Wednesday 26th June 2019

(4 years, 9 months ago)

Westminster Hall
Read Hansard Text Read Debate Ministerial Extracts

Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.

Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.

This information is provided by Parallel Parliament and does not comprise part of the offical record

00:00
Robert Syms Portrait Sir Robert Syms (Poole) (Con)
- Hansard - - - Excerpts

I beg to move,

That this House has considered NHS pensions, annual and lifetime allowances.

I begin by declaring an interest, because anybody who has been in the parliamentary pension scheme is affected by annual allowance and lifetime allowance. Therefore, some of the things I say may reflect on me and maybe other hon. Members, so I suggest they make a declaration as well—

James Gray Portrait James Gray (in the Chair)
- Hansard - - - Excerpts

Order. The hon. Gentleman may be right to say that all hon. Members may be affected by that matter, but for each individual to have to make that declaration would, I think, be otiose.

Robert Syms Portrait Sir Robert Syms
- Hansard - - - Excerpts

Thank you, Mr Gray. This is an important subject, and the more I learn about it, the more I realise its implications for the national health service. I had originally been told that the Treasury would respond to the debate, but I understand that the Department of Health and Social Care has manfully stepped up to the plate—the first example I have seen of a hospital pass to a Department.

The subject has devastating implications for the NHS, dental services and many other services in this country unless it is addressed by the Government. When the coalition Government came into office in 2010-11, they were quite right to reduce the amount of money that could be put into pension funds. At that time, someone could put £255,000 into a pension fund tax free; clearly, if they had such resources, it was unfair on the lower paid. The Government moved to reduce the tax leakage by reducing a number of the allowances.

The problem today is that the Government have drawn the allowances too tight, and in 2015-16 they also introduced a taper to the annual allowance. All that is having a pernicious effect on the NHS and creating what the British Medical Association has called a “perfect storm”. The lifetime allowance, which is just over £1,055,000, is such that most senior doctors and general practitioners get pulled into additional tax, paid at 55%. That raises the question whether they should continue working or retire early; there is a lot of evidence that members of the medical profession are deliberately retiring early because of the implications of working longer.

The annual allowance of £40,000 is creating problems of supplementary tax bills, which are falling at the doors of consultants, doctors and senior nurses. That £40,000 is made up of the increase in the fund and contributions, in a slightly convoluted formula, but the introduction of the taper and the way that it operates cause particular havoc. For higher earners, a strict regime applies to annual contributions, which is known as tapered annual allowance. It applies to people who have both adjusted income over £150,000 per year, which is total taxable income plus the real growth in value of pension rights over the year, and threshold income above £110,000 per year, which is essentially total taxable income, but net the value of any employee pension contributions.

Where an individual ticks both boxes, for every £2 of adjusted income that they receive above the £150,000 level, their annual allowance is reduced by £1. This means that those with an adjusted income of £210,000 have their annual allowance tapered down from £40,000 to £10,000, the lowest level to which tapering can reduce the annual allowance. That tapered allowance was introduced in 2016-17. The ability to carry forward unused allowances for years before the taper was enforced has so far helped to dampen down its impact, but in 2019-20, carry-forward will be from no earlier than 2016-17, when the taper came into force. That will reduce the number of people with significant amounts of underused annual allowance available, and as a result the taper will bite rather more than in earlier years.

If we look at the figures, we see the number of people who exceed annual allowance or hit the taper multiplying each year, pulling many more people into the system. Many senior doctors earn enough money from their core hours plus additional shifts to be potentially affected by the tapered annual allowance. In addition, because of the relative generosity of the NHS pension scheme, pension rights can be built up quite quickly, especially for those who have experienced a step-up in pension rights because of a promotion. Paradoxically, in most cases overtime shifts are not pensionable. That means that a doctor can find that, by working more, he or she has built up no extra pension but, because of the operation of the tapered annual allowance, has reduced the amount of pension that he or she can build up within the tax relief limits.

All that leads to more complexity within the system. It is extremely difficult for someone to work out whether they have an annual allowance issue; that is true for any high earner, but may be particularly true for those in the NHS, because they have rights under different sections of NHS pension schemes—for example, a final salary pension and a career average pension. Those rights are tested against annual allowance, but a negative accrual in one scheme cannot be set against a positive accrual in another scheme.

Alex Chalk Portrait Alex Chalk (Cheltenham) (Con)
- Hansard - - - Excerpts

My hon. Friend is making an excellent speech on an area that is technical, but has enormous implications. I have been contacted by a consultant in emergency medicine at Gloucestershire Hospitals NHS Foundation Trust, who has indicated that because of the perverse incentives of this scheme, he will not be taking on an extra shift and out-of-hours work, which reduces that vital expertise. Does my hon. Friend agree that we must turn this around so that we have frontline medics doing what they should be doing—caring for our patients?

Robert Syms Portrait Sir Robert Syms
- Hansard - - - Excerpts

Almost anybody I talk to in any hospital anywhere has an example of the impact of this additional taxation biting, and its impact on working methods. I know my hon. Friend has tried to get a debate on a similar subject, because we are ultimately talking not about consultants, but about the patients and the impact this has on delivering services.

For defined benefit pension rights, the test against annual allowance is complex. The growth in rights over the year must be adjusted to strip out any increase that simply keeps pace with inflation, and is then multiplied by 16 added to any additional lump sum accrual before being tested. Whether the tapered annual allowance applies depends not just on whether someone’s adjusted income is over £150,000, but on whether their threshold income is over £110,000. These two measures are quite different, and adjusted income in particular is calculated in a very complicated way.

That creates unpredictability. A tapered allowance works by using income from the current year to determine the size of the annual allowance for the current year. Many NHS doctors work extra NHS shifts and many do private work; they may have little idea what their income for the year will be until very late in the year. Sometimes, NHS trusts get additional money released at the end of the year, leading to more operations. Sometimes, NHS trusts pay at a rather slow rate, and they may pay in a different year from that in which an operation was undertaken. As a result, doctors who take on a lot of extra work late in the year can suddenly find they have an annual allowance issue.

There is also a cliff edge issue. Although the tapered annual allowance result is a gradual reduction in annual allowance for each £1 of adjusted income over £150,000 per year, the fact that the whole system switches on abruptly for threshold income above £110,000 can create a violent cliff edge effect. For example, those with threshold income that is 1p below £110,000 can effectively ignore the tapered annual allowance, but those with income that is 1p above it can find themselves caught with a rather large tax bill. For the latter group, not only does each extra £1 attract income tax at 40p and a loss of personal allowance equivalent to another 20p in the pound, but they can suddenly face a big drop in their annual allowance.

Some people can be worse off overall by working an extra shift. I have heard testimony to that effect from many doctors who say they have done additional work and ended up worse off.

