Finance Bill

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Mr. Osborne: The Financial Secretary has obviously tried to learn a trick or two from her boss, the Chancellor of the Exchequer, who, as we saw at Treasury questions, deploys all sorts of election addresses and past quotes of people speaking against them. It is a pretty effective trick, although I often wonder what the Chancellor and all those on the Labour Benches were saying in 1989, when they had even more outrageous ideas than linking things to prices.

The Chairman: Order. Some of us had the benefit of being here to listen to them, but that does not arise out of the amendment. It is quite narrow, and I would be obliged if the hon. Member returned to it.

Mr. Osborne: Thank you, Mr. McWilliam. Norman Lamont was saying those things in my gap year.

I said in my remarks that this Government and previous ones have increased the earnings cap with prices, but I made the point that that was not necessarily a justification for increasing either the lifetime or annual allowance by prices in future. I was interested to hear the Financial Secretary effectively disown the comment in the 2003 document by saying, ''That was only out for consultation; we have listened and we have changed our mind''. Actually, that was not a consultation document in the way that the 2002 document was; it is described as a response to the consultation. In the paragraph that I quoted from to begin with, it is made clear that the issue is not up for discussion. It says:

    ''Accordingly the lifetime and annual allowances will be uprated annually by RPI.''

I am glad the Government have moved away from that commitment, but they did so not as part of some consultation process but because they have changed their mind on a stated policy position. I welcome that, along with the generous increases in the lifetime and annual allowances that have been set out for the five years after 2006, but I have a question. Are we not to know until the quinquennial review in 2010 what the next set of five lifetime allowances will be? That leaves it late in the day. Whoever is Financial Secretary then—whether it is the hon. Lady, good as she is at her job, or maybe a Conservative—will, I hope, make the announcement about the lifetime allowance for 2011–12 before 2010, because people will need a bit more advance warning than that to make sensible decisions about their retirement.

The Financial Secretary's final argument, which was that the Government use prices to determine things such as the basic state pension, and it would be unfair to raise this figure by earnings, will not carry much weight on these Benches, because we are now in Committee to increase the basic state pension by earnings.

Mr. David Laws (Yeovil) (LD): Will the hon. Gentleman give way?

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Mr. Osborne: I am happy to give way, because I am very interested to hear the Liberal Democrats' current position on this policy.

Mr. Laws: I am grateful to the hon. Gentleman. I am not going to derail the Committee in the way that he is trying to, but following his comment about linking the tax system to earnings rather than prices, I wonder whether he would want to see the personal income tax allowance indexed to earnings rather than prices in future. Is that a commitment?

Mr. Osborne: I did not say that I wanted to see the tax system linked to earnings. I was merely pointing out that the argument used by the Financial Secretary was about the basic state pension. She denies that, but the record will show that that was what she employed in her defence, and it was not a particularly strong card to play. However, we are pleased with the generous increases way above RPI, and indeed above earnings, for people who are, as I am constantly reminded very wealthy—it is good to see her looking after them. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 324, in

    clause 207, page 174, line 13, at end insert—

    '(7) In this Part references (however expressed) to a person's lifetime allowance at any time are to what would be the person's lifetime allowance, calculated in accordance with this section, if a benefit crystallisation event occurred in relation to the person at that time.'.—[Ruth Kelly.]

Clause 207, as amended, ordered to stand part of the Bill.

Clause 208

Availability of individual's lifetime allowance

Amendment made: No. 325, in

    clause 208, page 175, line 13, at end insert—

    '(9) In this Part references (however expressed) to the portion of a person's lifetime allowance that is available at any time are to the portion of the person's lifetime allowance that would be available, calculated in accordance with this section, if a benefit crystallisation event occurred in relation to the person at that time.'.—[Ruth Kelly.]

Clause 208, as amended, ordered to stand part of the Bill.

Clauses 209 and 210 ordered to stand part of the Bill.

