The Committee consisted of the following Members:

Chairs: Mr David Amess  , Mr David Crausby 

Ashworth, Jonathan (Leicester South) (Lab) 

Baker, Steve (Wycombe) (Con) 

Cryer, John (Leyton and Wanstead) (Lab) 

Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

Duddridge, James (Rochford and Southend East) (Con) 

Evans, Chris (Islwyn) (Lab/Co-op) 

Gauke, Mr David (Exchequer Secretary to the Treasury)  

Gilmore, Sheila (Edinburgh East) (Lab) 

Gummer, Ben (Ipswich) (Con) 

Hands, Greg (Chelsea and Fulham) (Con) 

Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op) 

Javid, Sajid (Economic Secretary to the Treasury)  

Jones, Mr Marcus (Nuneaton) (Con) 

Kwarteng, Kwasi (Spelthorne) (Con) 

Leslie, Chris (Nottingham East) (Lab/Co-op) 

McKinnell, Catherine (Newcastle upon Tyne North) (Lab) 

McDonald, Andy (Middlesbrough) (Lab) 

Mearns, Ian (Gateshead) (Lab) 

Menzies, Mark (Fylde) (Con) 

Mills, Nigel (Amber Valley) (Con) 

Mowat, David (Warrington South) (Con) 

Murray, Sheryll (South East Cornwall) (Con) 

Nash, Pamela (Airdrie and Shotts) (Lab) 

Newmark, Mr Brooks (Braintree) (Con) 

O'Donnell, Fiona (East Lothian) (Lab) 

Offord, Dr Matthew (Hendon) (Con) 

Pearce, Teresa (Erith and Thamesmead) (Lab) 

Pugh, John (Southport) (LD) 

Qureshi, Yasmin (Bolton South East) (Lab) 

Shannon, Jim (Strangford) (DUP) 

Stephenson, Andrew (Pendle) (Con) 

Stewart, Rory (Penrith and The Border) (Con) 

Thornton, Mike (Eastleigh) (LD) 

Uppal, Paul (Wolverhampton South West) (Con) 

Williams, Stephen (Bristol West) (LD) 

Simon Patrick, Committee Clerk

† attended the Committee

Column number: 365 

Public Bill Committee 

Thursday 6 June 2013  

(Afternoon )  

[Mr David A mess in the Chair] 

Finance Bill

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) 

Schedule 21 agreed to.  

Clause 48 

Annual allowance: new annual allowance for the tax year 2014-15 and subsequent tax years 

2 pm 

Chris Leslie (Nottingham East) (Lab/Co-op):  I beg to move amendment 14, in clause 48, page 22, line 33, at end add— 

‘(3) The Treasury shall publish a review within six months of Royal Assent of the impact of restricting or reducing exemptions from income tax of employee contributions to pension schemes at the additional rate. The review shall assess the impact that alternative uses for revenues currently committed to pensions tax reliefs and exemptions for the additional rate of income tax could have on job creation for the long-term unemployed.’.

The Chair:  With this it will be convenient to discuss clause stand part. 

Chris Leslie:  I hope that you had a good lunch break, Mr Amess. I know that members of the Committee feel that it went quickly, but here we are again—as though we had never left. 

The amendment would change the provisions with regard to the Government’s approach to tax relief and pensions allowances. It focuses in particular on an issue with which many hon. Members will be familiar—namely, the Government’s bizarre decision to allow a more generous relief arrangement for those who earn more than £150,000 a year. Under our amendment, the Treasury would undertake a review, fairly soon after the legislation received Royal Assent, of the impact of restricting or reducing exemptions from income tax of employee contributions to pension schemes at the additional rate—now at 45p not 50p, but that is a debate for another time. We are discussing the additional rate today, and we think that a review should assess the impact that alternative uses for revenues that might be generated by reducing the tax relief available to the wealthiest 1% in society might have on other vital purposes of social benefit. In particular, that £1 billion of revenue should be used to pay for a compulsory jobs guarantee for the long-term unemployed, which is the subject of our amendment. 

The Government have a lamentable record on employment and unemployment, especially with respect to the long-term employed. I gather that about 130,000

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adults over the age of 25 have been out of work for two years or more, which is a significant rise of going on for 150% in the past two years. Those individuals are struggling to find work and, having a gap in their employment service of 24 months or more, are finding it increasingly difficult to get back into work because future employers are naturally asking, “Well, are you out of the habit of employment? What are your skill sets? How will you contribute to the organisation that you want to work for?” Those individuals are often capable of making contributions to organisations; it is just that they have not been able to find work for a long time. 

We therefore have to do something about that problem, which is a matter of national significance as well as an important part of tackling the social security costs facing the country. The welfare bill has risen significantly under this Government, as the costs of economic failure have mounted higher and higher, so it is time that we took a proper rigorous approach towards enabling people to get off benefit and back into work—not by means of the ineffective, worse-than-useless Work programme that the Government have put together. That scheme underperforms the norm that might have existed had there been no job enhancement schemes whatever. Barely more than 2% of those going through the Work programme have found sustained employment as a result of their encounter with it. That is just not good enough. The Government clearly should have retained the future jobs fund: the previous Administration pursued a scheme that brought £7,000 of net benefit to the Exchequer for every job it created. 

Sheila Gilmore (Edinburgh East) (Lab):  The future jobs fund was abolished on the basis of statements that it was not working and therefore should be abolished. Was it not disgraceful that that was done before the outcome of the evaluation, which told a different story? 

Chris Leslie:  It was the Government’s haste on coming to office, without looking at the evidence, that got them into much of the trouble they find themselves in today. The amendment focuses on the long-term unemployed because £1 billion could be generated by returning to a 20% basic rate tax relief for those on the additional rate who have high earnings of £150,000 or more. With that money, we could provide a jobs guarantee for all those who have been unemployed for two years or more. If that significant achievement was recorded, the net costs could, over time, be reduced considerably. Indeed, there may be net benefits to the Exchequer, because individuals who are unemployed and in receipt of benefits are a great cost to the Exchequer. If those people were in work, not only would savings be made in welfare costs, but revenue would be generated through the income tax paid to the Exchequer. Obvious social benefits flow from putting an emphasis on employment and employability. I know that my hon. Friends are keenly in favour of that proposal. 

I do not understand—the Minister needs to explain this—why he chose to show such generosity to the top-rate taxpayers who earn more than £150,000. What a perverse decision and strange choice to look at that tax relief and say, “Let’s reverse that and move it back up from 20p to 45p.” The Government’s decision was not even to move it to 40p, but to go to 45p. 

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The Minister first needs to justify that decision, but he also needs to explain why on earth he would not agree to the amendment. We have not even gone so far as to suggest that he go for a particular scheme. We would merely like him to review properly what revenues could be generated and what help provided. 

After 12 months of claiming jobseeker’s allowance under the current welfare to work system, most claimants over the age of 25 are referred by Jobcentre Plus to the Work programme, which lasts two years. In spite of that, there are more than 130,000 people over the age of 25 still looking for work two years into their JSA claim, after a year of Jobcentre Plus and a year on the Work programme. 

Youth unemployment is a big issue and a scar on society more generally, and we should use other sources of revenue, such as the bankers’ bonus tax, to support a youth jobs programme, but today I want the Committee to focus on this aspect of tax relief. The Government are choosing to lavish that tax relief on the wealthiest 1%, but our choice would be to use that revenue to focus support on the long-term unemployed. 

The numbers speak for themselves. It is time to end the scourge of unemployment and, under our scheme, no one would be able to spend a life on the dole, because after two years of unemployment they would have to take up a job, which would be provided to them. There would have to be some benefit sanctions if they did not do that. 

Andy McDonald (Middlesbrough) (Lab):  Does my hon. Friend share my concern? In my constituency, there have been some small improvements from a high rate of 14.3% unemployment, but the 50-plus rates are starting to emerge as the rising trend in unemployment. Surely that cohort of workers will need a great deal more attention in the years ahead, and the programmes we are talking about should come to their aid and benefit them very largely. 

Chris Leslie:  It should not be the case that the older someone gets, the harder it is to find employment, but many employers look for younger individuals to take on, so long-term unemployment in that older age range can present a significant impediment to those individuals finding a means to support themselves and their families, particularly pre-retirement. That is a real problem in society. 

We would design a scheme where we could support job creation in the private sector. Anyone left without a job because the private sector did not have the capacity to take them on could be supported in a voluntary sector or public sector role with some of the support from that source of revenue. Such a scheme could work successfully. 

Under our scheme, the Government could support wages to cover the individual’s employment for at least six months. That support could go to the business directly. It would cover employer’s national insurance costs and support 25 hours of work a week at the minimum wage for at least six months. That would be around £4,000 per job. If an employer were to bid for that money, they would have to create the new job. They could not use the subsidy—that support—to sack another worker in that individual’s place or replace them with a person from another scheme. 

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The scheme, as we have costed it, could also cover the cost of 10 hours of training per week. We would want to work with the Work programme providers or Jobcentre Plus to agree how that training could be most effective to ensure that the person secured a permanent job at the end of the six-month temporary-job period. 