Paul Masterton Portrait Paul Masterton (East Renfrewshire) (Con)
- Hansard - - - Excerpts

I congratulate my hon. Friend on securing this debate. I hope he will not mind my taking the opportunity to plug the event I am hosting with the BMA next Wednesday between 4 pm and 6 pm, which will be a great opportunity for MPs to meet many consultants with stories such as this, and to find out more information about the problem. Does he agree that, because this matter is so complex, it is important for MPs to come along and speak to the BMA, and speak to their local senior consultants, to really understand the impact this is having on the ground?

Robert Syms Portrait Sir Robert Syms
- Hansard - - - Excerpts

I thank my hon. Friend for his contribution. This is an area that people start to get interested in only when they start thinking about retirement. Then they realise how complicated the retirement rules are. This issue is upsetting many people who work in the NHS because of the impact it is having.

A survey of GPs to which 46% replied—354—found that their average tax bill owing to the tapered allowance was £18,500, so we really are talking about considerable sums of money being levied on doctors, many of whom do not expect it and suddenly get into arrears. Dr George McInnes, radiologist at Poole Hospital, said to me that most of his radiologists are contracted for 10 sessions, with most working 11 or 12 as a matter of norm to keep the throughput going. However, as is the case in most hospitals, he now finds it terribly difficult to get them to do more than 10, and when people come to review their contracts, they ask to do less work, rather than more, because of the impact of the pension arrangements.

The real problem is that most of the people affected have done years of training and have years of experience—they are the super strikers of the NHS; the team leaders—and despite tax bills have a loyalty to their hospitals and teams and continue working. However, year on year, they find themselves penalised for working. As rational people, they decide to play golf or to spend more time with their families or with Netflix. That is logical, and the Treasury is deterring many people from doing what they have trained for their whole lives to do. The letters, emails and phone calls I get from doctors do not say that they want to work less. They actually want to work more, but they do not really feel that they should work more and be worse off as a result.

The Government have put additional resources into the NHS, and we can argue about whether it is enough or not. However, the key point from the Treasury and the Department of Health and Social Care was the importance of productivity in the NHS, which we can get only if the people within the service are actually able to deal with patients and the issues before them. If, because of the tax issue, people work less, the only way around that—apart from locums, if they can be recruited —is to recruit more people to do fewer operations. That is not increased productivity; that is reduced productivity. If we want to use these people, we have to set a tax system that is proportionate and sensible.

It is not only the NHS. The British Dental Association says the same thing: people are retiring early and are more averse to taking on NHS patients. The consequence is the problem that we are now starting to see, which will get worse and worse. I know that the Department of Health and Social Care understands the issue; I have talked to the Secretary of State. I think the Treasury sort of understands that there is a problem, which is why I think it indicated that it might give additional resources to the NHS. However, the problem is that the only way out of this is to get rid of the taper, because its impact on the way people work is so detrimental to the NHS. Even if we take into account wider issues and other areas, I cannot see how any scheme can be brought in to ameliorate its impact.

We in this House want patients to get the best service, and sometimes we have to pay people to get the best service in the national health service. Most consultants or senior nurses have trained for years and are dedicated to their patients, and all they want to do is to turn up and work. The Government have put money into the NHS to allow operations to take place, but perversely our system of taxation on pensions, which was probably drawn up to stop city slickers avoiding tax, is impacting on a major, important public service and will lead to longer waiting lists, meaning people—who, if not in pain, will be very uncomfortable—waiting to be dealt with.

We all want people to be dealt with, doctors to be happy and the NHS to work properly. We need the Treasury to get out of the way on this one, because it is causing problems.

09:43
Ruth Jones Portrait Ruth Jones (Newport West) (Lab)
- Hansard - - - Excerpts

I commend the hon. Member for Poole (Sir Robert Syms) for bringing this important debate to the Chamber. I did not intend to speak, but I feel obliged to do so now. I understand why this scheme was brought forward. It is not the scheme that I have problems with but its implementation and the unintended consequences, which have already been raised.

The situation in the NHS is complex. We have three NHS pension schemes, and it is really difficult to work out; I am part of two of them and I struggle to work out what I am supposed to be doing. We understand that it is difficult. The taper comes in at £110,000. The Chancellor told me in the Chamber that it is £150,000, but it is not. This is important, because although these wages seem a lot to some people, they are not that high compared with those of senior businesspeople. The taper will affect people such as consultants, GPs and medical academics. These are our leaders, and we need to ensure that there is succession planning. If these people leave abruptly because they realise the tax implications, there is no chance for succession planning.

Alex Chalk Portrait Alex Chalk
- Hansard - - - Excerpts

The hon. Lady is making a good speech. It is true that senior consultants are often relatively well paid, but they cannot afford sometimes four, five or six-figure tax bills suddenly arriving on their doormats, which provide the most profound disincentive to their doing what they want to do: care for patients.

Ruth Jones Portrait Ruth Jones
- Hansard - - - Excerpts

Absolutely. The hon. Gentleman makes an excellent point, and much more eloquently than I could. These things are coming in at the end of people’s working lives, and it is difficult for people to budget for them when they do not know what will land on the doormat. When we enter working life and take on board pensions, we know what we are signing up to. These changes are being made in the latter stages of people’s working lives, so it is really difficult to budget and plan for them.

Several constituents who work at the Aneurin Bevan University Health Board in my constituency have written to me to say that they will finish work early or cut down on the number of sessions because of these punitive tax bills. Although obviously the health service in Wales is devolved, pensions are not, so it is important that we look at this issue in the round and across the UK. We need to make sure that we retain these doctors across the board.

I commend the hon. Member for Poole for introducing the debate. I ask the Government to look again at this situation.

09:46
Steve Brine Portrait Steve Brine (Winchester) (Con)
- Hansard - - - Excerpts

I add my congratulations to my good friend, my hon. Friend the Member for Poole (Sir Robert Syms), on securing the debate, kicking things off and so clearly setting out the challenge that we face. In recent weeks, we have worked as a tag team between Winchester and Poole— earlier this month I raised the issue in the Chamber during an urgent question on the NHS people plan, which is a logical place for the subject to sit, and he, obviously, is leading the debate today—and that is entirely appropriate given that we are relatively near constituency neighbours and that many of our constituents work in Winchester, Bournemouth, Poole and Southampton NHS trusts and do shared work across those trusts.

I must say that the debate should be responded to by a Minister from Her Majesty’s Treasury. That is no criticism of the excellent hospitals and workforce Minister, who until very recently I was honoured to call a ministerial colleague in the Department of Health and Social Care. This is the first debate being responded to by a Minister from the Department of Health and Social Care that I have spoken in since I left office. However, seeing as we have a Health and Social Care Minister here, I will focus my remarks on patient care, which my hon. Friend the Member for Poole has discussed.

