Royal London has illustrated a number of issues in relation to what guidance ought to be and what would be a good practice model. For example, it says that there is a real prospect that many people who receive guidance will find that their needs are more complex than they originally thought, or that they do not know which of the retirement options would best suit their circumstances. There will be people in that category
2 July 2014 : Column 913
who would not normally consider using a financial adviser but who would benefit from advice at that point. That raises the prospect of people being referred on.
Royal London considered the impact of guidance on debt levels. People approaching retirement who have debt to pay off may need information and support in deciding whether to use some of their pension funds to pay off the debt, and some would require debt counselling. Royal London highlighted the fact that guidance should encourage people to shop around for the best deal, and suggested that after providing advice, providers should not be allowed to approach customers to try to sell their own products for three months. Interestingly, the insurance company suggested that, rather than the issue becoming a political football, guidance would best be provided by a not-for-profit organisation with a single focus. I look forward to hearing the Minister’s comments on those points.
If guidance is a stepping stone to advice, does that leave the consumer with a considerable additional expense, which could run into hundreds of pounds? If it becomes routine to lead people from free guidance to paid-for advice, what is the point? Another question that we raised in Committee was whether guidance would be available to everyone, regardless of where they live. The Minister acknowledged today that some of the guidance may be made available through the internet, which will not be suitable for everyone and will not be face to face. We need more explanation of the comments of the Pensions Minister when he suggested that group sessions were an option worth exploring. Are we to conclude that the Government’s position has moved from face-to-face advice or guidance to face-to-faces advice? I am not sure that many people would want to sit with others to discuss their private circumstances. I hope the Minister will deal with the point about face-to-face guidance, as it is important that people understand what is being offered.
Gregg McClymont: Before my hon. Friend moves off the important topic of guidance, I am sure she will agree that the context to this is that the median pension pot is much smaller than many hon. Members imagine: it is well below £30,000 a year. Moving from guidance to advice potentially means that a significant proportion of a person’s pension pot is eaten up by the cost of advice. We should all bear that in mind during the debate.
Cathy Jamieson: Once again, my hon. Friend makes an important point and anticipates some of the things I want to mention before bringing my remarks to a close. I understand that in some instances pension pots are relatively small, and we do not want a scenario in which people find that a fairly high percentage of their pension pot must be spent on taking the advice to which he refers.
In that context, I would be particularly interested to know whether the Government have conducted any serious work on how and when savers will invest the money taken out of their pension pots, particularly when those pots are relatively small. Industry analysis from Australia, which has total flexibility at the de-accumulation stage, has found that over half of pension lump sums are spent on homes and cars.
2 July 2014 : Column 914
Again, before people get excited and claim that I am somehow suggesting that people should not be in charge of their own money, let me make it clear that there is not necessarily anything wrong with that. For many people it might seem to be the reasonable thing to do. They might wish to pay off a mortgage or debt, buy the car they had not previously been able to afford, or make improvements to their home. Of course they ought to be able to make that choice, but they ought to be able to do so in the knowledge of what they might face in later years.
The potential impact of that change on the wider economy has already been mentioned, particularly in relation to the housing market. For example, what are the implications of people with substantial pension pots deciding to invest in property, particularly in the buy-to-let market? I also think that the Government must look at the impact on household savings ratios, given that the OBR has projected that they will fall from 5% in 2013 to just under 3% at the end of the forecast period. In the midst of any economic recovery that has been driven by consumer savings, any change in the way people choose to invest their savings and the consequent impact on the household savings ratio should be looked at very carefully.
In conclusion, I think that this is a crucial issue for thousands of people across the country. Many people do not think about pensions and long-term savings, and not because they have no interest in them or do not want to save, but because they are trying to manage their expenditure week by week and do not have the opportunity to look at the longer term. Everything we can do to encourage good-quality financial education is important, which is why we must get the guidance and advice absolutely correct. People also need to be confident that the information they get from the industry itself will be tailored and suitable for them.
Gregg McClymont: Perhaps this time I am not anticipating what my hon. Friend is about to say, as I think she is bringing her remarks to a close. It strikes me, having listened to the Government on this issue, that the employer is never mentioned. One arm of the Government is promoting workplace employer pensions, but what is the employer’s role in relation to greater flexibility and choice?
Cathy Jamieson: Once again, my hon. Friend makes a valid and important point. He is correct that I was about to conclude my remarks, so I will resist the temptation to go into great detail on that issue, other than to say—we raised this in Committee—that in some ways there seems to be no joined-up government here, with pensions sometimes seeming to be at odds with other aspects. Rather than all pulling together in the interests of the consumer, there could be tensions, which I think the Government should address.
As I have said, this is a crucial issue for thousands of people. We need to get it right. I am of course aware that there is further legislation coming down the line. However, given that the Minister indicated that at least some of our requests for information are reasonable and relevant to the matter being discussed, I hope that even at this late stage he will agree to our new clause, which we will want to press when the time comes.
2 July 2014 : Column 915
1.45 pm
James Duddridge: I find this issue rather exciting, although clearly the House does not, given how empty the Chamber is. The pension changes that the Government are bringing forward are absolutely essential and, I think, will transform the marketplace in the long term. However, I am concerned that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), having suffered the Finance Bill in Committee, seems to have spent the intervening time reading the Hansard reports of what we all said. Really, it is too much of a punishment to do that and then have to come back yesterday and today. Thankfully we will have Third Reading later this evening, if all goes well.
