Taxation of Pensions Bill
David Gauke Excerpts(9 years, 5 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
This may not be the most prominent Treasury matter gripping the nation today, but as the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said, it is none the less an important Bill and I am grateful for the opportunity to make further progress and respond to this debate.
New clauses 1 and 2, tabled by the hon. Member for Kilmarnock and Loudoun, require the Treasury to publish two reviews of the impact of the Bill. The first review would focus on Exchequer revenues, including the use of salary sacrifice arrangements, income tax receipts and national insurance contributions. The second review would include the distributional impacts by income decile of the population of the pensions flexibility measures; the impact on Exchequer revenue of measures contained within schedule 2, which makes various changes to the taxation of pensions at death; a behavioural analysis; an analysis of the cumulative impact on Exchequer revenues; and an analysis of the impact on the purchase of annuities. An amendment has been tabled by the hon. Member for Arfon (Hywel Williams), which would, as we have heard, require the Government to undertake an analysis of the impact of the changes introduced in the Bill on the housing market.
I would like to explain—I suspect this will not come as a huge shock to hon. Members—why the new clauses are unnecessary. There are a number of reasons. First, on considering new clause 1 and the parts of new clause 2 that relate to Exchequer revenues, it is important to note that the Government have today published estimates of the Exchequer impacts of the policy as a whole. These costings, which have been certified by the independent Office for Budget Responsibility, cover all the changes we have made to the policy since Budget as a result of consultation. I know hon. Members have been concerned about the potential consequences for the Exchequer of the new freedoms. The Government published costings at Budget. I have been clear that we would update the costings to reflect the policy decisions that have been taken since then. A great deal of the debate has rightly focused on that issue.
The Government have taken a number of policy decisions since pension flexibility was announced in March. Those decisions are: introducing a £10,000 annual allowance for those who have flexibly accessed a pension pot of more than £10,000; changing the rules on the taxation of pensions at death; and continuing to allow transfers out of funded defined benefit schemes. Today, as part of the autumn statement, the Government have also confirmed that the notional income rules for assessing eligibility for means-tested benefits will be more generous by assuming that unspent pension savings generate the same income as an annuity, rather than 150% of an annuity as at present. Of course, not all of these measures are contained within the Bill, but I believe that they are relevant to any debate on the fiscal impacts of flexibility. To ensure the Government are being sufficiently transparent, I have today taken the step of writing to members of the former Public Bill Committee to set out further details of the costings. I will now outline those costings to the House.
At Budget 2014, the Government published costings that stated that freedom of choice would cost the Exchequer minus £5 million in 2014-15, and from then on would raise money: £320 million in 2015-16, £600 million in 2016-17, £910 million in 2017-18, £1.22 billion in 2018-19, and £810 million in 2019-20. The overall impact of decisions taken since the policy was announced in March does not significantly alter the numbers published at Budget. As set out in my letter to the Committee and in table 2.1 of the autumn statement document, the decisions I have just described will have the following Exchequer impacts: they will raise £60 million in 2015-16, cost £25 million in both 2016-17 and 2017-18, raise £30 million in 2018-19, and cost £10 million in 2019-20. Further detail on how those costs have been calculated is set out in the policy costings document, which has been published today alongside the autumn statement.
In my letter to Committee members, I explained that the costings published today as part of the autumn statement were based on the same central assumptions that underpinned the costings published at the Budget. Since the Budget, the Government have explored in more detail two aspects of the policy affecting the costing: the increased costs of salary sacrifice and welfare as a result of the reforms—two points that the hon. Member for Kilmarnock and Loudoun dwelt on. The Government have produced these costings and they have been scrutinised by the OBR.
In line with standard practice, these are accounted for as changes to the forecast and so are not outlined in table 2.1 of the autumn statement document. In recognition of the concern raised by Members about the likely impact on the Exchequer, I included the Government’s estimate of the costs in my letter to the Committee, but I will set them out again to the House. The revisions to the forecast to account for salary sacrifice are: minus £5 million in 2014-15; minus £35 million in 2015-16; minus £30 million in 2016-17; and minus £25 million in 2017-18, 2018-19 and 2019-20. The revisions to the forecast to account for the increased cost of welfare are: minus £10 million in 2015-16; minus £15 million in 2016-17; minus £20 million in 2017-18; and minus £25 million in 2018-19 and 2019-20.
The Government have, therefore, already published the information the two new clauses seek on the Exchequer impacts of the various aspects of flexibility, and all that information has been certified by the independent OBR. In addition, the Government have already committed to keeping the policy under review, through the monitoring of information collected on tax returns and tax records, and HMRC regularly publishes data on tax receipts reflecting any impact on the Exchequer. Any such impacts will be reflected in forecasts at fiscal events.
The Government keep tax policy under continual review. There is no need for further reviews of the Exchequer impacts of the policy, because the Government have already committed to keeping them under review through usual processes, and I hope that this will reassure hon. Members regarding the fiscal impacts of measures in the Bill and related policies. At the very least, I hope hon. Members will appreciate that, given this debate has occurred after the autumn statement, I have been able to provide some of the answers the hon. Member for Kilmarnock and Loudoun was seeking in Committee.
New clause 2 would also require the Government to review the distributional impact of the measures in the Bill no less than 18 months after the Bill takes effect. As I set out in Committee, the measures in the Bill do not have a direct consequential impact on household incomes. Distributional effects will be driven by the choices individuals make about how and when to take their pension. In addition, household income is not necessarily a reliable measure of pension wealth, particularly in the years immediately prior to retirement. The impacts of the policy could be misrepresented were we to review them only against the distribution of household income. I appreciate I made that argument in Committee, but it was a good argument then, and it is a good argument now.
In addition, new clause 2 would require the Government to publish behavioural analysis. As discussed in Committee, the costing of tax policies often involves an assessment of the behavioural impacts of the measure and, in some cases, the capacity for additional tax planning and avoidance behaviour. These assumptions and methodologies are certified by the independent OBR, but the Treasury considers that making these detailed behavioural assumptions public might affect the behaviour they relate to and so could be detrimental to policy making.
As I mentioned in relation to the Exchequer impact of the changes to the taxation of pensions at death, a policy costing note published alongside the autumn statement explains how the costings have been calculated. This is in line with the principles outlined in the Government document, “Tax policy making: a new approach”, published alongside the June 2010 Budget.
New clause 2 would require the Government to review any impact the measures in the Bill might have on the volume of annuity purchases. Considering the policy intent of the changes, this would be unnecessary and inappropriate. These measures are not intended to encourage savers towards or away from any particular product over another. They are intended to offer savers greater choice and flexibility about how they use their hard-earned savings to fund their retirement.
Ian Swales
Does the Minister recognise that the point at which many people draw their pensions, particularly the lump sum element, is the very point at which they might wish to help their children get into the housing market, and that we should not do anything to prevent that?
Mr Gauke
My hon. Friend makes an important and relevant point. We are putting power in the hands of individuals to decide what they do with their retirement pension pot. We are also ensuring—I shall touch on this in a moment—that guidance is available. It may well be that after careful consideration, people conclude that they do want to assist a family member to get into the housing market. That is a choice for them, and I do not think that we here should necessarily condemn such a choice: it might be precisely the right thing for people to do for them and their family.
As part of the new regulatory framework for financial services, we have introduced the Financial Policy Committee, as I was saying, and we have given the FPC strong powers to tackle any threat to financial stability, including a broad power of recommendation, which it used in June 2014 to address risks stemming from mortgage lending and sectoral capital requirements that apply to residential mortgage lending. The Government have consulted on granting the FPC powers of direction over macro-prudential tools for the housing market and aim to legislate for these new powers next year. In line with the new regulatory framework, the FPC is best placed to monitor the housing market and take action, if required.
Let me pick some other points raised in the debate, most of which it would be fair to say were familiar. I was asked whether people would understand the tax consequences involved. The guidance will help consumers to understand the tax implications of their choice of pension, and in addition, the Financial Conduct Authority has published near final rules that will require providers to supply their customers with a description of the possible tax implications when they apply to access their pension funds.
On extortionate draw-down charges, the FCA’s retirement income market study will be published shortly. In June, the FCA expanded the scope of this study to include consideration of products in the new flexible landscape and to identify any competition risks and potential consumer detriment. The guidance guarantee will be relevant here.
It was suggested that people might be charged too much tax without realising it. As with all PAYE income, the tax position will be reconciled at the end of the tax year. All the income received by an individual that was taxed under PAYE will be brought together, and the correct tax will then be calculated. If there was an overpayment, the extra amount will be repaid, and if there was an underpayment, HMRC will contact the individual. People will not be subject to self-assessment solely because they have flexibly accessed their pensions, nor will they have to claim a refund in order to receive it.
I have already touched on the matter of how the new flexibilities will affect entitlements to benefits, but let me say now that the Government want to ensure that the choice that people make between taking their pensions as income—that is, purchasing an annuity and keeping more of their pension as capital—and drawing it down periodically, for example through a drawdown product, will not have a significant impact on how they are assessed for social care support and how their means are assessed for social security purposes. New regulations and statutory guidance on the Care Act 2014, which were published on 23 October, include details about the charging rules for care and support.
Today we announced a change in the rules for people above pension credit qualifying age who claim means-tested benefits. The notional income amount applied to pension pots that have not been used to purchase an annuity will be reduced from 150% to 100% of the income of an equivalent annuity—or the actual income taken, if that is higher—in line with the rules for care and support.