Over the past few weeks, I have spoken on a number of occasions to the chief executive of Hampshire Hospitals NHS Trust, Alex Whitfield, and I have spoken either through her or directly to numerous consultants and senior clinicians about this challenge. I am aware how serious it is, both for the individuals adversely affected—as we heard from my hon. Friend the Member for Cheltenham (Alex Chalk) and the hon. Member for Newport West (Ruth Jones)—and for patient care and wellbeing, because the NHS is about its people if it is anything.

When I first spoke to my local trust about this, the chief executive told me that

“the pension situation is having a significant impact on our people”

in Winchester and Basingstoke, and:

“The NHS scheme is particularly affected by changes to the pension tax system relating to the Annual Allowance and the Life Time Allowance.”

She is not wrong when she says:

“These changes are complicated and for individuals in the NHS defined benefit pension scheme the implications are not at all transparent.”

That point was well made by my hon. Friend the Member for Poole. She says:

“As a result, individuals are receiving unexpected tax bills of tens of thousands of pounds. It particularly impacts on consultant doctors, senior nurses and managers. Individuals are making different decisions as a result of these bills.”

I will pause on that point, about the senior NHS staff on whom this is having an impact.

I was privileged to be part of a Department that, under the previous Secretary of State, who is now the Foreign Secretary, and under the current Secretary of State, has delivered a record funding settlement for the NHS—£20.5 billion a year. I saw that play out in Winchester a few weeks ago, when I opened the new emergency department of the Royal Hampshire County Hospital in the heart of the city. That is excellent news. In my opinion, the challenge for the NHS will not be too little money, as a result of the settlement and the excellent long-term plan, but having the right people, who can spend that money in the right way to deliver the patient care outcomes that we want. If we are losing senior people, we have a senior problem.

As well as speaking to the leadership at my local trust, I wanted to find out more from the horse’s mouth, so I asked members of the local clinical community to come forward with their own stories and, if I may, I shall put a few of them on the record. One consultant set the scene very clearly. He told me that the issue is the annual allowance pension tax taper, which I will come back to, and the inflexibility of the NHS pension, which is landing consultants with huge tax bills for doing extra work on top of their contracted hours. The consultant was clear—and I agree, not least as a former Health Minister—that that extra work keeps the NHS running in the face of ever increasing demand.

I was told that, in certain circumstances, the marginal tax rate on earnings for the extra work is greater than 100%, which means that senior doctors working in my local hospital are in effect having to pay to do extra work. They are some of the most committed individuals in public service in our country, and I have had the privilege of working closely with many of them, but that is taking things a bit too far. It is clearly not a sustainable situation and, now that the huge tax bills are landing on doorsteps, it is causing a huge change in the behaviour of consultants at all levels in my local trust.

Another consultant told me that she has been an NHS doctor for 19 years and has worked as a consultant in my local trust for the last seven. She is employed on a full-time contract, with additional out-of-hours cover. Moreover, she regularly covers additional lists and shifts that require cover, sometimes at very short notice. She could not have been clearer with me that she is happy to provide that cover in the interest of safe patient care, which is of course what this is all about, as everyone has said. However, she has now been hit with a £30,000 tax bill, and she tells me that the only way she can avoid regular large tax charges, which may be for tens of thousands of pounds a year and which of course are in addition to her not insignificant income tax payments, is seriously to reduce the hours that she works for the NHS and not to take on any additional duties. As has been said, that goes to the heart of the issue. The consultant fears, as does her MP, that that is the conclusion that many of her colleagues will be forced to accept.

Let me again give some facts from trust level. Hampshire Hospitals NHS Foundation Trust recently ran a survey on the pension issue and received a healthy 2,500 responses. It is the case that 42% of all the respondents have reduced their work commitment; 20% have avoided promotion; and, critically, when the people were asked who might change working practices in the future, the figure goes up to 80%, including 33% considering early retirement and just over a quarter considering leaving the NHS altogether.

I have no doubt that the changes were introduced in good faith. They are aimed at top rate earners, as my hon. Friend the Member for Poole said, but in practice this has had a damaging effect on key people in the NHS, and if it is not sorted quickly, we will see that escalate further, and it will become harder and harder to retrieve the position. The suggestions put to me for fixing it include removing the annual allowance tapering. When I spoke during the urgent question earlier this month, a number of consultants from across my local trust and Poole and Southampton contacted me. They are pleased that the consultation, which I am sure my hon. Friend the Minister will say more about, is imminent, but what they fear from that is that the 50:50 fudge will just not work. We need wholesale reform, and the taper really does need to be scrapped.

In addition, I ask the Minister whether it is worth considering removal of the annual allowance taper for public sector workers. Of course, that is a decision not for him but for the Treasury and for whoever is inhabiting No. 10 in a few weeks’ time—I may be well placed to influence that, or I may be not at all placed. The point is this. If we want to make the NHS a great place to work, why not provide a tax benefit to working for the public sector—one of the biggest employers in the world? That is food for thought.

Let me finish in the same way as I have tried to make the whole of my contribution this morning—with a real-life example from Hampshire Hospitals NHS Foundation Trust of what we are seeing at trust level. In Winchester, like everywhere else and as I have set out, the Royal Hampshire County Hospital, one of the three hospitals in the trust, relies on many doctors and other senior staff doing additional sessions over and above their timetabled work in order to fill gaps in the medical workforce. Locally, we have seen that especially in radiology, where the additional sessions are used for radiologists to review scans and write the reports about what they see. The reporting of scans is clearly required so that patients can be told what the scan shows and clinical staff can work with patients on the most appropriate treatment.

My good friend from the Scottish National party, the hon. Member for Central Ayrshire (Dr Whitford), whom we will hear from shortly, and I spent many hours in this Chamber when I was the Minister with responsibility for cancer, and I was extremely proud to get the 75% stage 1 or 2 diagnosis ambition into the long-term plan, as announced by my right hon. Friend the Prime Minister. That is critical: early diagnosis is cancer’s magic key, as has been said by me and others many times in this Chamber. If we are to get anywhere near realising that ambition, we have to have a functioning, improved and expanded radiology service. Any reduction in radiology and the diagnosis stage will have an adverse impact and make that ambition unattainable, in my opinion. I am reliably told by my local trust that it has seen the backlog of scans waiting to be reported growing each week over the last few months. That concerns me greatly. It is of course just one department—it is an area that I know a little about—but it is a sobering example and one that we simply cannot ignore.

I shall finish by saying that we must act. I have so much respect for this Minister, but we need the Treasury to take this issue seriously and we need the next Prime Minister to act. If we do not, it will only get worse. We need to grip it, and we need to grip it fast.

