want to respond to the argument from Labour Members that our proposals would somehow give a tax break to the most well-off people in the country. Let us have a look at some of the figures involved. Of course, the minute I say that, I lose the relevant bit of paper. Ah, here it is. Under the terms of the Finance Act 2010, someone who is contributing £283,000 to their pension fund on an annual basis would have had a tax charge, net of pension relief, of £85,000. Someone making the same contribution to their pension pot under a potential annual allowance level of £35,000 would have a tax charge, net of relief, of £124,000. The reason for that is that they would get 20% tax relief on the income that they would otherwise have paid a much higher rate of tax on. That is why they
would pay just under £40,000 a year more under our proposed scheme than they would have done under the previous Government's arrangements.
I wonder whether those Labour MPs who are so concerned about the impact of tax policy on the better-off people in this country will go through the Lobby today and vote for a measure that means that people who can afford to pay £283,000 a year into their pension pot will pay £40,000 less tax than they would previously have done. I do not know what Labour Members think "good" looks like in relation to taxing better-off people, but I guess I will find out when we have a Division on this amendment shortly.
Chris Leslie: The hon. Lady is talking to us as though we were schoolchildren, but she will not publish her proposals. Will she now agree to place in the Library a copy of the table that she has in front of her straight away, or this evening, so that we can all share in this secret plan?
Justine Greening: I would have thought that the hon. Gentleman was so intelligent that he could do the maths himself. The calculation is pretty straightforward. It is a bit like doing a tax calculation where someone has an allowance and then a rate, and they apply it to the excess of the allowance that they are paying in extra.
Chris Leslie: On a point of order, Mr Amess. Is it in order for the Minister to withhold information to which she has clearly referred in the debate from the rest of the Members engaging in the discussion?
Justine Greening: It seems that I'm damned if I give information and damned if I don't. I was asked to provide some facts, and I made sure that I gave some facts and figures. Now that I have provided some to the Committee, apparently that is a bad thing to do too. I think the problem is that the figures I have just provided are not ones that Opposition Members want to confront. They are about to go through the Lobby and vote on people who can afford to put a couple of hundred thousand pounds into their pension pot paying more tax net of pension relief than less.
I was asked for some figures and what the impact would be on the very richest. We can probably find in Hansard tomorrow that I have just provided the Committee with that information. That is probably the way in which debates are meant to work. Ministers have questions put to them and if they can answer them in some detail, they do. That is what I have done. I have set out in some detail why we are pursuing the clause. I hope that everyone realises that it is sensible
and a pragmatic way to address the industry's concerns. The industry faced a £1 billion bill for implementing excessively complicated and unfair tax changes on pensions tax relief. We hope that we can reach a conclusion with the industry and all stakeholders, but the key issue is to address the fiscal deficit, so any solution will have to bring in no less money than the mechanism intended by the previous Government.
Ms Angela Eagle: We have had a long discussion, so I will be brief. I appreciate the information, such as it was, that the Minister was able to put before us about the shape of the alternative scheme. It is a bit like shadow boxing when one tries to compare a scheme that has already been legislated for with one that has been only hinted at in the Red Book. That has been the problem with this debate.
I was candid about the issues and trade-offs that we had to go through to come up with the structure for which we legislated in the Finance Act 2010. I hope that the Minister and her colleagues will be as candid as they try to develop this other method. She said that she was sympathetic, but she is still resisting the amendment to put a report before the House that will contain distributional analyses and much more information about this alternative system. That is a great pity. We shall divide the Committee on that amendment as the Minister has not given us an undertaking to provide that information. I also want a separate vote on clause 5.
The First Deputy Chairman of Ways and Means (Mr Nigel Evans): With this it will be convenient to discuss amendment 17, in schedule 3, page 19, line 38, leave out '22 June 2010' and insert 'a date set by the Secretary of State by regulation.'.
Stewart Hosie: I do not intend to delay the Committee. By and large, I am very supportive of clause 6. The two-year extension for people reaching the age of 75 in order to allow them to buy an annuity when it is most effective for them is a good thing to do. The clause seems to be pretty well drafted and the description of it is extremely good. I am pleased about the protection in paragraph 8(2) of schedule 3, which provides that if a member dies before a year has passed since their 75th birthday, and at the date of death there are still funds held for the purposes of the arrangement that have not been designated as available to pay an unsecured pension, not paid as a lump sum, and not applied towards the provision of a scheme pension or a dependent's scheme pension, those funds are treated as though they had been designated as available for the payment of an unsecured pension and will then be taxed on death at a rate of only 35%. That makes sense.