Clause 211

Non-residence: money purchase arrangements

Amendments made: No. 436, in

    clause 211, page 177, line 9, leave out from 'would' to end of line 10 and insert

    ', on the valuation assumptions (see section (Valuation assumptions)), be available for the provision of benefits to or in respect of the individual under the arrangement if'.

No. 437, in

    clause 211, page 177, line 14, leave out from 'would' to first 'the' in line 16 and insert

    ', on the valuation assumptions, be available for the provision of benefits to or in respect of the individual under the arrangement if'.—[Ruth Kelly.]

Mr. Osborne: I beg to move amendment No. 417, in

    clause 211, page 177, line 30, after 'is', insert

Column Number: 623

    'that part of the value of the individual's benefits under the arrangement which relate to'.

Clauses 210 and 211 are about calculating the lifetime allowance for people who have been non-resident in the UK and have, therefore, not benefited from UK tax relief, but are members of UK pension schemes and have made contributions to those schemes. The clauses disregard those contributions for the purpose of the lifetime allowance or, rather, they increase the lifetime allowance by the equivalent of those contributions.

However—this is the point of our amendment—the lifetime allowance increases only by the amount of the contributions made and not by the investment growth on those contributions. That seems unnecessarily harsh and unfair. More and more people work in different countries and attempt are being made throughout Europe to encourage more Europe-wide pension schemes.

One hopes that Britain is well placed to take advantage of that attempt because it has such a successful financial services industry. We want to do what we can to encourage the industry, but it seems that we are placing a small hurdle in the way of the pensions sector. That is, as I said, unfair. The Government have conceded the principle that the contributions have not attracted tax relief and the lifetime allowance should be increased as a result. Surely the same principle extends to any investment growth on those contributions.

3 pm

Ruth Kelly: The amendment seeks to increase the enhanced lifetime allowance available to relevant overseas individuals who have other money purchase arrangements. Such individuals are entitled to a lifetime allowance enhancement factor, which is applied to the standard lifetime allowance to arrive at the increased allowance. The factor is based on the amount of contributions paid during the period when the individual was non-resident. That is a straightforward and simple calculation. The amendment seeks to introduce an additional element to the calculation to bring in the investment build-up on the contributions.

In many respects, the hon. Gentleman makes reasonable points. The aim may be to bring the calculation of the lifetime allowance enhancement factor for money purchase arrangements more into line with the equivalent calculation for other arrangements, such as defined benefit arrangements. However, defined benefit arrangements cannot be calculated by reference to contributions because, in a defined benefit scheme, it is often impossible to identify the contributions made in respect of a particular individual, so there would be different rules according to the different ways in which different types of scheme operate. The amendment would have a disproportionately complicating effect on the calculation and is not precise enough to be workable. It is not clear how that part of the value of the individual's benefits would be calculated.

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As I have said, we must help taxpayers and schemes by providing clear and unambiguous valuation rules whenever possible. Our approach is an example of the clarity that people desire, and I urge the hon. Gentleman to withdraw the amendment.

Mr. Osborne: To sum up what the Financial Secretary seems to be saying, she has a fair point, but there is an element of rough justice and to make the system work some people will lose out. That is a disappointing answer and I do not accept her argument that the amendment would force the Government to make a great distinction between defined benefit and defined contribution schemes. The method of calculating those points, as we have discussed at length, is different, so it is not as though it is an additional distinction that does not exist at the moment. It might be difficult to apply that principle to defined benefit schemes, but it would not be that difficult to devise a way of calculating investment growth in defined contribution schemes if those contributions were clearly tagged on entry into the scheme.

Rob Marris: I declare an interest as someone who has several years' contributions in the Canada pension plan, which is a state plan and is partially funded. It would be almost impossible for anyone to work out my contributions after a lapse of around 30 years between making the contributions and drawing a pension as an overseas pensioner. I shall probably receive around three Canadian dollars a month.

My second point about the amendment is to ask the hon. Gentleman what ROIC means.

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