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Mr. Geraint Davies (Croydon, Central): I seek confirmation of the Liberal Democrats' position. Is it simply to extend the 10 per cent. tax credit--which is already available to the group that we are talking about for five years under individual savings accounts--to beyond five years? Is that the extent of their great new policy?
Mr. Davey: Opposition Members would like to return to the situation before the 1997 Budget.
The Government's arguments do not bear analysis. Their first argument is that no one need lose because everyone can change to the new ISAs, which we have not yet seen. Ministers are not living in the real world, despite the Prime Minister's comments that the Government are pursuing the policies of the real world. I do not know whether the Paymaster General's elderly constituents in Bristol, South are sophisticated financial savers, but many of my constituents who come to me want help with council tax benefit forms or housing benefit forms. The forms worry them. My grandmother is 82, going on 83. She has osteoporosis and is partially sighted. She seeks my help just to pay her utility bills. Many elderly people cannot cope with the financial transactions required to make such shifts in their savings.
I was interested to read a report from the Chartered Institute of Taxation's low incomes tax reform group, published in December last year.
Mr. Barry Gardiner (Brent, North):
I have two brief questions. First, given the hon. Gentleman's remarks about the Liberal Democrats' preference for reverting to the previous situation, what would he do with advance corporation tax? Secondly, if people over the age of 80 are incapable of filling in forms, how do they reclaim their tax credits?
Mr. Davey:
We have spoken to many groups--particularly the Chartered Institute of Taxation--which
Many people have problems filling in forms. Clearly, some are able to claim the tax credit because they have been doing it for some years. The point is that they have got used to it. Many people do not benefit from the tax credit because they cannot fill in the forms. The hon. Gentleman's point does not follow through.
I recommend that the hon. Gentleman reads the report from the Chartered Institute of Taxation, which chose to study the taxation position of older taxpayers first among low income groups, because there are particular problems for that group. They have practical difficulties with filling in forms. They are not at work, so they have no payroll department from which to get advice. Many of them are not mobile, so they cannot go to tax offices for advice. The Inland Revenue's standard response is that it has free telephone lines. Many elderly people are hard of hearing. The report refers to the estimate of the Royal National Institute for Deaf People that 55 per cent. of people over60 are deaf or hard of hearing, making telephone communication difficult, while 570,000 have severe or profound deafness that may need communication by text phone or video phone, which very few of them have. As well as having difficulty with mobility or hearing, some of those people are partially sighted.
Mr. Desmond Swayne (New Forest, West):
The hon. Gentleman will be aware that the Paymaster General pointed out that as a consequence of the Government's policy--the quid pro quo of taking away the tax concession--pensioners at least have the benefit of free eye tests.
Mr. Davey:
I am grateful for the hon. Gentleman's intervention, but he will agree that those free eye tests do not make up for the loss of the tax credit.
Ordinary people who will be hit by this measure face difficulties in filling in tax returns. The Royal National Institute for the Blind reported that, in 1996, there were estimated to be about 950,000 people in the UK over 60 suffering from blindness or partial-sightedness--making it difficult for them to follow the tax guidance or fill in the forms.
Mr. Geraint Davies:
It follows from what the hon. Gentleman is saying that owing to the many disabilities of the more mature people in our population, there should never be any changes to tax regulations on the basis that a change could not be understood by people who are becoming chronically deaf or blind.
Mr. Davey:
That is not the logical consequence of what I am saying. The Government say that those people can move their savings that are currently held in shares into new savings schemes. My point is that, in the real world, it will be difficult for some of them, as they are not avid followers of the financial pages.
Mr. Michael Jack (Fylde):
Is the hon. Gentleman aware of the previous Government's attempt to address
Mr. Davey:
Yes. However, it is a shame that the previous Government took so long to get rid of composite rates on building societies. When they were abolished, that campaign was launched. Liberal Democrats had pressed the previous Government to get rid of that composite rate of tax for many years, but it took them a long time to get around to it. We welcomed it when they did do it.
My first point--[Hon. Members: "First?"] The first point in this part of my speech concerns the proposed alternatives. For many people, these are not practical.
Mrs. Theresa May (Maidenhead):
Will the hon. Gentleman give way?
Mr. Davey:
If the hon. Lady does not mind, I want to make progress. Ministers are clearly worried that I am taking up a lot of time, and I apologise for that.
The Government's solution of people moving to ISAs will not work--this follows on from the point made by the hon. Member for Beckenham. The charges on joining an ISA are likely to be substantial. Even with the cost access terms standard and other simple schemes, according to the Age Concern briefing that I was given before the debate the charges are likely to more than outweigh the tax credit.