However, I am aware, through a constituent of my hon. Friend the Member for Angus (Mr Weir), that there are a small number of individuals who have already reached 75, or will hit 75 before 22 June, and who did not buy an annuity because it was not worth it or not effective. I want to describe the position of that person and then see what help the Minister might be able to provide, or hear her explanation of how the clause might assist.
As the rates for annuities were very low, this gentleman did not take up one on reaching 75 in 2007. Instead, he chose a scheme pension that allowed him, subject to pension regulation supervision-a specialist firm did that for him-to continue to manage his pension fund for a period of 10 years and take the actuarially calculated levels of income from it. That was very sensible and prudent. However, the downside is that on his death, if any of that fund is left, it will be subject to inheritance tax at a rate of 80% before it passes to a family member of his choice.
Mr Mike Weir (Angus) (SNP): Indeed it was a constituent of mine who brought the matter to our attention. Does my hon. Friend think that a way round might have been for the clause to allow anyone to take the extra two years if they were to reach age 75 or were already in that position? I cannot imagine that the numbers affected would be huge, but it would have got round this particular problem.
If the 80% IHT rate is correct, as I believe it is, the situation seems dreadfully unfair, although I recognise that it occurs because of the tax benefits of the pension saving over a person's lifetime. Of course, people cannot benefit from the same tax twice; I appreciate that. However, I suspect that of the people over 75 who had the means to purchase an annuity but did not, very few would want to do so now. We may be talking about some very wealthy people who would always manage their own pension anyway. I welcome the protection for those who hit the age of 75 on 22 June or thereafter, but people aged between 75 and 77 will feel extremely hard done by if they just miss that cut-off date. There are also those who were already 75 a year or two before and chose not to buy an annuity but are managing their pension provision.
This is a matter of natural justice and fairness. I imagine that the numbers of people who are in this position and would want to buy an annuity are very small, so I am looking to see what protection there might be in the Bill. We may reach a situation whereby there is simply a cut-off, so that even if someone reached the age of 75 on 21 June 2010 and found it not worth buying an annuity, they would no longer be able to take advantage of the two-year gap, which would be a sensible thing to do.
I hope that the Minister can give us some comfort as regards the small number of people, all of whom are beyond the age of 75, who will pay 80% IHT on any remaining funds at the time of their death, compared with those who, within the provisions of the clause, will pay only 35% if they die at that time. I would like an assurance that the Bill and the clause will help that small number of people too.
Justine Greening: I am grateful to the hon. Member for Dundee East (Stewart Hosie) for his questions, and it is probably wise if I take this opportunity to set out to the Committee the background of clause 6 and address the issues that he raised. I am sure that he will be interested in the consultation document that has been launched today on a number of them.
The Chancellor announced in the Budget that the Government would end the effective requirement to purchase an annuity by age 75 with effect from April 2011. The reason why we want to do that is that it will provide greater flexibility and choice for the individuals affected. In considering the hon. Gentleman's amendments, it is important for the Committee to understand why we are making that change and how we are going about it.
A consultation on the detail of the changes was launched earlier today by my hon. Friend the Financial Secretary, and our intention is to introduce any changes from April 2011. As set out in the consultation document, the Government will be guided by the following principles in implementing the changes: first, that the purpose of tax-relieved pension savings is to provide an income in retirement; secondly, that any changes to the pension tax rules should not incur Exchequer cost or create any opportunities for tax avoidance; thirdly, that individuals should have the flexibility to decide when and how best
to turn their pension savings into a retirement income, provided that they have sufficient income to avoid exhausting their savings prematurely and falling back on the state; fourthly, that pension benefits taken during an individual's lifetime should be taxed at income tax rates, with the tax-free pension commencement lump sum continuing to be available; and fifthly, that on death, as the hon. Gentleman mentioned, the pension savings that have been accumulated with tax relief should be taxed at an appropriate rate to recover past relief provided, unless they are used to provide a pension for a dependant. Those principles will ensure that the new rules offer maximum flexibility to pension savers, while avoiding undue complexity or incurring a cost to the Exchequer.