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op):  Will my hon. Friend say something further about training? One concern that is sometimes expressed is that temporary jobs are all very well, but they have to lead to something. Training is important, but so is the future job search and the support to enable someone to move from a temporary job to a permanent post. 

Chris Leslie:  That is why we need a scheme that does not simply get people back into the virtuous habit of being in employment and turning up for work, but provides training and support and those ancillary activities to help to encourage and support individuals into long-term permanent employment. Ultimately, in the Labour party, we believe in labour. We believe in getting people back into work. That is the only way to support economic recovery, which is something Government Members would not know if it hit them in the face. We are here to educate them and, I hope, convert them to the right way forward. We do not have a monopoly on good ideas on this side of the Committee. 

Ben Gummer (Ipswich) (Con):  Will the hon. Gentleman give way? 

Chris Leslie:  Some hon. Members might have good ideas. Perhaps I have managed to convert the hon. Gentleman to the right path. 

Ben Gummer:  I know that the hon. Gentleman means well, but will he reflect on the fact that every single Labour Government—ever—has left office with unemployment higher than when they came in? 

Chris Leslie:  We have already had a conversation this morning about the mistakes that the hon. Gentleman may make and I am not convinced about his understanding of the factoid that he wishes to peddle. However, I am happy to look into the matter further. 

James Duddridge (Rochford and Southend East) (Con):  I was curious about whether that factoid was indeed a fact, so I checked with the House of Commons Library. The hon. Gentleman might like to do likewise. 

Chris Leslie:  I think it is important to focus on getting people back into work. I am more than happy to give way to the hon. Gentleman if he thinks that there is a better use for the revenues that would be available to the Exchequer from reducing that tax relief for those earning more than £150,000 to the basic rate. If he thinks it better to give that money to those earning £150,000 and above, I would like to hear what he has to say about it. The Opposition think it is time to focus on getting young people and the long-term unemployed—those who have been out of work for 24 months or more—back into work. 

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I know that there will be many difficulties with long-term unemployment in the hon. Gentleman’s constituency, and I am sure he cares very deeply about the issue. If he does not agree with our scheme, I want to hear his proposals for helping the long-term unemployed back into work. 

2.15 pm 

James Duddridge  rose—  

Chris Leslie:  I will give way to the hon. Gentleman if he can tell me whether he believes that it is right for people earning £150,000 to be receiving that 45p tax relief on their pensions. 

James Duddridge:  In my constituency, Rochford and Southend East, employment levels have gone up and unemployment levels have gone down over the year. Only a few weeks ago, I visited the Work programme on Victoria avenue, which has really good success rates. I cannot speak for other places, but from talking to individuals there it seems that both the jobcentre and the private sector are providing a fabulous service; we should encourage that. There is actually quite good news—in fact, yesterday, Southend airport announced 300 more jobs. 

Chris Leslie:  We are debating a particular issue, which is long-term unemployment; my interest is in what has been happening with long-term unemployment in the hon. Gentleman’s constituency. I will certainly look at the figures from the House of Commons Library—we can trade those statistics another time. From time to time, businesses open and, from time to time, others close down, but ultimately we have to focus on the significant number of individuals—there are about 130,000 spread across the country—whose lives are blighted by the scourge of long-term unemployment. It is time we had some action from the Government on that issue. 

Sheila Gilmore:  Does my hon. Friend share my concern that we are in grave danger of replicating the north-south divide that blighted the 1930s, or possibly making an even worse one? The fact that unemployment is lower in some places than in others does not take away from the fact that we have severe long-term unemployment in some areas and there is little sign that any of the schemes that have been put in place are making any actual difference. 

Chris Leslie:  It is not just a question of the cost to the Exchequer; there is a massive human cost as well. Speaking of costs, will the Minister update us on what has been happening with long-term unemployment and, in particular, on the cost of long-term unemployment to the Exchequer? What is the welfare bill that results from long-term unemployment? How much does he estimate that the Exchequer has lost in income tax forgone from those currently deemed as long-term unemployed—in our view, those who have been unemployed for 24 months or longer? We need some information from the Minister so that we can make a proper judgment of his choice to say, “Well, those poor individuals earning £150,000 or more need the tax relief on their pensions to go up to 45p;” the Opposition would cut the

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relief and use the £1 billion revenue to fund a job creation scheme for those most in need. Indeed, many basic rate taxpayers getting the lower level of tax relief will be astonished by the Minister’s choice; they will be wondering why on earth those getting the higher levels are receiving that benefit. These are very significant matters. 

Amendment 14 would be a helpful stepping stone on the way to addressing those questions. I would be grateful if the Committee were to give it a fair hearing and support our proposal. 

Ian Mearns (Gateshead) (Lab):  My hon. Friend is making a compelling case for taking the sort of action he has outlined. There are significant regional variations in how long-term unemployment is impacting on communities. Of course, on coming to office the coalition Government abolished the concept of regions and, in doing away with regional development agencies, they took away the means by which we could target particular resources. 

While the regional growth fund is welcome, it has been slow to impact on economies such as the north-east. A stimulus for employers to take on long-term unemployed people is the very sort of thing that would help to reduce unemployment figures in constituencies such as mine and in regions such as the north-east where the overall level—not just long-term unemployment—stands at more than 10%. 

Chris Leslie:  Yes. It is perhaps the Government’s lethargy that is most frustrating of all. We hear plenty of talk from Ministers but little by way of action and the whole country faces dire consequences as a result. 

In a few weeks’ time, the Chancellor will be playing games with his spending review, thinking that he can make projections about what tax revenues might come in two years subsequently when, of course, two years ago they thought that they would have balanced the books by 2015. They thought that the economy would have been motoring ahead by now, yet they still make predictions so far ahead with such confidence. I ask myself, “Will they ever learn from their mistakes?” and the answer I provide to myself is, “Most probably not”. 

Ian Mearns:  In the way in which the Government discuss unemployment and the creation of new jobs, I find it frustrating that they constantly trumpet numbers of new jobs created, but never flesh out those numbers in terms of full-time equivalents. I would be interested to hear from the Government the figures for full-time equivalent jobs created in the last three years. 

Chris Leslie:  That is a good point. There are various theories about what has happened with employment levels across the country, with part time, short hours, zero-hours contracts and so forth, and the pressures that people are under. There is a deeper story about productivity in the economy; the fact that it takes more hours of labour and endeavour to produce the same output is slightly worrying over the longer term. We seem to need to work much harder and yet we seem to stand still, or sometimes even go backwards. As the Minister said, that is not a reflection of the Finance Bill, but it is a reflection of their stewardship of the economy as a whole. 

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I have a number of other points to make on the clause. I see that, in your wisdom, Mr Amess, you have grouped the amendment with the clause stand part debate, so I will make those points now. The clause amends the annual allowance provisions to reduce the annual amount payable into a pension from £50,000 to £40,000 from April 2014 onwards. 

The changes that the Government will make by reducing that annual allowance are said to impact about 140,000 individuals. Will the Minister take a moment to explain the variable impact on defined benefit pension schemes, versus defined contribution schemes? In another piece of legislation, we had debates on different types of pension schemes and, as defined benefit schemes are eroded and fall back, defined contribution schemes are increasing in their place. There are arguments to be had on whether that is a good or bad thing. 

I am anxious that not enough time is spent thinking through the incomes that individuals will need in their retirement. I want clarity on whether the Government have properly thought about the impact of their tax framework arrangements on defined benefit schemes, which are already under a great deal of pressure. 

The arrangements for defined benefit schemes are accounted differently than those for defined contribution schemes. Some concerns have been voiced about what appear to be generous annual allowances, and indeed they are—a payment of £40,000 into a pension is pretty considerable for an individual in any given year. The way in which defined benefit schemes are calculated does not necessarily reflect a particular deduction from an individual’s pay packet in that year as it would for a defined contribution scheme; there is a separate accounting arrangement. Various organisations—Towers Watson, KPMG and others—have calculated that lower annual allowances will now catch those who have defined benefit schemes and who earn five-figure salaries; the issue is not just about six-figure salaries. 

Now, those five figures could be high—£66,000 or above, just to pluck a number from the air—but those with defined benefit schemes might want to think about the issue. It would be helpful if the Minister could walk us through the question, because those individuals may find themselves unwittingly caught by a tax charge as a result of the change. That may be perfectly legitimate—I do not say that it is wrong—but we need some clarity on who will be affected and at what level of salary, on average, a defined benefit pension might be drawn into those arrangements. 

James Duddridge:  The hon. Gentleman makes a valid point. As people move from job to job, there may be more than one relevant defined benefit scheme, which makes decision making complex. Will he also ask the Minister to look not just at the difference between defined contribution and defined benefit but at the different tax treatment of state defined benefit and private sector defined benefit? I do not fully understand the reasons for the differential, but I understand that the treatment is different. 

Chris Leslie:  I was not aware of that. I certainly would be interested in hearing what the Minister has to say about that. Obviously, there are more defined benefit schemes in the public sector, given the history of some of them, particularly those for teachers, doctors and civil servants—our constituents have such schemes. 