On new clause 13, my hon. Friend the Exchequer Secretary talked entirely about defined contribution schemes. When he winds up, perhaps he will update the House on what is happening with defined benefit schemes, or perhaps there are no transitional issues for defined benefit schemes in the new clause. I think it is entirely right to give people plenty of time to look at these issues, because a number of people were not expecting these changes and would not have predicted them, so they will need longer to consider their personal positions. As time goes on, I think that there will be less need for guidance and advice, whether provided by the state or privately, because people now going into defined contribution schemes will know what the options are likely to be when they come out. Indeed, five years from now it will be slightly more predictable. People should look at that years, rather than just a few months, before they retire. Of course, that is not possible immediately, given that these changes have only just come in.
Gregg McClymont: The hon. Gentleman will be aware that the other arm of the Government on this, the Pensions Minister, has developed a whole pensions policy based on the notion that inertia has to be harnessed for the public good, meaning that, as a rule, people are not aware of the complexities of pensions and there therefore needs to be a system in place so that those who do not exercise a choice still get a good outcome. Is the hon. Gentleman really that confident that we will very quickly reach a situation in which there will be informed consumers across the board who can make the kinds of investment decisions to which he is referring?
James Duddridge: I think that the default position will be that an annuity is purchased, rather than a lump sum being withdrawn. I think the hon. Gentleman is saying that that is the more cautious route, but I am concerned that it is not the right route for some people. Taking out a lump sum might make a lot more sense for them. However, it is an additional option. The guidance that the Government are offering is not perfect. In fact, perfect advice, if it is taken forward to a recommendation, is incredibly expensive.
Gregg McClymont: I thank the hon. Gentleman for that thoughtful response. I am not sure that the default position will be that someone is defaulted into an annuity. We need clarity on that as we discuss these clauses. I think that a choice will have to be exercised one way or another, but I might be wrong. Perhaps the Minister will provide clarity on that.
2 July 2014 : Column 916
James Duddridge: The Minister, as ever, will provide clarity, and I will ensure that he has plenty of time to do so.
We need to look at these changes in the round and consider other changes being made, particularly the individual savings account legislation that is going through. In the longer term, I think that ISAs and pensions will be linked and that we will move towards the individual retirement accounts we see in America, but working more from the base of an ISA up to a pension, rather than a merging of the two or a dumbing down of pensions.
An earlier intervention referred to spouse-to-spouse transfers on ISAs, which I think are particularly relevant in relation to new clause 13 and defined contribution pensions, because some people will be taking larger sums of money out and investing them directly into an ISA with little awareness that it cannot then be transferred to their spouse. The earlier the Government look at making spouse-to-spouse transfers exempt for inheritance tax, the better, particularly during this early transition period. The Sunday Times and a number of other financial services campaigners are urging the Government to look at the issue of spouse-to-spouse transfer, but I have not heard it mentioned with regard to the release of lump sums and defined contribution lump sums. Through new clause 13 the Government are recognising that there are transitional issues, but the additional transitional issue relating to ISAs has not necessarily been covered.
I welcome the reduction from £20,000 to £12,000, which entrusts individuals to make decisions. Changes to trivial contributions are also very welcome, particularly as people move from employer to employer, building up large numbers of very small pots. It may not make financial sense to merge them, so it may be better to take them out of a pension tax wrapper and independently move them to an ISA.
On the issue of guidance, we should be open and honest that the Government cannot afford to provide full-blown advice and recommendation. It is very good of the Government to allocate a significant sum of money to pointing people in the right direction. If the average pot is £30,000, as we have heard, the thousands of pounds that full-blown advice and recommendation may cost would be totally disproportionate to the potential benefit.
It is good to get guidance, but I would exercise caution about what is best: face-to-face guidance is not always the best option. If I wanted to transfer money or enact a financial transaction, I would not want to sit down face to face with my bank manager. I would much prefer the tried and tested method of interacting with and getting advice and guidance through the internet, at least at an early stage. I would not want the Government spending all the money on face-to-face guidance. Guidance on the internet may well be better for an increasing number of people, including a mini fact find into which they put their basic information.
The change may be from face-to-face to face-to-faces. Financial services presentations can work face to face, but they can also work over the internet. Once people have completed an initial fact find or an overview of their financial position—they may want to use their
2 July 2014 : Column 917
lump sum to repay debt, for instance—they could be diverted to an individual webcast with the relevant financial guidance.
Gregg McClymont: I thank the hon. Gentleman, who is speaking from his experience of the sector, for giving way again. Would he care to comment on why the existing annuities market was not working? My understanding of the analysis is that the default position of individuals was simply to accept what they were offered and not to get involved in the type of process to which he refers. If that means that the annuities market was a failure because people were not getting value for money as a result of not shopping around, what confidence does he have that there will be an overnight revolution in people’s engagement with the type of guidance he suggests?
James Duddridge: The annuities market was not working effectively in a number of ways, but, in relation to the lump sum, it did not work for a lot of our constituents if they rationally expected a very low life expectancy. If they had been diagnosed with a particular illness, the question of what would happen to their money would cause them great stress. It is important, therefore, to enable them to release some of that pension money and put it into another instrument so that their family can share it or, indeed, so that they can enjoy it themselves in their final years. I understand there is a risk of people under-predicting their longevity, but the large number of people with a diagnosed illness would like to access that pot. That is a slightly extreme position, but it is at the other end of the scale.
