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Sir Robert Smith: If someone is £200 worse off and he is given £100 to pay his heating bills, what is he meant to pay the heating bill with when he is £100 worse off net?
Mr. Davies: The first £100 was only the winter fuel benefit. When we add up the other factors the average is £240. The hon. Gentleman should look up some of the facts rather than coming out with glib remarks that make no sense.
The changes that we made to advance corporation tax were to repay tax. Pensioners who invested in equities were receiving cash back on tax that they did not pay. A differential approach was taken to those pensioners who perhaps invested in other sources of savings. Clearly there was a distortion, which has been removed. If we want to give more money to poorer pensioners, it can be done through other strategies such as the minimum income guarantee and winter fuel benefit. Indeed, that is precisely what we are doing. We have introduced a range of measures including health service changes--
Mr. Desmond Swayne (New Forest, West):
Will the hon. Gentleman give way?
Mr. Davies:
No, I will not take any more interventions.
We have got rid of eye-test charges for pensioners and there have been VAT changes. A host of measuresin favour of pensions have been introduced by the
Government. It is fallacious and cynical for pompous speeches to be made by Conservative Members about the particular change that we are considering.
Mr. Townend:
I support new clause 3. It would ensure that people who earn less than £4,335--which, I should have thought, even Labour Members would accept is not a very high figure--and more importantly, people between the ages of 65 and 74 who earn no more than £5,720, do not pay income tax. I am particularly interested in that group because in my constituency, East Yorkshire, we have a much higher percentage of old age pensioners than in the country at large.
The new clause tries to set right the perverse situation that occurred as a result of the Government's decision in the July 1997 Budget to abolish dividend tax credits for non-taxpayers. That measure came into effect this year and means that non-taxpayers who have already paid the tax on their dividend income cannot reclaim it, as they used to be able to do. That affects 300,000 pensioners, quite a number of whom are in my constituency.
It is all very well for the hon. Member for Croydon, Central (Mr. Davies) to say that £75 or £100 is not much money, but for pensioners living on just over £100 a week, an extra £2 a week in their pocket is a lot of money. At the last election Labour claimed to be the party of the old age pensioners, and the hon. Member for Croydon, Central said that today. The Government should think carefully about accepting the new clause, as it would be in their interest.
It was fascinating to me that an officer of the Pensioners Alliance came to my last surgery in Bridlington. That person is a lifelong socialist. I confess that, at the last election, I did not get anything like the support from older people that I had got in previous elections. That was for two reasons. First, it was put about that the Conservative party would do away with the old age pension. Secondly, the old age pensioners were led to believe that the Labour party would restore the connection between the average wage and the pension.
Mr. Hilton Dawson (Lancaster and Wyre):
Will the hon. Gentleman give way?
Mr. Townend:
Naturally, I was interested in why that lady had come to see me. I could not help asking whether she was happy with her Government. She said, "No, that is why I have come to see you, Mr. Townend. I am very interested in learning what Mr. Hague's new policies are likely to be for pensioners, because we feel let down by the Government." She pointed out that people who had saved modest amounts could no longer reclaim the tax on the dividends.
When pensioners heard the Chancellor's speech, they were led to believe that the connection between earnings and pensions had been restored. Then they found that anyone who had an occupational pension got nothing at all. They learned that there was a new 10p income tax rate, but it did not apply to pensioners. They were told that they would keep their marriage allowance, but that was not for new pensioners--only for existing pensioners. The lady at my surgery said, "We are very disillusioned, and I will tell you one thing, Mr. Townend. We will not be voting in the European elections."
The Labour party should take note of that. The old people are feeling let down. If Labour Members say that an old age pensioner on £5,720 a year should be paying tax, they have got it wrong.
Mr. Edward Davey:
What the hon. Member for East Yorkshire (Mr. Townend) did not tell us is what he told his constituent about Mr. Hague's pension policy. I learned from my hon. Friend the Member for Northavon (Mr. Webb) that when the hon. Member for Grantham and Stamford (Mr. Davies) was in charge of pension policy for the Conservative party, his pension policy was not to have a pension policy. I hope that a Conservative Member will intervene to tell us what William Hague's pension policy is.