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As the annual allowance for defined benefit schemes is calculated by valuing the pension at the start and end of the accounting period, with the differences being annual accrual, I am told that, under the Government’s new approach, those earning the most will receive quite a significant tax break compared with those on average earnings. As we can see here, there are differences between the 45p and the 20p levels. 

People who are on defined benefit schemes may find themselves exceeding the annual allowance without realising it and becoming liable for tax. According to some tax advisers, anyone in a defined benefit scheme who accrues more than £2,500 per annum to their pension may now find that they have to pay tax on those savings. I am not sure whether that is the case. Will the Minister confirm how many public service workers, for example, will be affected by that measure? What mechanisms will be put in place to explain it to those affected? Will there be any offsetting arrangements in those tax provisions? How many extra people will be pushed into paying tax on their pension savings as a consequence of the reduction to the annual allowance? We need some clarity on those issues. 

Returning to amendment 14, I reiterate that our focus today needs to be on the Government’s strange choice to give the 45p tax relief to the richest 1% of society—those earning more than £150,000. We believe that the £1 billion should be used for job creation schemes to help the long-term unemployed. This is an opportunity that the Committee should not pass up lightly. It is a clear choice that could be started by adopting the amendment. Let us get that review under way and help the 130,000 individuals who have been out of work for two years or more. It is our responsibility to our constituents. 

2.30 pm 

Sheila Gilmore:  Thank you, Mr Amess, for giving me the opportunity to speak to amendment 14. Very often when the Opposition propose policies that we think are desirable, the call that comes out is, “How would you pay for it? Where would you find the money? Until you tell us where you would find the money, we are going to tell you that that is not good enough.” In this instance, we have accompanied the proposal with a suggestion of where the funding could be found. Clearly, we need to investigate carefully what the yield would be, but that revenue could be put to better use than giving an additional advantage to people who already have substantial pension provision through their employment or asset wealth by boosting their pensions. That sum of money—the amendment would let us know exactly what it is—would be of considerable assistance. 

I will address some of the issues that were raised in interventions. This factoid, or fact—whatever we call it—is very interesting, but it depends on what point in the snapshot we go from. In 1979, the big election cry was, “Labour isn’t working,” and we were told how dreadful it was that over 1 million people were unemployed. But within a couple of years 3 million people were unemployed. 

In 1951, the UK national average unemployment was 1.8%. Perhaps that was higher than in 1945, but that was because in 1945 most of the adult working-age population were either working in things such as munitions

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or other reserved occupations, or were in the armed forces. That, of course, included many women who had been conscripted. Unemployment lower than 1.8% was actually pretty good, but 1.8% in 1951 must be seen as a considerable achievement compared with the levels of unemployment in the 1930s. Clearly, somebody has gone away and dug out those beginning and end figures, but that is not where the economic cycle actually is. 

Andy McDonald:  I, too, heard the comments made by members of the party in power about the level of unemployment. My experience in my town and in my constituency is that every time the Conservative party has been in power unemployment rates have been colossally high. We heard about that wonderful rate of 1.8%, but in my constituency today the unemployment rate is 13.8%. I beg the Committee to think about the people in constituencies such as mine, which has the fourth highest rate of unemployment in this country. We must think about where our priorities lie. Should we be giving benefits to people who are doing very nicely, thank you very much? Do the people in my constituency not count at all? 

Sheila Gilmore:  I thank my hon. Friend for his comments, which amplify my point. Labour’s proposed compulsory jobs guarantee would kick in when people had been unemployed for two years. It is interesting that this month large numbers of people are going to be coming out of the back end of the Government’s current scheme, the Work programme. People who have been through two years of the Work programme will start returning to jobcentres. They only get on to the Work programme if they have been unemployed for years, so those people will have been three years unemployed. 

What is the Government’s solution? According to the press release that the DWP issued earlier this week, people will simply be given more of the same. They will be given more help with their CV and job search, and they will be matched up to universal jobs match so that they can use it better. That prompts me to ask what those people have been doing on the Work programme for two years, because as we understood it, the Work programme was supposed to help people to brush up their CVs and their interview skills; give them training and skills that they did not have; and help them learn how to use universal jobs match, which is apparently the panacea for all ills. 

When I checked universal jobs match in my area only yesterday, however, a search for shop assistant vacancies, which I have been checking carefully, resulted in 78 separate entries, 55 of which applied, yet again, to catalogue sales and opportunities as a self-employed person. To take part in most such schemes, an individual must pay up front and provide their own transport, which many people will find difficult. I am not quite old enough to recall this, but the situation reminds me of what I have seen in films and read in books about many long-term unemployed men in the 1930s who had to go around selling brushes. Sadly, not much has changed. 

Paul Uppal (Wolverhampton South West) (Con):  In reference to the previous intervention from the hon. Member for Middlesbrough, if we are going to have a genuine conversation about long-term unemployment,

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it would be useful to look at the root causes rather than being partisan about the matter. In my constituency, a traditional low-skills environment is a driver of long-term unemployment. Jaguar Land Rover is bringing private sector investment into my constituency for the first time; between 1997 and 2010, the west midlands, uniquely in the region, experienced a decrease in the number of private sector jobs. Whether that was wilful, I do not know; that is entirely for the Opposition to say. I do not know what their thinking was on the matter. If we are to tackle the problem, rather than being partisan about it we must tackle the underlying issue, which is the lack of skills— 

The Chair:  Order. Interventions need to be much briefer. 

Sheila Gilmore:  Lack of skills is an issue for some people. I come from a city in which unemployment was reduced—during, I have to say, a Labour Government—after 1997 to a pretty low level of between 2% and 2.5%. Much of the residual unemployment had a lot to do with low levels of skills, and we put in place important job schemes to help people get skills and training. 

Over the past two years, however, the Government’s answer to the problem has been: “The Work programme, the Work programme, the Work programme,” but my concern is that, sadly, the Work programme does not seem to be addressing low skills at all. What my constituents —and the witnesses who gave evidence to the Work and Pensions Committee, which recently issued a report on the subject—describe is not skills training at all. Indeed, constituents of mine have been told that the Work programme cannot afford to send them on courses because it is not funded to do so. It is funded, it appears, endlessly to try to improve CVs, when I entirely agree that what some people need is an opportunity to increase their skills. 

Learning and training while working in a real job is one way of getting such skills, which brings us back to the jobs guarantee. Our proposal would kick in much earlier, and I hope that in the fullness of time that it will be possible to start it even earlier, because it is important for people to have such opportunities before they become long-term unemployed. A great deal of evidence, research and history demonstrates that if people are out of work for a long time, they become increasingly deskilled and demotivated, and their health suffers. Even if they started out without health problems, they often end up with them. That is all hugely important. We must be much more active and realise that proper jobs must be created. 


Ian Mearns:  My hon. Friend is making a very powerful point. Government Members may bandy about statistics about increases in unemployment, but let us not forget that in the past year, the number of people out of work for 24 months or more has risen by 88%—that is in one 12-month period. In the past two years, that number has risen by 146%. Those are real statistics. One statistic that no one should ever forget is that one of those unfortunate individuals who has been unemployed for 24 months or more is 100% unemployed. That is the real impact on the individual. 

Sheila Gilmore:  I thank my hon. Friend for his intervention. In an intervention I made earlier, I touched on the serious issue of the imbalance of the country and

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the economy. The UK was in exactly the same position in the 1930s. Although some revisionist historians try to say that there never was a great depression, I do not think that that forms the majority view. There was a huge difference between then and now. In some parts of the country—the south-east, Essex and other places—new light industries were developing. We had the beginnings of the car industry, which has already been mentioned in this debate. There was a lot of house building going on, hence the urban sprawl and the ribbon developments that came out of it. 

That was a very different world from the one that a lot of people, certainly in Scotland and the north-east and north-west of England, were experiencing. We do not say because of that, “Well, actually, there isn’t really such a big problem. The jobs are out there if people would just go out and get them.” Of course, a lot of people did move south at that time. They moved to where the jobs were, hence the large number of Scots who live in places such as Corby, where you hear some real Scots accents when you talk to people. People had to move south because they had little choice, but it did create an imbalance, and we are in grave danger of doing that again. 

Sometimes I think that we are talking at cross purposes. I suspect that the constituencies of some Government Members are not having that great a problem, and perhaps they genuinely think that we are making mountains out of molehills, but we are not. Even in a city such as Edinburgh, where I do not have the unemployment levels that some of my colleagues have, we still have considerably higher unemployment than we had for most of the 2000s. We also have issues about people who are sort of in work, but find their work very unsatisfactory. 

One gentleman I met recently talked about his experience on the Work programme. He had been found a job as a security guard. It was 24 hours a week—he had hoped for full-time, but the hours were not available. He went to the job for three days and was not called back by the employer. That will count as a job start, although admittedly not in the final figures that the Department produces. However, when the previous official Work programme figures were issued, showing that the programme was not meeting even its minimum performance standard, the Government were very quick to endorse a report from the trade body that there had been a lot of job starts. 