James Gray Portrait James Gray (in the Chair)
- Hansard - - - Excerpts

Despite his late arrival to the debate, I call Mr Paul Sweeney.

09:57
Paul Sweeney Portrait Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)
- Hansard - - - Excerpts

Thank you, Mr Gray, for your kindness in letting me participate in the debate. It is, as always, a pleasure to serve under your chairmanship. I apologise for my late arrival.

I congratulate the hon. Member for Poole (Sir Robert Syms) on securing the debate, and the hon. Member for East Renfrewshire (Paul Masterton) on also trying to press the Government on this matter. I have come to the debate because two consultants in my constituency came to me about this issue and I thought it important to communicate their views directly to the Minister. I hope that actions can be taken, because this is clearly a classic case of the law of unintended consequences.

One of those constituents, Dr Urquhart—the other was Dr Hepburn—wrote to me. Dr Urquhart has been a consultant in the NHS Greater Glasgow and Clyde area for nine years and is employed on a 48-hours-per-week, full-time contract, which includes being on call. He says that, following this change,

“I will have to drop the number of hours per week I work and also not take on any extra shifts which are paid…to cover rota gaps and waiting list initiatives which reduce the penalty to NHS GGC for waiting list breaches.”

In a sense, the change is penalising the efficiency of the NHS and introducing further costs to the health service that could be avoided. The consultant continues:

“Due to reduction in annual allowance for pension growth, the introduction of the tapering of the annual allowance coupled with the introduction of the 2015 NHS pension scheme, a growing number of doctors are facing four, five and six figure tax bills on top of their income tax and national insurance contributions. In my case this means that in the next year I expect a huge tax bill as in October 2018 I received a 10 year pay rise and will receive a large tax bill.”

He believes that it will impact on all consultants in NHS Greater Glasgow and Clyde and beyond.

It appears that the only way in which Dr Urquhart can avoid these large regular tax charges, which may amount to tens of thousands of pounds a year in addition to his income tax payments, is to reduce the hours that he works for the national health service. He fears that many of his colleagues will be forced to accept the same conclusion. He and his colleagues often go above and beyond to ensure that services can continue running safely and effectively, but there are limits to what can be reasonably expected of even the most dedicated doctors.

As a result of the current pension and tax regime, Dr Urquhart is effectively paying to provide additional services to the national health service. He hopes that these separate changes to tax and pension arrangements were an unintended consequence that was not appreciated when they were first introduced, that the resultant negative effects on the NHS workforce were unintended, and that the Treasury will undertake to correct them. Like many services, his department relies on consultants working regular overtime through additional programmed activities.

Unless the Government take action, many doctors like Dr Urquhart will be left with no option but to reduce their working hours significantly. Other consultants in the national health service in Glasgow are being advised to take early retirement to avoid these taxes. That will exacerbate an already acute workforce crisis in NHS Greater Glasgow and Clyde and seriously jeopardise the sustainability of the national health service. The impact on Glasgow’s Queen Elizabeth University Hospital —the largest medical facility in Europe—alone must not be understated. The topic is frequently discussed by his colleagues, many of whom feel the same.

I hope that the Minister will take cognisance of the issues raised by many consultants and the British Medical Association. Fundamental reform of the tax issue, particularly by scrapping the tapered annual allowance, is urgently required to prevent a workforce crisis. I hope that he will recognise the scale and immediacy of the risk to the national health service and that he will undertake to take our representations back to the Government and ensure that the problem is rectified as a matter of urgency.

10:01
Philippa Whitford Portrait Dr Philippa Whitford (Central Ayrshire) (SNP)
- Hansard - - - Excerpts

I declare an interest: I spent more than 30 years as a consultant in the NHS and am married to a GP, so naturally the issue affects us. However, it also affects many of our colleagues.

The first thing to hit was the lifetime tax allowance changes. In my husband’s practice, I saw GPs being driven out at the age of about 57 or 58. They had had no intention of retiring early, but they had been warned in their annual meeting with their accountant that, because of the taper, they would suddenly reach a high marginal tax rate of well over 50%, which naturally is not very attractive. The result, exactly as other hon. Members have laid out, is that we are losing the people with the most expertise—the people who train the new people.

It is important that we do not get carried away into thinking that the NHS is about machinery, buildings or gizmos and gadgets. Every one of those gizmos and gadgets is used by a person. It is people in the NHS who care for, treat and diagnose people. If we do not have the workforce, all the waiting times that we like to stand up and talk about will be completely shot. The workforce issues that all four UK nations face are being made worse by these problems.

Many people may think, “A £1 million pension pot allowance? What a great problem to have!” It is a great problem, but the difficulty is that in general practice, GPs reach a high salary quite early, unlike in a hospital where becoming a consultant takes 15 or 16 years, so people have taken out added years and bought extra service. Because we graduate late, it ends up being very difficult to work for 40 years and have a half-salary pension. We thought about buying added years—we looked at it twice, but we could never afford it.

It is the same issue that arose with the Women Against State Pension Inequality Campaign and with Hewlett Packard, Magnox and all the others: people are expected to commit to a pension in their early 20s, but when they get to the other end, the goalposts have moved. It hits them when they can do nothing about it but bail out—and that is what they are doing.

The lifetime tax allowance limit has already driven out consultants and GPs before the age of 60, but what makes the problem much more acute is the tapering annual tax allowance. As we have heard, it was introduced in 2010 at more than £250,000 to avert tax avoidance and gaming of the system. Senior medics in the NHS are probably the highest-paid people who do not run a business. They are on pay-as-you-earn, so they cannot play the game of writing off this, that and the other or paying themselves in weird ways; they just get their payslip, and the tax is taken. They are not in the tax avoidance game that was perhaps thought of when the taper was introduced. The commercial sector is defined contribution, not defined benefit; it is how the limits interact with the NHS, and probably other public service schemes, that causes the problem.

The annual allowance was reduced to £50,000 in 2011 and then to £40,000 in 2014. For those caught by the taper, the allowance can go right down to £10,000. The threshold is £110,000—not £150,000, which was the impression that the Chancellor gave at Treasury questions on 21 May. People hit a cliff edge, as hon. Members have highlighted: all of a sudden, they are caught in a system where they are taxed over and over on the same income. It particularly affects consultants, who are paid about £110,000 or more, and full-time GPs.

Those who have been caught out and hit by these bills are now talking to their colleagues. The result is that people are refusing promotion and refusing to take on the extra duties that are required in the NHS, such as becoming an education director, a manager of junior doctors or a clinical lead, because anything that could bring in extra income for extra work could suddenly push them over the threshold. Doctors cannot see in advance whether they will be hit, so they cannot manage things over the year.