The proposals set out in the consultation document will create additional flexibility for anyone saving into a defined contribution pension. That new flexibility means that individuals will be able to decide for themselves whether and when to purchase an annuity. It will also allow them to leave their pension fund invested in an income draw-down arrangement beyond the age of 75, and to take benefits from their pension fund later than that age if they wish. In addition, individuals who can demonstrate that they have secured a minimum income will be free to draw down unlimited lump sums. The changes will also allow the pensions and annuities industry to consider more innovative products, giving consumers greater choice.
While the new rules are being finalised, it is important that individuals who are about to turn 75, and who have not yet made a decision about what to do with their pension savings, are not disadvantaged in the meantime. The changes set out in schedule 3 are the minimum necessary to enable those reaching 75 on or after Budget day to defer the decision on what to do with their pension savings.
The Bill achieves that by providing for the pension tax rules that previously applied to draw-down arrangements only up to age 75 to continue to apply up to an individual's 77th birthday. That means that the higher inheritance tax charges that apply specifically to pension scheme members aged 75 or over will not apply to individuals who are about to turn 75, and who have not yet made a decision on what to do with their pension. They will not now have to make a decision until they reach 77, and in the meantime we will have worked through the consultation process. Clause 6 and schedule 3 will therefore ensure that they need make no decision until after new rules are finalised next year. To do otherwise would be unfair and confusing, and changing the rules retrospectively would add unnecessary complexity.
Mr Weir: I understand the Economic Secretary's point and I am closely following her argument. Does she accept that many people did not get annuities in the past two or three years because the economic position meant that it was simply not a good time to buy them? Those people are effectively being penalised. Would it not be fair, as I suggested in an earlier intervention, to say that everyone had two years from now, while the consultation goes ahead and changes are being made, to consider their position? Perhaps some people will wish to continue as they are, but at least they would have the option, which is rightly being given to people who are approaching 75.
Justine Greening: I thank the hon. Gentleman for that intervention. I will set out our overall approach to the issue that he raised. In every individual case, there are specifics. I was not aware of the case of the individual whom he mentioned, and I would be happy to give him a more specific answer if he gives me details. However, in principle, he raises a difficult issue. It is doubtless hard for people who reached their 75th birthday before we got to Budget day when we announced the proposed changes. We had pressed the previous Government to take action earlier, but it was left to us, on coming into government, to start to take the steps that we all agree are important. We do not agree with making retrospective legislation, except in the most egregious cases. As he said, the provision affects only a few hundred people.
The inheritance tax charge of 80% would apply to estates over the inheritance tax threshold of £360,000 a year. On the face of it, I cannot give much comfort to the constituent of the hon. Member for Angus (Mr Weir). We are trying to improve the position of those who reached 75 on or after Budget day, but I have set out the basic principles, and the details of the constituent's case may or may not fit them. If the hon. Gentleman provides the exact details, I will give him a more exact answer. I hope that I have provided some background and that we can find a way forward to clarify and resolve the specific issue.
Stewart Hosie: I thank the Economic Secretary for her response. Clearly, the way forward for people reaching 75 is sensible. The two-year deferral until the consultation is complete is right. It recognises the problem and ensures that no one else falls through the cracks between now and the end of the consultation. I am slightly disappointed that no hope was offered that the consultation could allow a slightly retrospective element to those very few people who have become 75 in the past few years, did not take an annuity and are managing their own funds. I will not press the amendment, but I will have another think about it before we reach Report next week, when I may revert to it. I beg to ask leave to withdraw the amendment.
'(2) Schedule 3 shall not have effect unless the Chancellor of the Exchequer has laid before the House of Commons a report on the implications of the abolition of compulsory annuitisation of pensions, including-
The amendment would mean that the age at which compulsory annuitisation is required could not rise, as the Government announced in the Budget, from the current 75 to 77 until the Chancellor lays before the House a report setting out the implications of abolishing the compulsory annuitisation of pensions savings. That would include the revenue implications and a distributional analysis of who would benefit from the abolition, in the interests of transparency. It is important to explore in more detail the Government's precise thinking and intentions.
Before I do that, I shall comment on the sudden appearance this morning of a written ministerial statement,
to which the Economic Secretary referred, on the matter. It appeared without the courtesy of any warning before our debate on the subject.
I spent some time on the Treasury website trying to avoid the increasingly odious comments on the "spending challenge website", which continues to publish offensive and outrageous suggestions for savings, such as sterilising the poor, reopening the workhouses and the forced repatriation of immigrants. It appears to be completely unmoderated by the Treasury, and I hope that the Economic Secretary will convey my strong view that something should be done about that thing on the Treasury website.
