Finance (No. 2) Bill

Nigel Mills Excerpts

Committee of the whole House
Wednesday 19th April 2023 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell). I agree with everything he said.

I am a little surprised that we have ended up having to have this debate again today. Generally speaking, people who campaign for their own interests and ask for a special scheme for doctors do so because that was their particular area. However, if we stand back and ask how it is possible to make a special scheme for one particular sector work, we quickly realise that it is fiendishly difficult to do. There are all sorts of scenarios where we hit a problem. For example, some people have split careers, spending some time in the NHS and the rest of the time outside it. Others have split jobs where they might be a consultant for a couple of days a week and then spend another couple of days training the next set of doctors as a university lecturer. That puts them in a different pension scheme that is not subject to the same tax regime. They might say, “I have an NHS pension but I’ll pay it all on my other one,” so that would not work. What about people who are not employed by the NHS or any of the myriad trusts and organisations?

I do not want to pick too much on the amendment tabled by the hon. Member for Aberdeen North (Kirsty Blackman), because I have tabled enough in my time to know that they are not always drafted precisely. However, if we use the word “employed” in draft legislation, that cannot be stretched to include a partner in a GP practice, because they are not employed by anybody. If we use the phrase “employed in an NHS organisation”, that cannot be stretched to include somebody working as a locum, because they are a contractor rather than somebody who is employed. There is all manner of people in the NHS family who we want to encourage to stay in work, but this is not how we will achieve it.

I also think that the hon. Lady has chosen the wrong mechanism. This would result in her having a nightmare. As soon as a person who used to be exempt ceased to work more than 15 hours or retired, the lifetime allowance would kick in and clobber them when they drew their pension. I understand her intention, but I suspect that her mechanism of choice would be disastrous.

Having thought through the scenarios, how do we pick a sector and get the right people? Are we trying to help doctors or are we trying to help anybody who happens to be employed by the NHS? As I said earlier, we are basically helping accountants, finance directors and procurement directors—all manner of people who are paid very large amounts by the NHS. I probably do not have the same amount of sympathy for their contribution to public service as I do for that of frontline doctors. It is bizarre to give a tax advantage to an NHS finance director, who gets a very generous pension, and not to an entrepreneur who is trying to grow the economy and create jobs to pay for all of this. That seems to create a huge iniquity.

If we stand back and think about how we want tax policy to work—heaven forbid that the Opposition get into government and try to do this—it would be really hard, as my hon. Friend the Member for South Cambridgeshire (Anthony Browne) has said, to go down the route of justifying different tax rates for public sector employees. If we start asking why we are charging them the same income tax and national insurance, we will end up in a horrible world and a very complicated tax regime.

Those of us who have very good public sector pensions should be very careful. Unlike my hon. Friend the Member for Poole (Sir Robert Syms), my lack of career success means that I am not worried about the lifetime allowance, including under the old level, because 20 times my pension gets me nowhere near it. Strange situations are being proposed. When I was first elected 13 years ago, a big issue on the doorstep was, “Public sector pensions are too generous. It’s not fair. I work in the private sector, basically paying for that, and I’m going to get a tiny pension. People in the public sector are being paid the same or more than me, and they are getting a massively generous pension. It’s not fair.” The coalition Government’s response to tackling that perceived unfairness was to change the scheme from final salary to average salary. If we load on to that generous, inflation-protected, state-guaranteed pension a more generous tax treatment than that received by private sector pensions, that would recreate that horrible argument.

It is foolish and damaging to go down the route of cherry-picking favoured sectors and giving them different tax treatment from other sectors. It was a mistake to take that approach to judges and to Directors of Public Prosecution, and it would be a mistake to apply it to doctors. The tax system should apply to everybody across the board in the same way. If we want to provide more reward to people, we should do so by pay rather than by tax. That is a far better approach.

I want to address where the Government have ended up. We have a very complicated pensions tax regime where people do not pay tax on the way in or on an annual basis. Instead, they pay tax on what they draw out of the pension when they get to the end, unless they draw out a quarter of it as a lump sum, in which case they do not pay tax on it all. We have chosen a pension model whereby the state pension broadly provides people with subsistence to live on, and if people want more than that, we incentivise them with a generous tax regime so that they can save it themselves. The implication is that a higher earner gets a greater tax incentive because, unlike a lower earner, they save tax at 40% or 45%. They probably pick up a bit more tax at the end, but a large amount of people pay a lower marginal tax rate when they retire than when they are working. That is the system that we have chosen.

We then thought that perhaps that was a bit too generous to higher earners, so we introduced an annual cap and a lifetime cap. Quite why we needed both, I do not know. If we want to limit how much tax relief we give people, we could choose one of the two and still get to the right answer. The Government have now chosen the annual approach rather than the lifetime approach. The problem is that that does not help people whose earnings are not consistent. If someone is earning a relatively high amount at age 25 and then keeps earning it, that system will work very well for them. If someone starts a business that struggles in the early years and they cannot pay themselves a big salary or make big pension contributions, but then finally it is successful and they sell it and make a lot of money, under this new regime they would not be able to put that much in their pension because they would only be allowed to put in 60 grand a year. I think we could have chosen a higher lifetime allowance and not bothered with the annual allowance. That would have achieved a similar outcome, but we have not done that.

To complicate things further, we have decided that if people earn too much, we will start taking their annual allowance off them completely, meaning that they will be able to put next to nothing in a pension scheme. That does not strike me as being a pensions tax regime that incentivises people to save money in the way we want them to or to use it in their retirement. Effectively, as soon as people hit 57, that gives them a tax incentive to take a lump sum before they retire. We are saying, “The more you earn, the better off you are—unless you earn too much, in which case you are being made worse off and put back to where you started.” In order to put out this particular fire, I urge the Government to step back and consider what they are trying to achieve with the £50 billion or so a year of tax we defer—we actually lose the vast majority of it—and what they really want people to do with their pension savings. How can we use the tax regime to incentivise that and make it fair all the way around? We must come up with a coherent tax regime that drives our policy, rather than come back every couple of years, tweak things, find another fire to put out and think, “Well, it’s not quite working how we wanted, so let’s move it around,” and end up in a confused mess.

This should be a warning to us. If we have a confused mess, with different competing objectives, and we do not think about the whole system, we end up with an unintended consequence. The consequence we had was senior doctors retiring far earlier than we wanted them to because we got the pensions tax regime wrong. If we do not fix this, I suspect there will be another unforeseen consequence and we will have to come back and tweak it in another couple of years. Let us do the job properly, have a coherent regime and use the very large amount of money that we invest to drive the behaviours that we want.

[Anthony Browne]

I preface my comments with an absolutely fundamental underlying principle of all economic policy. Whatever we are talking about, I think this should be our first, axiomatic ground rule: whatever is right for the Leader of the Opposition should be right for everyone. There is a fundamental principle here, which is fairness, and I will come on to that.

First, though, I want to mention some of the underlying principles of the annual allowance versus the lifetime allowance, because during almost all of the previous Labour Government’s time in office, there was not a lifetime allowance. It was brought in at the tail end of the Labour Government. One of the Government’s concerns about tax relief for pensioners is the need to limit it so that we do not end up creating huge amounts of dead-weight costs for pension relief, particularly for the well paid. That is why we have an annual allowance that limits tax relief.