Some of the bills that arrive have been absolutely horrendous. The average bill is £18,500, but many are getting towards £100,000. No one has that kind of amount lying around in their bank account, however much they are paid. Even trying to pay the bill has caused terrible problems. People are paying it either from already taxed income or by taking a loan on which they will have to pay interest—or they are using scheme pays, borrowing from their pension pot to pay off their bill and then having to pay the money back at non-commercial rates. That still reduces their final pension pot, because the money has technically not been in it for the same length of time.

Robert Syms Portrait Sir Robert Syms
- Hansard - - - Excerpts

A BMA consultant told me that an actuary has done some modelling and found that the penalties are so severe that somebody who works 48 hours a week and has to borrow money from their pot at the end will have a lower pension than someone who works 24 hours a week.

Philippa Whitford Portrait Dr Whitford
- Hansard - - - Excerpts

I thank the hon. Gentleman for securing the debate and for making that point. I have not seen that actuarial working, but it highlights how completely bonkers the scheme is. People are trying not to do anything extra; they are doing everything to stay below the threshold, because once they are over it, they get sucked into a Kafkaesque spiral that pulls them down to ridiculous levels.

Another problem for GPs in England is that they are not getting their pension statements because of issues with the system; I think Capita runs it at the moment, and we know how well it runs some of the other services that it has been asked to manage. Non-pensionable income is counted, which seems very weird for pension tax allowances. The notional growth in someone’s pension pot is also being counted as income. I am sorry, but income is income; it is what someone earns or receives, not what might be sitting in their pension pot for them to gain in 10 years. All these problems are catching doctors out, because they cannot see them. As they have begun to suffer, all they can do is ensure that they stay below the threshold.

The former junior Health Minister—the hon. Member for Winchester (Steve Brine), with whom I have spent many hours in this Chamber—highlighted the fact that 80% of people affected will change practice. That is leading people to refuse anything that will lift up their income—not only promotion and extra duties, but extra sessions. Many of those who are in their early to mid-50s are talking about retiring, which would be cataclysmic. The survey that he mentioned shows that some 30% are already considering doing so.

Between six and seven years ago, we were suddenly hit with a doubling of our pension contributions—from about 6% to about 14%—which meant that my take-home pay went down. Here we are, six or seven years later, being punished because our pension pots are too big. It is completely bizarre.

The problem is that we cannot afford for those who are affected to retire. Every time we discuss workforce, we talk about recruitment and retention. These people are the ones who will train the new recruits, and we need to hold on to them. As has been mentioned, the measure is not devolved but its impact is devolved in health. Only this place can sort out the pensions mess.

I am really disappointed that we do not have a Treasury Minister listening to this debate, and I hope that at some point we will have a debate to which a Treasury Minister responds. The Minister for Health, who is here today, will have to gather our comments and take them to the Treasury, and we would rather communicate directly with the Treasury. This issue has to be sorted, or there will be an absolute workforce meltdown within the next two years.

10:10
Anneliese Dodds Portrait Anneliese Dodds (Oxford East) (Lab/Co-op)
- Hansard - - - Excerpts

I congratulate the hon. Member for Poole (Sir Robert Syms) on securing this important debate, and I underline the fact that I am a shadow Treasury Minister responding on behalf of the Opposition.

We are here today to discuss the impact of changes to allowances on tax relief on pensions specifically in regard to NHS pensions. As people in this Chamber will know, in 2016-17, an estimated £38.6 billion in tax relief was provided on contributions to approved pension schemes; obviously that is the overall figure and does not cover just those who work for the NHS. It is a very substantial amount of relief.

As I am sure Members will also know, the last Labour Government introduced the annual allowance and lifetime allowance back in 2006. The annual allowance was initially set at £215,000 and the lifetime allowance at £1.5 million. Since then, as other Members have discussed, we have seen gradual reductions. Under the coalition Government and the Conservative Government, the lifetime allowance was reduced from £1.8 million to £1.5 million in April 2012, then to £1.25 million in 2014, and to £1 million in April 2016. It has actually floated up a little bit with inflation up to 2019-20, when it will be—as has been mentioned—£1,055,000. There has been a similar trend with the annual allowance, which was reduced from £255,000 to £50,000 in April 2011 and it then went right down to £40,000 in 2014.

Of course, the particular changes that we have focused on today are around the interaction of all of these measures with the taper, which George Osborne introduced in the summer Budget of 2015. From April 2016, the annual allowance would be tapered at a rate of £1 for every £2 of taxable income, including pension benefits and not subtracting employee pension contributions, received over £150,000 in adjusted income, going right down to £10,000 for those with an income of more than £210,000. As has also been mentioned, that final change affects those people whose pay is more than £110,000 a year, excluding pension benefits and employee pension contributions, and who see an increase in their pension benefits of more than £40,000 in a given year.

As my hon. Friend the Member for Newport West (Ruth Jones) said, and the hon. Member for Central Ayrshire (Dr Whitford) underlined, all that obviously amounts to a considerable number of changes in a very short time. So we have seen the tax treatment of pensions for all high-paid workers changing very substantially, indeed in a way that they probably could not have envisaged when they first joined their pension scheme. The hon. Member for Central Ayrshire was right to indicate the parallels between this situation and what has happened to several other groups of taxpayers.

I see that the Minister is kindly scribbling things down at the moment. I hope that he will pass on to his Treasury colleagues that it is simply unacceptable if, at the very least, these taxpayers do not receive adequate information about what their liabilities will be. I was deeply concerned to hear from the hon. Member for Central Ayrshire that, for example, people are not receiving their pension statements. Surely that is the very minimum that is required.

On principle, it is surely necessary for the pension allowance to decline gradually for those people who earn very high incomes. It is fair, and consistent with other core principles of our tax system, that tax charge exemptions should be reduced for people who have very high incomes. However, there is of course the issue about the interaction of that system with other pension schemes, especially the NHS pension scheme, and given the fact that we have a very tight labour market for those in the NHS with substantial expertise. As has been mentioned, about 30% of doctors earn £110,000 or more, and nearly 10% earn more than £150,000. Clearly, this group of staff are the people who have the necessary expertise, as has also been mentioned a number of times.

I am aware of course that official representations have been made on this issue. We have heard what has been stated by the British Medical Association and the British Dental Association, and I think that the polling to which the hon. Member for Winchester (Steve Brine) referred was very interesting in that regard. It was also helpful to hear from my hon. Friend the Member for Glasgow North East (Mr Sweeney) about the impression that he received from his local NHS trust about what is going on.

When we consider this issue, it is very important that we do not just talk about tax treatment; we must also consider how it inter-relates with what is a very complex NHS pension scheme, one that, as I understand it, was not fully consulted on with representative organisations when it was introduced.

