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Mr. Webb: As I have already said, I regard myself as ignorant in these matters. I have been trying to weigh how to advise my colleagues to vote. My concern about the hon. Gentleman's opposition to the new clause is whether he has an alternative strategy for preventing people from putting money into pension funds to avoid their creditors. Is there another way of doing this?
Mr. Davies: The hon. Gentleman asks a reasonable question. Yes, we do have an alternative strategy. It is the one in the Bill, which has already been read and which we went through in Committee and with which we agreed. That is what happens if we do a deal with the Government. We debate a legislative proposal made by the Government in good faith and agree that it is a sensible proposal to recommend to Parliament. Then what happens? We find a few weeks later that a surreptitious attempt has been made at the last minute, in the hope that no one will notice, fundamentally to change the essence of the agreed Bill. I wonder what is the point of having a Committee stage at all. Bills are thoroughly debated, we come out with an agreed text and then, after the Committee stage, the Government make a fundamental change.
The Bill as drafted, as debated in Committee, and as agreed between the Government and the Opposition, made a clear distinction, for the purposes of insolvency, between approved and unapproved pension schemes. The new clause abolishes that distinction and provides that both approved and unapproved schemes should be subject to the same regime. That is a fundamental difference.
Secondly, clause 11 of the Bill as originally drafted makes it clear that there is absolute protection for approved schemes in the event of bankruptcy, as there always has been for occupational schemes that are set up under trusts. In trust law, assets held in the trust to the
benefit of the pensioner are not deemed to be the assets of the individual, so they have always been protected. That is an old canon of English law, which was continued for approved schemes in the Bill as it was passed in Committee. That is no longer the case, because approved schemes are now to be open to clawback from trustees in bankruptcy, and I presume that that includes occupational pension schemes which previously always had absolute protection.
In the new clause, the Government are surreptitiously, without having the straightforwardness to tell the House what they are doing, not only failing to give greater protection to pension schemes in the event of bankruptcy, which was their announced intention when they introduced the Bill, but are withdrawing an existing protection. They cannot do much more of a U-turn than that, and doing it surreptitiously does not make it more attractive.
Thirdly, under clause 12 as originally drafted and agreed in Committee, there was an assumption that there would be protection for unapproved schemes. The formula was that if there were any doubt, the court would take a view on what would be reasonably required to meet the needs of the pensioner and his family--I am quoting the Bill almost verbatim--and would balance that against what sums in the unapproved scheme would be available for seizure by the trustee in bankruptcy. There was a presumption that there was at least a hard core of protection for an unapproved scheme, but that protection has also gone.
The House deserves an explanation of this U-turn. It is unsatisfactory to go through the legislative process and to find that the Government are doing a somersault and changing substantially or reversing the whole thrust of the Bill--which has been debated in good faith and has gone through Committee stage--without telling us why they have changed their mind. The Minister, far from being straightforward and telling us why they have changed their mind, has pretended that the Government's actions have been on a continuum and there has not been a clear break with the Bill as originally drafted.
The Minister will have to concede that there has been a change, so perhaps he will tell us what pressure the Government were under to change their mind. What high-powered lobbying has taken place behind the scenes? Why have they changed their mind, or do they legislate with such frivolity that they do not know what is in their mind from one moment to the next? In March, by the simple turn of the kaleidoscope, they are likely to give us one answer to our question, and then in May, they will give us another. No doubt, in June or July, when the Bill goes to the other place, they will have a third answer. That is a hopeless way to legislate, and the Government's behaviour is a disgrace to the House of Commons.
The Government's behaviour places the Opposition in a quandary. What do we do about this? We thought that we had an agreement on these two clauses, but the Government, without consulting us and without having the honesty to tell us straightforwardly what they are doing, have run away from that agreement and have done something completely different. That is not the way in which the Conservative party behaves. We think through proposals carefully, and as the Opposition we make an effort to take our legislative tasks seriously. We try to ensure that we consider legislation with basic thoroughness, and that our statements have a modicum of
consistency from one stage to the next. We would ill serve Parliament if we behaved in accordance with any other principles. I am sad that the Government do not share our principles. Our position is exactly as I set out in Committee a few weeks ago: we must address this anomaly.