What I could not find on the Treasury website, right up to the point when I came into the Chamber for today's debate, was a copy of the consultation document that the written ministerial statement said would be there. I have a copy of the complete list of Treasury consultation documents that was on the website at around 12.30 pm. It featured the bank levy consultation, but not the consultation alluded to in the written statement. I therefore had to go the Library and have it printed so that I had the chance to look at it before I dashed into the Chamber, but the Minister has been waving it about. Will it be the usual behaviour of those on the Treasury Bench to give Members of the House so little time to look at a 53-page document? There was no advance warning, and the document was unavailable on the Treasury website, even though the written ministerial statement said it would be there. The Minister should get her Department to do a lot better than it has done today. That the document was unavailable anywhere other than via a photocopying machine in the Library at the last minute is a discourtesy to the House.
When I had a look at the consultation as I sat on the Front Bench while other debates were going on, the first thing I noticed was that the consultation will be a mere eight weeks long. It starts today and will end on 10 September, which is four weeks shorter than is recommended as good practice in the code on consultation, the second criterion of which states:
"Consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible".
The consultation is an eight-week, rushed consultation that includes the entirety of the August holiday, when many of the people who have expertise on this matter will be sunning themselves in very much nicer climes than most of us could probably afford to visit, before they come back to pronounce. That is a very peculiar way to consult on such an important matter.
Robert Flello (Stoke-on-Trent South) (Lab): Does my hon. Friend also find it a little strange that there is such a short consultation period when we are talking about a two-year extension? That seems contradictory.
I too wanted to ask the Minister this: what on earth is the rush about? One thing about annuitising and pension rules is that she has a little run-in time to consider-at some length-the implications of her proposals. I do not understand why there was such short notice and why the consultation is so rushed. I am forming an impression that the Government have already decided what they are going to do and that the consultation is a sham. If it is, they ought to have the decency to tell us what they have decided and not to consult at all. I would not have thought that the many experts who will
be sunning themselves over the August holidays will thank the Government very much for giving them such a short time to respond.
"The Government wants to foster a new culture of saving in the UK."
We would all agree with that, and that a rebalancing towards saving is necessary. Therefore, it is important to prioritise large numbers of people saving appropriately. I had a look to see what the Government have done so far to encourage saving, particularly in pensions, which is what annuities are all about. Will the Minister explain quite how reducing public and private pensions by changing their definitions from RPI to CPI helps to increase pension saving? Yesterday, the Daily Mail and various other experts said that that is a raid on people's pension expectations of more than £100 billion in the private sector, an amount that will accumulate year after year. Can the Minister explain how that encourages pension saving? Will she confirm that the impact assessment in this consultation lets the cat out of the bag when it comes to changing annuitisation rules? We have no particular problem, and certainly no philosophical problem with shifting the age of annuitisation from 75 to 77. Longevity has increased and the last rules-and the age of 75-were set in 1956. Indeed, annuitisation was first made compulsory in the Finance Bill of 1921, which was slightly before my time and I know that it was also before the Minister's time.
I am reassured by what the Minister says about what might be called red lines in the Treasury's view of the consultation. The first is that annuities should continue in order to provide an income in retirement rather than as a tax-privileged method of saving large amounts of money that can then be taken as a lump sum over and above the 25% that can already be taken tax-free. Others are that there should be no Exchequer costs and no tax-avoidance activities. The latter might be difficult to sustain if the Minister intends to make changes that introduce a minimum income requirement. Interesting attempts have been made to define a minimum income requirement to allow someone to take complete usage-with appropriate tax paid, I hope-of the rest of the money in their pension pot. I know that the Government are consulting on that point, but it is not going to be an easy thing to decide.
I notice also from the impact assessment that although the annuities market last year saw 445,000 people annuitise up to £11 billion of funds so that they could take an income until they required it no longer, the estimate of how many individuals will actually be affected by this change is a mere 8,000.
Bill Esterson (Sefton Central) (Lab): At a time when we need to encourage more people to make pension provision, does my hon. Friend think that these proposals will help? My concern is that having a minimum might reduce the numbers of people providing for their retirement rather than increase them.
My hon. Friend raises a reasonable point. Changes in this area have to be made very carefully to avoid the law of unintended consequences, especially
when large amounts of tax-privileged income are at stake. The Minister knows that, which is why she said that there would be no increase in tax-avoidance opportunities.