Let me now deal with an issue that was raised by the hon. Members for Kilmarnock and Loudoun and for Chesterfield (Toby Perkins). I shall not try to anticipate the response that my hon. Friend the Economic Secretary to the Treasury will make to the Adjournment debate that the hon. Gentleman will initiate later, but I can say that these matters are not being rushed. We have consulted extensively on the implementation of the policy, and there is widespread support for the changes. We are working closely with industry to ensure that it is ready for April 2015, and have been doing so since the announcement was made. We are making good progress in delivering the changes that are needed through both our Bills.
Toby Perkins
I realise that the Minister does not want to predict the outcome of a debate to which we all look forward with such interest, but will he tell us whether the taxation of pensions element of that debate could be considered during further stages of the Bill’s progress?
Mr Gauke
We are reaching the end of the Commons process, or at least I hope we are. We believe that the Bill delivers the reforms that are necessary to implement the policy announcement that the Chancellor made in the last Budget. We believe that these are good reforms, and we believe that the new flexibility in the pensions system is to be welcomed and will encourage greater savings. Let me add that some perceive Opposition Members’ desire for a review as the precursor of a possible reversal of these changes by the Opposition, were they to be in government. I would not like that to happen, and their proposals create a degree of uncertainty.
I hope that, in the light of the explanations that I have given to the hon. Member for Kilmarnock and Loudoun, she will not press her new clause to a Division, but if she does, I will certainly oppose it.
Mr Gauke
I beg to move amendment 1, page 37, line 37, after “arrangement”,”, insert
““nominee’s flexi-access drawdown fund”,”.
This Amendment, and Amendments 2, 3, 4, 5 and 6, insert two missing definitions into the amendments made by the Bill in each of the two subsisting versions of section 576A of the Income Tax (Earnings and Pensions) Act 2003.
Madam Deputy Speaker (Dame Dawn Primarolo)
With this it will be convenient to discuss Government amendments 2 to 39.
Mr Gauke
Amendments 1 to 8 are all of a minor and technical nature, amending various definitions and removing unnecessary sections. I would be happy to explain those in more detail if hon. Members are interested, but if they are not, I will move on to amendments 9 to 39.
As hon. Members will recall, we had a very useful debate in Committee about the new information requirements for individuals that are set out in part 6 of schedule 1 to the Bill. I said at the time that the Government were keen to work with industry and consumer groups to ensure that the requirements are proportionate, and that we would consider the issue further. We have therefore continued to have constructive discussions with the pensions industry about the impacts of the Bill. As a result of this ongoing consultation, we have tabled a number of amendments that we believe are a proportionate response to the concerns raised. These changes will make the reporting requirements that individuals need to meet easier to comply with, while still ensuring that they have access to the right information to help them pay the right amount of tax. Government amendments 9 to 39 therefore make a number of changes to the information requirements in the Bill to provide that individuals have to tell schemes that they have flexibly accessed their pension savings only if they are an active member of that scheme, and to increase the time they have to comply from 31 days to 91 days.
It might be helpful if I start by setting out why these information requirements are required. As we have discussed many times during the course of this Bill’s passage through the House, when an individual accesses their pension flexibly, their annual allowance for tax-relieved defined contribution pension contributions will reduce from £40,000 to £10,000. That will protect the Exchequer and ensure that the new system cannot be exploited to achieve unintended tax advantages by individuals’ diverting their salary into their pension and withdrawing it immediately with tax relief. It is therefore important that individuals understand the tax consequences of saving into a pension after accessing their savings flexibly. For that reason, the Bill placed a new requirement on individuals to tell all their pension providers once they had flexibly accessed a pension. This was intended to ensure that individuals do not use the new system to gain a tax advantage that is not intended. However, the Government have always been clear that they are keen to ensure these requirements are proportionate. Having considered the issue carefully, we are amending the Bill to provide that people need to tell only the schemes to which they are contributing or that they contribute to in the future. They will also have an extended period of 91 days in which to do so. These changes will make the new system easier for individuals and schemes to comply with, while also ensuring that the new annual allowance is implemented effectively. Again, I would be happy to explain these amendments in more detail if hon. Members are interested.
Ian Swales
I am certainly not asking the Minister to explain all this in a lot more detail and detain the House in doing so. One specific point raised in Committee was that people contributing to a workplace defined benefit scheme will not know how much of their annual allowance is being used in that scheme at the time when they are able to make contributions to a defined contribution scheme. Has he considered the possibility that such people could be treated—I think the Bill tends to do this—as though they are deliberately trying to avoid tax, whereas they may just have a lack of knowledge at the time they do this?
Mr Gauke
My hon. Friend makes an important point. There will be particular issues with defined benefit schemes. It may be that individuals do not know when contributions are paid by their employer. Where the scheme provides defined benefits only, the information requirement does not apply, and individuals will never need to notify it. If the scheme also provides money purchase benefits—for example, if it has a separate AVC section—the requirement can only apply where contributions are made to the AVC section. Defined benefit schemes are excluded as they will not have to send pension saving statements to the individual based on the £10,000 money purchase annual allowance. I hope that helps my hon. Friend.
Mr Gauke
I beg to move, That the Bill be now read the Third time.
The House has reached the final stage of its consideration of the Bill, which will give individuals more choice about how they access their savings in retirement. I have been pleased by our wide-ranging and informed debates.
I would like to remind hon. Members of the measures in the Bill and their aims. While the Bill makes the tax system fairer by ensuring that people have more choice about how they access their savings, it contains measures to prevent individuals from exploiting that new flexibility to gain an unintended tax advantage, and to ensure that the taxation of pensions savings on death remains fair and appropriate under the new system.
At Budget 2014, the Chancellor announced the most radical reform to how people take their private pensions for nearly 100 years. The current system restricts choice at the point of retirement. Those with the smallest and largest amounts of pension savings are allowed flexibility, but those with a medium amount of savings have very limited options. The Bill will change that by extending flexibility to everyone with a defined contribution pension, regardless of their total pension savings.
The Bill also introduces a new method to allow people to access their pension flexibly. At present, people taking their pension as cash have to take all their tax-free lump sum—25% of their fund—and then place the other 75% in a draw-down fund. Any money they then take out of that fund will be taxed at their marginal rate.
The uncrystallised funds pension lump sum—UFPLUS —is a new option that will give individuals the flexibility to take one or more lump sums from their pension fund without having to enter into draw-down or to take all their tax-free lump sum in one go. When using that option, 25% of each payment will be tax-free, with the other 75% taxed at the individual’s marginal rate. We are also increasing choice by introducing changes to encourage innovation in the retirement income market. Following extensive consultation with the industry, the Bill will give providers scope to make annuities much more flexible products in line with consumers’ needs. I have already discussed the fiscal impacts of those measures and related ones today, but I reiterate that the Government have now published Office for Budget Responsibility-certified costings for the policy overall alongside the autumn statement.
Mr Graham Stuart (Beverley and Holderness) (Con)
My hon. Friend will remember, as I do, that one of the first acts of the previous Labour Government on coming to power was to put a tax on pensions that helped to destroy the healthiest, strongest and most successful pension system in Europe. This Government, however, in much less promising economic times, have managed to bring flexibility and hope to all those who save for a secure retirement.
Mr Gauke
I am grateful to my hon. Friend for helpfully reminding the House of that important point. It is a significant achievement of the Government that we have been able to undertake such a fundamental reform—perhaps the biggest for nearly 100 years—in this area. Our record compares favourably with that of our predecessor. Of course, the Bill is part of a wider set of Government reforms, including the single-tier pension, the rolling out of auto-enrolment and the triple-lock guarantee.
Stephen McPartland
How many people will benefit from this pensions revolution?
Mr Gauke
Some 320,000 people retire each year with defined contribution schemes, and those people will now have far more choice. Of course, people who are saving for their pensions will know that at the end of their working life, or at various points after the age of 55, they will have more flexibility with regard to their pension pot.
I am grateful for the interesting debates that we have had during the Bill’s passage through the House and I would like to reflect briefly on how it has changed since its introduction. The Government's recently tabled amendment regarding how individuals inform schemes if the £10,000 annual allowance applies to them will provide that people only need to tell schemes to which they are contributing, or contribute to in the future, when they access a pension flexibly. They will also have an extended time period of 91 days in which to do so. These changes will make the new system easier for individuals and schemes to comply with, while ensuring that the annual allowance is implemented effectively.
The Government have made a number of minor and technical amendments to the Bill to ensure that it works as intended. The most substantive changes have been to the taxation of pensions at death, to ensure that that taxation remains fair and appropriate under the new system. The changes will allow individuals who die with pension funds remaining to pass those funds on to anyone they choose. The funds can be paid tax-free if the individual dies before the age of 75; if they die having reached that age, and the funds are paid out as a pension, they will be taxed at the beneficiary’s marginal rate—or at 45%, if the funds are paid as a lump sum. The aim of the changes is to ensure that individuals who have made sacrifices to save over the course of their life can pass on their pension savings without worrying about excessive tax charges after they die. They also preserve the incentive for people to keep money in their pension, as there will not be the fear of their beneficiaries being hit by a 55% tax charge.
Members may be interested to note that today, in the autumn statement, the Chancellor announced that the changes will extend to annuities. Death benefit payments from joint life and guaranteed term annuities will also be tax-free when the policyholder dies before the age of 75; such death benefits can be paid to any beneficiary. That will also apply when an individual uses uncrystallised or draw-down funds inherited from someone who dies before the age of 75 to buy a dependant’s annuity. Those changes will be legislated for in due course, although not through this Bill. In conclusion, the Bill is important. It will increase choice at retirement for individuals who have saved all their lives. It contains measures to prevent individuals from using the new flexibilities to gain unintended tax consequences, and ensures that the tax treatment of pensions on death remains fair.
Finally, I thank hon. Members who participated in debates on the Bill, both in the Chamber and in Committee. In particular, I would like to mention the diligence of the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who has, I think, accounted for significantly more than 50% of the time taken to scrutinise the Bill. As I said, the Bill increases choice for the 320,000 people retiring each year, and I commend it to the House.