Dr Whiteford: The hon. Gentleman is making a very good point about encouraging people to shop around, but is he aware that many parts of these islands do not have very good internet access, so putting all the eggs in that basket will not help many people who want pensions advice?
James Duddridge: I agree that we should not put all the eggs in one basket, but we certainly should not put none in the internet basket. It is a very useful provision and, as public and domestic access to broadband improves throughout the islands, I think that use of the internet will speed things up.
I find it odd that so much of our discussion about this Finance Bill, which is a Treasury matter, has been about pensions Bills. The hon. Member for Kilmarnock and Loudoun has prayed in aid the Pensions Minister’s submission to the Department for Work and Pensions. I wonder whether we conduct our debates on Finance Bills in the right way, structurally speaking, and whether other departmental Ministers should be involved, where relevant, alongside Treasury Ministers. Fundamentally, the report supported by Opposition Members almost amounts to a fundamental review of a number of issues in the pensions industry, which is clearly in the remit of the DWP, not the Treasury. I am not arguing that it is wrong or right; it is just that not all the key players are involved.
Dame Anne Begg (Aberdeen South) (Lab):
I have some sympathy with what the hon. Gentleman is saying about the fact that these pensions provisions are being handled by the Treasury. Does he agree that the two pensions Bills announced in the Queen’s speech appear
2 July 2014 : Column 918
to pull in different directions? One is about giving people more control over their money, while the other is about collective direct contribution schemes, which are the opposite of that. That could lead to a conflict, because two Departments are involved in developing the policy.
James Duddridge: I do not believe they are contradictory, because some people want to hand over that level of responsibility.
I know that other Members want to speak. I wanted to make a number of other points, but I will sit down and leave it at that in order to give the Minister a chance to respond.
Mr Gauke: Let me quickly try to address some of the points that have been raised, many of which related to guidance. As I said earlier, the issue features in Labour’s new clause 9, but it is not directly related to the Finance Bill. I will be as helpful as I can. On the question of whether guidance will only be face to face, the face-to-face offer will be available to those who need and want it. However, that is not to say that it will be the exclusive delivery channel. Not everyone will want face-to-face guidance, as my hon. Friend the Member for Rochford and Southend East (James Duddridge) has made clear. For many people, both now and in the future, other channels will better suit their needs. We are currently considering the appropriate range of options for delivery channels, to ensure that consumer needs are properly understood and met, building on the views and evidence received during the consultation. We have asked the Financial Conduct Authority, working closely with the Pensions Regulator, the Pensions Advisory Service, the Money Advice Service and consumer groups, to co-ordinate a set of clear and robust standards that the guidance will have to meet.
The point was made about costs and, in particular, the £20 million funding. It is important to realise that that is a development fund for the purpose of getting the initiative up and running; it is not to pay for the ongoing costs of the scheme. We will talk more about that later.
Sheila Gilmore (Edinburgh East) (Lab): Does not that illustrate the need for gathering and publishing the information, as proposed by our new clause 9? We are constantly hearing new things, such as, “There will be more costs for guidance, but we don’t know what they are or what will happen.” If the information is going to be gathered anyway, as the Exchequer Secretary constantly assures us, why not publish it to make sure we get this right?
Mr Gauke: I do not know whether the hon. Lady was present earlier—[Interruption.] I am pleased that she was. She will have heard me say that we have consulted on this matter and will respond shortly. If I may provide a little more clarity, that will happen before the summer recess, so it is at that point that we will set out our proposals and, obviously, there will be an opportunity over the months ahead for the House to give them considerable scrutiny.
To address the particular point made by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about whether the numbers in the tax information and
2 July 2014 : Column 919
impact note have been changed, the answer is no. The TIIN has been amended to take account of the Government new clause and new schedule, but the impacts remain the same, so there is no fiscal cost. I hope that that clarification is helpful.
Lastly, to be clear about the guidance—we will get the full details on it—as we have said throughout, it will be impartial and will not include recommendations for specific products or providers. It will not be a sales process; it is important that the sales process is separate.
I hope that that information is helpful to the House. I hope that new clause 13 can be added to the Bill, and I advise my hon. Friends to oppose the Opposition’s new clause 9.
New clause 13 accordingly read a Second time, and added to the Bill.
2 pm
Proceedings interrupted (Programme Order, 1 July).
The Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).
Pension flexibility: Treasury analysis
‘(1) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons any analysis prepared by the Treasury prior to the publication of Budget 2014 relating to the impact of changes made by sections 39 to 43 of this Act to schedules 28 and 29 to the Finance Act 2004.
(2) The information published under subsection (1) must include—
(a) any assessment made of the impact of the provision for independent face to face guidance on the 2004 Act;
(b) the distributional impact, by income decile of the population, of changes made by sections 39 to 43 of this Act;
(c) a behavioural analysis; and
(d) the financial risk assessment.”—(Cathy Jamieson.)
Question put, That the clause be added to the Bill.
The House divided:
Ayes 241, Noes 295.
