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Baroness Noakes: My Lords, I thank the Minister for that comprehensive reply. Perhaps I may pick up one or two points. As she said, there are practical issues in relation to how the figures are calculated. I am not fazed by that; there are several routes by which one may do so. Given that we would be dealing with people who had opted to have their income assessed on the basis of producing all the vouchers or all the statements of capital, I do not believe that it would take much ingenuity to devise a practical way of dealing with the issue. It would not be difficult to do so if people wanted to follow that route.
The Minister spoke a great deal about the vast majority of pensioners having lower capital levels. I am sure that that is a true statement now. I wonder what current pensioners will think when they see the workings of the savings credit and realise that for every £1,000 they save, even if their money is simply on a good deposit rate and earning 5 per cent, they will end up with only 19p a week more in their pocket. Indeed, the Government may well be seeking to deprive pensioners of their capital by, in effect, incentivising them to run down their capital.
I am particularly concerned about a point that I raised earlier; that is, the incentive to future generations to save if they see that in these terms relatively high levels of capitalnot necessarily relatively high levels overallproduce that type of effect. I understand that this is a simple approach, but I do not believe that it is fair to those who have capital above £6,000. I am sure that, if the department wanted to deal with the issue in a way that provided more incentives for savings in the longer term, it could very easily do so. However, I shall consider further what the Minister said. I beg leave to withdraw the amendment.
The noble Baroness said: My Lords, Amendment No. 27 deletes paragraph (a) from Clause 15(6). Paragraph (a) allows the Government to prevent a claimant from deliberately depriving himself of his income or capital, thereby gaining a pension credit advantage. I have no problems with the concept of that and I can see that there will be circumstances in which the department will want notionally to reverse transactions. However, I tabled the amendment because I believe that we should be able to see exactly what mischief is intended to be dealt with.
In Committee the Minister gave a number of examples where the powers would or would not be used. I believe that basically she said that it was all right to spend money but that it was not all right to give it away. The noble Baroness may wish to look back at what she said in Committee, but that is the only principle that I can extract from what she said. I did not find it a very robust principle. I imagine that in practice the department would want to see how money was spentthat is, whether in the department's view it was something frivolous that would be set aside.
During discussion on the previous amendment, I talked about the low incentives relating to capital above £6,000 and whether that would incentivise spending. Will the department use the power to prevent a pensioner who decides that holding capital for 19p a week is not a particularly good thing spending his or her money on a holiday or expensive car?
If this were a Finance Billa hypothetical situation in your Lordships' Housedealing with tax avoidance, your Lordships would not accept such a power unless precisely the kind of avoidance were specified. The House is invited to accept a broad power without any general principles or a robust statement of the mischief with which the measure seeks to deal. Why is this advanced power being given to the Government without any statement on the circumstances in which it will be used? I beg to move.
Baroness Hollis of Heigham: My Lords, my hope was that I had assuaged the noble Baroness in Committee but obviously I failedand may do so today. The Government must have effective provisions to protect the new scheme against manipulation. The power will enable the Secretary of State to introduce, subject to parliamentary scrutiny, regulations that will give protection similar to that provided in other income-related benefit regulations. That is nothing particularly new. All income-related benefits must be protected against maximising entitlement. Past experience has shown that some people try to take advantage of schemes that do not sufficiently deter abuse.
If the amendment were agreed, money would be given to persons who had deliberately altered their circumstances to take advantage of a pension credit scheme, and the Secretary of State would have no means of preventing or curbing such abuses. In this amendment, the noble Baroness is not so much spending money as being on the side of persons who would otherwise be fraudulent. I am sure that she would not wish that either.
Baroness Hollis of Heigham: My Lords, just now the noble Baroness accused me of saying that it was okay to spend money but not okay to give it away. She might wish to reconsider her line. I had hoped that the memorandum sent to the Delegated Powers and Regulatory Reform Committee and the further memorandum provided in Committee would have reassured the noble Baroness. There is nothing sinister about our intentions. The regulations are designed to deter people from manipulating their circumstances and to ensure that they do not gain from such actions. It is important that pensioners know that if people behave unreasonably, they will not gain. The noble Baroness would not want to hear that somebody down the street was receiving pension credit because she had done X, Y or Z.
It is certainly not a question of saying that spending money is okay but giving it away is not. I have never said so because that would be a silly line to draw. The question is of deliberate deprivation of capital to manipulate one's financial arrangements, to maximise entitlement to an income-related benefit. The testwhich is well-established in case law for other income-related benefitsis ultimately one of reasonableness.
It is entirely reasonable to pay off one's mortgage; have major repair work undertaken on one's home; replace one's car; or have a once-in-a-lifetime holiday. It is not reasonable to give away one's capital or housefor example, to one's childso that that capital asset would not be taken into account in respect of being taken into local authority care. Neither would it be reasonable to have one's pension paid to a third party, to maximise one's entitlement to an income-related benefit. The noble Baroness knows as I do that those would be improper ways of obtaining entitlement to an income-related benefit.
If anyone wishes to spend their money on a car or holiday, paying off their mortgage or house repairs, that is fine. We are concerned to check self-deprivation of capital to maximise entitlement. The distinction is not between spending capital and giving it away but between reasonable expenditure and deliberate self-deprivation of capital to manipulate entitlement. There is a wealth of case history to establish that line.
The noble Baroness said that there was a comparison to be drawn with the tax system. One can give away only £7,000 in any one year before it becomes subject to tax. The read-across that the noble Baroness suggested is not appropriate.
Baroness Noakes: My Lords, I was not referring to that particular rule. My general proposition was that the many anti-avoidance provisions throughout the tax system are always on the face of legislationand are fully debated by Parliament before they are enacted.
Baroness Hollis of Heigham: My Lords, the regulations will be available for your Lordships to scrutinise in due course under the negative or affirmative resolution procedure. The distinction to be made is between reasonable expenditurewe know what that isand unreasonable manipulation and deprivation of capital. There is long-established case law.
The House is making heavy weather of something that is well established in social security principles. If anything, the pension credits scheme will err on the side of supporting pensioners in anything that they reasonably want to doif only because of the five-year period. We will not come back and say, "Four and a half years ago, you unreasonably bought a new car." We will not be doing it that way, which is different from day-to-day income-related benefits. I suspect that pensioners will have a much more relaxed regime than people enjoying other income-related benefits. Nonetheless, one has to protect against a person having their pension paid to another member of the family, to maximise their benefits. The provision is one of the few protections against fraud and I am surprised that the noble Baroness is pursuing her proposal with such vigour.
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