Patent Boxes
David Gauke Excerpts(9 years, 5 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
As part of the base erosion and profit shifting (BEPS) project that this Government helped to initiate and have championed, the OECD has been considering preferential intellectual property regimes which include the UK’s Patent Box. Work by the OECD has focused on agreeing new rules on the level of substantial activities required for a preferential regime to be considered a tax relief that supports real economic activity and not to be considered “harmful”.
The OECD proposed a number of methods to determine substantial activity. While the UK and three other countries supported the “transfer pricing” method, a significant majority of OECD-G20 members supported the alternative modified nexus method. The UK expressed concerns about the modified nexus approach but in the interests of reaching agreement on this important issue, agreed to work with Germany to try to find a compromise position.
On 11 November 2014, the UK and Germany duly published a joint statement which outlined a compromise proposal to be put to the OECD-G2Q members at the forum on harmful tax practices (FHTP) and to EU member states at the code of conduct group. This compromise proposal adopts the main features of the modified nexus approach, but amends these in order to take account of previously expressed UK concerns.
The compromise proposal was presented to the FHTP at its meeting from 17 to 19 November, and to the code of conduct group on 20 November. The proposal was welcomed and will now form the basis of continuing work by the FHTP to determine how the approach will work in practice. As part of the agreement, countries with existing IP regimes must agree to close these to new entrants by 30 June 2016 and will abolish them by 30 June 2021, after which all countries will be required to operate only nexus-compliant regimes. The legislative process to introduce changes to existing IP regimes so that continuing IP regimes conform to the re-modified nexus approach will also begin in 2015. In line with the normal tax policy-making process, the Government intend to consult on these changes, once the FHTP has completed work on the detail of the new rules.
The changes that the Government have secured to the original approach proposed by the OECD will protect the interests of the UK as an excellent location for technology based businesses by retaining a competitive Patent Box regime, which will now align benefits more closely to research and development activity carried out in the UK. As such, the Government are confident that the new regime will continue to incentivise innovation and its commercialisation in the UK.
National Insurance Contributions Bill
David Gauke Excerpts(9 years, 6 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read the Third time.
We have reached the final stage of the House’s deliberations on the National Insurance Contributions Bill, and it is worth noting the broad, if not necessarily vociferous, support for the Bill across the House. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) has been vociferous and meticulous in her scrutiny of it, and I also thank external interested parties that have contributed to the consultation and to our deliberations. The Bill will make it easier for the self-employed to comply with their national insurance contributions obligations, while also making NIC avoidance harder.
Let me remind the House of the provisions in the Bill and what it seeks to achieve. Broadly, the Bill contains four measures: simplifying national insurance contributions paid by the self-employed; accelerating the payment to the Exchequer of NICs in dispute in avoidance cases and providing for the issue of follower notices where the scheme or arrangements have been shown to fail in another party’s litigation; applying new information powers and penalties to promoters of avoidance schemes; and introducing a targeted anti-avoidance rule—TAAR—to prevent people from circumventing new legislation tackling avoidance involving employment intermediaries and offshore employers.
At Budget 2014, the Chancellor announced that the Government intend to simplify the NICs collection process for the self-employed, who currently have to operate two different processes for two separate classes of NICs. This followed a 2012 recommendation by the Office of Tax Simplification and a consultation in 2013.
Two separate collection methods for class 2 and class 4 NICs cause confusion and extra work for both the self-employed and HMRC. The objective behind this measure is to modernise the way class 2 NICs are assessed and collected, making the system simpler and more straightforward and reducing administrative burdens on the self-employed. Class 2 NICs are currently collected via a flat rate charge of £2.75 per week paid through six-monthly billing or by direct debit, while class 4 NICs are a percentage charge on profits—of 9% between the lower and upper profits limit and 2% above the upper profits limit—paid through self-assessment alongside income tax.
The aim of clauses 1 and 2 and schedule 1 is to change the way in which class 2 NICs are structured; change the means by which class 2 NICs are collected by moving their collection into self-assessment, so that they can be collected alongside class 4 NICs and income tax; change the means by which class 2 NICs are enforced with changes to associated appeal rights to broadly mirror those for class 4 NICs and income tax; and make consequential changes to legislation relating to maternity allowance to allow women to continue to become eligible for it post-reform. These changes are proposed to take effect for the 2015-16 tax year onwards so that the collection of class 2 NICs under self-assessment will be from 6 April 2016. I wish to draw particular attention to the tax information and impact note published by HMRC about this measure. This indicates a very welcome net administrative burden reduction to the self-employed of £74 million over five years as a result of these reforms.
The provisions that deal with accelerating the payment to the Exchequer of amounts of NICs in dispute in avoidance cases also include providing for the issue of follower notices in relevant cases when the scheme or arrangement has been shown to fail in another party’s litigation. These provisions are contained in clauses 3 and 4 and schedule 2. The provisions on follower notices and accelerated payments in avoidance cases broadly follow, for NICs, new powers that are included in the Finance Act 2014 which allow HMRC to issue a notice—a follower notice—to taxpayers who have used avoidance schemes that have failed before the courts in another party’s litigation.
Sir Greg Knight (East Yorkshire) (Con)
On the subject of avoidance, when does my hon. Friend expect his Department to review the scope of the avoidance measures—after the Bill becomes an Act, as I am sure it will—bearing in mind human ingenuity?
Mr Gauke
The broader point is the fact that the Treasury and HMRC constantly review measures to deal with avoidance. My right hon. Friend is right to say that, human ingenuity being what it is, we have to be constantly vigilant, and the Government have closed some 40 loopholes over the course of this Parliament. We will keep the specific measures in the Bill, and more broadly the measures we have taken on accelerated payments and follower notices, under review, but we believe that the measures that we have taken to accelerate payments so that those involved in tax avoidance schemes are no longer able to benefit from a cash flow advantage will have a dramatic effect on the flow of tax avoidance through tax avoidance schemes. We are already seeing indications that fewer schemes are being marketed and fewer disclosures are being made under the provisions on the disclosure of tax avoidance schemes. Every indication suggests that this is a diminishing issue, but there is no place for complacency. The Government will continue to endeavour to take appropriate steps to deal with those who are seeking to defy the spirit of the law or make an interpretation of the law that has little justification but can involve HMRC in extended litigation.
I emphasise that the provisions in the Bill and the Finance Act 2014 are estimated to raise £5 billion in tax and NICs for the Exchequer. The House may find it helpful if I explain that a follower notice sets out HMRC’s view that a judicial decision in another case is directly relevant and that those who receive the notice should settle their disputes. If the taxpayer does not settle in response to the notice, they will face a tax-geared penalty if they are unable to show that their case is materially different from the other party’s litigation, or if they did not have reasonable grounds to continue the dispute.
An accelerated payment may be required from taxpayers in the following circumstances: where a follower notice has been issued and the taxpayer decides not to settle their dispute; where taxpayers are involved in schemes subject to disclosure under the disclosure of tax avoidance schemes or DOTAS rules: and where taxpayers have used arrangements that HMRC decides to counteract under the general anti-abuse rule or GAAR. For both follower notices and accelerated payments, taxpayers will have 90 days to make representations. There is no formal right of appeal against the notices or payments, but taxpayers can appeal any penalties. These measures are expected to lead to the issue of payment notices to around 43,000 taxpayers involved in avoidance schemes currently under dispute with HMRC over the period to the end of March 2016.
The provisions that apply new information powers and penalties to the highest risk promoters of tax avoidance schemes are also contained in clauses 3 and 4 and schedule 2. Hon. Members may be aware that I mentioned on Second Reading that the measure on promoters of avoidance schemes was first announced in Budget 2013 and the Government’s intention was to extend the measure to NICs at the earliest opportunity. This Bill affords that opportunity.
The Finance Act 2014 included legislation that allows HMRC to issue conduct notices to promoters of tax avoidance schemes and to monitor promoters who breach a conduct notice. This Bill applies the tax legislation to NICs so that the legislation operates as one unified scheme that covers tax and NICs. Monitored promoters will be subject to new information powers and penalties which will also apply to intermediaries that continue to represent them after the monitoring commences. The monitored promoter will be named by HMRC—the naming details will include information on why the conduct notice was breached—and required to inform its clients that it is being monitored by HMRC. Clients of monitored promoters will also be subject to certain obligations, which have a penalty for non-compliance, and extended time limits for assessments.
Other provisions apply a new targeted anti-avoidance rule to prevent people from circumventing new legislation, tackling avoidance involving employment intermediaries. The proposed TAAR is contained in clause 5. On Second Reading, I mentioned that the National Insurance Contributions Act 2014 strengthened existing legislation in respect of offshore employment intermediaries. That measure was specifically intended to address the non-payment of employer’s national insurance in the oil and gas industry involving the placement outside the UK of the employer of oil and gas workers who are working on the UK continental shelf.
The temporary labour market is quick to react to any legislative changes and to find new convoluted ways to reduce the amount of income tax and NICs that it would otherwise be liable to pay. Interested parties have indicated to HMRC that intermediaries involved in the facilitation of false self-employment may set up avoidance vehicles involving convoluted structures specifically designed to circumvent the legislation introduced in the National Insurance Contributions Act 2014. To dissuade such intermediaries the Bill includes a TAAR that would be similar to the tax TAAR included in the Finance Act 2014 for the same purpose—to deter NICs avoidance. The TAAR focuses on the motive for setting up the arrangements, namely the avoidance of NICs, and what they achieve—whether they result in less national insurance contributions being paid. In order that the tax and NICs TAARs operate as one, the tax TAAR and the corresponding provisions of the NICs TAAR will both take effect from 6 April 2014.
