Standing Committee E
Tuesday 9 June 1998
(Morning)
[Mrs. Gwyneth Dunwoody in the Chair]
(Except Clauses 1, 7, 10, 11, 25, 27, 30, 75, 119 and 147)
10.30 am
Mr. David Heathcoat-Amory (Wells): On a point of order, Mrs. Dunwoody. Last week, on clause 63, we debated the foreign earnings deduction to allow those people who were abroad for more than 365 days not to pay tax. The Government showed no interest in amending the provision. We have now received dramatic confirmation of our argument because the Rolling Stones have cancelled their British concerts. That has not gone down well in the entertainment world or among their many fans.
Hon. Members: What is the point of order?
Mr. Heathcoat-Amory: I have a point of order, Mrs. Dunwoody, but I want to give you the background to it because you did not attend all our debates.
Last week, we explained that the provision would be to the detriment not just of big-time entertainers but, more specifically, of those who work for them. In light of the dramatic confirmation of the validity of our argument, will it be in order for us to return to the matter on Report? I know that the selection of amendments on Report is in the hands of Madam Speaker, but obviously you, Mrs. Dunwoody, will have some influence. Will it enhance our cast to debate this further in light of subsequent events?
The Chairman: The right hon. Gentleman has been here a long time--indeed, members of his family served here before him--and he is well aware of the rules. He knows that, happily, on top of all the other problems faced by the Chairman of a Finance Committee, deciding what amendments to select on Report is not one of my duties, for which I thank God.
Clause 90 ordered to stand part of the Bill.
Schedule 15
Approved retirement benefits schemes
The Economic Secretary of the Treasury (Mrs. Helen Liddell): I beg to move amendment No. 184, in page 251, line 49, after "court;" insert--
"() by virtue of section 3, 4 or 29 of the Pensions Act 1995 or Article 3, 4 or 29 of the Pensions (Northern Ireland) Order 1995 (prohibition, suspension or disqualification);".
I welcome you, Mrs. Dunwoody, to another week of the Finance Bill. I am sorry that the right hon. Member for Wells (Mr. Heathcoat-Amory) has not managed to get any satisfaction this morning.
The amendment is technical. It will put beyond doubt the ability of the Occupational Pensions Regulatory Authority to impose sanctions on Inland Revenue appointed independent trustees, commonly called pensioneer trustees. Indeed, pensioneer trustees who fail to carry out the requirements of the Pensions Acts 1995 will be the subject of a number of our debates this morning.
An important feature of our measures to prevent trust busting is that the managing trustees of a small self-administered pension scheme should not be able to force out the scheme's pensioneer trustee. Paragraph 7 of schedule 15 overrides the rules of existing approved schemes so that, with limited exceptions, a pensioneer trustee can be dismissed only if immediately replaced by another such trustee.
The existing exemptions are when a pensioneer trustee dies, acts in a fraudulent way or is released by a court order. To make it clear that OPRA's powers are not affected by the scheme rule override, the amendment adds a further exception to enable a pensioneer trustee to be removed when OPRA uses its powers to prohibit, suspend or disqualify a pensioneer trustee from acting as a trustee.
Mr. Michael Fallon (Sevenoaks): The Economic Secretary seemed to refer to pensioner trustees, but the explanatory notes say "pensioneer trustees". Perhaps her accent confused me, or perhaps the explanatory notes are wrong.
I think that we support the amendment. However, will the Economic Secretary clarify whether it will make trust busting more or less difficult? It appears again to widen the range of possible exemptions.
Mrs. Liddell: My understanding is that the amendment will make trust busting more difficult, and it will tidy up a particular aspect of the schedule that relates to the Occupational Pensions Regulatory Authority. I understand the hon. Gentleman's point, and I can assure him that we intend to limit the options for trust busting.
Amendment agreed to.
Mr. Nick St. Aubyn (Guildford): I beg to move amendment No. 211, in page 252, line 9, after "termination" insert--
"(d) where the trustee whose appointment is terminated has resigned in circumstances when such trustee has secured the agreement of the Occupational Pensions Regulatory Authority to exercise its powers of appointment (and the terms thereof) in favour of another trustee and such appointment takes place within 30 days".
The Chairman: With this it will be convenient to take amendment No. 210, in page 252, line 21, at end insert--
"(7) In section 612(1) of the ICTA 1988, after `(b) in relation to any employer, includes a person who is to be or has been an employee' the words `and (c) provided that no person whose responsibilities and remuneration have substantially diminished shall be regarded as continuing as an employee by virtue of their remaining a director of the company'".
Mr. St. Aubyn: I shall speak first to amendment No. 211, which is distinct from No. 210.
As our support for the previous amendment should demonstrate, Opposition Members do not want to see so-called trust busting, whereby those who have used the advantages of this country's pensions savings system then take their savings abroad and do not pay any tax.
