Finance Bill

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Rob Marris: I do not want to labour the point, but is the hon. Gentleman suggesting that people—for example, those who live overseas—who use these saving instruments could have chosen pensions policies instead? As I understand it, life policies mature when the person is of pensionable age; we would not be discussing them otherwise. Therefore, those people who took financial advice appear to have been mis-advised, and they should seek redress elsewhere.

I am grateful that the hon. Gentleman now accepts that Governments should look after pensioners with modest incomes, because the previous Conservative Government never did that. That is what the pension credit is about.

Mr. Flight: First, the hon. Gentleman will be aware that I fought for many years for groups who work overseas, but the Treasury, under the present Government and the previous Conservative Government, resisted. There is absolutely no tax logic in not allowing people who work overseas to belong to a UK pension scheme. The answer to his first question is that they cannot save though a pension scheme because there are no schemes that are appropriate for expatriates. Typically, they saved for their old age through life policies. Again, such savings

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may be out of date, but if one went back a hundred years they would find that the situation was the same then. I am trying to remember the hon. Gentleman's second point.

Ruth Kelly: The pension credit.

Mr. Flight: Yes, the pension credit. The hon. Gentleman's logic seems extraordinary: he says that those who have made an effort to save, which is what the Government want because they want to shift the balance from 40:60 to 60:40, should be punished, and that those who have not saved should be given taxpayers' money through a generous pension. He raises the basic issue related to pensions and the minimum income guarantee, which is that if there is a much more generous state earnings-related pension at the expense of other taxpayers, it makes little sense for people to save for their old age at all.

2.45 pm

We are talking about people who have, in one way or another, saved for their old age. Typically, the lump of saved capital is small—perhaps £20,000—but when that is finally cashed in to spend in retirement, people will find that, oops, they have lost their old-age allowance. I suggest that the cost of the amendment would not be great and that, from a social justice point of view, the academic approach of saying that savings will be regarded as income for the purposes of general taxation and that they relate directly to someone's personal allowance in old age is an example of bureaucratic, middle-class establishment thinking. Ordinary people do not see it that way, but in the way in which I have described.

There is an academic argument for the Government's case, which is why it has remained for so long. However, where it bites the category of people to which it applies, morally there is a case for people paying tax on what gain there is but not allowing that to affect tax allowances in old age.

Rob Marris: I am sure that Committee members are as anxious as I not to open up the debate to discuss the Government's pensions policy—I am sure that you would not allow it, Mr. Benton. However, the purpose of the amendment is to add to the tax advantages already enjoyed by those on modest incomes who will gain considerably under the pension credit. The Government are already assisting those people, and rightly so.

Ruth Kelly: I thank my hon. Friend for that helpful contribution.

The hon. Member for Arundel and South Downs suggests that his proposal would be of no significant cost to the Exchequer, and that the Government are being prejudiced against holders of life insurance policies by not accepting his amendment. I hotly dispute that. His amendment would cost about £5 million every year. If his intention is to target pensioner poverty, there are more appropriate and focused methods of achieving it.

I accept in good faith, however, the hon. Gentleman's comment that we should make the navigation of the tax system as simple and easy as possible for people so that they understand what tax

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rates and systems apply to them, and that we should make it easy for them to save and protect themselves for the future. That is precisely what we are doing by commissioning the reviews—of savings policies by Sandler in the Treasury, and of taxation policies by the Inland Revenue.

I ask the Committee not to accept the hon. Gentleman's amendment, which would not make a substantial difference to the real issues to be addressed.

Mr. Flight: I thank the Financial Secretary for her comments. I remain of the view—as, I believe, does the hon. Member for Kingston and Surbiton—that the Government continue to consider the perspective of the individuals involved through rosy spectacles. The cost of £5 million is not considerable, and I am grateful to the hon. Lady for quoting it.

Kevin Brennan (Cardiff, West): Does the hon. Gentleman understand that the Government's response must not only consider the £5 million that his amendment would cost, but all the other spending commitments that he has suggested during the Bill's consideration? The other day, he referred to £1 billion in extra subsidy for the oil industry. He cannot announce £5 million here and £2 million there on different occasions; when all his spending commitments are totted up, the Tories will have promised to spend a considerable amount.

Mr. Flight: The hon. Gentleman is indulging in age-old political games. On oil revenues, he missed our point that the net revenue gained from the tax would be exceedingly modest as a result of losing £10 billion of investment and 50,000 jobs. If he thinks that the Government will get £1 billion a year out of the tax, he has got another thought coming. As I have gone through the Bill, I have been fairly careful in keeping a little tot-up of what hon. Members might come back and say, and the total is not that significant. It is perfectly valid to say that if the cost were £100 million it would be a significant amount, but £5 million is not significant.