In conclusion, this is an important and necessary Bill. The modernisation of the way that class 2 NICs are assessed and collected will make the system simpler and more straightforward and will reduce administrative burdens on the self-employed. The Bill also includes a package of measures aimed at making activity that attempts to reduce the amount of NICs payable to the Exchequer harder to accomplish.
I thank hon. Members who participated in the debates on the Floor of the House as well as in Committee. The Bill is good for the self-employed and it makes NICs avoidance harder. I commend the Bill to the House.
Employment Allowance
David Gauke Excerpts(9 years, 6 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
Today I am announcing the latest figures for take up of the Employment Allowance scheme that came into effect in April this year.
The Employment Allowance allows businesses and charities across the UK to claim an allowance of up to £2,000 every year to reduce their National Insurance contributions (NICs). The allowance is part of the Government’s commitment to support small businesses: by reducing the cost of employment, the Employment Allowance will help small businesses seeking to grow by hiring their first employee or expanding their existing workforce.
Today I can confirm that take-up of the Employment Allowance has been very positive. The most recent HMRC figures to 5 October 2014 show that around 856,000 employers have benefited from the allowance. That represents around 68 % take up across the UK as a whole after only 6 months of the operation of the allowance.
In total around £900 million of employer NICs relief has been claimed by businesses through the allowance.
These latest figures demonstrate our commitment to increase employment by reducing burdens for small businesses and show that businesses have recognised this and are responding to Government policies in this area. I will update the House in due course about the Employment Allowance when more information becomes available.
The latest figures are available on HMRC’s website and, in line with the commitments made during the passage of the National Insurance Act 2014, a copy of this statement and the latest figures have been placed in the Libraries of both Houses.
I know that all Members have an interest in promoting business opportunities in their constituencies, so I would urge Members to help make businesses aware of the benefit of the Allowance.
Income Tax
David Gauke Excerpts(9 years, 6 months ago)
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Chris Leslie
It is amazing what contortions Ministers have forced their officials into in trying to justify why the 50p rate could no longer continue—the sort of ideological nonsense we heard from the hon. Member for Wolverhampton South West—such as the suggestion that somehow it would not raise important revenues at a time when our deficit is actually rising.
Chris Leslie
I am sure that the Financial Secretary will confirm that the deficit is actually rising.
Mr Gauke
The shadow Chief Secretary might be aware that earlier today the Daily Mail reported on its website that a former Labour Cabinet Minister, Alan Milburn, said at a Labour party conference fringe event that, as far as the state of the public finances was concerned, increasing the 45p rate to 50p would be “absolutely incidental”. Does he agree?
Chris Leslie
I do not agree that it would be incidental, but I have never suggested that it is the full solution to dealing with the deficit. However, it is an important part of it—[Interruption.] The Financial Secretary says that it is not an important part of it. He says that we should not worry about the revenues we would get from a 50p rate. I am sorry, but the country cannot afford that sort of attitude and those priorities from Government Members. The deficit affects our constituents because of its effects on public services and the accumulating interest that has to be paid to service the mounting debt under the Conservatives. We have a choice about a tax rate that would raise £3 billion, and it is important that we take that opportunity to tackle our deficit, rather than giving that money away to those people who are already in an extremely privileged position.
Chris Leslie
I do, and let me explain why. We have to debunk this myth, because it is essentially the argument that the Minister will set out in his speech today. The static cost of the 50p tax rate before behavioural effects are taken into account is £3 billion—those are the official HMRC figures and the Minister agrees with them. Ministers, however, including this one, have strained every sinew to try to prove that those behavioural effects would almost entirely erase any revenue generation whatsoever, claiming that it would raise only a net £100 million. That is the figure we have. However, we must not forget—perhaps he can confirm this—that it was a ministerial decision to pick the tax income elasticity rate of 0.45, which miraculously massaged the official figure down to that £100 million. Was that a Government decision, because that is what the HMRC figures say?
Mr Gauke
It was HMRC that determined that, but I just want to be absolutely clear about what the shadow Chief Secretary is saying. He is right that the £3 billion is the static cost, but he is saying that that is the actual cost that the Labour party believes it would raise. He is saying that there would be no behavioural change as a consequence of a 50p rate of income tax. That is the most extraordinary and incredible position, and it is inconsistent with the position that the Labour Government took when they introduced this some years ago. If that is what he really believes, he is stretching credibility even further.
Chris Leslie
We are making a little progress, because the Minister has at least acknowledged that the static cost of this change is £3 billion, and we have also pinned down the fact that it was HMRC and the Treasury, not the Office for Budget Responsibility, that picked the TIE rate, which is the device he used to massage the figure down to £100 million. [Interruption.] He says that that was not Ministers, so we will have to see whether a freedom of information request can elicit more information.
Even if we accepted the behavioural changes that the Minister has suggested, rather than tackling the tricks and manoeuvre used to avoid paying the tax, what is the attitude of the Treasury and the Minister? Their attitude is to wave the white flag and basically say, “Let’s allow them to get away with those behavioural effects.”
The Financial Secretary to the Treasury (Mr David Gauke)
It is a rare privilege for a Treasury Minister to respond to an Opposition day debate on an economic matter this year. In the course of 2014, we had a debate on banking in January and a debate on the Office for Budget Responsibility in June, and now this. Why the reticence on the part of the shadow Treasury team? Imagine the scene in the shadow Cabinet room. With the general election fast approaching and Labour’s economic credibility at record lows, the pressure is on for the shadow Treasury team to make their big economic argument. So they all sit there, straining to come up with a topic for an Opposition day debate. They could set out their case on economic growth, but having spent years saying that our policies inevitably meant that the economy would flatline—remember the hand gestures—we are now projected to be the fastest-growing economy in the G7. They could talk about unemployment. Remember the predictions of another 1 million unemployed. But employment is at record levels, and unemployment, youth unemployment and long-term unemployment numbers are dropping like a stone. They could talk about the exciting plans a Labour Government might have to make our economy more competitive and dynamic, except that they have not got such plans, only plans to increase business taxes. What about the cost of living? The problem here is that hardly anyone believes that a Labour Government would make a positive difference to the cost of living, because we need policies for growth and jobs to deliver improvements in standards of living. They could talk about how Labour would deal with the deficit, except, presumably, everyone forgot to mention it in the meeting. “We must have something we can say,” someone says in desperation, and after a long and painful silence someone eventually says, “We could always trot out the 50p tax cut again. Yes, that will have to do.” So for the first tax and spend Opposition day debate of 2014, we return to a lazy and populist measure, which, as a former Labour Cabinet Minister has been reported to say today, is incidental to the state of the public finances.
Kate Green (Stretford and Urmston) (Lab)
A moment ago, the Minister commented on employment rates among young people, and across other groups too. Does it not trouble him and his colleagues that while employment rates are rising, in-work poverty is also rising, and the Government have no strategy to deal with this? What will he do about that?
Mr Gauke
The way to address that is by improving our productivity, by attracting additional business investment, and by ensuring that we are a good climate for businesses to invest in. That is how we get growth. It is through enterprise, not through punitive taxation that fails to deliver public finances to the Exchequer.
Geraint Davies
Will the Minister confirm that the amount of business loans from banks, including RBS, to businesses, is 30% down compared with 2008, and down 40% for small business, yet the loans for mortgages, for houses that already exist, are at 2008 levels? All the money is going into existing houses instead of into productivity and business. Why does he not do something about it?
Mr Gauke
The hon. Gentleman should also be aware that business investment is increasing. The last few quarters have been very positive on that front, and we are moving in the right direction, despite having to deal with the mess that we inherited. The truth is that in the place where a credible Opposition economic policy should be, we have an empty gesture that will do nothing for economic growth, nothing for job creation, nothing for the public finances, and nothing to help reduce taxes for working people.
Charlie Elphicke
Will my hon. Friend confirm the position on the change in receipts? It looks to me from my studies of Inland Revenue statistics, which are frequent, that the receipts from this additional rate seem to have risen from about £40 billion to £49 billion.
Mr Gauke
I will turn to the analysis done by Her Majesty’s Revenue and Customs, which is at the heart of the debate, but there is no reason to believe that that has proven to be inaccurate, or that suddenly there is this huge stream of revenue that is available to the Exchequer that we have forgone. The truth is that there are much better ways of raising money from the wealthiest than a 50p rate that proved to be ineffective.
Chris Leslie
Does the Minister agree with the Institute for Fiscal Studies, which says:
“The uncertainty around HMRC’s estimates mean it is possible that the 50p rate would be somewhat more effective at raising revenue than their initial estimate suggests”—
because we have had several subsequent financial years?
“Given this, there is certainly a case for HMRC looking again”.
Will the Treasury now conduct an impartial analysis of the true revenues of that 50p rate?
Mr Gauke
Let me quote what the IFS said in January of this year:
“there is little additional evidence to suggest that a 50p rate would raise more than was estimated by HMRC back in 2012…the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit”.
If the hon. Gentleman wants to pray in aid the Institute for Fiscal Studies, I can tell him that one thing that it would dismiss is the idea of a £3 billion pot here. The idea that there is no behavioural impact at all, which is the argument that we heard from him, is entirely fanciful.
Chris Leslie
I have quoted from the Institute for Fiscal Studies. Does the Minister disagree with the Office for Budget Responsibility, which questions the nature of the Treasury evaluation, calling it “highly uncertain?”
Mr Gauke
But it was the OBR that signed off the numbers in the March 2012 Budget. The hon. Gentleman seeks to pray in aid both the OBR and the IFS, but their position has been supportive of the Government. The fact that he suggests there is no behavioural impact here—that appears to be his position—is absolutely absurd.
