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Baroness Hollis of Heigham: It is another amendment that has been ungroupedinadvisedly in my case. I had two spheresone in which it was grouped and one in which it was not. I believe that it should be grouped but the Opposition Benches, in their wisdom, have decided against that.
Amendments Nos. 29, 37 and 33 seek to remove the concept of qualifying income from the savings credit calculation at Clause 3. It also removes our ability to prescribe in regulations what is and is not qualifying income.
I believe that the noble Baroness's intention is that she wishes to include all of a pensioner's income, as defined in Clause 15, in calculating the savings credit and to remove the notion of qualifying income from the calculation of "amount A" within the savings credit. On first sight, this seems a rather technical matter, but the notion of qualifying income is very important to the working of the savings credit and the principles that lie behind it.
We are attempting something radical with the savings credit. We are seeking to reward savings or modest flows of appropriate income in retirement. Qualifying income establishes an important principle within the savings credit as we are here saying that we want specifically to reward savings for retirement, such as second pensions and capital. This is because, as part of our wider pensions strategy, we believe that second pensions are the best way to provide for retirement. We also recognise that some people may choose other investment vehicles, such as shares, PEPs, ISAs, or that these savings vehicles may be more suitable for some and that they should also be rewarded. Probably on the next day in Committee we shall examine individual streams of income flow in much greater detail.
That is why these are the things that we want to reward through the savings credit. Our intention is that under Clause 3(6) regulations will list the sources of income that we want to reward and class as qualifying income where they exceed the savings credit threshold. This is the definition that would then apply when using the term "qualifying income" throughout the calculation in Clause 3.
We intend that these should be all income defined in this Bill as "retirement pension income" at Clause 16. Qualifying incomethis comes to the heart of the noble Baroness's question about what is the difference between the various labels, a question I, too, have asked on more than one occasionwill therefore include, for example, all second pensions, including SERPS, state second pensions, occupational pensions, personal pensions and retirement annuity contracts. It will also include income from capital and annuities as defined in regulations under Clause 15. This is because these income streams either represent a pensioner's savings through their working lives, or other incomefor example, DLAwhich is appropriately disregarded and exempt from the calculation of qualifying income.
In practice, pensioners may have many and varied income streams, including, for example, social security benefits and war disablement benefits. These may be paid to individuals who, through no fault of their own, have not had opportunities to build up second pensions or other investments. However, other pensioners may have younger partners who, by their nature, are likely to have different income streams. These are few in number and we need to consider further whether we should make rules to cover exceptionsfor instance, by not rewarding the contribution a younger partner may make.
I am sure the Committee will recognise the important step forward that we are proposing through the savings credit. I hope that noble Lords will wish to support those who have worked hard and saved hard. Qualifying income does just that. I hope that the Committee will recognise the advantage of being able to define qualifying income in regulations.
I repeat: qualifying income is the income to be rewarded in savings credit. It will include second pensions, rent from lodgers and so on. Disregarded income is income which is exempt from being either qualifying or not qualifying; DLA, AA, money from charities and so on is exempt and not taken into account. There are other incomesearnings is one suchon which we have to seek further advice finally to determine the position. But qualifying income is the basis on which pension credit will be returned.
There are concerns about other kinds of incomefor example, where a claimant's wife is on IBand whether we reward them. Incapacity benefit is itself a benefit. Do we reprivilege a benefit and reward it, effectively, twice over? Issues such as that will be picked up and further explored in regulations.
There are only about 50,000 cases where quite small benefitsincapacity benefit, contributory JSA, WTCare affected. The dilemma that faces us is whether it is sensible to treat those benefits as qualifying income on the ground that it is not worth the hassle, or whether anomalies will be created by rewarding some income twice.
Baroness Noakes: I thank the Minister for that explanation. I am still mystified. I can understand why some benefits may need to be taken out of the calculation for arriving at qualifying income in order not to reward benefits received from another sourceI had not appreciated that pointbut I do not see any reason for the difference between the income definition in any other respect.
Can the Minister say when we will be able to see the draft regulations setting out precisely what the department intends to do in this area so that we may consider this further? I repeat: having these different concepts of income in different parts of the Bill is one of the major complications to have been introduced. We on these Benches will certainly seek a way of simplifying this and I hope that the Minister will also.
Baroness Hollis of Heigham: I cannot help the noble Baroness as to when draft regulations will be available. I do not know. However, we will be debating many of these issuesbenefits and the likeduring the second day of Committee and we will be able to explore them further. The "biggie", on which we have not yet fully resolved our position, is that there are a lot of colliding considerations, if I can put it that wayfor example, earnings. Most of the other benefits concerned involve small numbers. The biggest problem concerns earnings, about which there are pros and cons, and we are seeking to resolve it.
It is perhaps worth saying that we cannot produce draft regulations until both Houses of Parliament have determined what will be in the Bill. Anything I can give to the noble Baroness at this moment has to come with very strong health warnings attachedit may be addressed and amended in another place. But certainly, at present, there is a distinction between "qualifying income" and "income". "Income" can include attendance allowance and disability living allowance, for example. The noble Baroness will understand that that is exempt as an extra cost benefit. It may exclude some of the other benefits for which, otherwise, as she recognises, there would be double provision.
The third category is earnings, in relation to which we are still seeking advice as to the best way forward. It is a case of "on the one hand" and "on the other". We are seeking to go for simplicity where we can, while being fair to as many people as possible. I do not think that I can help the noble Baroness much beyond that. The two big flows of income that we have been talking about are obviously the second pension in its various forms and the flow of putative income from savings.
Baroness Noakes: I thank the Minister for that response. I wonder whether it would help our consideration on Report if we could have a list of the matters that will be included in draft guidelines when the department is in a position to produce them. I accept that, technically, that is not until the Bill has been through both Houses. However, the Government should have some idea as to what will definitely be included in one category and what will be included in another, and possibly an idea of where the difficult areas are.
The amendments are intended as helpful technical amendments. Amendment No. 34 concerns the calculation of "amount A" in Clause 3much loved by those who look at the clauseand the amount which must be ascertained in calculating the savings credit. Those who are familiar with the provision will know that "amount A" is the smaller of two figures: first, the maximum savings credit; and, secondly, a prescribed percentage of the amount by which qualifying income exceeds the credit threshold. This is where the Government intend to calculate 40 per cent of a claimant's income above the minimum guarantee.
However, Clause 3(4) compares an "amount" in paragraph (a) with a "percentage" in paragraph (b). That will not achieve the Government's aim, because the calculation cannot be performed. A similar confusion exists in respect of "amount B" in subsection (4) and in respect of "the maximum savings credit" in subsection (7).
If a court ever had to construe this, it would doubtless seek to give practical effect to the drafting. However, I hope that the Committee would not want to present the courts with such a problem. Therefore, the amendments seek to replace "percentage" with "the amount equal to" a percentage, so that the result of the calculation replaces an element of the calculation. So, taking "amount A", if the percentage is 40 per cent, and the amount of a claimant's income is £10, the result would be £4, and that rather than 40 per cent., would be used in the calculations. I hope that the amendments will be regarded as helpful and that the Minister will be able to accept them. I beg to move.
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