Mr. Deputy Speaker (Sir Alan Haselhurst):
Order. The hon. Gentleman should realise that when he refers to another right hon. or hon. Member, he should do so by his constituency.
Mr. Davey:
I am grateful to you for putting me right, Mr. Deputy Speaker.
I agree with the substance of what the hon. Member for Grantham and Stamford said. He made the point that the Government's abolition of the dividends tax credit has hit a lot of elderly people--300,000 of them. Despite a long review, the Government have failed to see the error of their ways. It is no good the hon. Member for Croydon, Central (Mr. Davies) saying that we should divide social policy from economic policy. Of course we should not; they are totally intertwined. The Government recognise that linkage in other policies. I have always thought that the welfare-to-work programme is about ensuring that social justice helps economic efficiency, so he cannot have it both ways.
The Liberal Democrats have tabled new clause 18 to put that idea before the House and the Government. We believe that giving tax exemption certificates to pensioners who are below the income tax threshold would simplify tax administration, bringing to the Inland Revenue and also to pensioners a lot of savings--not only financial, but in terms of anxiety and worry. Hundreds of thousands of pensioners who are below the income tax threshold receive large self-assessment tax returns every year, filling them with anxiety about whether they are due to pay tax, how to fill in the form and who they need to see make sure that they do so correctly. They want to pay any tax that they owe, but are not sure how to go about that.
New clause 18 is based on a simple idea developed by the low incomes tax reform group of the Chartered Institute of Taxation. We have borrowed it and we hope that the Government will borrow it from us in turn. It would ensure that all those unnecessary self-assessment tax returns do not have to be sent out. The Government could take that further and ensure that taxpayers who are sent self-assessment tax returns, even though they owe only a small amount, could benefit from simplification of the tax system.
The Chartered Institute of Taxation has produced many examples of ordinary taxpayers--pensioners--who are extremely concerned when they receive such forms.
A pensioner from Tilbury was quoted in one of the institute's recent reports, which was published in June. The pensioner wrote:
The proposal for tax exemption certificates is simple. The Inland Revenue could work out from the records which pensioners had not paid tax for the previous two years and write to them, making the offer that they would gain a certificate if they filled in a simple application form. Alternatively, the individual non-taxpaying pensioner could apply to the Inland Revenue for an application form for a tax exemption certificate, for which I suggest the following simple wording: "I do not expect my income to exceed the tax exemption certificate threshold of £6,000 for the current year. I do not anticipate that my income in the next three years will exceed the tax exemption certificate threshold. If my income should exceed the tax exemption certificate threshold in the next three years, I will notify the Inland Revenue by 5 October following the end of the tax year."
Everyone would be able to understand such a simple declaration, and it would save us the cost of sending millions of tax returns to non-taxpayers, as well as saving them anxiety. Certificates could be re-registered every four years, and random checks used to ensure that the system was not abused, as happens in other parts of the tax system. Our proposal is in line with the Conservative new clause, but offers a practical idea to simplify administration of the tax system.
10.45 pm
"I am one of those pensioners on low income who is being hectored by the Inland Revenue. I've tried explaining about my income not being enough to tax. This is the third year running"
that the pensioner has had to do that
"even though my circumstances stay the same."
A pensioner from Stroud wrote:
"My husband is disabled and a non-taxpayer. We now realise that because we have a joint Pensioners Bond we are sent a self-assessment form automatically every year.
I shall give a final quote, although I could have given hundreds. A pensioner from Ilfracombe wrote:
We could easily do without this form filling as we are on low income having paid taxes all our lives."
"My experience from the Tax point of view is basic. I have not paid any for over 20 years, but still receive annual tax forms. Now I must fill in the new Tax Assessment Forms (for the 2nd year running)."
That is bureaucracy gone mad; it is causing huge anxiety among the pensioner population and it flies in the face of the Government's declared policy. When the Chancellor announced the comprehensive spending review to the House, he said:
"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 is a policy that hon. Members on both sides of the House can subscribe to--it is very sensible--but it is yet to be enacted. New clause 18 would give the Government the chance to do so. It is a practical way forward.
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