Let us set out a few facts. As my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) mentioned, the previous Government had a top rate of 40p for all but 36 of their 4,758 days in office. It is also the case that the richest in our society now pay more than at any point under the previous Government, with HMRC statistics showing that the top 1% is expected to pay 27.4% of all income tax this year. At the same time, 25 million working people are paying less income tax than they did in 2010. It is of course right that those with the broadest shoulders bear the greatest burden, and I will set out our actions in a few moments.
Consideration must also be given to ensuring that the United Kingdom is competitive in attracting wealth-creating individuals to locate and stay in this country, which is a point that even the previous Labour Government recognised for most of their time in office. Making our country an attractive place in which to invest is something that this Government are committed to doing. Indeed last week, the World Bank published its 2015 Ease of Doing Business report, placing the UK eighth overall and sixth among the OECD countries.
As I have already noted, the right hon. Member for Edinburgh South West (Mr Darling) announced in his 2009 Budget that the additional rate of income tax would come into effect in April 2010. It was accepted by that Government that there would be behavioural changes as a result of this policy. To be specific, not including forestalling, they accepted that it would result in revenues from the additional rate being around £4 billion lower than the static cost of the change. That is an important point. The 2009 analysis that Labour produced suggested that it would raise £2.5 billion, with £4 billion having been lost because of behavioural changes. Those behavioural changes are now being ignored by Labour, which is extraordinary.
The previous Government told us that the increase from 40p to 50p for incomes above £150,000 would raise approximately £2.5 billion a year. But the evidence suggests that it fell short of even that, raising at best £1 billion and at worst less than nothing. That is the conclusion not of my party, but of the HMRC report, which was laid before the House by the Chancellor alongside the Budget in 2012. The report lays out thorough and compelling evidence on the impact of the 50p rate. It showed that the additional rate was distorted, inefficient and damaging to our international competitiveness and that the previous Government greatly understated the impact of the additional rate on the behaviour of those affected. It has been criticised by business and has damaged the UK economy. The Government have decided not to stifle the economy further, but to show that we are open for business, which is why we reduced the rate to 45p.
Guy Opperman (Hexham) (Con)
Lower taxes allow more businesses to be set up and create employment, and we are beginning, slowly but surely, to see that in the north-east. I am sure that the Minister will wish to celebrate with me the fact that the north-east has seen the highest rise in the value of exports, the fastest rate of private sector growth in the past quarter and the most tech start-ups of any part of this country outside London.
Mr Gauke
My hon. Friend makes a good point. He also made a good point when he intervened on the Prime Minister earlier today. I am delighted that he has again had the opportunity to talk about what the Government are doing and the benefits that are being spread across this country.
The move to 45p, based on the central estimate of the taxable income elasticity, only cost £100 million a year, which is a small price to pay to regain some of the international competitiveness that we lost as a result of the previous Government’s decisions. The additional rate not only harmed our economy and contributed little to the Exchequer, but had significant impacts on our international competitiveness. It placed us in the unenviable position of having the highest statutory rate of income tax in the G20, which is precisely what we do not want when we need investment, jobs and long-term economic growth. By creating a competitive tax environment, this Government’s actions to reduce the additional rate have unambiguously been in the UK’s best interest. A return to the 50p rate would be to ignore the long-term interest of this country.
As a Government, our tax policy has focused on three broad areas: it has ensured that people play by the rules and pay the taxes they owe; that the highest earners make a fair contribution without damaging this country’s competitiveness; and that we lower taxes for hard-working people. I am proud that we have taken concrete action on all three fronts in every single Budget while delivering the fastest economic growth in the G7. This Government’s policies have repeatedly increased the tax contribution of the wealthy, creating a fairer tax system in which those with the broadest shoulders bear the greatest burden. We increased the rates of capital gains tax to 18% and 28%, ending the situation in which a director could pay a lower rate of tax than their secretary. We have introduced a stamp duty rise that will raise around £200 million a year from those who buy properties worth more than £2 million, and we have been particularly harsh on evasion and aggressive tax avoidance. For example, at Budget 2011, we introduced the disguised remuneration legislation, which raises £3 billion and protects almost £3 billion over the next five years, mainly from higher and additional rate taxpayers—a policy, by the way, that Labour voted against.
The loopholes that were closed at various Budgets mean that we have around three quarters of a billion pounds more coming into the Exchequer. Our policies do not stop there. We have also imposed a 15% rate of stamp duty land tax on residential properties bought through companies; introduced a cap on certain unlimited reliefs to limit their excessive use to reduce taxable incomes; and introduced the general anti-abuse rule. We are also requiring that tax is paid up front, preventing the richest from gaining unfair cash flow advantage by delaying tax payments. As we recognise that tax systems no longer operate on just a national level, we have signed information-sharing agreements with many countries to tackle overseas tax evasion, ensuring that no one can get away with evading payment of the tax they owe.
Geraint Davies
I thank the Minister for his generosity in giving way. After mentioning all these improvements he has made to tax efficiency and collection, he said that the Labour party calculated that there would be a behavioural shift of £4 billion but a tax take of £2.5 billion. If we apply that ratio to the £3 billion static figure, we would be getting £1.15 billion, and not £100 million. How does he explain that discrepancy?
Mr Gauke
I can go through it slowly if it is helpful. There are two points there. That was the analysis of the previous Government in 2009, and, as I said earlier, that understated the behavioural impact. It is also the case that the impact of the behavioural changes is greater between 45p and 50p than it is between 40p and 45p, so there is no discrepancy there. I am interested in the fact that the hon. Gentleman has reduced by a little the claims of his Front-Bench team that the measure would raise £3 billion. At least he acknowledges that the static cost cannot be entirely relied on, which is a degree of progress for which we should be grateful.
Mr Gauke
I have given way to the hon. Gentleman on a number of occasions, and I know that many Members wish to speak in this debate.
I have set out the measures we have taken on avoidance and evasion. At the same time, though, we have used the tax system to help hard-working people on lower middle incomes to keep more of the income they earn through personal allowances. The tax-free allowance has increased from £6,475 in 2010 to £10,500 in April 2015—a tax saving of £805 for a typical basic-rate taxpayer. These changes will have given tax breaks to over 25 million individuals and will have taken 3.2 million low-income individuals out of income tax altogether by the end of this Parliament. A future Conservative Government will go further, increasing the personal allowance to £12,500 and the higher-rate tax threshold to £50,000.
Chris Leslie
We asked the Chancellor a question yesterday and did not get very far, and my right hon. Friend the Member for Derby South (Margaret Beckett) asked it of the Prime Minister today and did not get very far, so can this Minister now tell us how, specifically, the £7.2 billion promise that he has repeated will be paid for?
Mr Gauke
I have answered the hon. Gentleman’s question and the Chancellor answered it yesterday—we will reduce public spending to pay for it.
Members in all parts of the House agree that those who can most afford it should contribute their fair share to the Exchequer, but Labour Members insist that we should achieve that through a 50p rate that damaged our economy, sacrificed our international competitiveness, and did not raise the revenues intended. Those advocating a return to a 50p rate have to answer this question: given that it will not raise any significant amount of revenue, is “absolutely incidental” to the public finances, to use Alan Milburn’s phrase, and may even cost money, why do it? It is not about deficit reduction, it is not about economics, and it is not even about getting more from the wealthy, because there are better ways of doing that. It is all about the politics—but at what cost? At a time when the UK must compete to prosper in a global world and when we have a choice as to whether we sink or swim, those who advocate a 50p rate are taking the easy choice—short-term populism triumphing over increased competitiveness, with a stone age message of “bash the rich” prevailing over the need to attract wealth creators and keep them in this country.
This country’s route to success will not be through the lazy populism we have heard from Labour. Instead, we have taken steps to ensure that those with the most contribute the most, while maintaining a tax system that enables us to compete on a global stage. We are creating a tax system that is not only fairer but shows that the UK is open for business, encourages work, and gets people doing the right thing.
Oral Answers to Questions
David Gauke Excerpts(9 years, 6 months ago)
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Heidi Alexander (Lewisham East) (Lab)
4. What estimate Her Majesty’s Revenue and Customs has made of the amount of uncollected tax in the last year for which figures are available.
The Financial Secretary to the Treasury (Mr David Gauke)
HMRC published its latest tax gap estimates on 16 October, and in 2012-13 the gap was estimated at £34 billion—6.8% of total tax due.
Heidi Alexander
Thirty-four billion pounds is a very significant amount of money, and under this Government the amount of uncollected tax has risen by £3 billion. Why has the Minister allowed that to happen?
Mr Gauke
Let us be clear: a rate of 6.8% is lower than was achieved in any year under the last Labour Government. In addition, HMRC’s yield—the money that has come in as a consequence of its efforts—was £7 billion higher in 2013-14 than it was in 2010-11. The fact is that this Government have an excellent record on dealing with tax avoidance, tax evasion and the tax gap.
Henry Smith (Crawley) (Con)
Can the Chancellor of the Exchequer say how the Government are encouraging greater payment of tax through international agreements that we have achieved, for example, with Switzerland?
Mr Gauke
I am sure that the Chancellor can explain that, but as I am already at the Dispatch Box, I will answer the question. The UK has very much led the way in the OECD base erosion and profit shifting process, ensuring that the international tax system is fit for purpose. We have made good progress on that, but there is still work to do.
Nick Smith (Blaenau Gwent) (Lab)
18. Does the Minister think that there is any link between the deep cuts to HMRC staff, particularly in Cardiff, and the uncollected tax that is rising under this Government?
Mr Gauke
As I say, what has happened under this Government is that the yield brought in by HMRC has increased year after year. The tax gap is lower for 2012-13 than it was in any year under the previous Labour Government. In truth, the record of HMRC is one of getting more from less, but we have invested in the areas that bring in money on tax avoidance and tax evasion.