Well, the gentleman I met would be a job start—a job start for three days that did not go any further. That was in March. He e-mailed his job adviser at the Work programme provider to tell him what had happened, and when I saw him two weeks ago, he had still not heard back. His adviser had not called him in to give him any of the personalised help that he was meant to receive. If he counts as a job start, that is not really what most of us would call a decent job. 

People need a decent opportunity and they need it sooner than they are getting it at the moment. Over the next few months, large numbers of people are going to come off the Work programme and back into jobcentres. They do not need to be told yet again that it is their fault, that they have not tried hard enough, that they have not made the effort over that period, and that now they are going to be further cajoled and potentially

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sanctioned if they do not want to take part in mandatory work experience, the evaluation of which showed that it had no effect. 

2.45 pm 

A lot of those people need a lot of help to get back to skilled employment. We think the compulsory jobs guarantee is one way to do that. If we can find that funding, it is more fair and equitable to use that money not to enable people to have an even more prosperous retirement than they might otherwise have had, but to help some of their fellow citizens get back into employment, and then they can begin to save for their retirement and take advantage of auto-enrolment for pensions. That sort of thing is no use if someone has no job to go to. 

Pamela Nash (Airdrie and Shotts) (Lab):  My hon. Friend makes a powerful argument for what a Labour Government would do in bringing in a jobs guarantee. I want to highlight that that does not go without proof. Labour local government is already putting in place some policies to push that strategy. The Secretary of State for Scotland was in Airdrie not long ago at a Teleperformance call centre and saw what North Lanarkshire council is doing to get young people back into work. Those who were not helped by that programme but were on the Work programme were crying out for the Government to do something earlier rather than later. 

Sheila Gilmore:  To sum up, we have a clear policy and want to be responsible about how we fund it, which is why we suggested it could be done in this way. Although the amendment does not necessarily say to implement it now, though I might like to see that, I hope— 

Ian Mearns:  My hon. Friend is generous with her time. One thing struck me. On an earlier intervention I mentioned regional differentiation. Earlier this week we were told that the Government were introducing new fines for people who were hogging the middle lane of the motorway. I think that exemplifies that there are significant regional variations in the economy, because chance would be a fine thing for someone to hog the middle lane of any major road in the north-east given that there are about only three miles of crawler lane in County Durham on the A1. Everything else is maximum dual carriageway. I look forward to the day, Mr Amess. 

The Chair:  Order. I think that is getting slightly wide of the amendment we are discussing. I gave the hon. Gentleman time to see where it was leading. 

  Sheila Gilmore: I thank my hon. Friend for his intervention, although we would probably disagree about whether to build road or rail. 

Ian Mearns:  Infrastructure. 

Sheila Gilmore:  Whatever it is, we need to give people a chance to do a proper job. It is extremely galling for us that the previous programme of the Future Jobs Fund was so hastily swept out of the way when it was a very good scheme for the young people it covered. We want to build on that and help people get the kind of real paid work experience that will enable them to get out from the shadow of unemployment. 

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Ben Gummer:  Some very important issues have been raised by Opposition Members. I know that we have been joshing, but this is a very serious matter. They are right to bring into the debate the important issue of long-term unemployment, which we do not discuss enough generally in this House. 

My experience of this in Ipswich is interesting. Contrary to what the hon. Member for Edinburgh East might think, many of us on the Government Benches represent towns with significant problems of unemployment. My hon. Friends the Member for Wolverhampton South West and for Warrington South and I share representation for ex-industrial depressed towns that have struggled, not just in the past four or five years but the past 20, 30 or 50 years since the gradual deindustrialisation of the country began after the war. The picture is complex and, unless we understand the complexity of the issues, we are not going to be able to deal with the root causes. 

In my town, unemployment has been rising since 2004; very gradually by 10 basis points every few months. Then there was a spike during the crisis. In the last six or seven months it has been coming down again. The unemployment rate is now roughly where it was when I inherited representation of the seat in May 2010. Youth unemployment has been going up quite considerably in my town since the middle of the last decade, but in the last few months it has been going down again to the point where it is just beneath the level it was in May 2010. 

Both of those figures show what has happened to long-term unemployment in that period, because long-term unemployment is considerably higher than it was in May 2010 but that is as a consequence—the clue is in the name—of a general accrual of unemployment and youth unemployment over a long period from the middle of the last decade. The Opposition were well intentioned in what they tried to do, especially in breaking the back of long-term unemployment, and they had some success in some areas. But we did not see the kind of revolution we should have seen when the economy was operating at full capacity, when we had one of the longest booms in British history and when they inherited some of the best fiscal circumstances that any Government have inherited since the 19th century. 

For the shadow Minister to say that he is giving us a lesson on how to deal with unemployment is something I object to in a small way. The people in my constituency are suffering as a result of the poor policies and the failure to take those opportunities when the country had more wealth than it has now. 

Mr Marcus Jones (Nuneaton) (Con):  My hon. Friend sets out an extremely good point. Does he agree that one of the other things that the Labour party did that contributed to the situation he describes was to allow immigration to go unchecked and uncontrolled? It reduced the opportunities for people in constituencies like his. 

The Chair:  Order. I have been lax in ensuring that hon. Members restrict their remarks to the amendment. I hope that the hon. Gentleman will not respond to that point. I hope he will keep his remarks more closely to the amendment. 

Ben Gummer:  The Opposition’s amendment states: 

“The review shall assess the impact that alternative uses for revenues currently committed to pensions tax reliefs and exemptions for the additional rate of income tax could have on job creation for the long-term unemployed.” 

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The Opposition do themselves a disservice at a time when they should be examining what they are about as a Labour party, by trying once again to find a little political hook on which to have a quick row with the Government rather than trying to understand precisely why we have the problem of long-term unemployment in this country. Were they to propose an amendment about a review of long-term debasement of skills, or on helping school leavers without decent qualifications, or on the impact of immigration, or on the changes in the labour market over the last 30 years, many Government Members would be happy to support them. 

Pamela Nash:  It is above my pay grade to table such an amendment, but I invite all members of the Committee to join my new all-party group on youth unemployment where we hope to consider some of these issues. Does the hon. Gentleman understand that the abandoning of the £150,000 cap gives out the wrong message to people who are really struggling at the moment? We are using this to highlight the fact that young, long-term unemployed people are struggling, but they see the very richest in our society benefiting yet again from the Government’s policies. 

Ben Gummer:  I completely sympathise with what the hon. Lady says, and there is emotional merit in it, but we are trying to get people into jobs. Here is where the Government have made a hard and difficult decision to try to stimulate the economy. Many of us represent towns and communities that have had a lack of private sector investment for many decades. That is the fault of several Governments. The way to get private sector investment is not to penalise entrepreneurs and people who might want to invest, but to try to free them up and free up the cash that they might wish to invest in my and others’ constituencies. 

Before the hon. Member for Nottingham East rises, I want to cite the example of one entrepreneur in my constituency who runs a company employing several hundred people and who made specific representations to me about the 50p rate. It is a wholly owned company. She is not one of those mega-rich people who can get round the 50p rate and the higher rate of taxation. She is one of those people who is hit right in the middle of the 50p rate and therefore has less money at the end of the year to reinvest in her business and to grow it and employ more people. Her argument was: “You can take 50p from me out of every pound that I make”—of course, the marginal rate is far higher—“but, at the end of the day, that means I have less to be able to build up the business and employ more people.” 

Chris Leslie:  If the hon. Gentleman were advocating a strategy that was working, he would perhaps have a case. However, in his constituency, the number of people who have been unemployed for more than a year grew by 7% from April 2012 to April 2013. There are now 1,115 people in Ipswich who are in the long-term unemployed bracket, which, incidentally, is more than half of his majority of 2,079. His neck is on the line. I would be very sad in some respects to see him lost from Parliament, although, obviously, I want a Labour MP in Ipswich. We would wish him well, but he has to realise that more than half of the people represented in his majority are long-term unemployed in Ipswich. 

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Ben Gummer:  I began my comments by saying I am very conscious of that. The clue is in the name: it is long-term unemployment, largely as a result—a tale—of many years of slowly growing general unemployment and a significant increase in youth unemployment, which has turned into long-term unemployment. The Labour party is always keen—rightly so—to stress that youth unemployment quickly translates into long-term unemployment. I am glad—apart from the fact that he is not a Conservative Member of Parliament—that the hon. Gentleman represents his seat. I am sure that in doing so he will be pleased that, whereas youth unemployment went up between 2005 and 2010 in his seat by 76%, under the coalition it has reduced by 8%, so when he asks whether the policies of the coalition Government are working, the answer can be found in his own seat. 

James Duddridge:  My hon. Friend is being grossly unfair on the shadow Minister, because there was a period of time when he was not in Government. He was working out there in the private sector as a lobbyist. 

Ben Gummer:  Perhaps that is one of the reasons why, during the time the hon. Gentleman was not representing his seat, youth unemployment went up by 76% under the last period of the Labour Government, and now, with the magic that has come with his new representation, it has reduced by 8%. 

