Standing Committee E
Thursday 14 May 1998
[Mr. John Butterfill in the Chair]
(Except Clauses 1, 7, 10, 11, 25, 27, 30, 75, 119 and 147)
Advance corporation tax
Amendment proposed [this day]: No. 20, in page 163, line 28, at end insert
Question again proposed, That the amendment be made.
Dr. Vincent Cable (Twickenham): I just managed to finish my first sentence before lunch intervened. I shall repeat it, because my congratulations to the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) on a well-chosen amendment reflected a rare spirit of good will towards certain Committee members. I shall further congratulate him on the speed with which his press release, which is a rousing condemnation of the Government's handling of the matter, has reached the leader column of today's Evening Standard.
This amendment is a good amendment, which we fully support. I have been approached by sources such as Age Concern, to which reference has already been made, and my local senior citizens' forum, which has expressed a serious worry. I have also discussed the matter with the Chartered Institute of Taxation, which is engaged in detailed work on the tax system's impact on the low paid, and which has a substantial amount of anecdotal evidence on the clause's likely impact.
The abolition of advance corporation tax has resulted in many anomalies. Several hon. Members have been approached by charities that are just beginning to appreciate the way in which last year's changes will affect their activities. Clearly, the Government have tried to neutralise many of the effects of those changes, particularly on taxpayers.
The amendment seeks to tackle the impact on members of the non-taxpaying community who, almost by definition, are poor. The argument has in one sense already been made. However, I want to emphasise that we are dealing with a category of people who regard dividend income as an important way in which to maintain their limited quality of life. These are not people who have invested for large capital appreciation. They are people who live off a limited dividend income, who are of a generation that was not able to benefit from the state earnings-related pension scheme, and who have not had the chance to invest in private pensions. Many of them are unsophisticated shareholders who inherited a small number of shares from, for example, a deceased aunt. Many have acquired shares through building society conversions. They are not sophisticated investors, but they rely on the limited amount of income that they derive from shares.
It was estimated this morning that 300,000 people will each lose £75 as a result of the changes information which I believe emerged from a parliamentary question to Treasury Ministers. Many others do not claim the tax credit because of a lack of knowledge and understanding of the tax system. Many more than 300,000 people may therefore be involved.
We should be worried about two categories of people. Pensioners use a relatively small amount of income from shares. Many of them will lose the equivalent of one week's pension a year on average, which is not a trivial sum. We should also consider people who were made redundant during the last recession. Many of them are not yet entitled to pensions, and live off income generated from small investments to keep poverty at bay. They will be affected as much as pensioners.
To add insult to injury, many non-taxpayers will receive a certificate with their dividend income, which will refer to a tax credit. However, such people will be unable to claim the tax credit. Only the substantially better off will be able to claim it. That is unfair and insulting.
The Government's answer to the problem has been for such people to opt into the individual savings account scheme. In a broad sense, my colleagues and I have supported the concept of individual savings accounts, but for reasons that have partly been explained already, they are often not a satisfactory alternative. Quite apart from the financial disadvantages for many people of opting into the ISA scheme, many people are incapable of undertaking that sort of transaction. Large numbers of people are infirm, very old and incapable of dealing with the paperwork and bureaucracy involved.
One appalling case in my constituency over which I am determined to pursue the Halifax, a former building society illustrates the dilemmas involved for very old people trying to manage their finances. A 99-year-old blind lady was trying to engage in a simple financial transaction moving an account within the institution. Because she was blind and bed-ridden, she could not go to the bank offices. The bank would not accept her carer of 50 years' standing as a signatory on her behalf, so she was required to go through the rigmarole of conferring full power of attorney, with the result that a simple financial transaction cost her £60. I am determined that that should be repaid. However, it illustrates for the purpose of the debate the case of people who are not sophisticated investors, who are not mobile, and who are required by people at the Inland Revenue, who clearly have no sensitivity, to engage in sophisticated financial operations in order to protect their tax position.