The cost of holding investments in an ISA is estimated at around 0.5 per cent. of the value of the shares in the ISA. The value of the shares that would have produced a tax credit of £75 per year for non-taxpaying pensioners would have been about £12,500, using the Treasury's estimates of the income from such shares. That means that holding those shares in an ISA would cost £62.50 per year. When the estimated start-up costs for an ISA of £125 are added, it becomes clear that the cost of transferring and holding investments in an ISA for those low-income pensioners will be more than the tax credit. The Government's argument that those pensioners need not lose out and will remain protected is simply wrong in fact and in practical reality.
Another argument in the parliamentary answer of 10 December is that the tax credit is a distortion and has to be abolished. That was debatable, but let us be charitable. Let us agree that, overall, the ACT system was distortive, pushing firms into higher dividend policies and away from retaining profits for growth. Let us accept that as a hypothesis.
The question for this debate is whether retaining the tax credit for 630,000 non-taxpayers keeps that distortion. That argument defies credibility. It is one thing to say that major pension funds demand higher dividends because of the tax system and can exercise influence on a firm's financial policies; it is quite another to say that children and the elderly--who make up most of those 630,000 people--will be so influential as to force firms to alter their financial planning. What percentage of UK plc is held by those 630,000 non-taxpayers?
The Government seem to think that chief executives and boards across the country are quaking at the thought of Aunt Agatha and her friends complaining that too much profit is being retained by the company. That is a total nonsense. The Government's answer on 10 December was a disgrace and showed that they have lost the argument. Ministers are trying to avoid that point and are saying that their generosity elsewhere to pensioners makes up the difference. The reality--as the motion makes clear in relation to other policies--is that it clearly does not.
I wish to refer to the minimum pension guarantee. A constituent phoned me this morning because she had read the article by the Prime Minister in the News of the World yesterday. She had read about the minimum pension guarantee and wanted to know whether her pension would go up. I asked her a few questions, and it was clear that it would not. The minimum pension guarantee refers to increases in income support, for which she is not eligible. We know that more than 1.1 million pensioners are eligible for income support but do not claim it, and almost 500,000 of those are women over the age of 75. Those pensioners are losing an average of £15 a week--or £780 a year. Another 600,000 pensioners' incomes fall below the income support level, but their small savings--perhaps just over £8,000--prevent them from benefiting from income support and from the Government's proposed minimum income guarantee. The minimum income guarantee will not help those people to offset the tax rise.
We welcome the Government's attempts and measures to improve the take-up of income support and we hope they work. However, why in the meantime are the Government taking away an average of £75 from many of the same pensioners--£75 which is taken up and which is extremely important? The policy goes against the Government's stated aims--aims which are far from being realised.
The other policy that the Government have pushed tonight is the winter fuel payment. This is a gimmick of a policy, and we should look at how much it is costing in bureaucracy. My hon. Friend the Member for Northavon (Mr. Webb), with his usual forensic skills, has shown in questions to Social Security Ministers that by paying for the scheme in a one-off payment of £20--rather than a simple 40p a week on the basic pension--the extra bureaucracy is costing £12 million. On top of that, there is the need to spend £1.7 million to advertise the winter fuel payments. In other words, £14 million has been wasted on bureaucracy and advertising when restoring the tax credit would cost about £25 million. That shows the extent of the Government's support for pensioners and their priorities. The Government have mentioned free eye tests and concessionary fares, and we support those policies--we were the first to propose them.
The Government talk about tax guarantees, but no one knows what the Chancellor means. On 14 July, when he published the comprehensive spending review, he said:
I recommend to Ministers an idea proposed by the Chartered Institute of Taxation. It argues cogently for a new system of tax exemption certificates, granted every four years, which would be a pensioner's response to every Inland Revenue tax form and could perhaps become the embodiment of what the Chancellor means by a tax guarantee. Such a system would save a lot of heartache and worry among elderly people.
"We shall also set a tax guarantee that no pensioner will pay income tax unless their income rises above a specified level."--[Official Report, 14 July 1998; Vol. 316, c. 193.]
That sounds excellent--but unless I have missed them, no details have been announced, not even in the
"Partnership for Pensions" Green Paper before Christmas. In December, the Chartered Institute of Taxation's low incomes tax reform group commented:
"Mr. Brown provided no further explanation but presumably he meant something more than retaining the existing system of allowances at current levels, otherwise the undertaking would have been meaningless."
We all know that the Chancellor is the man of substance in the Government, so we eagerly await an explanation of his meaning about the tax guarantee. I hope that a Treasury Minister will enlighten us about that today. Otherwise, we suspect that the guarantee is meaningless.
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