Ms Eagle: We would have to have a long debate about a range of issues to answer that, but I am happy to defend our record. The closure of defined-benefit schemes took place for a range of reasons and the closures began in earnest when I was still at school, so I do not take personal responsibility for that.
When we look at the impact assessment, we see that the changes will affect a tiny minority at the very top-a mere 8,000 people on the Government's estimates, out of 445,000 people who annuitise every year. They will affect only those who can afford to live without touching their pension pot until fully 10 years after retiring. We know that two thirds of people take their annuity upon retirement and that only a much smaller number of people last beyond 70, so the flexibilities that the Government are looking for will be required by only a tiny number of very rich people. The Minister therefore needs to justify why this is a priority and why we need a rushed consultation of only eight weeks over the summer to bring it about.
Mr Redwood: I will be brief, Mr Evans, because I believe that some Members have other things to do later on. I also remind the House that in the Register of Members' Financial Interests I have explained that I offer business advice to a couple of companies.
I would like to briefly praise the Minister and her team for their proposal. For many years, the Conservatives while in opposition urged the then Labour Government to allow people a bit more flexibility and freedom with their money in retirement. Even now, after the election defeat, the party does not get it. This was not the main reason it lost the election, but it was one of many things where it misread the public mood. People want more freedom and flexibility over their own resources and more control over their own lives, but Labour was always trying to stop them. This is a small but important move, and I think we might find that it affects rather more people than the hon. Lady says-
Mr Redwood: The hon. Lady is protesting. I know it is in the Government document, but I am suggesting that the Government might be wrong and might have underestimated the number-it is extremely difficult to know how many people might take advantage of the provision. I also think it will not necessarily be only rich people who are affected. I know that Labour never wants any successful people to make money and be able to spend their money sensibly.
Indeed, it tried to stop them on many occasions. If we do too much of that, however, we have a poorer country, a smaller tax base and all the rest of
it. It is a pity that the Labour party still has such a downer on success, prudence and savers, but it might be surprised-hopefully, pleasantly surprised-in due course to find that people on more modest means take advantage of this flexibility as well. We no longer live in a world in which everybody retires at 65 and does no more work. I see around my constituency many people taking on paid work into their late 60s and early 70s, either because they want to or, in some cases, because they have to in order to supplement their resources. Why should we debar them from this flexibility any more than richer people, if they have savings?
Bill Esterson: The right hon. Gentleman mentioned the record of the last Labour Government on pensions, but what about the record of the previous Conservative Government when it came to the mis-selling of pensions? I trust he would accept that that was a serious problem.
Mr Redwood: I would love to deal with that point, but I shall take your advice, Mr Evans. The real sin was the tax and regulatory raid on pensions under the last Government, which led to the wholesale closures of final salary schemes, and as a result of which most people starting out in work today have no access to a final salary work-based scheme in the way that their parents' generation did. That is a great tragedy. However, this provision is a small move in the right direction, so I hope that the House will warmly welcome it. Well done to the Minister.
Justine Greening: I thank my right hon. Friend for his kind words. This provision is a step forward. As he said, it might be a small one, but it is an important one that will open up a flexibility that many whom we want to encourage to start saving for a pension will value, which is why it is important that we take the time to make an early start on this matter.
I want to respond to a couple of the shadow Minister's points, including the one about the consultation document not being published in good time. This clause allows us to engage in a consultation. It was not necessary to launch the consultation today, but as it was it was launched at 12.30 pm, and by the time we got to the clause it was 5 o'clock-several hours after the document became available-which has meant that we have had a more informed debate today.
Justine Greening: We are getting into the same sort of argument that we had in the previous debate, where if we had put the consultation document up and had not had a sentence on an earlier webpage saying that it was there, we would have been accused of hiding it away. I am afraid that we have to do one before the other, and clearly in this case we decided to put out the statement that the consultation was going up on the website, and then we put it there, which is where it has been since 12.30 pm.
Whatever the bluster from the Opposition Benches, it cannot mask the fact that we are taking a positive step forward on pensions today. We have launched what I think will be a landmark consultation. Clause 6 and schedule 3 will give us the time to get that consultation right over the summer and then bring forward legislation in the forthcoming Finance Bill to ensure that people have more flexibility in dealing with their pensions, because ultimately it is their money, which they have put aside for their retirement. We want them to be able to deal with the pot that they have built up in a way that suits them, rather than in a way that suits the country.