Division No. 29]
[
2 pm
AYES
Abbott, Ms Diane
Abrahams, Debbie
Ainsworth, rh Mr Bob
Alexander, rh Mr Douglas
Alexander, Heidi
Ali, Rushanara
Ashworth, Jonathan
Austin, Ian
Bailey, Mr Adrian
Bain, Mr William
Balls, rh Ed
Banks, Gordon
Barron, rh Kevin
Bayley, Hugh
Beckett, rh Margaret
Begg, Dame Anne
Benn, rh Hilary
Benton, Mr Joe
Berger, Luciana
Betts, Mr Clive
Blenkinsop, Tom
Blomfield, Paul
Blunkett, rh Mr David
Bradshaw, rh Mr Ben
Brennan, Kevin
Brown, Lyn
Brown, rh Mr Nicholas
Brown, Mr Russell
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burnham, rh Andy
Byrne, rh Mr Liam
Campbell, rh Mr Alan
Campbell, Mr Gregory
Campbell, Mr Ronnie
Champion, Sarah
Chapman, Jenny
Clarke, rh Mr Tom
Clwyd, rh Ann
Coaker, Vernon
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Corbyn, Jeremy
Crausby, Mr David
Creagh, Mary
Creasy, Stella
Cruddas, Jon
Cryer, John
Cunningham, Alex
Cunningham, Mr Jim
Cunningham, Sir Tony
Curran, Margaret
Dakin, Nic
Danczuk, Simon
David, Wayne
Davidson, Mr Ian
Davies, Geraint
De Piero, Gloria
Denham, rh Mr John
Dobbin, Jim
Docherty, Thomas
Donohoe, Mr Brian H.
Doran, Mr Frank
Doughty, Stephen
Dowd, Jim
Doyle, Gemma
Dromey, Jack
Dugher, Michael
Durkan, Mark
Eagle, Ms Angela
Eagle, Maria
Edwards, Jonathan
Efford, Clive
Elliott, Julie
Ellman, Mrs Louise
Engel, Natascha
Esterson, Bill
Evans, Chris
Farrelly, Paul
Field, rh Mr Frank
Fitzpatrick, Jim
Flello, Robert
Flint, rh Caroline
Flynn, Paul
Fovargue, Yvonne
Gapes, Mike
Gardiner, Barry
Gilmore, Sheila
Glass, Pat
Glindon, Mrs Mary
Goodman, Helen
Green, Kate
Greenwood, Lilian
Griffith, Nia
Gwynne, Andrew
Hain, rh Mr Peter
Hamilton, Fabian
Hanson, rh Mr David
Harman, rh Ms Harriet
Harris, Mr Tom
Havard, Mr Dai
Healey, rh John
Hepburn, Mr Stephen
Hermon, Lady
Heyes, David
Hillier, Meg
Hilling, Julie
Hodge, rh Margaret
Hodgson, Mrs Sharon
Hoey, Kate
Hood, Mr Jim
Hopkins, Kelvin
Hosie, Stewart
Howarth, rh Mr George
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs Siân C.
Jamieson, Cathy
Jarvis, Dan
Johnson, Diana
Jones, Helen
Jones, Mr Kevan
Jones, Susan Elan
Kane, Mike
Kaufman, rh Sir Gerald
Keeley, Barbara
Kendall, Liz
Khan, rh Sadiq
Lammy, rh Mr David
Lazarowicz, Mark
Leslie, Chris
Lewell-Buck, Mrs Emma
Llwyd, rh Mr Elfyn
Long, Naomi
Lucas, Caroline
Lucas, Ian
MacNeil, Mr Angus Brendan
Mactaggart, Fiona
Mahmood, Mr Khalid
Mahmood, Shabana
Malhotra, Seema
Mann, John
Marsden, Mr Gordon
McCabe, Steve
McCarthy, Kerry
McClymont, Gregg
McCrea, Dr William
McDonagh, Siobhain
McDonald, Andy
McDonnell, John
McFadden, rh Mr Pat
McGovern, Alison
McGovern, Jim
McKechin, Ann
McKenzie, Mr Iain
McKinnell, Catherine
Meale, Sir Alan
Mearns, Ian
Miller, Andrew
Mitchell, Austin
Moon, Mrs Madeleine
Morden, Jessica
Morrice, Graeme
(Livingston)
Morris, Grahame M.
