Mr.
Jeremy Browne: I shall be extremely brief because I
generally try in Committee not to replicate speeches that have already
been made, just to put myself on the record for having agreed with
earlier speakers.
I will depart
slightly from that sensible rule of thumb on this occasion to say that
I am an enthusiast for the constructive approach taken by the hon.
Member for Fareham. He recognises the legitimacy of what the Government
are trying to do—we all recognise that that is a sensible
approach. If one is going down the path of introducing new measures,
some provisional arrangements are needed in the
interim. 1.15
pm The
hon. Gentleman also makes an entirely sensible point—one that
has been made to me through representations to which I have been
sympathetic and which is reflected in the large group of
amendments—that there are people whose pension contributions are
inevitably haphazard, because that is the nature of their income. That
is most obvious for people who are self-employed, or those whose work
is seasonal or has other fluctuations beyond their control. There is a
danger—more than that: a likelihood—that the measures the
Government have introduced, entirely understandably, will catch people
they are not intended to catch.
I hope the
Minister will engage seriously with the points made by the hon.
Gentleman, myself and others. If the Treasury is able to find a way of
drafting the legislation so that penalties are not incurred by those
they do not intend to target, that would be appreciated by a large
number of
people. John
Howell (Henley) (Con): Welcome to the Chair this
afternoon, Mr. Atkinson.
In keeping
with my perennial diet, I shall eat only one of the dishes that my hon.
Friend the Member for Fareham has set out so temptingly before us and
that is the dish relating to the self-employed. The Select Committee on
Work and Pensions has recently finished taking public evidence on
pensioner poverty. The questions naturally ranged much more widely than
that subject, although there is quite a strong link between pensioner
poverty and self-employment, which I will come on to in a minute. I
recommend that the Minister visits the website of the Committee and
looks at the evidence that was collected.
The
self-employed are a major pensions headache because of how they
approach pensions. The provisions in the clause and in the schedule do
not recognise that behaviour. There is no equivalent now, and none is
proposed, for automatic enrolment in pensions for the self-employed. We
are unusual in that compared with countries such as Canada, for
example, with the result that the self-employed have a strong tendency
to procrastinate in dealing with their pensions. That builds up a
problem for later, when they tend to rely on selling their business or
their house, in a time of recession. It also leads to considerable
irregularity of payment, which has already been mentioned. Even for
people who regularly earn more than £50,000, for many
self-employed people that amount comes in in a very irregular fashion
and the main reason for not saving is that they cannot afford to do so.
One of the big factors in deciding whether they can afford to do so is
directly relevant to the schedule: how much they get back. Getting back
what is put in is not enough. In the words of the Pensions Policy
Institute, they need to
“see the
advantage of the tax relief”
in order to make that
calculation. We touched on that this morning when my hon. Friend went
through some of the calculations involved.
Perversely,
the recent reduction of values as a result of the economic crisis may
have shocked some out of that procrastination and we may actually see
some becoming more regular in their pattern. However, I find it
difficult to understand why there should be discrimination between
somebody who contributes £2,500 monthly and someone who
contributes £30,000 annually. There seems to be no logic in that
sort of discrimination.
As my hon.
Friend mentioned, I have been in that situation myself. In the years
that I was a partner at Ernst and Young, we never made a pension
payment until we had seen what the annual profits were going to be. It
was a very prudent approach. The amounts certainly differed from year
to year, as did the profit and the profit shares that came out. My hon.
Friend’s description was quite correct. Each year we made an
assessment—on our own back—of which pension providers we
would invest that money with. That flexibility was not haphazard, as
the hon. Member for Taunton described it, although I appreciate that
some have a haphazard way of going about it; it was part of the normal
business life and the normal practice of going about dealing with
one’s financial affairs.
I cannot
believe that the Treasury is not aware of those behaviours—after
all, there has been enough flow between the Treasury and firms of
accountants in exchanges of personnel and, I hope, the other way. Is
the provision an afterthought—a way of dealing with an oversight
of the knock-on effect of increasing the 50 per cent. rate of tax in
the first place and then realising that it was too expensive to give
pension relief at that rate; or was it deliberate, and are we really
attacking the self-employed? If so, it would have been much more open
to make it clear as a policy objective, rather than going about it
somewhat by stealth, as the Bill approaches
it.
The
Financial Secretary to the Treasury (Mr. Stephen
Timms): I welcome you back to the Chair, Mr.