At present, before any of these provisions have been enacted, occupational pension schemes are protected from bankruptcy because they are set up under trust law. Following the Landau case, there was considerable doubt whether other forms of pension arrangement--approved or unapproved--were so protected. We consider it a thoroughly unsatisfactory state of affairs for there to be legal discrimination between a particular category of pension--occupational pension schemes--and other types of pension scheme, including personal pensions, the Government's proposed stakeholder pensions, their new proposals for leases, or any other sensible scheme that may come up with. If they use their majority to introduce less than sensible schemes, no doubt such schemes would also be included.
We should not discriminate between different forms of pension scheme in the matter of their protection from bankruptcy. That anomaly needed to be removed, and we thought that we had agreed in Committee a method of removing it: that is, the original provision in the Bill. The Government are now running away from that without telling the country or the House. That is the salient point, and if I repeat it often enough, perhaps I shall shame the Minister into explaining why the Government have changed their mind, because they owe the House an explanation.
There is a logic for some degree of protection for pensions in the event of insolvency. It is in the interests of taxpayers, because if someone's total assets are taken away, including those on which his livelihood in retirement may depend, the taxpayer may become the bearer of the residual liability to keep him. That is not a desirable state of affairs. If pension contributions have been made in good faith, within the Revenue rules, out of past earnings that are not the cause of the bankruptcy, it is reasonable to protect them.
Our position is exactly the same as the one we took in Committee, and it will be exactly the same next week, next month and next year. We do not believe in somersaults: that is no way in which to legislate. It is particularly worrying when it is a reflection of such an arrogant Government who think that they can get away with anything and do not need to think through their legislative proposals properly.
The Government should go back to the original clauses 11 and 12. New clause 11 is entirely superfluous and extremely dangerous. It removes the important distinction between approved and unapproved schemes. As a result, it makes a nonsense of the new phrase that enters our legal vocabulary for the first time: the concept of "excessive contributions". That is absurd because, by definition, if a pension scheme is approved by the Revenue, contributions cannot be excessive. That is what approval means.
Mr. Davies:
The Minister is nodding. If contributions to an approved scheme cannot, by definition, be excessive, they cannot be subject to clawback on the ground that they
If the Minister still wants to introduce the idea that there can be excessive contributions in the case of an approved scheme, as suggested in new clause 11, he must tell us why the Inland Revenue's rules allow excessive contributions to be made in the first place. As we know, over the years the Inland Revenue has examined with enormous care what constitutes reasonable pension provisions that people might make in relation to their salaries, or that employers might make on their behalf. There is a limit to the amount that an employer can contribute to a pension scheme--15 per cent.--and age-related limits to the amount that an individual can contribute to his personal pension. Indeed, the Government are considering further limits in the context of stakeholder pensions--a flat-rate allowance per annum.
Presumably, the new clauses and amendments were tabled because, by definition, they were reasonable and not excessive. When changes have needed to be made, they have been made. The last Conservative Government, for example, decided that it was a good idea to cap the amount that could be paid into a pension scheme at a certain level of earnings, so that the proportion of earnings that could be tax-sheltered, and subject to a tax credit when paid into a pension scheme, would come to an end--at, if I remember rightly, an income of around £90,000 a year at present. That amount is indexed, and will rise year by year.
Then there is the issue of carry-back. It is possible for people to catch up on years when they have made no contribution--no pension provision--and are unable to do so, up to a period of six years. Again, the Revenue has considered what is reasonable in such circumstances. It would certainly not be reasonable to say that there could be no such provision, and that all pension provision must be made in the current period. For one thing, that is not the way in which individuals work--especially the self-employed, whose earnings fluctuate from year to year. Furthermore, it would not be reasonable if the aim of new clause 11 is to protect creditors in bankruptcy.
The Minister may be about to use the carry-back rules as an example of the way in which so-called excess contributions can be accumulated in the case of an approved scheme. If so, I must tell him that that is one of the perversities and foolishnesses into which he has a habit of falling through not thinking the issues through enough. He should consider what would happen if the principle were applied, and trustees were able to claw back amounts that had been paid into a pension scheme relating to previous years under the carry-back provisions. In fact, it would be necessary to ensure that everyone made the maximum pension contributions in the current year--which would mean that they would have to take more cash out of their businesses at the point in the cycle when their earnings were relatively lower than they would be at the present time.
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