Interestingly, we had a brief discussion about the fact that 75 has been the statutory age for some time. It was first agreed in 1976, which is ironic, given the obviously parallels between Britain then and now, with the Labour Government then having to be bailed out by the International Monetary Fund and going on to leave a desolated economy. We are ensuring that we have sustainable finances in our country over the coming years, so hopefully we will reach a different end point from that of that Labour Government.
I very much welcome the fact that the shadow Minister nevertheless supports the consultation going ahead, and I can assure her that we are going to get on with it. We believe that eight weeks is plenty of time to get a response, given that the issue is one that people have been pressing Governments past-and now present-to address. We are a new Government, so we are getting on with adopting a new and improved approach to annuities and pensions, as we can see from today's debate. I therefore very much hope that the hon. Lady will withdraw her amendment, so that the clause and the consultation can improve the legislation, creating more flexibility in pension law for the people who so badly need it.
Ms Eagle: I am not really that satisfied with the answers that the hon. Lady has given, as she will not be surprised to hear, after that brief reprise of the 1970s. My information is that the Finance Act 1921 introduced compulsory annuitisation and that the current age of 75 was introduced in 1956, which was a Conservative time, not a Labour time.
Regardless of the Minister's point scoring, however, it is important that we take an appropriate amount of time to see how any changes to the annuitisation regime might work in practice. The Opposition have no objection to the idea of having a higher age. However, there is some scepticism about the practicality of having a minimum retirement income and how it might be worked out, although that is part of the consultation, which no doubt we will now all be struggling with over August. It is a shame that the information was not available in a more timely fashion, so that we could have done more preparation for this debate. Because the amendment seeks more information and because the Government seem to be rushing ahead so precipitously, we would like to press the amendment to a vote.
Stephen Timms (East Ham) (Lab): Schedule 4 provides for the exemption from income tax of expenses paid or reimbursed to MPs, following the introduction under the Parliamentary Standards Act 2009 of the popular new scheme for paying the expenses of MPs administered by the Independent Parliamentary Standards Authority. I understand that that will broadly have the effect of maintaining- [ Interruption. ]
I appreciate that the arrangements will broadly have the effect of maintaining the tax treatment that applied to similar expenses paid under the previous arrangements. Tax treatment of MPs' expenses used to be dealt with by specific legislation or long-standing extra-statutory concessions. As hon. Members will know, a long-term project has been undertaken following the judgment in the Wilkinson case of 2006 to place all the statutory concessions on a proper legislative basis. Can
the Minister confirm that the previous concession, which I think is numbered A.54-Members of Parliament: accommodation, allowances and expenses-has, with this legislation, been withdrawn, and whether any of the other extra-statutory concessions outstanding are affected by the Bill?
Robert Flello: My right hon. Friend said that schedule 4 was broadly neutral in terms of income tax. Has he noted paragraph 1(4) on loans for deposits payable on rented accommodation-perhaps our constituency offices or flats that we need in London because of the ridiculous IPSA rules on staying in hotels? It is common practice for landlords to charge a deposit on flats, something that we have to pay only because we are here representing our constituents. Has my right hon. Friend noticed that there is a tax implication for us in that?
Stephen Williams (Bristol West) (LD): To be helpful, a loan is not subject to income tax whereas if the loan was interest free the difference between the interest rate that someone might be charged and what they are not charged would be.
The Bill is different from the IPSA scheme on a couple of points. The IPSA rules say that when Members are required to be at the House of Commons after 11 pm, non-London areas MPs who claim the London area living payment may claim for the cost of an overnight stay in a hotel, subject to an upper limit. Any MP, including London MPs like me and the Minister, may claim for the cost of an overnight stay in a hotel if it would not be reasonable to return to any residence, where they are required to be at the House of Commons because the House is sitting beyond 1 am. I do not understand the different tax treatment of those two situations. Under new section 292, liability for income tax is avoided only if the House sits beyond 1 am. That is fine for London MPs like me. If I made a claim for a hotel stay under the IPSA rules, the new section would exempt me from income tax on that payment. However, it seems a bit unfair to non-London MPs, in that the IPSA scheme allows them to claim for the cost of an overnight stay if the House sits after 11 pm, but the new section gives them an income tax liability on that claim unless the House sits after 1 am. I wonder why the rules have been drawn up in that way.