Atkinson.
I recognise
that the Opposition are, in tabling the amendments, raising an
important issue, about which there is some concern. I have argued to
the Committee that schedule 35 brings about a balance, on the one hand
preventing people from making large increased contributions to pre-empt
the reduced relief that is available from April 2011, and on the other
ensuring that those who continue with their normal, regular pattern of
pension saving will receive higher rate tax relief until the new
legislation takes effect in April
2011. It
would have been impossible to design an arrangement that accurately
predicted what someone would have contributed to their pension if the
future changes had not been announced, so we decided that the fair way
to proceed was to look back at past behaviour, to identify
forestalling, as opposed to regular pension savings. Those regular
pension contributions will continue to attract tax relief, at the
individuals’ marginal rate, until the new regime is introduced
in April
2011. Schedule
35, as we have heard, defines regular contributions as those made
quarterly or more frequently. It includes provisions to protect regular
pension savings, made under different types of arrangements that were
in place on Budget day. It is for obvious reasons more
difficult to identify as normal contributions that are made less
frequently, particularly when that requires looking back over previous
years, not least because the A-day changes that we touched on this
morning have altered pension saving habits for some
people. The
Opposition amendments are intended, first, to extend protection for
annual contributions. By and large the amendments—the buffet
that we have to choose from—would do that with reference to an
average of previous contributions made by individuals, accounting only
for those years within the previous three years in which contributions
were made.
The hon.
Member for Fareham spent a little time discussing amendment 228 and the
replacement of specific provisions in the schedule, for different
pension saving arrangements, with something much shorter. That would
create some significant and potentially expensive avoidance loopholes,
but it could also have significant adverse consequences for some
people, with the loss of the protection that the Bill provides for
wholly commercial and unexceptional
situations. The
amendment would also amend the definition of regular contributions, so
that the highest contribution in the past tax year, multiplied by the
frequency of payment, would determine the amount protected. Individuals
are already protected if their regular contributions have changed as
part of a contractual arrangement; but, of course, if the frequency of
payment increased it would create an obvious
loophole. We
recognise that for some people, particularly those in personal pension
arrangements, contributions are often made annually, on an ad hoc
basis, as their financial circumstances allow. I entirely accept the
points made by the hon. Members for Taunton and for Henley about that.
I reassure them that there is no intention of damaging the interests of
self-employed people or any other group. The provisions therefore
include an annual limit of £20,000 on which individuals are
entitled to higher-rate relief. It is worth bearing in mind, as we
debate this, that those are people in unusual
circumstances—those whose income exceeds £150,000, that
is, 1.5 per cent. of pension savers. That group will continue to enjoy
full higher rate relief of up to £20,000 a year, even if they
have made no contributions at all over the past few
years. I
appreciate that for those with less regular contribution patterns, the
£20,000 figure may represent a lower pension contribution than
they have tended to make in the years since A-day. The hon. Member for
Fareham was right to refer to my Budget day statement, which welcomed
views on ways to ensure that that group’s contributions were
protected in the same way as those of more frequent contributors. While
continuing to achieve our core objectives, we need to ensure, as
Opposition Members recognise, that the regime remains effective against
the risk of forestalling, which is a real
risk. I
want a fair regime that is also effective in protecting the Exchequer.
We continue to work closely with industry and to gather evidence to
identify who is affected and to quantify fully the scale of the issue.
Currently, it is not clear how many people would be disadvantaged by
the arrangements in the way that hon. Members have suggested. I hope
that we can obtain information from industry on
that and on the contribution patterns and levels over previous years. So
far that information has been difficult to obtain. Without
effective anti-forestalling legislation, some £2 billion could
be at risk. I will shortly be meeting industry representatives to
explore the issue in more detail. As I said this morning, I am prepared
to return to the subject on Report if necessary. In doing so, I will
bear in mind the ideas in the buffet presented this afternoon. I am
happy to say to the hon. Member for Taunton that I shall be working
seriously and do recognise the genuineness of the points raised. With
that in mind, I hope that the hon. Member for Fareham will feel able to
withdraw his
amendment.
Mr.