On the minimum income guarantee and pension credit, it is strange to argue that it is better for the Government to pay out with one hand with MIG while taking back with the other hand. With respect, that sounds like buying votes, which is of course what lies behind much of the thinking on tax credits. The issue concerns what people who are not well off perceive to be fair. They have accumulated modest sums for their old age by saving through insurance, which they know will be taxed through income tax. They do not know, however, that they will experience the knock-on effect of losing their age allowance, which is extremely unjust. Given that the cost of correcting that would be modest, the Government should get on and do it. We therefore want to put the amendment to a vote.

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Question put, That the amendment be made:—

Division No. 6]

Burnett, Mr. John Davey, Mr. Edward Flight, Mr. Howard
Hoban, Mr. Mark Jack, Mr. Michael Luff, Mr. Peter

Brennan, Kevin Cruddas, Jon Cunningham, Mr. Jim David, Mr. Wayne Healey, John Hendrick, Mr. Mark Kelly, Ruth
McKechin, Ann Marris, Rob Pond, Mr. Chris Ryan, Joan Southworth, Helen Sutcliffe, Mr. Gerry Wright, David

Question accordingly negatived.

Clause 86 ordered to stand part of the Bill.

Clause 93

Deduction of tax:

payments to exempt bodies etc

Mr. Flight: I beg to move amendment No. 188 in page 70, line 9, leave out '1st October 2002' and insert

    'the day on which this Act is passed.'.

The Chairman: With this we may discuss the following amendments: No. 189 in clause 94, page 70, line 35, leave out '1st October 2002' and insert

    'the day on which this Act is passed.'.

No. 191, in clause 95, page 72, line 11, leave out '1st October 2002' and insert

    'the day on which this Act is passed.'.

Mr. Flight: These are simple probing amendments to ask why, in the three respective cases, the exemption is timed to apply from 1 October 2002 rather than applying more speedily. The amendments would give effect to clause 93 from the date of Royal Assent. We are asking whether there is a technical reason for the date being 1 October.

Ruth Kelly: It may help the Committee if I set the amendments in context. Over recent years, the Government have taken steps to reduce the regulatory burdens associated with deducting tax at source when making certain payments. In 2000, we abolished withholding tax against national bonds, and last year we effectively lifted the withholding tax rules for interest and other payments passing between companies within the United Kingdom.

Clause 93 will build on those earlier reforms to provide further deregulatory benefits. It will remove the obligation for companies to withhold tax on payments of interest royalties, annuities and other annual payments made to specified tax-exempt bodies. That change will help companies by increasing the range of payments that they can make without deducting tax at source. It will benefit tax-exempt bodies such as charities, local authorities and pension funds because they will no longer have to make claims to recover the tax suffered.

The measure will align the obligation to record tax for local authorities with that of companies, which will simplify the administration of local authority debt and is something for which local authorities have asked. It will also update the withholding tax rules covering

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payments to partnerships. That will ensure that tax is not withheld from payments to a partnership, the entire membership of which would each be entitled individually to receive gross payments.

Amendment No. 188 seeks to bring forward the start date for the new rules from 1 October 2002 to the date on which the Bill is passed. The other two amendments seek to achieve a similar result with two other clauses that impact on the rules for deduction of tax. The rules set down in clauses 93, 94 and 95 will generally be welcomed by the firms concerned, many of which would like to see them implemented as quickly as possible. Many firms will already have systems in place that would allow for early implementation, as the hon. Gentleman suggests. Some firms, however, will need a little longer to establish their systems under the changed rules. They will have to establish procedures to enable them to decide whether or how much tax should be withheld from the various payments that they make. Some preparation time is required, and to reduce complexity it seems sensible to have the same start date for all three measures.

There is clearly no magic significance about the October start date, and we could have chosen another date. October 2002 strikes a reasonable balance, however, providing adequate preparation time without unreasonably delaying the introduction of deregulatory reform. It also has the advantage of being the beginning of one of the calendar quarters by reference to which firms make returns on the tax that they have deducted at source. If we were to bring the start date forward to Royal Assent, as the hon. Gentleman suggests, firms would have to operate two different systems and sets of rules within the same quarterly return period.

For those reasons, the hon. Gentleman's proposal would not be universally welcomed, and I suggest that we stick with the start date set out in the clause.

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