A second area where I am puzzled relates to travel expenses for children. I have no children, so I hasten to say that this has nothing to do with my personal arrangements. The IPSA scheme provides for travel and subsistence expenses in respect of travel for dependent children aged under 16, limited to 30 single journeys per child between the Member's London area residence and the constituency residence in each year. The new section
would exempt from income tax the cost of journeys by spouses or partners but not-as far as I can see-the cost of journeys by children. Why is tax payable on those expenses but not on the others?
Clause 7 introduces schedule 4, which provides for the income tax treatment of certain expenses paid or reimbursed to Members of Parliament under the new MP expenses scheme introduced and administered by the Independent Parliamentary Standards Authority. For the main part, the changes introduced by the provisions are necessary to reflect the fact that expenses are no longer paid under a resolution of the House but instead are paid by IPSA under the authority of the Parliamentary Standards Act 2009.
As we are all aware, expenses paid to Members have come under close scrutiny over the past year, not just by the media and the public, but also by IPSA. In developing its new scheme, IPSA has taken account of the requirement of MPs to perform their duties both in their constituencies and in Westminster. It has decided that the expenses covered by the exemptions introduced by the schedule are necessary for the performance of an MP's parliamentary functions.
The key provisions will broadly maintain the long-standing statutory exemptions for overnight accommodation and EU travel expenses that were introduced in recognition of the particular role of MPs. The provisions will codify elements of concessionary tax treatments that, because MPs are required to carry out their duties both in their constituencies and in the House, have applied for many years to certain UK travel expenses paid to MPs. Additionally, they will reflect IPSA's decision to continue to reimburse some UK travel for MPs' spouses and partners, albeit in more restricted circumstances. The schedule therefore puts the previous concessionary treatment on a statutory footing to allow those payments to continue to be made without tax being due. Finally, the provisions reflect IPSA's decision to deal with payments for evening meals separately from general expenditure connected to overnight accommodation, and the schedule now introduces a specific exemption for the costs of meals reimbursed under IPSA's scheme. Again, that maintains the previous tax treatment.
The right hon. Gentleman raised two issues-about late-night sittings and accommodation. He is right: there is indeed a difference. The IPSA and tax treatment is different for sittings that end after 1 am and for sittings that end between 11 pm and 1 am. For sittings that run after 11 o'clock, there is tax exemption for expenses incurred for overnight accommodation, because that is deemed by IPSA a necessary expense incurred in the MP role.
Non-London MPs who decide to take the London allowance-the London expense regime-are able to charge overnight accommodation if the House sits after 11 pm, as the right hon. Gentleman pointed out. However, that charge is not tax-exempt; it is deemed subject to normal tax treatment for any employee. A normal employee would not be able to claim a tax exemption if they chose to stay in a hotel because they had been working late.
The rules for the House sitting past 1 o'clock are agreed with IPSA as necessary for the fulfilment of the MP role, so are tax-exempt. Before that, although MPs from outside the London area can get reimbursement for overnight costs, they are not tax-exempt. I hope that I have clarified the situation, even though some people might not agree that the tax treatment set out in the clause and schedule 4 is fair.
Children's travel was not tax exempt under the previous scheme, and clause 7 and schedule 4 merely maintain the same tax treatment of children. However, the right hon. Gentleman was right to point out that the tax exemption for spouses will continue, albeit with some more restrictive conditions. Again, I hope that I have clarified the position.
As IPSA continues to develop its expenses regime over the coming months and perhaps years, we will obviously have to keep an eye on any changes and ensure that we determine whether we need to reflect them in tax law.
Stephen Timms: Clause 8 and schedule 5 amend the corporation tax rules on loan relationships and derivative contracts that apply to amounts not fully recognised for accounting purposes. This is a good example of the way in which the obligations that the previous Government introduced in 2004 on the disclosure of tax avoidance schemes are bearing fruit by revealing forms of avoidance that represent loopholes that need to be closed, which is what the clause does. The intention behind the clause was announced by the previous Government at the time of the March Budget. The provision is tightly targeted. I am not aware of any adverse reaction, and I certainly support the clause, but will the Exchequer Secretary give us his assessment of how much tax avoidance will be prevented by blocking the loophole?
"We will make every effort to tackle tax avoidance".
Clauses 8 and 9 are the first concrete signs of that commitment being delivered. However, will the Exchequer Secretary tell us a little more about how those efforts will be pursued and what is meant in the coalition agreement by the commitment to
"detailed development of Liberal Democrat proposals"?