The hon. Gentleman has asked, in all seriousness, whether the policies are working, and there is proof that they are. However, it will take a while to stimulate entrepreneurship, to encourage investment, and to get the kind of aspiration economy that we need in this country. 

Paul Uppal:  My hon. Friend is making a powerful and pertinent speech. My constituency has a rich industrial heritage, but many young constituents come to me and say that at so many points in the history of the constituency they have been dependent on the public purse and whatever quango or mechanism. I think people are looking forward to some aspect of private sector entrepreneurship to provide a route out of the poverty that exists in so many of these industrial constituencies. 

Ben Gummer:  I, too, share an ex-industrial seat, which has one of the proudest industrial heritages in the country. Unfortunately, a large part of the industry was purchased by the Labour MP, Robert Maxwell, who quickly asset-stripped it, including the trophy cabinet for the football team. We are now in a position where we do not have that, for various reasons—not just his poor management. All the reasons that we can adduce for the decline of British industry since the second world war were seen in part in Ipswich. It is through private sector investment, however, that we see long-term sustainable jobs, because, even if we were to wish it otherwise, even if the Labour party were to win the next election—I very much hope that it does not—it will not have the money to create public sector jobs in the way that it did from 2002 onwards. That money will not be there, so it could not just grow public offices, especially in the seats represented—I am sure very well—by Labour Members. 

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We heard about Middlesbrough, which has suffered for so long from the lack of private sector investment. That is true, but to get jobs back there, we need to do more of what the Government are doing by encouraging private sector investment, incentivising prosperity and share ownership. 

Andy McDonald:  The hon. Gentleman is making some interesting points about skills, as did his colleague, the hon. Member for Wolverhampton South West. However, to have an honest discussion about how we can make progress, we need to say that times have changed enormously over several decades. In my constituency, assistance could come from the public sector with investment in our infrastructure. 

We are crying out for investment in our local rail system. If we had a Tees valley metro, that would provide greater connectivity across that conurbation of half a million people. There are skills issues and we are addressing those, but the process would be assisted enormously by public investment in our infrastructure to serve industry and our communities. 

Ben Gummer:  I could not agree more with the hon. Gentleman; we need to invest more in infrastructure. It is a pity that infrastructure spending reduced at a time when Government coffers were growing after 2002-03 and it is to this Government’s credit that that has been prioritised. 

In my maiden speech, and since, I have made the point that we should go even further, cut current expenditure as far as possible and invest that in capital budgets—the Chancellor has done that in every single autumn statement since taking office. It is a pity that Labour has consistently voted against the Budgets put forward by my right hon. Friend the Chancellor, where he has proposed just that. 

We are now in a position where we can put a little more into infrastructure, and I hope that we can do far more, but the turnaround in skills and education will take many decades to complete. That must start now. 

If we are to get jobs back into Middlesbrough, where we want to see a revival of the kind of brave, pioneering, industrial spirit that made that town out of a small fishing hamlet into the industrial marvel that it was in the 19th century and after, that will come not from Government coffers, because the money is not there, but from entrepreneurs in Middlesbrough and around the world investing in that town and feeling that they will get a return out of it. Frankly, they can go anywhere else in the world to get a bang for their buck and they will do so in Middlesbrough only if the incentive is there in terms of pensions, income tax, dividends, capital gains and everything else. 

Labour Members may find that talk uncomfortable, but, in the end, the money will come only if the incentive is there. That is why I praise the Government for what they are doing to help high earners to invest more in this country. When the shadow Minister comes back with more amendments to the Bill, I hope that he does not see that as an opportunity to do what his boss so often does: to take the quick political turn rather than consider the long-term, detailed, sensible understanding of the problems that face us, whether they be skills, mass

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immigration or the education base. I hope that, rather than trying to attack the Government, he understands what we are trying to do. 

The Economic Secretary to the Treasury (Sajid Javid):  I thank all hon. Members for their contributions in discussing clause 48 and, in particular, the excellent, incisive speech by my hon. Friend the Member for Ipswich. 

Clause 48, together with clause 47 and schedule 21, makes changes to ensure that the cost of pension tax relief is fair, affordable and sustainable. Before I turn to the amendment tabled by the Opposition, it would perhaps be helpful to provide some background to the clause. 

For the same reasons discussed under the previous clause for the lifetime allowance, the Government announced, in the 2012 autumn statement, that we would reduce the annual allowance from £50,000 to £40,000 for 2014-15 and subsequent tax years. 

The restriction to both annual and lifetime allowances protects the public finances by limiting the amount of pensions tax relief going to the earners, and that is in line with the Government’s deficit reduction plans. 

The changes made by the clause will reduce the annual allowance for tax privileged pension savings from £50,000 to £40,000, effective from 2014-15 onwards. The restriction to the annual allowance is expected to raise about half a billion pounds a year, impacting those individuals with the largest pension savings. At present, 99% of pension savers have annual pension savings of less than the reduced annual allowance of £40,000, which still far exceeds average annual pension savings of about £6,000 each year. 

Let me turn now to the amendment. The Government keep all areas of the tax system, including the annual allowance and the associated lifetime allowance, under regular review. That is why we have decided to restrict the total amount of tax relief for individuals with the highest pension savings each year. When combined with the reduction in the lifetime allowance under clause 47, the changes introduced under clause 48 are expected to raise about £1 billion a year. 

In 2009, the previous Government proposed restricting tax relief on pension contributions to 20% for individuals liable to the additional rate. That would have introduced significant complexity into the tax system and damaged UK business competitiveness. This Government’s approach of reducing the annual allowance and the lifetime allowance as a means of restricting tax relief on pension contributions has been consulted on widely and is recognised by industry as a fairer and simpler tax policy that is better for business and better for the UK economy than the alternative put forward by the previous Government. 

The amendment would provide for a review of the impact of restricting relief at the additional rate, but I have explained why industry preferred the Government’s approach of restricting the annual and lifetime allowances. As we will continue to monitor the policy, as is the case for all other areas of the tax system, I do not believe that the proposed review is necessary. 

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Pamela Nash:  Is the Minister in a position to tell the Committee how many people have already benefited from the cap being abolished? What has been the monetary cost of that to the Exchequer? 

Sajid Javid:  Which cap that has been abolished is the hon. Lady referring to? 

Pamela Nash:  The tax relief—[ Interruption. ] I was referring to the restriction on tax relief for those earning more than £150,000, not that of £150,000—the previous tax relief that was abandoned in 2010. 

Sajid Javid:  I am not entirely sure what the hon. Lady means. Perhaps she was referring to the policy that was suggested by the previous Government and that was why she used the word “cap”. I assume that she was referring to the proposal to cap the tax relief at 20%. 

I am pleased that the hon. Lady raises that issue, because I wish to highlight the accusation made by the hon. Member for Nottingham East that what the Government are proposing is more generous than what the previous Government had proposed, although they did not have the time to implement it. I remind the Committee that the annual allowance was set by the previous Government in 2006 at £255,000. 

David Mowat (Warrington South) (Con):  Was that £255,000? 

Sajid Javid:  Yes, £255,000 a year. That figure was set in 2006. I am sure that the hon. Member for Nottingham East is aware that, prior to 2006, there were various caps for allowances that were determined through a complex formula, but it is fair to say that the system prior to 2006 was less generous. The introduction of the £255,000 cap in 2006 led to a landscape that was more generous for most pension savers. The impact of introducing the allowance in the first place in 2006 was therefore actually to provide more generous tax relief to the highest earners in society. That is probably not especially well known; it is probably not very well known among Labour Members. 

The outgoing Labour Government’s proposal was a cap of 20% of relief, but the hon. Gentleman will know that 20% of £255,000 is £51,000 of relief per individual. Under this Government, the relief on £40,000 at the current top tax rate is £18,000, so Labour would have given away £33,000 more in tax relief to each of the wealthiest individuals in society. I find the hon. Gentleman’s proposal completely bizarre. Like most things that come from the Opposition, it does not add up. 

Pamela Nash:  I thank the Minister for giving way so that I can clarify my earlier interventions. My understanding was that those earning more than £150,000 were not eligible for full tax relief, but that the current Government removed that provision in 2011. If that is the case, how many people have benefited from the change? 

Sajid Javid:  I think that the hon. Lady is referring to a proposal by a dying Government that was never implemented, so it is incorrect to say that we abolished or changed it. I hope that she will also appreciate that this Government are implementing an annual allowance

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of £40,000 rather than £255,000. Even if the £255,000 allowance put in place by the previous Government had been restricted at 20% tax relief—which it was not, by the way, but even if that had happened and we had carried out the previous Government’s proposals—individuals would receive £33,000 more in tax relief each year than they will under the scheme that this Government are putting into practice. 

Chris Leslie:  As usual, the Minister is throwing a bit of dust in the air by—if I may mix my metaphors—comparing apples with pears. He is quoting figures from an era before the global financial crisis, as though nobody would have looked at the revenue arrangements from 2008 onwards. It is a completely crazy comparison. 