As has been mentioned, we now have three different schemes, and my hon. Friend the Member for Newport West indicated how working out how these schemes relate to each other and how that will impact on tax outcomes is very difficult for individuals. As the hon. Member for Poole rightly said, the impact of these changes—related to this combined test of both the threshold and the annual income, plus the taper—makes it very difficult for individuals to work out what their liability is without any kind of professional help. Of course, that professional help is also expensive.

We need to look at NHS pensions, and I hope that it will be possible for the Minister to take that issue away and discuss it with his Treasury colleagues. However, I will just say to those in this Chamber that, as well as talking about the problems for high-paid NHS staff, we of course also need to look at the issues for low-paid NHS staff. The pension situation is quite concerning for them. The annual report on retirement by Scottish Widows indicated that overall one in five young people are saving nothing for their later life, and many of those people who are working in our NHS on low pay have opted out of pension schemes, because they feel that they need the cash now to make sure that they can make ends meet.

A freedom of information inquiry in 2018 found that more than 245,000 workers from across the NHS in England had opted out of the NHS pension scheme in the previous three years. A lot of those were low-paid workers, so that is enormously concerning. Although I agreed with much of what the hon. Member for Winchester said, I do not agree with him that the levels of resource currently being considered by his Government will be adequate in the future.

Let us consider the current situation. We obviously have the cumulative impact of the pay cap over many years. The Government finally saw sense on that, but it took them a long time to do so. There are also groaning waiting lists, extended waits for accident and emergency, and the rationing of NHS services, with many procedures no longer being offered by the NHS. Until we see a change in that situation, it will be difficult for many of us to argue that the NHS is heading in the right direction resource-wise.

I know that the Government have made a commitment to improve funding in the future, but the Opposition continue to believe that that commitment is not sufficient.

Steve Brine Portrait Steve Brine
- Hansard - - - Excerpts

My point was that the NHS long-term plan has been significantly funded, with record funding, which, for the record—seeing as the hon. Lady has gone there—is significantly more than was promised by the Opposition. Yes, other resources will be required, around public health for instance, and around the people plan, but perhaps the hon. Lady can tell us what Labour’s fiscal promise is to the NHS, and how it will be paid for.

Anneliese Dodds Portrait Anneliese Dodds
- Hansard - - - Excerpts

Absolutely. I am grateful to the—

James Gray Portrait James Gray (in the Chair)
- Hansard - - - Excerpts

Obviously, in the context of the debate.

Anneliese Dodds Portrait Anneliese Dodds
- Hansard - - - Excerpts

Great. I will keep it within the context of the debate as much as possible, because in fact this debate is around taxation—

James Gray Portrait James Gray (in the Chair)
- Hansard - - - Excerpts

Order. The hon. Lady will not keep it within the context of the debate “as much as possible”; she will keep it within the context of the debate.

Anneliese Dodds Portrait Anneliese Dodds
- Hansard - - - Excerpts

I certainly will, Mr Gray. Thank you.

As I was saying, this debate is broadly around the contours of the taxation system and how they affect high-paid workers in particular. I am sure that the hon. Member for Winchester is aware that Labour has a different approach from that of the current Government around progressive taxation. We set out our proposals at the last general education: we indicated how, by increasing the tax paid by the very best-paid workers, we would free up the resources that are necessary. I am sure that he has seen what Labour produced in that regard—in particular, we would not pay for the boost in spending that the NHS needs only through a short-term windfall, which in practice is what the Chancellor did, because all the commitments that the Government made to the NHS were as a result of lower than projected spending and higher than projected taxation receipts.

That is not a sustainable way to fund our NHS in the long run. Instead, we should look at the longer-term measures that are necessary, which is exactly what we have been doing.

We need to ensure that NHS workers on lower incomes can save properly for retirement, but we also need to look at the situation that has been the focus of today’s debate. We need to focus on the changes that were made in the 2015 pension scheme, and how they interact with the variety of alterations that have been made to tax release. It is especially important to do so in the context of staff retention, and I understand the comments that Members have made about that topic. We have a particular problem with NHS staff leaving their jobs early, which in my experience is not merely because of these issues, although of course they are important. When I talk to senior staff in the NHS, they also mention stress, a general lack of resource, having to deal with short-term changes such as operating theatres being closed because of a lack of staff, and so on. A whole variety of features is driving those retention problems.

Philippa Whitford Portrait Dr Whitford
- Hansard - - - Excerpts

I accept that there are many other issues, and obviously all four UK health systems are stretched because workforce is their No. 1 issue, but this problem comes on top of that. People who feel stretched—people who feel they have a terrible work-life balance, who are working late and so on—suddenly find that the extra sessions they do are costing them money. That is a final slap in the face.

Anneliese Dodds Portrait Anneliese Dodds
- Hansard - - - Excerpts

I am aware of that; for many, this issue can be the straw that breaks the camel’s back, especially when it is not anticipated.

I hope that the Government will look carefully at the impact of threshold effects, particularly cliff edges that lead to radical changes in the amount of tax paid, which is a significant problem with the UK tax system generally. The situation for incurring VAT is analogous to this one: small businesses are deliberately staying below the threshold because as soon as they go over it, they have to start paying VAT—not necessarily at a very high rate, but with all the bureaucracy and so on that comes with it. This situation is very similar: there is that cliff edge, where tax treatment suddenly becomes very different from what it was before.

In the long run, Government should aspire to learn from the best of what happens in other countries that have a more granular approach; where income is more tightly tied— and sometimes entirely tied—to tax treatment, so that as one’s income goes up, tax liability goes up stepwise. That seems a very sensible approach, but of course, getting there is a long-term aspiration. In the short term, I hope that the Minister—who I know is an open-minded person—will ask his Treasury colleagues to sit down with the experts and representative organisations, and talk to them about how these problems arise because of the interaction of the complex pension system with the complex treatment of tax release, so that there can be some kind of short-term fix with a view to, in the long term, having a much more rational approach to tax release on pension contributions.

10:23
Stephen Hammond Portrait The Minister for Health (Stephen Hammond)
- Hansard - - - Excerpts

As ever, Mr Gray, it is a pleasure to see you in the Chair for this important debate, and I congratulate my hon. Friend the Member for Poole (Sir Robert Syms) on securing it. It is a topic that the House has previously considered, when my hon. Friend the Member for East Renfrewshire (Paul Masterton) introduced a debate on the matter.

Colleagues should be reassured that the Government have been listening carefully to senior doctors and their employers. We recognise the actions clinicians are taking in response to their concerns about, and experience of, the annual allowance tax charges and how they are affecting frontline services. My hon. Friend the Member for Poole is right: although we are talking about tax changes for consultants, clinicians and GPs, the reason why this is so serious is that ultimately, if we do not get it right, it impacts on the quality of patient care. We all share that ambition to get it right.