If I understand correctly, Liberal Democrat proposals in this area include: changing the taxation of benefits in kind; increasing the proportion of HMRC time spent on income tax evasion; a new general anti-avoidance provision for corporation tax, with companies paying a commercial rate for HMRC pre-clearance-I imagine that that is being subsumed in the wider discussion about a general anti-avoidance rule; and legislating to establish the beneficial ownership of property that is
sold to prevent the avoidance of stamp duty land tax. Will the Exchequer Secretary confirm what the coalition agreement meant? Are all those initiatives-
I accept that there will always be areas in which there is legitimate uncertainty among business and their representatives about how the law applies. However, I am pleased that clause 8 and schedule 5 are being brought forward to block one more unwanted loophole.
Mr Gauke: I thank the shadow Minister for his words of support. It would be somewhat surprising if he did not support the measure, as I am sure that he would have introduced it had he been in our position.
Clause 8 relates to corporation tax avoidance involving de-recognition. The corporation tax rules on financial instruments broadly follow the treatment of profits and losses recognised in accounts drawn up under generally accepted accounting practice. That applies to most financial instruments, including loans and derivatives. However, in certain cases where the terms of an asset and a liability are closely related, accounting practice may mean that neither the income nor the expenses arising on them are included in the accounts. For example, a company may have issued preference shares on which the dividends payable equal the interest received. As the company is economically flat in such cases, accounting practice allows it to de-recognise both the income and expenses. However, for tax purposes, that gives rise to a mismatch. The income is taxable, while the dividends are not deductible.
Unfortunately, avoidance schemes have continually sought to exploit the practice of de-recognising income. In 2006, legislation was introduced to block such avoidance by overriding the de-recognition for tax purposes. It required that where certain conditions are met, taxable profits are to be computed as if there had been no de-recognition in the accounts. It was necessary to amend the original legislation in 2007 and 2009 to block new schemes. Previous action has protected something like between £100 million and £150 million. To answer the shadow Minister's question, it is anticipated that the measures in the Bill will protect £150 million per annum.
It is worth making the point that in addition to blocking the latest schemes, the Government intend to remove the opportunity for new abuse. We will amend the anti-avoidance rule in question so that it works in a more wide-ranging manner. Such a rule will make it unnecessary repeatedly to block similar versions of what is essentially the same scheme, and will allow us to address the matter more completely. HMRC will issue a technical note on the subject shortly, with a view to us making the amendments in the Finance Bill 2011. Any such changes would be effective from a date to be announced in the autumn, following consultation on the details of the proposals.
I note your earlier guidance, Mr Evans, and I will not go into detail on the points that the shadow Minister made, but we continue to look at the issue, and the Government take anti-avoidance measures very seriously.
That this House, at its rising on Tuesday 27 July 2010, do adjourn till Monday 6 September 2010.-( Mr Newmark.)
That this House, at its rising on Thursday 16 September 2010, do adjourn till Monday 11 October 2010.-( Mr Newmark.)
That, in respect of the Academies Bill [ Lords], notices of Amendments, new Clauses and new Schedules to be moved in Committee may be accepted by the Clerks at the Table before the Bill has been read a second time.-( Mr Newmark.)
That, at the sitting on Tuesday 20 July, notwithstanding Standing Order No. 14 (Arrangement of public business), the backbench business determined by the Backbench Business Committee may be entered upon at any hour, may then be proceeded with, though opposed, for three hours, and shall then lapse if not previously disposed of; and Standing Order No. 41A (Deferred divisions) shall not apply.-( Mr Newmark.)
That, on Tuesday 27 July,
(1) the House shall meet at 10.30 am;
(2) references to specific times in the Standing Orders of this House shall apply as if that day were a Thursday;
(3) the sitting in Westminster Hall shall begin at 12.30 pm and continue until 5.00pm; and
(4) the Speaker shall not adjourn the House until any message from the Lords has been received, any Committee to draw up Reasons which has been appointed at that sitting has reported, and he has notified the Royal Assent to Acts agreed upon by both Houses.-( Mr Newmark)
That the Motion in the name of Sir George Young relating to the Electoral Commission shall be treated as if it related to an instrument subject to the provisions of Standing Order No. 118 (Delegated Legislation Committees) in respect of which notice of a motion has been given that the instrument be approved.- (Mr Newmark.)
That, notwithstanding the practice of the House as to the intervals between stages of Bills brought in upon Ways and Means Resolutions, more than one stage of the Finance Bill may be taken at any sitting of the House.-( Mr Newmark.)
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