Mr Philip Hollobone (Kettering) (Con)
Will the Minister ensure that the unacceptable and unwelcome £1.7 billion bill from the European Union remains an uncollected tax demand, and that there will be no payment of interest on any late payment?
Mr Speaker
It was indeed an extremely ingenious question, as HMRC would not be the tax collector, but, understandably, that did not trouble the hon. Member for Kettering (Mr Hollobone) in any way.
Mr Iain McKenzie (Inverclyde) (Lab)
20. One in four children across the UK lives in poverty while this Government allow £34 billion in unpaid tax to go astray. Does the Minister not see an urgency in collecting that tax so that he can eliminate that disgraceful statistic?
Mr Gauke
Let us be clear: the tax gap is lower than it was under the previous Government and yield is higher. By international standards, the UK has one of the lowest tax gaps in the world. We have a good record, but we always seek to do more, which is why at the Budget and autumn statement we have always been able to bring forward measures to deal with tax avoidance and tax evasion, and that is a record with which we will continue.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
The Minister has failed to acknowledge that families struggling to make ends meet expect the Government to ensure that everyone pays their fair share, and yet the amount of uncollected tax has risen by £3 billion since he came to office. Is it not the truth that that is both deeply unfair to hard-working families and further evidence that this Government have totally failed to tackle tax avoidance?
Mr Gauke
No; we have brought forward 40 measures to reduce tax avoidance, reduced the tax gap as a proportion of tax receipts, and increased by £7 billion the yield brought in by HMRC. The truth is that it is this Government who have acted in this area, and the record of the previous Government does not bear comparison.
Stephen Hammond (Wimbledon) (Con)
5. What progress he has made on his fiscal consolidation plans.
Mark Hunter (Cheadle) (LD)
7. What recent steps he has taken to reduce tax avoidance.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government have taken a wide range of actions to tackle tax avoidance over the Parliament, including introducing the UK’s first ever general anti-abuse rule. This year’s Finance Act introduced a tougher monitoring regime and penalties for promoters of high-risk tax avoidance schemes. We have also given HMRC the power to collect disputed tax bills up front. That removes the incentive for tax avoiders to delay and frustrate HMRC’s efforts to settle disputes and brings forward £4.3 billion in revenues.
Mark Hunter
I am aware that, as a result of measures taken by the coalition Government to crack down on tax avoidance, a record £24 billion in additional tax revenue was raised in the last financial year. Does my hon. Friend agree that much more remains to be done to make sure that multinationals such as Starbucks and Google pay their fair share?
Mr Gauke
My hon. Friend is right to highlight the record yield for the last financial year. Indeed, there are reasons to believe that that record may well be broken for this financial year. As for multinationals, I do not want to be drawn on individual companies, but it is right to say that we need to work internationally, as I mentioned earlier, through the OECD base erosion and profit shifting process. As my right hon. Friend the Chancellor made clear at the Conservative party conference, we are looking to take further action in respect of multinationals not paying the tax that they should.
Mr Frank Roy (Motherwell and Wishaw) (Lab)
The Chancellor has said that the Swiss tax deal will raise £5 billion by next year. How much has been raised so far?
Mr Gauke
We have already got in about £800 million, and we will get more, but that is money that we would not otherwise have received. That is a deal worth doing. It is worth pointing out that some people said that if we had not had this deal with the Swiss—which has brought in additional revenue—we would not have been able to make progress on automatic exchange of information, whereas the reality is that just last week the Chancellor signed a deal on behalf of this country that made progress on that.
Charlie Elphicke (Dover) (Con)
Does my hon. Friend the Minister agree that under the previous Government the tax gap grew and that all the running in this Parliament on ensuring that businesses pay their fair share of tax and cracking down on tax dodgers has come from our side of the House, and that this Government have made the case internationally as well?
Mr Gregory Campbell (East Londonderry) (DUP)
Given the Government’s commitment to clamping down on tax avoidance, can the Minister give us a prediction or a commentary on the yield he expects next year as a result?
Mr Gauke
As we heard earlier, the yield for 2013-14 was £24 billion. HMRC anticipates that that will be broken and that the yield will be higher for this financial year—the details are to come, but that is encouraging. On the tax gap, the small increase is largely due to the VAT tax gap being higher in 2012-13 than the previous year, but we already know that for 2013-14 it will fall.
John Pugh (Southport) (LD)
8. What recent steps he has taken to rebalance regional economies.
Derek Twigg (Halton) (Lab)
15. What recent comparative assessment he has made of growth in average earnings and the rate of inflation since May 2010.
The Financial Secretary to the Treasury (Mr David Gauke)
Inflation is at 1.2%—lower than at any point since 2009. We appreciate that times have been tough for families in recent years, but as the Institute for Fiscal Studies has said, that is
“a direct but delayed result of the 2008 recession”.
Since May 2010, this Government have taken decisive action to support families. We have increased the personal allowance, frozen fuel duty and council tax, and cut energy bills. In the past year, unemployment has fallen at the fastest rate since records began, and the proportion of workless households is lower than it ever was under the previous Government.
Derek Twigg
For how many months under this Government have wages risen faster than prices?
Mr David Burrowes (Enfield, Southgate) (Con)
16. What assessment he has made of recent trends in the level of employment.
The Financial Secretary to the Treasury (Mr David Gauke)
The Taxation of Pensions Bill that is currently before the House will reduce tax rates that previously applied if people wanted to withdraw money from their pension flexibly. It will also reduce the 55% tax rate on pension assets when someone dies. These tax cuts will leave people with more of their own money and more choice about how to spend it.
Stephen Metcalfe
These measures clearly show that we are the party on the side of those who do the right thing, work hard, and save. Does my hon. Friend agree that Labour would adversely affect those people through its new pensions tax plan?
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
While the Minister is talking about cutting tax on pensions, will he spare a thought for the 4,000 members of the British Midland International pension scheme who lost considerable sums of pension entitlement when their airline was taken over? Lufthansa offered them substantial compensation, but Her Majesty’s Revenue and Customs is now insisting on taxing it. What is he doing about that?
Mr Gauke
I am grateful for the hon. Gentleman’s question and I have met a couple of hon. Members to discuss the issue. Her Majesty’s Revenue and Customs needs to apply the law as it currently stands, but that does not give it a great deal of discretion. This is a complicated matter and I am more than happy to set out details in writing for the hon. Gentleman.
Mark Menzies (Fylde) (Con)
Given the significant number of pensioners in my Fylde constituency, may I welcome the sweeping reforms announced by the Chancellor earlier this year? What plans will be put in place to make sure that those pensioners who access their own money get sound advice?
Mr Gauke
As my hon. Friend will be aware, we have set out our plans for a guidance guarantee. My right hon. Friend the Chancellor has announced that we are working with Citizens Advice in particular to provide a face-to-face service. Good progress is being made, so that service will be available in good time for next April.
Mr Dennis Skinner (Bolsover) (Lab)
T1. If he will make a statement on his departmental responsibilities.
Barry Gardiner (Brent North) (Lab)
Her Majesty’s Revenue and Customs figures released this month show that the amount of uncollected taxes has increased by £3 billion each year under the Chancellor. What difficulties has he found in collecting those taxes, and what does he propose to do about them?
The Financial Secretary to the Treasury (Mr David Gauke)
I am not sure whether the hon. Gentleman was in the House when we debated that at some length a few minutes ago. The fact is that the tax gap for 2012-13 was lower as a percentage of tax receipts than in any year under the Labour Government. Tax yield from HMRC has gone up by £7 billion since 2010-11.
ECOFIN
David Gauke Excerpts(9 years, 6 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
A meeting of the Economic and Financial Affairs Council was held in Luxembourg on 14 October 2014. Ministers discussed the following items:
Measures in support of investment
Ministers discussed measures in support of investment, including the Commission-European Investment Bank proposal for a new taskforce to identify significant European investments which are not being realised for economic, regulatory or other business reasons.
Research and innovation as sources of renewed growth
The Council briefly discussed a Commission communication on research and innovation.
Follow-up to the G20 Finance Ministers and Governors’ meeting and annual meetings of the IMF and World Bank Group in Washington
The Commission updated the Council on the outcome of the G20 Finance Ministers and governors’ meeting on 9-10 October 2014 and annual meetings of the IMF and World Bank Group on 10-12 October 2014 in Washington.
Banking union: single resolution fund contributions
The Commission updated the Council on progress towards laying the delegated act on contributions to the resolution financing arrangements under the bank recovery and resolution directive (BRRD) and the single resolution mechanism (SRM).
Payment appropriations
The Commission updated Ministers on the state of play on payment appropriations, specifically the draft amending budget 3.
Mandatory automatic exchange of information in the field of taxation
The Council reached political agreement to the revised directive for administrative co-operation (DAC2), which will implement the OECD’s global standard for automatic exchange of taxpayer information (AEOI) in the EU.
Energy taxation
The Council held an exchange of views on the energy taxation directive, which sets minimum rates of tax for energy products used as heating fuel, motor fuel and electricity.
Ministerial dialogue with EFTA countries
Ministers met with EEA European Free Trade Association states at this ECOFIN and agreed a set of Council conclusions on incorporation of the EU European supervisory authorities regulations into the EEA agreement.
Business taxation
Following agreement at June ECOFIN, Ministers signed on a joint statement between member states and Switzerland on business taxation.