I want the Minister to listen to the question that I am asking. As my hon. Friend the Member for Airdrie and Shotts asked, how many people are benefiting from the 45p rate? [ Interruption. ] Shall I repeat the question? How many individuals are benefiting from the 45p rate of tax relief under the proposal—not the 40p tax relief rate, but those who will gain 45p tax relief under the current arrangements? 

Sajid Javid:  First, I remind the hon. Gentleman that the financial crisis began in 2007, and that the annual allowance was a lot higher in 2007 than it is today, and than what the Government are proposing—[ Interruption. ] If he has forgotten when the financial crisis actually started, I worry about some of the amendments that he is putting forward. 

On the question about the higher tax rate, the Government have already been very transparent—far more transparent than the previous Government—and published our analysis of the reduction of the higher tax rate from 50p to 45p. The important thing is that we believe in a tax system that taxes the wealthiest the most, but involves taxes that they actually end up paying. 

Paul Uppal:  My hon. Friend has cited some truly shocking figures. We referred earlier to our friend John Mills, who has given out £1.5 million of shopping channel shares. Perhaps his motive was the allowance that we are discussing, and perhaps he wanted a return to the previous allowances that the Minister mentioned. 

Sajid Javid:  My hon. Friend makes a good point. Under Labour’s regime, individuals such as the one he mentioned would have been able, if their income was high enough—I have no doubt that that individual’s income was—to save more than £100,000 in tax by utilising Labour’s annual tax allowance. Most bankers in the City were no doubt using the allowance that Labour had generously given them, but the Opposition now turn round and pretend that that was somehow wrong. 

3.15 pm 

Chris Leslie :   I wonder whether the Minister has personal experience of using those generous tax allowances. Did he use them before coming into Parliament? 

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Sajid Javid:  It is always good practice not to bring our personal affairs into discussions of such important matters of state. 

The amendment mentions action on tackling unemployment, which was discussed at length, particularly by the hon. Member for Edinburgh East and my hon. Friend the Member for Ipswich. In an intervention before he made his speech, my hon. Friend made the good point that, under every Labour Government, unemployment has been higher on their leaving office than on their entering it. That is absolutely correct. I can confirm that unemployment was 1.65 million when the previous Labour Government entered office in 1997, yet it had risen to 2.48 million—an increase of more than 700,000 people—by 2010. 

Chris Leslie:  Will the Minister illuminate us about whether there has been an increase or a decrease in long-term unemployment in the constituency of Bromsgrove in the past 12 months? 

Sajid Javid:  I can illuminate the hon. Gentleman of the fact that the constituency of Bromsgrove has one of the lowest levels of unemployment in the country; it has been going down for months. I can also illuminate him of the fact that my hon. Friend the Member for Ipswich was right to point out that youth unemployment in the hon. Gentleman’s constituency during the last term of the previous Government rocketed by 76%, but it is down by 8% since this Government came to office. That equally applies to the constituency of his fellow Opposition spokesperson, the hon. Member for Kilmarnock and Loudoun, where the figure went up by 60% under the previous Government, but has come down by 7% under this one. 

The hon. Member for Edinburgh East, who talked so much about the importance of tackling unemployment and north-south issues—she is right to look at regional variations—did not highlight that during her party’s last term in office, youth unemployment in her constituency went up by 70%, but is down 8% under this Government. That equally applies to the constituency of the hon. Member for Middlesbrough, who also intervened on the importance of unemployment, where the figure went up by 58% during the Labour Government’s last term in office, but is down under this Government. 

Sheila Gilmore:  The problem with the Minister picking out those dates is that we have had an economic recession. During the vast bulk of the Labour Government, unemployment in Edinburgh was on a downward trajectory—it fell—which was a very good news story. 

Sajid Javid:  The hon. Lady talks about the recession. As we are learning, there has been only one recent recession in this country, and that was when her party’s Government were in office. Importantly, if she analyses the figures carefully, as I am sure she does for her constituency, she will find that youth unemployment began to rise significantly, and not just in her constituency, before the last recession—the largest peacetime recession in British history—which began under Labour. It rose by more than 70% throughout the country between 2005 and 2010, and that is why this Government will take no lectures from the Opposition on how to tackle unemployment. 

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Pamela Nash:  I am sure that the Minister remembers, like the rest of us, that the recession was global. Is he blaming the Labour party and the Labour Government for a recession throughout the world? 

Sajid Javid:  Clearly there are global elements to what happens in the British economy, but I do not hear much from the Opposition about the impact of the eurozone and other global elements on the British economy over the past three years. They choose to make things global when talking about their time in office, but when they talk of this Government, they think that everything is domestic. It is relevant that during the last term of the previous Government, youth unemployment in the hon. Lady’s constituency went up by 139%—it is hard to believe that figure as I look at it; I thought it must be a mistake, although I believe it is not—but under this Government it is down. 

Paul Uppal:  It often suits Opposition Members to use the global argument. However, to recall that period between 1997 and 2010, the Chancellor talked about golden economic rules and his love affair with prudence. When he kicked prudence out of the door, started bending those golden economic rules and steered away from Conservative spending plans, we saw the inheritance they bequeathed us. 

Sajid Javid:  As always, my hon. Friend makes an excellent point with which I agree wholeheartedly. 

I can bring together two elements regarding the amendment and the discussions we have had on unemployment. I have highlighted—and, I hope, made clear to the Committee—that while the previous Government were making annual allowances more generous in 2006, unemployment was soaring in this country. We must look at the actions of the previous Government when we analyse their policy recommendations now. Youth unemployment was rising significantly from 2005 to 2010 onwards, up more than 70%. 

While youth unemployment was soaring the previous Government were busy seeing how to increase and make more generous annual pension allowances. It is shameful. If the hon. Gentleman wants to rise to apologise, I will gladly accept the apology. 

Chris Leslie:  I want to put the Minister on notice that I will write to the chairman of the UK Statistics Authority. We have already seen a series of Ministers who have unwittingly misled Parliament or the public on these matters. I am sure that is not the Minister’s intention, but I suspect he is mistaken in his use of statistics and I will let him have a copy of the reply that I receive. 

Sajid Javid:  I welcome scrutiny, which was very unwelcome to the previous Government. I look forward to receiving a copy of the reply received by the hon. Gentleman. Perhaps if it corroborates the numbers that I have used, the hon. Gentleman will stand and issue an apology in this Committee for even questioning the numbers that are coming from the Treasury. 

The Government are determined to help those seeking employment. We have already heard references to the Government’s Work programme, a £3 billion to £5 billion payment-by-results support programme for the long-term

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unemployed. We have introduced a £1 billion youth contract to support 50,000 young people in employment and education, and we have introduced a more flexible JSA regime to support jobseekers in their search for employment. 

Under this Government, since the first quarter of 2010, more than 1.25 million new jobs have been created by the private sector. 

Sheila Gilmore:  The Minister consistently gives us these figures. One of the many interesting things about the figures is that as early as January 2011, the Government were telling us that 500,000 new private sector jobs had been created, which, even if the 1.25 million figure is correct, suggests that the rate of creation has in fact slowed down. Many economists have argued that the 500,000 jobs created by January of 2011 were a result of the economic stimulus applied by the previous Government. On top of that, the Minister fails to take into account the jobs that have been transferred from the public sector into the private sector, the 100,000 people on unpaid work experience or the fact that many of the jobs have very low hours. 

Sajid Javid:  If I understand the hon. Lady correctly, she is suggesting that 1.25 million new private sector jobs since the first quarter of 2010 is not enough and she wants more. I would like to see more, but I thought that she would welcome the fact that it is a near-record rate of job creation—one of the fastest rates of job creation that Britain has ever seen in the private sector—a faster rate of job creation than any other G7 country last year and almost the highest number of people that this country has ever seen employed in the private sector. 

Ian Mearns:  The Minister has reiterated the oft-quoted figure of 1.25 million new jobs. Every job is welcome, but I would like clarification on the full-time equivalence of those 1.25 million jobs. 

Sajid Javid:  I noted that point when the hon. Gentleman raised it earlier. I respect the fact that it is something he cares about and I was about to respond. I do not have the breakdown between full-time and part-time, but the ONS publishes the numbers, so if he looks at its website, I am sure that he will find the information easily. If he has any trouble doing that, I will be happy to provide him with the numbers. I am confident that the vast majority of the jobs in the figure I quoted are full-time, but it is important to point out that there is nothing wrong with part-time jobs. Many people up and down the country prefer part-time work to full-time work. I know that he is making a legitimate inquiry about the breakdown. I am sure that he respects the fact that many people prefer the flexibility that comes with part-time work, and many women in particular prefer part-time employment. 

Ben Gummer:  I cannot recall the precise figure either, but I remember from the most recent ONS survey that part-time jobs are converting to full-time jobs at the fastest rate since figures began. 

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Sajid Javid:  I thank my hon. Friend. I was not aware of that information, but I welcome that news and shall use it in debate in future. 

Sheryll Murray (South East Cornwall) (Con):  Does my hon. Friend agree that a lot of people are in part-time employment, as I was before I came to this place? It gave me the opportunity to serve my community as a local councillor, which was a good thing. A lot of people benefit in that way from part-time work. 