(Easington)
Mudie, Mr George
Munn, Meg
Murphy, rh Mr Jim
Murphy, rh Paul
Murray, Ian
Nandy, Lisa
Nash, Pamela
O'Donnell, Fiona
Onwurah, Chi
Osborne, Sandra
Owen, Albert
Paisley, Ian
Pearce, Teresa
Perkins, Toby
Phillipson, Bridget
Pound, Stephen
Powell, Lucy
Qureshi, Yasmin
Raynsford, rh Mr Nick
Reed, Mr Jamie
Reed, Mr Steve
Reeves, Rachel
Reynolds, Emma
Reynolds, Jonathan
Riordan, Mrs Linda
Ritchie, Ms Margaret
Robertson, Angus
Robertson, John
Robinson, Mr Geoffrey
Rotheram, Steve
Roy, Lindsay
Ruane, Chris
Sawford, Andy
Seabeck, Alison
Shannon, Jim
Sharma, Mr Virendra
Sheerman, Mr Barry
Sheridan, Jim
Shuker, Gavin
Simpson, David
Skinner, Mr Dennis
Slaughter, Mr Andy
Smith, rh Mr Andrew
Smith, Angela
Smith, Owen
Spellar, rh Mr John
Straw, rh Mr Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr Gerry
Tami, Mark
Thomas, Mr Gareth
Thornberry, Emily
Timms, rh Stephen
Trickett, Jon
Turner, Karl
Twigg, Derek
Twigg, Stephen
Umunna, Mr Chuka
Vaz, Valerie
Walley, Joan
Weir, Mr Mike
Whiteford, Dr Eilidh
Whitehead, Dr Alan
Williamson, Chris
Wilson, Phil
Wilson, Sammy
Winnick, Mr David
Winterton, rh Ms Rosie
Wishart, Pete
Wood, Mike
Woodcock, John
Woodward, rh Mr Shaun
Wright, David
Wright, Mr Iain
Tellers for the Ayes:
Graham Jones
and
Mr David Hamilton
NOES
Adams, Nigel
Afriyie, Adam
Aldous, Peter
Alexander, rh Danny
Andrew, Stuart
Arbuthnot, rh Mr James
Bacon, Mr Richard
Baker, Steve
Baldry, rh Sir Tony
Baldwin, Harriett
Barclay, Stephen
Barwell, Gavin
Bebb, Guto
Beith, rh Sir Alan
Bellingham, Mr Henry
Benyon, Richard
Beresford, Sir Paul
Berry, Jake
Bingham, Andrew
Binley, Mr Brian
Birtwistle, Gordon
Blackman, Bob
Blackwood, Nicola
Blunt, Crispin
Boles, Nick
Bottomley, Sir Peter
Bradley, Karen
Brady, Mr Graham
Brake, rh Tom
Bray, Angie
Brazier, Mr Julian
Bridgen, Andrew
Brine, Steve
Brokenshire, James
Brooke, Annette
Browne, Mr Jeremy
Bruce, Fiona
Bruce, rh Sir Malcolm
Buckland, Mr Robert
Burley, Mr Aidan
Burns, Conor
Burrowes, Mr David
Burstow, rh Paul
Byles, Dan
Cable, rh Vince
Cairns, Alun
Cameron, rh Mr David
Campbell, rh Sir Menzies
Carmichael, rh Mr Alistair
Carmichael, Neil
Carswell, Mr Douglas
Cash, Sir William
Chishti, Rehman
Chope, Mr Christopher
Clappison, Mr James
Clark, rh Greg
Coffey, Dr Thérèse
Collins, Damian
Colvile, Oliver
Cox, Mr Geoffrey
Crabb, Stephen
Crockart, Mike
Crouch, Tracey
Davies, David T. C.
(Monmouth)
Davies, Glyn
Davies, Philip
Davis, rh Mr David
Dinenage, Caroline
Djanogly, Mr Jonathan
Dorrell, rh Mr Stephen
Dorries, Nadine
Doyle-Price, Jackie
Drax, Richard
Duddridge, James
Duncan, rh Mr Alan
Dunne, Mr Philip
Ellis, Michael
Ellison, Jane
Elphicke, Charlie
Evans, Graham
Evans, Jonathan
Evans, Mr Nigel
Evennett, Mr David
Fabricant, Michael
Fallon, rh Michael
Farron, Tim
Featherstone, Lynne
Field, Mark
Foster, rh Mr Don
Fox, rh Dr Liam
Freeman, George
Freer, Mike
Fuller, Richard
Gale, Sir Roger
Garnier, Sir Edward
Garnier, Mark
Gauke, Mr David
George, Andrew
Gibb, Mr Nick
Gilbert, Stephen
Gillan, rh Mrs Cheryl
Glen, John
Goldsmith, Zac
Goodwill, Mr Robert
Gove, rh Michael
Graham, Richard
Grant, Mrs Helen
Gray, Mr James
Grayling, rh Chris
Green, rh Damian
Grieve, rh Mr Dominic
Griffiths, Andrew
Gummer, Ben
Halfon, Robert
Hames, Duncan
Hammond, Stephen
Hancock, Matthew
Hands, rh Greg
Harper, Mr Mark
Harrington, Richard
Harris, Rebecca
Hart, Simon
Harvey, Sir Nick
Haselhurst, rh Sir Alan
Heald, Oliver
Heath, Mr David
Heaton-Harris, Chris
Hemming, John
Henderson, Gordon
Hendry, Charles
Herbert, rh Nick
Hinds, Damian
Hoban, Mr Mark
Hollingbery, George
Hollobone, Mr Philip
Howarth, Sir Gerald
Howell, John
Hughes, rh Simon
Hunt, rh Mr Jeremy
Huppert, Dr Julian
Hurd, Mr Nick
Jackson, Mr Stewart
James, Margot
Javid, rh Sajid
Jenkin, Mr Bernard
Jenrick, Robert
Johnson, Gareth
Johnson, Joseph
Jones, Andrew
Jones, rh Mr David
Jones, Mr Marcus
Kawczynski, Daniel
Kelly, Chris
Kirby, Simon
Knight, rh Sir Greg
Kwarteng, Kwasi
Lamb, Norman
Lancaster, Mark
Lansley, rh Mr Andrew
Latham, Pauline
Leadsom, Andrea
Lee, Dr Phillip
Leech, Mr John
Lefroy, Jeremy
Leigh, Sir Edward
Leslie, Charlotte
Lewis, Brandon
Liddell-Grainger, Mr Ian
Lidington, rh Mr David
Lloyd, Stephen
Lopresti, Jack
Loughton, Tim
Luff, Sir Peter
Lumley, Karen
Macleod, Mary
Main, Mrs Anne
Maynard, Paul
