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 dowe 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.
The hon. Gentleman also makes an entirely sensible pointone that has been made to me through representations to which I have been sympathetic and which is reflected in the large group of amendmentsthat 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 dangermore than that: a likelihoodthat 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.
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. Friends description was quite correct. Each year we made an assessmenton our own backof 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 ones financial affairs.
I cannot believe that the Treasury is not aware of those behavioursafter 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 afterthoughta 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
The Opposition amendments are intended, first, to extend protection for annual contributions. By and large the amendmentsthe buffet that we have to choose fromwould 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 circumstancesthose 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 groups 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
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.
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 dhôte 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.
Schedule 35 agreed to.
Clause 72 to 74 ordered to stand part of the Bill.
Place 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
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