Sajid Javid:  My hon. Friend makes a good point. Part-time work and the flexibility it offers allows many people the opportunity not only to enter public service, as she did, but to dedicate their other time to good causes, such as charities, in their locality, as I have seen in my constituency, and I am sure that happens in all constituencies. 

Ian Mearns:  I accept entirely that many people in the general population who are lucky enough to be in work relish the chance to have a part-time job. I hope that the Minister will accept that significant numbers of employed people are, regrettably, underemployed. Part-time work is not in tune with their wishes, because they would prefer to work more hours. 

Sajid Javid:  The hon. Gentleman makes a good point. There are clearly people who are underemployed. That is a tragedy wherever it occurs, and the Government have put in place their various work programmes and other assistance to do everything they can to help the rate of job creation and to create full-time employment, where that is required by individuals. 

3.30 pm 

Before I conclude, I want to touch on the point about the impact of the annual allowance on individuals with defined-benefit pensions. As we know, the vast majority of people with defined-benefit pensions are in the public sector, but we estimate that about 1.9 million people in the private sector also have such pensions. Some 99% of public sector workers have pension savings of less than £40,000 a year, so it is fair to say that the vast majority will not be affected by the change in the annual allowance. The Government recognise, however, that the restriction of relief may create challenges for members of final salary schemes because of how promised benefits are valued in some of the schemes. Individuals may, therefore, carry forward unused annual allowances from up to three previous years, which limits the impact of unusually large accruals—from bonuses or promotions for example—and provides protection for most people on moderate incomes. 

My hon. Friend the Member for Rochford and Southend East asked the related question about whether there was a difference in tax treatment between public and private defined-benefit schemes, and I can confirm that there is no such difference. 

At a time when the public finances are under pressure, it is right that we take action to ensure that pensions tax relief is fair, sustainable and affordable. By restricting the level of the annual allowance to £40,000, the Government are creating what they believe is a more appropriate level of tax-privileged saving for retirement. That approach is far less burdensome for industry to

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deliver than that of the previous Government, and it leaves the vast majority of pension savers unaffected. I therefore ask that the amendment be withdrawn and that the clause stand part of the Bill. 

Chris Leslie:  That was an interesting speech from the Minister. I do not disagree with the proposal to reduce the annual allowance to £40,000, and I am glad that he accommodated in his response some of the issues that relate to defined-benefit schemes. I disagree very strongly, however, with the Government’s decision to opt for tax relief of 45% on pension contributions for people earning £150,000, at a time when such money could help the many people who are suffering from acute long-term unemployment. Given that every single Member on the Government’s Front Bench has seen an increase in long-term unemployment in the past 12 months, I would have thought that they would, at the very least, have taken the more reflective attitude, perhaps, of the hon. Member for Ipswich. I think he recognises that there is an issue to address, but he is clearly struggling under the burden of ideology that shackles his party in so many ways. One of these days, he will break free from that, and take a more moderate mainstream perspective. 

The need to tackle long-term unemployment is clear, and we know that there is resource that would be better committed to doing that. My hon. Friends have spoken eloquently of the fact that action is available to be taken if only the Government would listen, not just to the advice of the Opposition but to that of the International Monetary Fund and other institutions that have recommended a focus on tackling long-term unemployment. 

Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op):  Did my hon. Friend not find it strange, as I did, that, given its failures, the Minister was lauding the Work programme as part of the package? In Wales, the Jobs Growth Wales scheme has been up to eight times more successful than the Work programme, and it was welcomed by the Chief Secretary to the Treasury himself. 

Chris Leslie:  For it is he, the Chief Secretary, who sometimes takes a different view on these matters from other Treasury Ministers, even if he is one of the most conservative Liberal Democrats I have come across in my time. Maybe he is on a journey of his own, although long-term unemployment possibly beckons after the general election. But I digress. He may well benefit from the support that we think can be put in place by changing the priority from a tax relief for the highest earners in society. It would be perfectly feasible for this review to focus on those sums of money and look at job creation for the long-term unemployed. Although I do not oppose the clause as it stands, we do support amendment 14, and I would like to test the view of the Committee on it. 

Question put, That the amendment be made. 

The Committee divided: Ayes 8, Noes 17. 

Division No. 5 ]  


Ashworth, Jonathan   

Doughty, Stephen   

Gilmore, Sheila   

Jamieson, Cathy   

Leslie, Chris   

McDonald, Andy   

Mearns, Ian   

Nash, Pamela   

Column number: 389 


Baker, Steve   

Duddridge, James   

Gauke, Mr David   

Gummer, Ben   

Javid, Sajid   

Jones, Mr Marcus   

Kwarteng, Kwasi   

Menzies, Mark   

Mills, Nigel   

Mowat, David   

Murray, Sheryll   

Newmark, Mr Brooks   

Offord, Dr Matthew   

Pugh, John   

Stephenson, Andrew   

Thornton, Mike   

Uppal, Paul   

Question accordingly negatived.  

Clause 48 ordered to stand part of the Bill.  

Clause 49 

Drawndown Pensions and Dependants’ Drawndown Pensions 

Question proposed, That the clause stand part of the Bill. 

Chris Leslie:  We now come to the question of draw-down pensions, one of the lesser spotted U-turns that the Government have made since their omnishambles Budget. It is a welcome U-turn, but a U-turn nevertheless. It comes on top of a number of changes of mind that the Government have had. We welcome the change, but it has caused significant stress, anxiety and problems for those who have had to grapple with or consider the mess that the Government have made of pensions planning, in particular for individuals thinking about how to make ends meet in their remaining years of retirement. Although this issue is relatively complicated, the Treasury ought to have got it right in the first place when it decided in April 2011 to decrease the draw-down limit to 100%. It has now reversed that decision. 

Savers with defined-contribution pensions have two main options when they want to use their pension pot to generate an income and a lump sum: they can either buy an annuity that provides an income for the rest of their lives, or they can opt for income draw-down, where they withdraw from their pension pot but leave the bulk of the money invested. The Government estimate that 200,000 people have draw-down arrangements and 7.9 million people have defined-contribution pension funds. 

The amount of money that can be withdrawn by an individual who is not eligible for draw-down is set by the pension scheme administrator, based on figures produced by the Government Actuary’s Department and based on the yields for 15-year UK gilts as reported by the FTSE UK gilts indices. The fall in gilts, combined with the reduction from 120% to 100% of comparable annuity incomes, has resulted in some maximum draw-down amounts falling by 40%. Many campaigners have therefore been calling on the Government to increase the withdrawal limit back to 120% of comparable annuity levels—that is what we are talking about in percentage terms—and remove the link between gilt yields and maximum income draw-down calculations. The Government eventually relented, which is why clause 49 exists. 

As many hon. Members will be aware, concern has existed for a long time about annuity levels. The requirement for compulsory annuitisation by the age of 75 was removed, and temporary measures in the Finance Act 2010 allowed those who turned 75 after 22 June 2010 to

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defer a decision on their annuity until new rules were finalised. In July 2010 the Government launched a consultation about annuitisation, in which they stated that they wanted to increase flexibility while ensuring that people did not exhaust savings prematurely in retirement and fall back on the state, or use pension savings as a tax-privileged means of passing on wealth. We do not disagree with that goal, because it is important to ensure that individuals cannot deplete their pension savings and fall back on the state. 

However, the Government’s proposals, unwittingly, would have severely reduced the amount of income that pensioners who were affected would have been able to claim. In response to the consultation, the Government proposed to reduce the maximum withdrawal through the draw-down from 120% to 100% of comparable annuity levels, and to review the situation occasionally. A great deal of concern was voiced by those who would have been affected by the proposal, which resulted in the Chancellor’s U-turn in the 2012 autumn statement. Clause 49 returns the capped draw-down limit level to 120%. Clearly, the proposal has caused many people a lot of frustration, and the change would have had a considerable impact on the annual income levels of some pensioners. The Government’s change of heart is therefore welcome. 

3.45 pm 

I want to ask the Minister some questions about the clause. Why has HMRC historically focused the comparable annuity amount at 120%? What is the logic for picking that figure? I understand that the Government needed to change their mind because the 100% figure caused great anxiety, but can he explain why 120% was chosen? Is the settlement long term? Where are we on the review cycle? We know that the Government plan to review the situation every so often. It would be quite useful if he could reiterate where we are. Are we back to this situation now for at least three years? Is HMRC intending to look at the matter again in three years’ time? Does the Minister now admit that the Government made an error with that decrease to the 100% level? Can he at least explain to the public what went wrong and why the Government made that particular choice? Will he at least take the opportunity to apologise to those who have been affected by this particular change and recognise that it was the wrong thing to do? 

A smaller but none the less significant set of questions relate to draw-down and pensions. May I ask the Minister—this might be something he will want to write to me about, as I have not given him notice of the question—about individuals who suffer from serious illnesses and who are in need of particular pension provision because they might have a life expectancy of 12 months or less? A number of representations have been made to me and to other members of the Committee on the matter. If life expectancy is less than a year, and a recognised medical practitioner confirms the medical details, pension benefits can be paid out as a serious illness lump sum payment, so it is a draw-down of sorts. Those lump sums are often needed to provide for people in their last years of life, or to ensure that they do not leave their families with debt. 

