Dawn Primarolo: For the over-75s, there is indexation plus an extra £240. That is in recognition of the particular pressures and expenditures that older pensioners face, in the same way that we provided free television licences for people aged 65 and over. We have debated that problem many times. Although the Committee is only considering the taxation system, the Government's reforms to support pensioners attempt to tackle the wider problems that they experience. In particular, we hope to increase the income of those on the lowest incomes as rapidly as possible and ensure that the money that we spend has a greater impact on the income of pensioners on lower pensions.
For the over-75s, indexation occurs in September. We promised to ensure that no pensioner aged 65 or over would pay tax on their income if it is less than £127 a week. We are setting the monetary amount to ensure that we deliver on that promise. The answer to the hon. Gentleman's question relates to the connection between statements that were made in the House, the September date for indexation and the announcements in the pre-Budget report. We are fulfilling the pledges made in the House.
The hon. Member for Arundel and South Downs (Mr. Flight) mentioned the tapering away from the upper limit of the benefit of the allowances. No elderly person pays more tax than a younger person would with exactly the same income. In fact, the reverse is true. Retired people who are aged 65 and over tend to pay less tax on the same income as someone who is in work, which relates to the protection of fixed income.
The hon. Gentleman knows that the purpose of the age-related allowance is to give extra help to those aged 65 and over who rely on relatively modest incomes. That is why the allowances are given in full only to those whose income does not exceed a certain limit. The limit for 200203 is £17,900. Abolishing that limit would cost the Government £420 million and would benefit only the very wealthiest 10 per cent. of pensioners. I understand the hon. Gentleman's point, but this Government and preceding Governments have thought it right to retain the income limit and to concentrate the extra benefits of the allowances on elderly people with modest incomes.
The income limit is indexed for 200304. The Government have tried to protect the position, but I will not conceal the fact that that type of expenditure on the wealthiest 10 per cent. of pensioners is not justified in our opinion.
Mr. Flight: I did not suggest that the tapering away should be abolished. My concern relates to the way in which it operates. Many pensioners who are on below average incomes will not benefit from the increase in the older person's personal allowance. I am glad to hear that the limit at which the tapering away applies will be indexed because I confess that I was not entirely clear that that was the case. I hope that the Minister is correct. At the very least, it seems that indexation is fundamental. I was focusing on those with incomes below the average because the costs of living of the elderly tend to have a higher inflation rate than those of the mean citizen.
That point addresses one made earlier by the Liberal Democrats. They said that we are letting the wealthiest pensioners off the hook. If the hon. Member for Kingston and Surbiton looks at how indexation operates, he will see that that is not quite the case.
Mr. Davey: Moving on from the point that the Paymaster General has been debating with the hon. Member for Arundel and South Downs (Mr. Flight), will she provide clarification? The clause sets the personal allowance for those aged 65 and 74 at £6,610. I have been looking through the notes on clauses to find what the allowance would have been set at if the clause had not been included in the Billin other words, under pure indexationand I could not find the amount. Will the Paymaster General tell the Committee what that figure is? It is clearly a lower amount, because on page 14 of the Red Book the cost of over-indexation of age-related allowances for those aged between 65 and 74 is set at £55 million for 200304, but I cannot find the exact figure.
I have a second question. We are being told in the clause the personal allowance for those aged 75 and over will be determined by the indexed amount plus £240, but in table 1.2 in the Red Book I cannot see any figure for the cost of that policy for the over-75s. Does the Paymaster General have a figure for that?
Dawn Primarolo: I hope that the hon. Gentleman will excuse me if I do not give him those figures right now. I do not have them at my fingertips. He knows that I am not feeling quite on form this evening, so if he will forgive me I will make sure that I respond later to those points. If he preferred to ask for those figures in a parliamentary question, I could answer him that way, or I could write to him. I shall certainly look into the matter. The Government have made commitments to protect income at a certain level, and we are using different methods to achieve that. There is no intention to use smoke and mirrors.
The final point made by the hon. Member for Arundel and South Downs concerned life assurance policies and any gain from them. We take the view that a gain on such a policy is income like any other income, and the age-related limit applies. The gain comes into the income that will be taken into account when calculating tax over the limit. That is how we are proceeding. Committee members must strike a reasonable balance. We must ensure that pensioners on modest fixed incomes are protected in the best way possible without creating exceptional rules that seem to imply that once someone is over 65 all the tax system's rules on gains on income do not apply. There is no reason to move away from that argument.
The proposals in the clause have been widely welcomed by Members on both sides of the House and by pensioners. I shall look carefully at points made by hon. Members to ensure that our aim is delivered and consider whether anything further needs to be scrutinised. I commend the clause to the Committee.
Mr. Flight: I do not wish to detain the Committee for long, but the Paymaster General did not quite understand my argument. I was not proposing that there should be an abolition; I was merely asking her to look at the level at which age allowance restrictions are removed. I may be wrong, but my understanding is that the £17,900 limit has not gone up, which is a fundamental issue. I understand that average earnings are about £23,100; all age-related allowance is lost at £21,980, which is £1,000 or so below average earnings. I was focusing not on better-off pensioners, but on the rump of people in the middle and suggesting, if I am right about the figures, that they are getting a slightly raw deal.
Question proposed, That the clause stand part of the Bill.
Mr. Flight: Clause 87 is a technical measure, designed to provide a useful power for Britain to enter into tax treaties with non-recognised territories. Taiwan has been cited as the jurisdiction where it will be most useful. The enabling provision on tax treaties is section 788 of the Taxes Act 1988, which is one of the measures being addressed or tinkered with. Has the opportunity been taken to make quite sure that it gives proper authority to all aspects of existing treaties as well as the proposed change?
In the past, the Inland Revenue has acknowledged that section 788 has shortcomings. In practice, there may not be a serious problem, but in principle it is less than desirable to enter into treaties without adequate statutory authority in the United Kingdom. I seek confirmation that, in looking at changes to section 788, the Government are satisfied that they have addressed the Revenue's concerns about its shortcomings.
Sir Teddy Taylor (Rochford and Southend, East): I hope that the Minister will forgive me. She has always been very courteous to me, but she knows from the exchanges that we had in the Treasury Committee, before I was chucked off it, that I have the gravest suspicion about everything that she does.