McCartney, Jason
McCartney, Karl
McIntosh, Miss Anne
McLoughlin, rh Mr Patrick
McPartland, Stephen
Menzies, Mark
Metcalfe, Stephen
Miller, rh Maria
Mills, Nigel
Milton, Anne
Mitchell, rh Mr Andrew
Moore, rh Michael
Mordaunt, Penny
Morgan, rh Nicky
Morris, Anne Marie
Morris, David
Morris, James
Mosley, Stephen
Mowat, David
Mulholland, Greg
Mundell, rh David
Munt, Tessa
Murray, Sheryll
Murrison, Dr Andrew
Neill, Robert
Newton, Sarah
Nokes, Caroline
Nuttall, Mr David
Offord, Dr Matthew
Ollerenshaw, Eric
Opperman, Guy
Osborne, rh Mr George
Ottaway, rh Sir Richard
Parish, Neil
Pawsey, Mark
Penrose, John
Perry, Claire
Phillips, Stephen
Pickles, rh Mr Eric
Pincher, Christopher
Poulter, Dr Daniel
Prisk, Mr Mark
Pritchard, Mark
Pugh, John
Raab, Mr Dominic
Randall, rh Sir John
Reckless, Mark
Redwood, rh Mr John
Rees-Mogg, Jacob
Reid, Mr Alan
Robathan, rh Mr Andrew
Robertson, Mr Laurence
Rogerson, Dan
Rudd, Amber
Russell, Sir Bob
Rutley, David
Sanders, Mr Adrian
Scott, Mr Lee
Selous, Andrew
Shapps, rh Grant
Sharma, Alok
Shelbrooke, Alec
Shepherd, Sir Richard
Simpson, Mr Keith
Skidmore, Chris
Smith, Chloe
Smith, Henry
Smith, Julian
Smith, Sir Robert
Soames, rh Sir Nicholas
Soubry, Anna
Spelman, rh Mrs Caroline
Spencer, Mr Mark
Stanley, rh Sir John
Stevenson, John
Stewart, Bob
Stewart, Iain
Stewart, Rory
Stride, Mel
Stuart, Mr Graham
Stunell, rh Sir Andrew
Sturdy, Julian
Swales, Ian
Swayne, rh Mr Desmond
Swinson, Jo
Syms, Mr Robert
Thornton, Mike
Thurso, John
Tomlinson, Justin
Tredinnick, David
Turner, Mr Andrew
Tyrie, Mr Andrew
Uppal, Paul
Vara, Mr Shailesh
Vickers, Martin
Villiers, rh Mrs Theresa
Walker, Mr Charles
Walker, Mr Robin
Walter, Mr Robert
Ward, Mr David
Watkinson, Dame Angela
Weatherley, Mike
Wharton, James
White, Chris
Whittaker, Craig
Whittingdale, Mr John
Wiggin, Bill
Willetts, rh Mr David
Williams, Mr Mark
Williams, Stephen
Williamson, Gavin
Wilson, Mr Rob
Wollaston, Dr Sarah
Wright, Jeremy
Wright, Simon
Yeo, Mr Tim
Young, rh Sir George
Zahawi, Nadhim
Tellers for the Noes:
Mr Sam Gyimah
and
Jenny Willott
Question accordingly negatived.
2 July 2014 : Column 920
2 July 2014 : Column 921
2 July 2014 : Column 922
2 July 2014 : Column 923
Pension flexibility: further amendments
Temporary extension of period by which commencement lump sum may precede pension
1 In Schedule 29 to FA 2004 (authorised lump sums under registered pension schemes) after paragraph 1 (conditions for a lump sum to be a pension commencement lump sum) insert—
“1A (1) Paragraph 1(1)(c) is to be omitted when deciding whether a lump sum to which this paragraph applies is a pension commencement lump sum.
(2) This paragraph applies to a lump sum if—
(a) the sum is paid in respect of a money purchase arrangement,
(b) the sum is paid before the member becomes entitled to the sum,
(i) the sum is paid on or after 19 September 2013 but before 6 April 2015, or
2 July 2014 : Column 924
(ii) the sum is paid before 19 September 2013, a contract for a lifetime annuity is entered into to provide the pension in connection with which the sum is paid, and on or after 19 March 2014 the contract is cancelled, and
(d) the member becomes entitled to the sum before 6 October 2015.
(a) a lump sum to which this paragraph applies is a pension commencement lump sum but would not be a pension commencement lump sum if sub-paragraph (1) were omitted, and
(b) the lump sum is paid to the member in connection with a pension under the scheme to which it is expected that the member will become entitled (“the expected pension”), no lump sum paid to the member out of the expected-pension fund is a pension commencement lump sum; and here “the expected-pension fund” means the sums and assets that from time to time represent the sums and assets that, when the lump sum mentioned in paragraph (a) was paid, were held for the purpose of providing the expected pension.
(4) For the purposes of sub-paragraph (2), if the circumstances are as described in sub-paragraph (2)(c)(ii), the member is treated as not having become entitled to the arranged pension as a result of the cancelled contract having been entered into; and here “the arranged pension” means the pension that would have been provided by that contract had it not been cancelled.”