Paul Sweeney Portrait Mr Sweeney
- Hansard - - - Excerpts

The Minister says that the tax changes are likely to have an impact on patient care. They are already having an impact; my constituent has said that he is seeing anaesthetic cancellations on theatre lists at his hospital in Glasgow, which have never been seen before in the NHS. He has had to resign as a foundation programme director, supervising junior doctors, to reduce the number of paid hours he does.

Stephen Hammond Portrait Stephen Hammond
- Hansard - - - Excerpts

Let me make it clear that not only are the changes having an impact, they are likely to continue to have an impact. I recognise that; the hon. Gentleman will hear later in my remarks that we recognise that point.

My hon. Friend the Member for Poole was right to talk about the long-term plan and the cash settlement that goes with it. He was also right, though, to mention that any plan will work only if it works: if we make sure the people delivering it can do so with the numbers and experience required. The hon. Member for Newport West (Ruth Jones), although she said she was not expecting to speak this morning, made a thoughtful speech and raised a number of issues from her direct experience that informed the debate.

My hon. Friend the Member for Winchester (Steve Brine) represents the place where I was born and spent my childhood, so for that and other reasons, I always listen carefully to what he says. He was right to stress at the start of his speech that this is not about tax breaks for particular people, although that is the headline; the reality is that perverse disincentives are being created against providing the care that we need. I listened carefully to the hon. Member for Glasgow North East (Mr Sweeney), who has just intervened on me to reiterate the point he made in his speech about the experiences of some consultants, and I recognise that those experiences are not unique to Glasgow North East.

The hon. Member for Central Ayrshire (Dr Whitford) always makes many informed remarks, given her experience. She made a point that perhaps has not been picked up, but is important in informing the debate: this is not just about losing a number of potential outpatient appointments and clinicians to service them, but about the impact on training. In many of the places that I have had the honour to visit as Health Minister, it is clear that the mentoring and support provided by senior staff to more junior staff is an important contribution, not only to the wellbeing of those junior staff, but to their education and, therefore, to the benefit of patients. That is undoubtedly one of the consequences of what we are talking about today.

Philippa Whitford Portrait Dr Whitford
- Hansard - - - Excerpts

Obviously, senior clinicians are critical to clinical teaching, which is part of the work. However, as other Members have highlighted, consultants are refusing to take on the extra sessions involved in organising that teaching and running rotas for either junior doctors or medical students. Without that, it will just be chaos.

Stephen Hammond Portrait Stephen Hammond
- Hansard - - - Excerpts

The hon. Lady is right to make that point; as I said in my remarks about her speech, I recognise the impact on training. There is clearly concern that unless we address this matter, it will have a number of impacts, of which that is one.

The hon. Member for Oxford East (Anneliese Dodds), speaking for the Opposition, rightly opened her remarks by pointing out the scale of the cost of tax release for pensions to the Treasury. She made valid points about doctors’ knowledge about that liability, and about the interaction of core tax principles with particular schemes. I was rather hoping that she would also welcome the long-term plan and the cash settlement, but I suspect that element of unity was probably a step too far.

As my hon. Friend the Member for Poole may have mentioned at the beginning of his speech, we have fewer Members here and a lower number of contributions. However, those contributions, combined with some of the interventions, have meant that we have had a debate of high quality.

Needless to say, I have heard the representations from everyone in the Chamber. It will not surprise anyone that I have received, as has the Department, representations from NHS employers reporting exactly what we have been discussing—that consultants are increasingly no longer willing to work additional sessions. The lost capacity is clearly difficult to replace, especially in some clinical areas where there are already shortages, and it can be expensive, as employers can pay a premium for locums to fill the gap. It is obvious and right that where there is evidence of an impact on the delivery of services, the Government should be prepared to take action.

At the outset, I reiterate that the Secretary of State and I take seriously the concerns of doctors. That is why we have been involved in a number of discussions with the Treasury, which has resulted in the 50:50 flexibility and the consultation. I will come to that in a moment, but, as Members will hear as I develop my remarks, that will not be the end of our conversation with other Departments.

Looking at the case for pension flexibility, it is true that outside public service, employers in some cases have flexibility to adjust benefit packages to allow high-earning employees to target a lower level of pension saving and so reduce the potential for large regular annual allowance tax charges. That flexibility is not currently present in the NHS. The NHS pension scheme does not allow any flexibility over the level of pension growth. Staff who participate in the scheme must pension all regular earnings from their employment. The Government are right to take the view that it is important to ensure that staff have a good level of pension savings, but senior clinicians, particularly consultants and GPs, have a unique degree of flexibility over their workloads and obviously can reduce their commitments. Consultants can reduce the number of additional sessions undertaken, and many GPs are self-employed. That can create incentives for clinicians to seek to control their income and pension growth by limiting or reducing their NHS work to avoid breaching their annual allowance. As a number of Members have discussed, that clearly has an impact on the delivery of patient care.

It is clear that retaining and maximising the contribution of our highly-skilled clinical workforce is crucial to the NHS and the long-term plan for the NHS. While any pension tax regime should seek to achieve the fiscal ambition of distributing pension saving incentives fairly, it has to be recognised that, in combination with the fixed structure of the NHS pension scheme, that could produce—listening to the evidence today and the evidence I have directly received—unintended consequences for service capacity and the delivery of patient care. The Government are prepared to change the rules to give clinicians more flexibility.

Alongside the publication of the “Interim NHS People Plan” earlier this month, my right hon. Friend the Secretary of State announced our intention to consult on new flexibility for clinicians. The consultation will be published in the coming days—I hope very shortly—and will set out proposals for a 50:50-style option, offering 50% pension accrual and halved contributions. Earlier this year, as part of the new five-year GP contract, the BMA and NHS England asked the Government to consider introducing that option. While I recognise that the BMA has not been unequivocal in its support, it has welcomed the proposal as a step in the right direction.

The Government believe that a 50:50 option balances the benefit of flexibility with the fiscal impact to the Exchequer. The 50:50 option will allow clinicians to build up their pensions more slowly and at a lower cost. Clinicians will still need to make their own personal assessment as to whether their financial interests are best served by taking advantage of the 50:50 model or continuing with full-rate accrual, but I have heard—not necessarily in the debate today, but directly from a number of consultants—that the 50:50 option is not flexible enough and that other measures should be considered.

The new pension flexibility should be viewed as a positive development for clinicians. My hon. Friend the Member for Winchester mentioned that he has asked me about the consultation period on the Floor of the House and that he has spoken to consultants about it. The consultation will be an opportunity to listen to a range of views before any final proposition is agreed. I encourage all Members here today to encourage their local clinicians to take part in that consultation. Equally, I encourage anyone from the health system in its widest context to take note of the debate and take part in the consultation. We want not only to hear any suggestion that there is a generic case for tax changes, but to listen carefully to what clinicians say using their own personal examples to provide evidence for any change they seek.