Taxation of Pensions Bill
David Gauke Excerpts(9 years, 6 months ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
Security in retirement has been a central part of the Government’s agenda. It is important that we adapt to the needs of a population who live longer and who are increasingly active in old age. In the course of this Parliament we have significantly improved the state support on offer to pensioners. From April 2016, the new state pension will give people certainty about what they can expect from the state during their retirement and reduce the likelihood that they will require means-tested benefits. The triple lock introduced at the beginning of this Parliament ensures that increases for the basic state pension will not be outstripped by earnings, growth or inflation. This means that pensioners are now £440 a year better off than they would have been had the state pension only been increased by average earnings since 2011.
We have also taken steps to help people saving for their retirement. Automatic enrolment, introduced in 2012, gives all employers a duty to enrol all eligible employees into a qualifying pension scheme. In the past two years, approximately 4 million people have been newly enrolled into a pension. By the time the programme is fully rolled out in 2016 up to 9 million will be newly saving for their retirement. This radical reform will transform our culture of saving and increase the amount being saved in workplace pensions by about £11 billion a year.
Automatic enrolment will ensure that individuals have the opportunity to save into a pension, but we also need to ensure that when they come to access those savings they get a fair deal. This Government have always believed in personal responsibility. If people work hard and save all their lives, when they reach retirement they should be given the freedom to choose how they spend those savings. Through the Bill, we are introducing fundamental reforms to how people can access their defined contribution pension savings. This is the most radical change in the way people take their pensions for almost a century. The Bill contains provisions to: remove the limits on withdrawals from drawdown; make annuities more flexible; create a new way to take money directly from one’s pension savings; prevent the reforms from being exploited for unintended tax purposes; and restrict and reduce tax charges payable on certain lump sum death benefits.
We have consulted extensively on how best to implement these changes. Given that it is a highly technical and complex area, we have also taken the step of publishing a briefing, available on gov.uk, which explains clearly what each section of the Bill does. Alongside that, Her Majesty’s Revenue and Customs guidance, which is also on the gov.uk website, explains in more detail how the changes are intended to work. The Department for Work and Pensions’ Pension Schemes Bill, which is in Committee, covers the regulatory side to those freedoms, notably the guidance guarantee. These issues are being debated thoroughly as part of the Bill.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Will the Minister explain why there has been a change in terminology from “advice”—which the Chancellor mentioned in his introduction of the proposed measures—to “guidance”, which, unlike advice, legal protections are not associated with?
Mr Gauke
We made it clear, in the documentation that was published at the time of the March Budget, that the legal status of the support we have provided is “guidance”. That means that there is not a recommendation of a specific product; none the less, that support will be hugely helpful for those who will face choices. It is right that the role that we play—or facilitate—is about providing support in the form of guidance, rather than making recommendations of particular products.
I would like to provide Members with an overview of the different parts of the Bill. At Budget 2014, the Chancellor announced that everyone with a defined contribution pension could take it as they wished from age 55, and would no longer be subject to drawdown limits or income tests before being able to take their money flexibly. The current system denies people flexibility at the point of taking their pension. For those with the smallest and largest pension savings, there is the option to take their pension as cash, but for everyone else there are considerable restrictions. They have two main options: purchase an annuity or enter capped drawdown. Capped drawdown limits how much someone can take out each year to an amount calculated by reference to the amount they might have received from an annuity purchased with their fund.
Flexible drawdown already lets those with very high levels of savings to take their money however they want, taxed at their marginal rate, if they can prove that they have a guaranteed pension income for the rest of their life of at least £12,000. The Government have already reduced that from £20,000 to give many more people flexibility, but the first main change provided for in the Bill goes much further, making unlimited drawdown available to anyone with a defined-contribution pension and removing the limits on what can be withdrawn from those funds.
The Bill also ensures that existing drawdown funds can, if the individual wants, be converted to flexi-access drawdown, so that those currently in capped drawdown will be able to benefit too. The aim of the changes is to give all the 320,000 people who retire every year with defined contribution savings greater choice about how to access those savings, regardless of how big their pension pot is. The changes will take effect from 6 April 2015.
Some people think that this change—allowing everyone access to their own hard-earned money—will cause people to spend recklessly what they made sacrifices to save. The Government do not agree. Those who have saved the money over a lifetime should be trusted to make their own decisions about how best to use it to provide themselves with an income in retirement. Through the guidance guarantee, we are making sure that customers have access to impartial guidance on how to make the most of their money.
Dame Anne Begg
We agree that it is important that people can access their money and use it how they best see fit, but might not the introduction of these flexibilities lead to there being so many products on offer that some unscrupulous people might offer individuals unsuitable products? What will the Government do to ensure that people are not mis-sold products that are not suitable for them or, indeed, that err on the side of illegality?
Mr Gauke
The hon. Lady raises an important point. First, the guidance guarantee will ensure that guidance is available to people on what their options might be, to point them in the right direction. Secondly, we recognise that the regulators have an important role to play. The Financial Conduct Authority is very engaged in this matter, setting standards and ensuring proper enforcement. She is right that we must deal seriously with any unscrupulous businesses out there that seek to exploit people, but we have a regulatory regime in place to address that very point.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Will the Minister elaborate on the tax implications for the Treasury of these legislative and policy changes?
Tom Blenkinsop
What are the Treasury’s estimates of the tax take to the Revenue arising from this Bill?
Mr Gauke
At the time of the Budget, we set out our estimates of the implications for the public finances, certified by the Office for Budget Responsibility. We have also made a number of announcements since the Budget that will have a revenue impact. The Office for Budget Responsibility will return to this issue at the autumn statement, when it will set out its numbers in the usual way. The estimates have yet to be certified by the Office for Budget Responsibility—as one would expect, given that we are still some way from the autumn statement—but an update on the numbers that were published in March will also be set out in December.
The changes we have announced have resulted in moving some revenue from one year to another, rather than fundamentally changing the face of the public finances, so in broad terms their overall tax impact is not considerable, certainly when compared with the substantial changes that the Government have made, such as increasing the state retirement age or reforming public sector pensions.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
To follow up the question from my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), there has been a suggestion that the change could lead to a windfall for the Treasury at a time when that would be very helpful for future Budgets. What does the Minister say to that suggestion, which has been made by some in the real world out there?
Mr Gauke
The numbers that we and the OBR believe are likely to be changed as a consequence of the policy were set out in the March document. We very much doubt that there will be a huge windfall for the Exchequer as a consequence of these changes, whatever the appeal of that might be. As I have said, some revenues have been moved from future years into earlier years, but some of the claims about the impact are somewhat exaggerated and highly unlikely.
Lady Hermon (North Down) (Ind)
To pick up on the important point made by the Chair of the Work and Pensions Committee, will the Minister seriously consider putting on the face of the Bill a criminal offence of trying to deceive people out of their pension savings? That will act as a deterrent to unscrupulous organisations or individuals from the moment the legislation goes on to the statute book.
Mr Gauke
The Financial Conduct Authority has already made it clear that if, for example, anyone attempts to present themselves as providing guidance under the guidance guarantee when they are not in a position to do so, that will be looked at very seriously. There is a strong determination to ensure that the dishonest, the unscrupulous and those seeking to mislead people are treated very seriously indeed. We are talking, after all, about a regulated sector, and those who try to conduct regulated activities who are not properly regulated already face offences. I recognise the hon. Lady’s concern about whether we are determined to address those who try to defraud our constituents. Yes, we are absolutely determined to address that, and the FCA is very engaged in that process.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
I, too, would like to press the Minister on the issue of consumer protection. At the moment, if someone gets bad advice from a financial adviser, they have a degree of protection through the FCA. If people receive advice from those who are not professionals in financial matters—the Minister has conceded that these are complex matters—what comeback will they have?
Mr Gauke
As I say, the FCA is very engaged in this area and has already set out its determination to ensure that those seeking to mislead face punishment. The FCA has responsibility for ensuring that regulated firms treat their customers fairly and communicate in a way that is clear and not misleading. We believe that it has considerable powers here. Of course, the Pension Schemes Bill is also important in ensuring that the FCA puts in place standards for the guidance guarantee—standards that anyone delivering that service must comply with.
Lady Hermon
I am extremely grateful to the Minister for taking a second intervention so quickly. He has been careful in his words regarding the FCA. We are talking about those who are manipulative and try to deceive people out of their entire life’s pension; it is a really serious issue. I would like him to confirm that when he refers to “serious” punishment and this being taken “very seriously”, it means a criminal conviction for these people. Will he confirm that that is how seriously the FCA will treat this offence?
Mr Gauke
The FCA will certainly treat this extremely seriously. I entirely share the hon. Lady’s view that this is an important matter and that it is right to take the strongest action to ensure that those who attempt to defraud our constituents of their life savings face severe sanctions. This Bill is about the tax changes; the Pension Schemes Bill deals with the wider issues, and it gives the FCA powers to set standards for the guidance guarantee. Regulated firms have responsibilities to treat their customers fairly, and the FCA has made it clear that it expects firms to comply with that, in this context as in others.
Dame Anne Begg
Even the Association of British Insurers says that there should be more regulation around this issue. Is the Minister listening closely to what the ABI is saying?
Mr Gauke
We of course engage closely with the ABI and other bodies involved in this area. Indeed, the work in this Bill and in the Pension Schemes Bill is a result of close engagement with the ABI. The Government are determined to ensure that we have a regulatory system that protects our constituents from the unscrupulous. This is principally an issue for the FCA, but we are determined to ensure that it has the powers that it needs. Much in the Pension Schemes Bill relates to that.
Nigel Mills (Amber Valley) (Con)
May I remind the Minister that one reason for bringing forward these freedoms was to try to tackle the mis-selling that already goes on, whereby people are effectively forced by the law to buy annuities, which in many cases are totally unsuitable for them? That has led to real cases of detriment. The mis-selling issues under these freedoms are not new; they have been around for a long time.