Hoban: It has been a helpful debate and I am heartened
that the Minister has not closed his mind to protection for the
self-employed and those who make annual, rather than quarterly or more
frequent, contributions. I hope that there are some dishes in the
buffet that tempt him at a later stage to reheat these ideas for
discussion on
Report. In
trying to tackle forestalling, we are in danger of introducing
unfairness and discrimination against people who are not in the
position to make predictable pension contributions. If we are to look
at income going back three years to determine whether the
£150,000 threshold has been reached, we should recognise the
pattern of pension contributions over that time as well, and use it as
a benchmark to compare future pension contributions. We could say,
“This is the pattern in the past, anything in excess of that is
subject to the regime, and if it is equal to or less than that, it is
reasonable”. Alternatively, for those who have not made
quarterly or more frequent contributions, the special annual allowance
of £20,000 could be higher, but that would add complexity and
leave more scope for forestalling than the Minister would be willing to
concede.
1.30
pm There
are ways to deal with the matter. If I had felt that the Minister had
closed his mind to the issue, I would have been tempted to push one of
the amendments to a Division. However, the Minister has said he is open
to it, although given the limited time between now and Report, his mind
must remain open and work quite quickly to get to a satisfactory
conclusion by Report. We shall certainly return to this on Report,
bearing in mind the points the Minister made, and perhaps come up with
more of a table d’hôte of amendments at that stage,
rather than the buffet that is before us today. I beg leave to withdraw
amendment 228.
Amendment,
by leave, withdrawn.
Mr.
Hoban: I am not going to say very much about amendment
205. While I am very keen to ensure that there is certainty in the tax
regime, particularly for a set of provisions that will last only two
years, given that the Minister is open to some of the debates about
potential changes and there may be new evidence that arises that
persuades him to adjust one or more provisions in this clause, passing
amendment 205 at this point may not helpful to the interests of getting
a better deal for taxpayers. Therefore, if it is feasible, I do not
wish to move the amendment.
The
Chairman: Amendment not
moved. Schedule
35 agreed to.
Clause 72
to 74 ordered to stand part of the
Bill.
Clause
75Place
of supply of services
etc Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: This is a brief foray into the heady world of VAT
for me, as my hon. Friend the Member for South-West Hertfordshire, who
would normally lead on this, is debating with the Economic Secretary
the matter of preparing Britain's economy for the future. Therefore my
remarks on VAT will be mercifully brief. Clauses 75 to 78 and
associated schedule 36 introduce some changes to the way VAT is accrued
and effectively implement a package of changes that govern the place of
supply for VAT purposes. From 1 January 2010, the basic place of supply
for services for a business-to-business transaction will become where
the customer is established. This is a change from the existing rules,
where it is where the supplier is established. It is a significant
change and will require some change to how suppliers account for the
VAT on goods. There are various exemptions, which I shall not go
through, about restaurant and catering services, intermediary services
and transport of goods. However, there are some administrative issue
that I do want to touch
upon. Kevin
Misselbrook, the customer services director for Access Accounting
said: “With
these new rules, businesses will have to track the dates of delivery
that the services were provided, and account for VAT accordingly.
Things get really complicated with invoices that cover multiple
deliveries of services, or those occasions where the service dates
change...This will place an even greater burden on business at a
time when what they really need is help and support as they steer their
way through the current recession. Indeed many organisations may not
currently be aware that the new VAT rules will be coming into
force”. He
is keen to make sure
“that this issue
is not buried within the
Budget”. Will
the Financial Secretary set out what will be done to ensure that
businesses supplying services to other businesses cross-border are
aware of those changes? We will touch on the European sales list later.
There are winners and losers in the changes to the place of supply.
While those changes will reduce many businesses’ need to reclaim
non-UK VAT or register elsewhere in the EU, businesses that are unable
to recover all VAT on purchases, such as those in the financial sector,
could see an increase to their cost base as services not currently
subject to UK VAT are required to be reverse charged.
Many
businesses are already considering the requirements and planning for
the changes, although some points of detail remain to be resolved.
There are some administrative changes here, so would the Financial
Secretary indicate what assessment the Treasury has made of the cost of
introducing them on businesses, because VAT is a complex issue? He will
know that a great friend of mine is a VAT
expert— [Interruption.] The hon. Member for
South Derbyshire looks at me questioningly, but even I get lost when
discussing VAT. It goes way beyond the running joke of the VAT
treatment of Jaffa cakes, because there
are some complex issues here that businesses need to grapple with. What
assessment have the Government made of the cost of introducing those
changes, and what work will they do to ensure that businesses are aware
of the impact of those
changes? | 