Steve Brine Portrait Steve Brine
- Hansard - - - Excerpts

Is the consultation discussing the merits or otherwise of a 50:50 option, or is it genuinely open to discussion about whether that option in itself is a good idea? As I said in my speech, the initial responses I have seen have not broadly welcomed, to put it politely, the idea of 50:50.

Stephen Hammond Portrait Stephen Hammond
- Hansard - - - Excerpts

The consultation is both. I recognise, as I said a few moments ago, that the 50:50 option has not received unequivocal support from the BMA, but to its great credit, it has asked us to consider that. We have come forward with this proposal. The BMA has welcomed it, but has said that it would want to discuss further options for flexibility and other pension matters. We have said that the consultation will look at the merits of the 50:50 option—or question it—but we will rightly open up that consultation to other suggestions. My hon. Friend will have just heard me say that I hope Members will encourage their local clinicians to use the consultation as a way of expressing their concerns about the 50:50, if they have any, and to express their views on other measures they would like to see introduced in terms of pension contributions. I stress that point again in response to his intervention. He will probably be interested in my next set of remarks, which are on flexibility.

Although the 50:50 option provides a new flexibility, we recognise that it does not provide unlimited flexibility for clinicians to target their own personalised level of pension growth and contributions. The financing model for the scheme means that any flexibility that reduces contribution income has an immediate fiscal impact on the Exchequer. The 50:50 option does not set aside the annual and lifetime allowance tax policies, but will give clinicians a new flexibility to manage their pension growth.

Where 50% accrual reduces pension growth by more than they wish, clinicians can use the contribution savings from the 50:50 model to buy additional pension to customise their own pension growth incrementally. Additional pension can be purchased in units of £250. That clearly adds some flexibility to their ability to manage their own contributions. However, some clinicians may continue to experience annual allowance tax changes, even with accrual rates reduced to 50%. For that group, while 50:50 reduces the charge, it does not eliminate it. We recognise that a number of individuals may wish to target a lower level of pensions growth. We will listen carefully to that suggestion through the consultation.

Philippa Whitford Portrait Dr Whitford
- Hansard - - - Excerpts

Is the Minister suggesting that senior consultants in three pension schemes sit and manage whether they are going to use the 50:50 or add in top-ups? That creates a whole job for people who work often 50 to 60 hours a week doing the thing that they are actually meant to do; it would give them almost a side job to try to manage their pension. Could we not go back to something simpler, whereby they get their payslip with a fair amount of pension tax taken off, but not what is happening at the moment?

Stephen Hammond Portrait Stephen Hammond
- Hansard - - - Excerpts

I have listened carefully to what the hon. Lady has just said, and she will want to listen to my next remarks, but I think she will reflect on the fact that a system of annual and lifetime allowances has been in place for some time. They were first introduced by the previous Government, although there have been some changes. Whether or not she thinks it would be better to have an even simpler system, some people will have recognised over time that it is important to look at their own pension contributions. Although tax relief on pensions is one of the most expensive reliefs, and the NHS pension scheme is rightly one of the better schemes available, I absolutely recognise that annual allowances and negative tax rates have a huge impact on some clinicians and consequently on the services for patients.

Consultants have raised with me the issue of the tapered annual allowance that Members have spoken about. I have been asked why the taper threshold is currently set at £110,000, which cuts across, as many people have pointed out, the typical earnings of an NHS consultant, although some people might perceive £100,000 as a high level of income. Unsurprisingly, tax policy is not something that I can speak to, but I have asked the Treasury and it advises that the threshold income test is designed to ensure that only those on the highest incomes can be affected by the annual taper. In the Treasury’s opinion, the £110,000 threshold balances the desire to restrict the annual allowance taper to those on the highest incomes, while trying to minimise the reduction in the value of the individual’s annual allowance.

I have also been asked why the annual allowance taper calculation takes into account both pensionable and non-pensionable earnings. Again, with the obvious proviso that I cannot design tax policy, the Treasury advises that if non-pensionable pay is excluded from the annual allowance taper calculation, there is the possibility that an unscrupulous employer could reclassify some pay as non-pensionable. To ensure fairness, the Treasury includes all sources of income in the taper calculation. However, hon. Members will not be surprised to hear that I think the concern about unscrupulous employers is not one that applies to the NHS. I recognise the issues raised by hon. Members on behalf of their consultants with regard to the taper threshold, and I am grateful to the Treasury for the discussions we have had, which have resulted in the 50:50 flexibility, but I can assure hon. Members that that discussion has not concluded. We rightly recognise that other pension issues need to be resolved.

I am grateful that the Treasury continues to engage with concerns about the taper threshold and how it impacts upon the workforce. I am happy to assure hon. Members that the Department intends to continue having discussions so that the matter can have a resolution that we hope will sort the matter out in an equitable and fair way, and not only for tax principles. We want to ensure that the dedicated staff working in the NHS feel valued and understand that they will not be penalised through the creation of perverse incentives so that they do not do what we want them to do, which is to provide excellent patient care.

In closing, I again thank my hon. Friend the Member for Poole for raising this important issue. I hope that I have been able to do three things: first, show hon. Members that the Department and I as the Minister responsible for people in the health system recognise the concerns raised by hon. Members on behalf of their consultants. The issues have also been raised with me directly. Secondly, I hope people will recognise that the 50:50 option is an important first step in looking at issues associated with lifetime contributions. I urge hon. Members to encourage their consultants to use the consultation. Thirdly, I recognise there are still issues around the taper threshold and the annual allowance, and I give the Chamber a commitment that the Department will continue to discuss with the Treasury ways in which we might be able to resolve those matters. I conclude by reiterating how important the debate has been this morning.

10:46
Robert Syms Portrait Sir Robert Syms
- Hansard - - - Excerpts

The lifetime allowance and the annual allowance have not created the crisis. The reduction in the limits has not created the crisis. If all we had at the moment was an annual allowance of £40,000, or a lifetime allowance of just over £1 million, the NHS would be living with that. What has caused the problem is the taper, and the taper’s impact on the way in which people do their business. Initially, it is changing behaviour. If it is not fixed, it will do real damage to the NHS. I know the Department of Health understands that and I hope the Minister will make representations to the Treasury. If he gets moved and promoted soon, perhaps he will leave a note to his successor and send a note to the Treasury saying that unless they fix it soon, the cost of fixing it for taxpayers and for patients will be far higher. I thank everyone for contributing.

Question put and agreed to.

Resolved,

That this House has considered NHS pensions, annual and lifetime allowances .

10:47
Sitting suspended.