Mr Gauke
I would like to make a little progress. That brings me to the second main change in the Bill, which is to make annuities more flexible. Current tax legislation caters for two broad categories of retirement income: lifetime annuities and drawdown. As I have set out, we are making drawdown much more flexible. Let me explain how we are doing the same for annuities.
We think annuities will still be the right product for many people, as they provide the valuable security of a guaranteed income for life. The current requirements for a lifetime annuity, however, lead to an inflexible and restrictive product, and there is a clear demand for more flexible ways of getting income from one’s pension pot. We want these reforms to stimulate competition and innovation in the retirement income market. We want providers to innovate and create new products that will more closely reflect the changing needs of their customers. We have consulted extensively with industry on the changes that it would like us to make to enable this kind of innovation. The Bill will deliver those changes by allowing annuities to decrease, and by removing the 10-year guarantee period for guaranteed annuities. That gives significantly more flexibility to providers to offer products that meet individuals’ needs more closely. Those changes will apply to annuities sold after 6 April 2015.
The third major change in the Bill is a new method by which people can access their pension. Currently, people who want to take their pension as cash have to take their whole tax-free lump sum—25% of their fund—and place the other 75% in a drawdown fund. Any money they then draw down is taxed at their marginal rate. The Bill will introduce a new option by giving individuals the flexibility to take one or more lump sums from their pension fund—with 25% of each payment tax-free and 75% taxed at their marginal rate—without having to enter into drawdown. This lump sum is known as an uncrystallised funds pension lump sum, or an UFPLS. [Interruption.] It is perhaps not the most elegant of names, but try doing better with “uncrystallised funds pension lump sum”. These payments can be taken from funds that are uncrystallised—that is, have not yet been accessed. It will be open to schemes to provide this option from 6 April 2015 onwards. This does not change the amount of tax people pay on their pension, but it does provide them with extra flexibility and further choice about when and how to access their savings in a way that suits them.
I want highlight changes that we are making through the Bill to ensure that these reforms, which are intended to give individuals more choices about their income in retirement, are not exploited for tax purposes. If the Government were to take no action, an individual over the age of 55 could divert their salary each year into their pension, take it out immediately and receive 25% of it tax-free, thus avoiding income tax and national insurance contributions on their employment income. That is not the intention of the reforms.
The Government spend a considerable amount a year on pensions tax relief and have a responsibility to ensure that the money is used for genuine pension saving. Under the current system, individuals in flexible drawdown have no annual allowance. They are not entitled to tax relief on anything that they contribute to their pension after they have accessed it flexibly. Extending this rule under the new system would be disproportionate and would disadvantage average savers. We are in an era of much more flexible retirement. An individual might access their pension flexibly and then decide to return to work, or access it while working. They might still want to save into a pension. They might be automatically enrolled into a pension and be subject to a tax charge on the amount contributed. If we kept the current system, there would be a strong incentive to opt out of auto-enrolment.
Instead of having no annual allowance, individuals who access their pensions flexibly will, under the new system, have a lower annual allowance of £10,000, which will apply to their defined contribution savings. This approach allows people the flexibility to contribute to their pension even when they have flexibly accessed their pension rights. At the same time, it ensures that individuals do not use the new flexibilities to avoid paying tax on their current earnings. It will prevent those with the means to divert large sums into pensions from doing so, while allowing the vast majority of individuals to continue to save. The Government have worked very closely with industry to develop this measure, and will continue to do so to ensure that it remains fair and proportionate.
Tom Blenkinsop
The Minister will be aware that the Pension Schemes Bill is in Committee. I am a member of that Committee, and in our fourth sitting, on Thursday 23 October 2014, a gentleman called Mr John Greenwood, a Financial Times journalist who has written quite a lot on this subject, said that the Treasury’s new policy to limit the amount of money that could be taken out at once
“will impact on only 2% of the population”.
Mr Gauke
That is true. However, as I have said, we have tried to ensure that we do not give people an opportunity to use the new arrangements as a way of avoiding substantial amounts of tax, while also ensuring that, in an era of more flexible working, we do not prevent people from gaining access to their pensions and then making further contributions in the circumstances that I have described. We concluded that introducing a reduced £10,000 personal allowance was the best way of striking a balance between those two objectives. We will, of course, continue to look at the matter closely to ensure that the system is not exploited at a significant cost to the Exchequer.
Tom Blenkinsop
The Minister is being very generous with his time. He is also, potentially, being very generous with the Treasury’s coffers. Mr Greenwood said that the allowance
“will impact on only 2% of the population, so it is a penalty with no teeth for 98% of the population.” ––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 126, Q284.]
What is the Treasury’s forecast of the potential loss of national insurance contributions?
Mr Gauke
The Office for Budget Responsibility will return to the issue of the forecast at the time of the autumn statement. Mr Greenwood’s evidence featured some eye-watering numbers, but they were based on extraordinary assumptions about behaviour. All the changes resulting from the reforms that we have announced since the Budget will be announced in the autumn statement in the usual way. We certainly do not recognise some of the numbers that have been floated in relation to cost, but the numbers have not yet been certified by the OBR, so I cannot give the hon. Gentleman the answer that he seeks at this stage. Of course we have been mindful of the impact on the Exchequer, but we believe that our proposals will not put it at risk of losing substantial sums. As I have said, we are not preventing people over 55 from drawing down part of their pensions while continuing to make contributions, or retaining the flexibility to do so. We might have closed off that option, but we decided not to.
Debbie Abrahams
The Minister is indeed being generous with his time. May I ask when the Treasury is likely to publish its assessment of the risks associated with the delivery of this project? It has obviously identified a number of such risks, and it would be helpful for everyone to see the assessment.
Mr Gauke
A number of elements are involved. We have already estimated the costs resulting from the Budget announcement, and, as is customary, we will update the House about the cost of further changes that we have made in the autumn statement. We need to take account of a number of policy announcements that have been made since the Budget. The information will be available once the numbers have been certified by the Office for Budget Responsibility—that is, at the time of the autumn statement.
The last change that I want to explain is the change that the Government are making to the tax charges on pensions when someone dies. We will table amendments in due course to enact those changes in detail, but the Bill currently provides for certain lump sums to be paid from pension schemes when someone dies under the age of 75. It ensures that when someone dies with money in a drawdown account before reaching the age of 75 and a lump sum is paid from it, that sum can be paid tax-free. It also ensures that if someone dies with a pension after reaching the age of 75, the tax charge on a lump sum paid from it is reduced from 55% to 45%, and it reduces the tax charge when someone over 75 receives a serious ill-health lump sum to 45%.
The Bill makes a number of other changes, which I will summarise briefly. They include the introduction of a permissive statutory override, which will allow schemes to make the types of payments set out in this Bill without the need to change their scheme rules; provisions to ensure that the new system is reflected in the rules governing overseas schemes involving UK tax-relieved funds; allowing payments from guaranteed annuities to be paid to beneficiaries as a lump sum if they are under £30,000; and measures to ensure that people cannot gain an unintended tax advantage by becoming temporarily non-resident.
Our pension reforms have been extensive and fundamental. We have taken steps to provide a solid foundation for private saving by reforming the state support that is on offer and introducing automatic enrolment. However, it is also vital to give people an informed choice, and the Bill introduces welcome changes to ensure that that happens. It makes the tax system fairer by ensuring that people have more choice in regard to how they access their savings, while also preventing people from exploiting the new flexibility in order to gain unintended tax advantages. At the heart of it are three key principles: responsibility, fairness, and individual choice. I commend it to the House.
Cathy Jamieson
Yes, I am indeed aware of that report. I shall go on to raise similar concerns and seek answers from the Minister to them in due course.
In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.
I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.
The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.
To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that
“good consultation and a good period to execute”
improved the chances of legislation being successful.
However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.
I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.
However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:
“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”
The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.
I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:
“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]
Perhaps the Minister will be able to respond to that question when he sums up the debate today.
In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.
Mr Gauke
As ever, the hon. Lady is making a thoughtful and probing speech. It would be fair to say, however, that her tone is not one of great enthusiasm for greater flexibility and choice in the pensions system. Will she tell the House whether her party is considering reversing the changes that we are introducing today?
Cathy Jamieson
I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise
“complex, opaque and overpriced products”
that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.
United Kingdom and Macao (Tax Exchange)
David Gauke Excerpts(9 years, 6 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
A Tax Information Exchange Agreement (TIEA) with Macao was signed on 3 September 2014. The text of the TIEA has been deposited in the Libraries of both Houses and will be made available on the website: https://www.gov.uk. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.
Peer-to-Peer Loans
David Gauke Excerpts(9 years, 7 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
To extend choice for savers the Government are consulting on the proposal to allow peer-to-peer loans to be included within ISAs, allowing earnings on interest to be entirely tax free.
The consultation “ISA qualifying investments: consultation on including peer-to- peer (P2P) loans” forms part of the Government’s wider drive to support savers by increasing the choice of investments available to ISA investors. It also supports the Government’s aim to diversify the different sources of finance that are available to borrowers by encouraging the growth of the peer-to-peer lending sector.
Following Budget 2014, the Government have informally consulted with interested parties, seeking their views on the best way to implement the inclusion of peer-to-peer loans within ISAs. This next stage of formal consultation aims to engage with a wider range of stakeholders and individuals involved in the investment industry.
The consultation seeks views on whether peer-to-peer loans should be included in existing stocks and shares ISAs, or whether they would be best suited to a new, third type of ISA. The Government also ask whether peer-to-peer loans should be subject to the same transfer requirements as existing ISA investments, and whether they are suitable assets to be held in child trust funds and junior ISAs. The consultation will run for eight weeks, closing on Friday 12 December 2014 and can be found at the following address:
https://www.gov.uk/government/consultations/isa-qualifying-investments-consultation-on-including-peer-to-peer-loans.