Temporary relaxation to allow transfer of pension rights after lump sum paid
2 (1) In Schedule 29 to FA 2004 after paragraph 1A insert—
“1B (1) When deciding whether a lump sum to which this paragraph applies is a pension commencement lump sum—
(a) paragraph 1(1)(aa) and (c) and (3) are to be omitted,
(b) paragraph 1(4) is to be treated as referring to the actual pension (see sub-paragraph (2)(h) of this paragraph), and
(c) paragraph 2(2) is to be treated as referring to the arrangement under which the member was expected to become entitled to the expected pension (see sub-paragraph (2)(b) of this paragraph).
(2) This paragraph applies to a lump sum if—
(a) the sum is paid in respect of a money purchase arrangement,
(b) the sum is paid to the member in connection with a pension under a registered pension scheme to which it is expected that the member will become entitled (“the expected pension”),
(c) the expected pension is income withdrawal, a lifetime annuity or a scheme pension,
(d) the sum is paid before the member becomes entitled to the expected pension,
(i) the sum is paid on or after 19 September 2013 but before 6 April 2015, or
(ii) the sum is paid before 19 September 2013, a contract for a lifetime annuity is entered into to provide the expected pension, and on or after 19 March 2014 the contract is cancelled,
(f) the sum is not repaid at any time before 6 October 2015,
(g) before the member becomes entitled to the expected pension, there is a recognised transfer of the sums and assets that immediately before the transfer represent the sums and assets that when the sum was paid were held for the purpose of providing the expected pension,
2 July 2014 : Column 925
(h) the member becomes entitled before 6 October 2015 to a pension under the scheme to which the recognised transfer is made (“the actual pension”),
(i) the actual pension is income withdrawal, a lifetime annuity or a scheme pension, or some combination of them, and
(j) all of the sums and assets that represent the sums and assets transferred by the recognised transfer are used to provide the actual pension.
(3) If a lump sum to which this paragraph applies is a pension commencement lump sum, any lump sum paid—
(b) by the scheme to which the recognised transfer mentioned in sub-paragraph (2)(g) is made or by any other registered pension scheme (including the scheme from which the transfer was made), and
(c) in connection with the member’s becoming entitled to the actual pension,
is not a pension commencement lump sum.
(4) For the purposes of sub-paragraph (2), if the circumstances are as described in sub-paragraph (2)(e)(ii), the member is treated as not having become entitled to the expected pension as a result of the cancelled contract having been entered into.”
(2) In section 166(2) of FA 2004 (time at which a person becomes entitled to a lump sum)—
(a) before paragraph (a) insert—
“(za) in the case of a pension commencement lump sum to which paragraph 1B of Schedule 29 applies (certain sums paid before 6 April 2015), immediately before the person becomes entitled to the actual pension (see paragraph 1B(2)(h) of that Schedule),”, and
(b) in paragraph (a) for “of a” substitute “of any other”.
Temporary relaxation to allow lump sum to be repaid to pension scheme that paid it
3 In Chapter 3 of Part 4 of FA 2004 (payments by registered pension schemes) after section 185I insert—“
Repayments of lump sums
185J Effect of repayment of certain pre-6 April 2015 lump sums
‘(1) For the purposes of this Part—
(a) a lump sum to which this section applies is treated as never having been paid, and
(b) the payment by which it is repaid is treated as not being a payment.
(2) This section applies to a lump sum if—
(a) the sum is paid by a registered pension scheme to a member of the scheme in respect of a money purchase arrangement,
(b) the sum is paid to the member in connection with a pension under the scheme to which it is expected that the member will become entitled (“the expected pension”),
(c) the expected pension is income withdrawal, a lifetime annuity or a scheme pension,
(d) the sum is paid before the member becomes entitled to the expected pension,
(i) the sum is paid on or after 19 September 2013 but before 6 April 2015, or
(ii) the sum is paid before 19 September 2013, a contract for a lifetime annuity is entered into to provide the expected pension, and on or after 19 March 2014 the contract is cancelled,
(f) before the member becomes entitled to the expected pension, the member repays the sum to the pension scheme that paid it, and
(g) the repayment is made before 6 October 2015.
2 July 2014 : Column 926
(3) For the purposes of subsection (2), if the circumstances are as described in subsection (2)(e)(ii), the member is treated as not having become entitled to the expected pension as a result of the cancelled contract having been entered into.”
Calculation of “applicable amount” in certain cases
4 In paragraph 3 of Schedule 29 to FA 2004 (pension commencement lump sums: applicable amount) after sub-paragraph (8) insert—
“(8A) Sub-paragraphs (1) to (8) have effect subject to the following—
(i) paragraph 1A or 1B applies to the lump sum,
(ii) the lump sum is paid more than 6 months before the day on which the member becomes entitled to it,
(iii) a contract for a lifetime annuity is entered into to provide the pension in connection with which the lump sum is paid, and
(iv) on or after 19 March 2014 the contract is cancelled,
the applicable amount is one third of the annuity purchase price that would have been given by sub-paragraphs (4) to (5) in the case of that annuity had the contract not been cancelled, and
(i) paragraph 1A or 1B applies to the lump sum,
(ii) the lump sum is paid more than 6 months before the day on which the member becomes entitled to it, and
(iii) paragraph (a) does not apply,
the applicable amount is one third of the sums, plus one third of the then market value of the assets, held at the time the lump sum is paid for the purpose of providing the pension at that time expected to be the pension in connection with which the lump sum is paid.
(8B) For the purposes of sub-paragraph (8A)(a)(ii), the member is treated as not having become entitled to a pension as a result of the cancelled contract having been entered into.”