One of the anomalies is that, in other contexts, the Government accept the nature of the problem. For example, the Government have launched an advertising programme to encourage people, especially the elderly, to claim back tax on interest payments from banks and building societies. For some reason, one Department[Dr. Vincent Cable]
that understands that elderly people have a genuine problem in claiming tax benefit in respect of interest, does not understand that they should be entitled to the same help in relation to dividend income. I suspect that there are two divisions within the Inland Revenue which simply do not communicate with each other.
We ask the Government to think about the problem more sympathetically than they did last year. I accept that there are probably genuine technical problems in clearly differentiating non-taxpayers as a group. However, I understand from the tax experts to whom I have talked that the problem is by no means insuperable. Given good will I hope that the Government have good will towards a low-income, vulnerable group of people there is no reason why these technical problems should not be solved. Therefore, I fully support the amendment.
Mr. Tim Loughton (East Worthing and Shoreham): I want to make a few comments in support of the amendment tabled by my hon. Friend the Member for Bognor Regis and Littlehampton. He, like me, represents a west Sussex seaside constituency with a large elderly population who will be affected by the changes. It is a common misconception that the south coast is a somewhat cushy place to live, but in my constituency, as well as in Bognor Regis and Littlehampton, there are pockets of deprivation. Many pensioners who live in council houses, or in some cases were fortunate enough to be able to buy their own homes, do not qualify for any benefits or relief against council tax because they have a modest amount of assets. In many cases, those assets comprise a few investments, which tend to be equity investments typically privatisation stocks or shares from demutualised former building societies. The numbers affected are considerable. Although two thirds of older people pay no tax at all, 300,000 people are likely tobe affected by the measure at a cost to them of about £22.5 million. That is not an enormous sum until it is put in the context of the £75 average, and amounts above that, which mean a great deal to those people.
The hon. Member for Twickenham (Dr. Cable) rightly mentioned those people who, on losing their job, have received a pay-off as part of a redundancy package and who have to live off investment income, in many cases from shares gained through employee share schemes when they worked for their former employers, because they are unable to find new jobs. Not only are the constituents of my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) bothered of Bognor, but my constituents are worried of Worthing.
The Paymaster General will, no doubt, try to make out that the elusive queue of 6 million new investors supposedly lining up outside the Treasury to throw their funds at the new ISA scheme, when we know how it will be constituted, will include the 300,000 people who will be disadvantaged by the change. However, as we have heard, ISAs are wholly inappropriate for poor investors who pay no tax and for whom capital gains tax concessions of £6,800 a year are meaningless. I hope that the Paymaster General will make it clear in his response that he does not envisage ensnaring, even with his clever marketing ploys he has said that marketing is key to the success of ISAs the 300,000 people who will lose out on an important part of their income.
Let us face it, Mr. Butterfill, the Budget I do not intend to go off at a tangent has provided little comfort for pensioners. We have discussed how a pensioner who may enjoy the odd glass or two of Lambrini Bianco is now to have that taxed. Fizzy wine, cigarettes, the odd flutter on Worthing or Bognor Regis pier will be taxed more, as will the occasional sojourn abroad because the tax on travel insurance has been increased. On top of that, the waiting lists of local hospitals in West Sussex have grown substantially. There is nothing in the Budget of comfort to pensioners. Their modest income which is an important percentage of their overall wealth is being snatched from them. The amount has already been reduced to 20 per cent. It is to be reduced further to 10 per cent.
There is another aspect to this matter. Undue pressure will be placed on more financially astute, less well off pensioners with a small portfolio of shares to switch investment strategy. Only by switching into fixed interest stocks or bonds will they be able to continue to receive gross interest. That is the only way for them to avoid falling into the trap of losing tax credit. Doing that is all very well except for the fact that the capital growth prospects for their investments will be less than they may have been, particularly if they were lucky enough to get stocks from privatisations and demutualisations.
The Government are saying to those pensioners, "Either you go into less capital growth intensive stocks and try to reclaim some of the income that we are taking away from you, or you lose out on a substantial amount of income which has been very important to you in the past."
I wholeheartedly support the amendment. I hope that the Government will see reason and give what is a small concession in terms of the value of revenue to the Exchequer. They should acknowledge in a commonsense way that their proposal, which came out of the farrago and mess of last year's smash-and-grab raid on pensions, requires pensioners and some of the poorer investors in our communities to receive some protection.