However, if a person is projected to have more than 12 months but less than five years to live, the annuities are usually bought and therefore there are fewer options.

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Lump sum payments may be just as crucial for people in those horrendous situations. As we know with employment and support allowance, there are medical circumstances in which, sadly, some people know about their low life expectancy, but they may have more than that 12-month period left. In those horrendous circumstances, lump sum payments can be just as crucial, so does the Treasury have any plans to look at that particular boundary level timing? Will the Government consider extending the provision of serious illness lump sum payments to people who have terminal illnesses but a life expectancy of, say, three years? It would be possible to limit the availability of those lump sums to those with modest pension funds. They will obviously be in desperate need. I do not have information of the costings involved, but obviously I do not wish to incur any cost to the Exchequer. Some insight from the Minister’s officials on such matters would be extremely useful, because they are, sadly, of concern to a large number of people. I will be more than happy for the Minister to write to me on that matter. 

Sajid Javid:  Clause 49 raises the annual withdrawal limit on the income individuals can take from their draw-down pension fund. It increases the limit to 120% of the value of an equivalent annuity. In the Finance Act 2011, the Government reformed the rules surrounding draw-down policy to improve flexibility for individuals while ensuring that pension savings provide a sustainable income over their lifetime. 

Before April 2011, those aged under 75 could withdraw 120% of the value of an equivalent annuity, and those aged over 75 could withdraw only 90%. Individuals also face an effective requirement to purchase an annuity by the age of 75. The Government removed the restrictions by making income draw-down available throughout the whole of an individual’s retirement with a single annual withdrawal limit. That single limit was set at 100% of an equivalent annuity to ensure that people did not prematurely exhaust their draw-down funds, and for simplicity. 

However, in the short term other factors have affected draw-down and annuity rates, such as gilt yields and other investment returns. Those factors have combined with the change in the annual withdrawal limit to reduce significantly flexibility and individuals’ pensions in a way that was not intended under the Finance Act 2011. 

Clause 49 raises the annual limit of capped draw-down pension arrangements to 120% of the value of an equivalent annuity. That will benefit around 500,000 individuals in draw-down arrangements. The higher annual limit applies to all new draw-down pension years starting on or after 26 March 2013 and applies to both existing and new draw-down pensioners. In general, the Government’s decision has been welcomed by pension providers and pensioners. 

Before I conclude, I will turn to a couple of the specific issues the hon. Gentleman raised. 

Chris Leslie:  It is the words “before I conclude” that bring me to my feet. I cannot let the discussion of the decision on draw-down pass without asking the Minister a straightforward question: do the Government regret deciding to go to 100%? They are having to change their mind. Does he regret that? 

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Sajid Javid:  I was turning to the hon. Gentleman’s specific questions. He used the term “U-turn”, but the only recent U-turns I recognise are those performed by the Opposition. The clause and the changes we are talking about are not a U-turn, because the cap has increased to 120% for all ages, whereas the age-related restrictions imposed by the previous Labour Government set different caps for different ages. This policy is not the same as the one in existence before, so it is not a U-turn. To further answer his question, the policy reflects changes that have taken place in the gilt market and in other investment returns. It is appropriate for the Government to keep tax policy under review and make changes where it is considered appropriate. 

Chris Leslie:  Let me get this absolutely clear: is the Minister saying that this was always part of the plan? 

Sajid Javid:  What the Minister is saying is that we always keep tax policy under review to ensure that it is appropriate for the circumstances. When the circumstances change, especially those in the markets—the hon. Gentleman will know that the Government do not set gilt yields and investment returns in general—we look at the policy and ensure that it is appropriate and consistent with its original intentions. This change reflects that. 

Chris Leslie:  What market factor was so significant between 2011 and 2013 that it justified this change of heart? 

Sajid Javid:  Since 2011, a range of factors have affected draw-down rates, such as the gilt yields. I am sure that the hon. Gentleman can see for himself the changes in gilt yields and investment returns since we introduced the last change. Those factors have combined with the change in the annual withdrawal limit to reduce an individual’s total draw-down income. The changes in the clause will help mitigate that impact. 

The hon. Gentleman also raised the issue of individuals suffering from serious illness. He talked not just about individuals who may be in the last 12 months of their life, but those in the last two to three years—still serious conditions for individuals that have them. So far, I have not received many representations on that, but it is a good point. Any Government should have an open mind and ensure that the rules are sensible and practical enough to help individuals in such situations. He kindly invited me to write to him, furnishing him with more information on some of the representations and on our current approach, and I will take him up on that. 

In conclusion, the Government recognise that exceptional factors have reduced the amount of income available to pensioners in draw-down arrangements in recent years. Raising the draw-down limit to 120% will increase the amount of income available each year to individuals with draw-down arrangements and provide greater flexibility. 

Question put and agreed to.  

Clause 49 accordingly ordered to stand part of the Bill.  

Column number: 393 

Clause 50 

Bridging pensions 

Question proposed, That the clause stand part of the Bill. 

Chris Leslie:  Clause 50 enables a registered pension scheme to continue to pay a bridging pension until a member reaches state pension age. That is where the issue becomes quite interesting, because it relates to the choices made about the state pension age by the current and previous Administrations. Previously, a bridging pension had to be reduced by the age of 65. 

A bridging pension is a supplementary pension paid by an occupational pension scheme to a member who retires and starts drawing a pension before reaching state pension age. Bridging pensions are designed to ensure that members receive a regular income from the date they retire. When the member reaches state pension age, their pension is reduced by the amount of the state pension. I think that clause 50 is designed to try to align the tax rules on the payment of bridging pensions with the DWP changes to the state pension age. Will the Minister confirm that that is indeed the intention? 

The clause means that schemes that continue to pay bridging pensions will not face an additional tax charge as a result. However, it does not force schemes to continue to pay bridging pensions. It will have effect in relation to bridging pension payments made on or after 6 April 2013. Although it is a relatively uncontroversial proposition, will the Minister say what representations he has received on it? What were the views expressed in the consultation, which I think was a while back now, in 2011? 

Will the Minister also set out the estimated cost to businesses of the policy change and its administration? Clearly there is a changing picture in relation to the state pension age—it is not fixed, and a number of changes have been set out by not just the previous Administration, but the current Government. I would be grateful if the Minister could help on those administration issues and on the costs to businesses that have to host such pensions. 

Sajid Javid:  Clause 50 makes changes to align the tax rules on the payment of bridging pensions with the changes to the state pension age. Bridging pensions may be paid by some pension schemes when an individual starts receiving a pension before they reach state pension age. The idea is that where an individual retires at, say, the age of 60, their pension is higher at the outset to compensate for the absence of a state pension. When the individual reaches state pension age, their scheme pension is reduced by approximately the level of the state pension, providing a level income throughout their retirement. 

Column number: 394 

The tax rules require that a scheme pension must be payable for life and must not reduce, apart from in specific circumstances; this is one of those circumstances. Currently, legislation allows the pension to be reduced if the individual is aged between 60 and 65, 65 being the existing state pension age. However, the state pension age is increasing, and if no changes were made bridging pensions for individuals whose state pension age is 66 or older would have to reduce before the individual’s state pension age in order to comply with the tax rules. That would mean that the pensioner would face either an unintended gap in their level of retirement income or an unintended tax charge on their pension. 

The hon. Gentleman asked whether the measures were related to the change in the state pension age; that is correct. He also asked about proposed changes by the Department for Work and Pensions to the state pension age; they would necessitate a further review of this legislation to make sure that it achieves the purpose that I have set out. The changes made by clause 50 will enable schemes to pay bridging pensions to members until the state pension age where that is later than the age of 65. The change is supported by industry as well as by individuals who would be affected. 

Before I conclude, the hon. Gentleman also asked about consultation. I can confirm that the clause was subject to a two-month consultation period, during which we received two responses from the pensions industry. The responses raised concerns about the technical interaction of the new legislation with the existing pensions tax rules. Those concerns were found to be without basis. 

The measures ensure that the rules for bridging pensions keep up with changes in the state pension age and allow pension schemes to continue to provide their members with a bridging pension from retirement to state pension age without a gap in the level of income for pensioners. 

Question put and agreed to.  

Clause 50 accordingly ordered to stand part of the Bill.  

Steve Baker (Wycombe) (Con):  On a point of order, Mr Amess. I have learnt this afternoon that one member of the Committee will tonight be celebrating 30 years as a Member of Parliament. Would it be in order for the Committee to give you, Mr Amess, our very best wishes for your celebration tonight? 

The Chair:  Although that is not a point of order, it is an extremely nice thing to say and I thank the Committee. 

Ordered, That further consideration be now adjourned. —( Brooks Newmark. )  

4.1 pm 

Adjourned till Tuesday 11 June at ten minutes past Nine o’clock.  

Prepared 7th June 2013