However, the Government have gone too far. As the notes on clauses explain, the Government are rightly targeting the directors of such companies, who are the prime movers behind trust-busting schemes. Typically, such a director initiates the moves that strip a company's assets, removes the outside pensioneer trustee, and then disappears without trace. We have no problem with the clause's impact on such directors. Even after leaving the country, they are likely to have some assets here. The Inland Revenue will be able to pursue such people and ensure that tax due is properly paid.
However, members of OPRA have drawn the Government's attention to a particular problem. The Government say that, where there is a lock on small, self-administered pension schemes, the pensioneer trustee may not resign. It is true that pensioneer trustees might want to resign for bogus reasons. They might attend a meeting with executives who intend to export their pension funds, feel insulted by that, and resign in protest. Nevertheless, they might resign for genuine reasons. They might find the behaviour of the company's directors and other trustees unacceptable. Cases may arise where a pensioneer trustee who is acting in a professional capacity is not in receipt of fees for a long time.
The right of pensioneer trustees to resign is fundamental. Otherwise, they may be put in a very awkward position. The amendment would create an additional mechanism whereby trustees could resign, and whereby the powers granted to OPRA by the Pensions Act 1995 to impose a professional pensioneer trustee of last resort could be exercised. When professionals in such a position felt unable to carry on, they could appoint through their own organisation such a trustee of last resort, and could line up OPRA to exercise its powers. That would enable them to resign from their post and the pensioneer trustee of last resort to be substituted.
That would not breach the Government's intentions, but the pensioneer trustees of those fairly small pension schemes would not feel that there is a ball and chain round their ankles with no way out even when they have legitimate reasons for wishing to get out of their responsibilities and resign from their post. I should be grateful if the Economic Secretary would deal with that matter before we discuss amendment No. 210.
The Chairman: The two amendments have been called together.
Mr. St. Aubyn: Amendment No. 210 covers different country and should not be a problem for the Economic Secretary. We have had a number of debates on the way in which the Government are using secondary legislation to get their way with barely a passing reference to the House. The amendment refers to cases in which even Ministers are not given a passing reference to what the Inland Revenue is doing.
The practice of the Revenue has changed by stealth since its office at Thames Ditton, which used to deal with small self-administered pension schemes, was moved to Newcastle. Few employees made the move to Newcastle so a virtually new team was set up to handle those pensions and the circumstances in which people could retire and take the benefits for which they had saved under the tax rules at the time.
The long-standing interpretation of the rules under which directors who had retired could legitimately take out a tax-free lump sum had been a standard part of pension schemes across the board and millions of pensioners had taken advantage of that over the years. A company director who had spent most of his life building up the company might have retired six years ago and taken a lump sum payment. One case that was brought to my attention by an actuary constituent involved a lump sum payment of £100,000, which is a substantial sum. The directors may have had residual borrowing from the setting up of the business and that lump sum may have been his last chance to clear his debts and look forward to retirement.
Lump sum payments typically comprise one third of the total pension fund. For that director in his early 60s the remaining £200,000 might generate an annuity of only £16,000 or £17,000 a year, which is less than average earnings. We are discussing not the mega-rich, but people who have paid their way in society, made long-term plans for their retirement while building up a business--both Government and Opposition want to encourage that--and perhaps created employment at the same time. Six years later, out of the blue, the director may receive a tax demand from the Inland Revenue for £40,000; but that demand would be not just for £40,000, but for £40,000 plus interest, so it would be for more than £60,000. They received no indication that that sum might be demanded of them and they have no immediate means of paying it. Some of the people affected are now in their late 60s and early 70s, and I am told that this has been a devastating blow for them.
10.45 am
Why has it happened? It happened because, when management and assessment of the schemes passed to a new office in the Inland Revenue, the wording of the statute was revisited by Inland Revenue officers, who chose to interpret the wording differently. Their decision affects people who have stopped working for a company because they have retired, who may no longer receive any remuneration from the company at all, but who, in order to assist and show faith in a company--for small companies, continuation of service in that sense can be very important--are persuaded to remain on the board. In return for making the decision to support those who run small companies, individuals are now told by the Inland Revenue office in Newcastle that they have not retired at all.
Despite years of consistent previous practice, which accepts that people in such a situation have retired, suddenly the Revenue decides, without any word, warning, debate or apparent reference to the Ministers responsible, to issue tax demands to those individuals. As a result, an injustice has occurred.
It is quite wrong for people to be taxed out of the blue; it is quite wrong for the Inland Revenue to introduce a complete change of tack, which has now affected only those who retired six years ago, but the implication is that the Revenue has gone back six years because it is not allowed to go back any further. However, some people who retired five, four or three years ago, right up until the new practice came to light, will be caught by the capricious decision of the Inland Revenue to reinterpret legislation, entirely off its own bat, to suit its own ends.
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