Expected pension commencement lump sums treated as trivial commutation lump sums
5 (1) In section 166(1) of FA 2004, in the lump sum rule, omit the “or” after paragraph (f), and after paragraph (g) insert “, or
(h) a transitional 2013/14 lump sum.”
(2) In Schedule 29 to FA 2004, after paragraph 11 insert—
“Transitional 2013/14 lump sum, and its related trivial commutation lump sum
11A (1) A lump sum is a transitional 2013/14 lump sum for the purposes of this Part if—
(a) the sum (“the earlier sum”) is paid to the member in connection with a pension under a registered pension scheme to which it is expected that the member will become entitled (“the expected pension”),
(b) the earlier sum is paid before the member becomes entitled to the expected pension,
(i) the earlier sum is paid on or after 19 September 2013 but before 27 March 2014, or
(ii) the earlier sum is paid before 19 September 2013, a contract for a lifetime annuity is entered into to provide the expected pension, and on or after 19 March 2014 the contract is cancelled,
(d) all of the sums and assets for the time being representing the sums and assets that when the earlier sum was paid were held for the purpose of providing the expected pension are, before the member becomes entitled to the expected pension, used in paying a further lump sum to the member (“the further sum”),
(e) the further sum is paid on or after 6 July 2014 but before 6 April 2015, and
2 July 2014 : Column 927
(f) the further sum is a trivial commutation lump sum (see sub-paragraph (2)).
(2) Sub-paragraph (4) applies when deciding under paragraph 7 whether the further sum is a trivial commutation lump sum in a case where the earlier sum is paid before the nominated date (see paragraph 7(3) for the meaning of “the nominated date”).
(3) If the earlier sum is a transitional 2013/14 lump sum, and the earlier sum and the further sum are not the only lump sums paid under registered pension schemes to the member, sub-paragraph (4) applies when deciding under paragraph 7 whether any other lump sum paid under a registered pension scheme to the member is a trivial commutation lump sum.
(4) If this sub-paragraph applies, the payment of the earlier sum is to be treated for the purposes of paragraph 8(1)(b) as a benefit crystallisation event—
(a) which occurs when the earlier sum is paid, and
(b) on which the amount crystallised is the amount of the earlier sum.
(5) If the earlier sum is a transitional 2013/14 lump sum, and only the sums and assets mentioned in sub-paragraph (1)(d) are used in paying the further sum, section 636B of ITEPA 2003 applies in relation to the further sum with the omission of its subsection (3).
(6) If the earlier sum is a transitional 2013/14 lump sum, and the sums and assets mentioned in sub-paragraph (1)(d) are used together with other sums and assets in paying the further sum—
(a) section 636B of ITEPA 2003 applies in relation to the further sum as if instead of the further sum there were two separate trivial commutation lump sums as follows—
(i) one (“the first part of the further sum”) consisting of so much of the further sum as is attributable to the sums and assets mentioned in sub-paragraph (1)(d), and
(ii) another consisting of the remainder of the further sum,
(b) the first part of the further sum is to be treated for the purposes of section 636B of ITEPA 2003 as having been paid immediately before the remainder of the further sum,
(c) section 636B of ITEPA 2003 applies in relation to the first part of the further sum with the omission of its subsection (3), and
(d) for the purposes of applying section 636B(3) of ITEPA 2003 in relation to the remainder of the further sum, the rights to which the first part of the further sum relates are to be treated as rights that are not uncrystallised rights immediately before the remainder of the further sum is paid.
(7) For the purposes of sub-paragraph (1), if the circumstances are as described in sub-paragraph (1)(c)(ii), the member is treated as not having become entitled to the expected pension as a result of the cancelled contract having been entered into.”
(3) In section 636A of ITEPA 2003 (income tax exemption for certain lump sums)—
(a) in subsection (1) after paragraph (c) insert—
“(ca) a transitional 2013/14 lump sum,”, and
“transitional 2013/14 lump sum”,”.
(4) In section 280(2) of FA 2004 (index of expressions) at the appropriate place insert—
| “transitional 2013/14 lump sum | paragraph 11A of Schedule 29”. |
Small pot lump sums
6 (1) In the Registered Pension Schemes (Authorised Payments) Regulations 2009 (S.I. 2009/1171) after regulation 3 insert—
“3A (1) This regulation applies to a lump sum if—
(a) the sum (“the earlier sum”) is paid under a registered pension scheme to a member of the scheme,
2 July 2014 : Column 928
(b) the earlier sum is paid to the member in connection with a pension under a registered pension scheme to which it is expected that the member will become entitled (“the expected pension”),
(c) the earlier sum is paid before the member becomes entitled to the expected pension,
(i) the earlier sum is paid on or after 19 September 2013 but before 27 March 2014, or
(ii) the earlier sum is paid before 19 September 2013, a contract for a lifetime annuity is entered into to provide the expected pension, and on or after 19 March 2014 the contract is cancelled,
(e) all of the sums and assets for the time being representing the sums and assets that when the earlier sum was paid were held for the purpose of providing the expected pension are, before the member becomes entitled to the expected pension, used in paying a further lump sum to the member (“the further sum”),
(f) the further sum is paid on or after 6 July 2014 but before 6 April 2015, and
(i) the payment of the further sum is a payment described in regulation 11, 11A or 12, or
(ii) the further sum is a trivial commutation lump sum within paragraph 7A of Schedule 29 and the earlier sum is the pension commencement lump sum in connection with which the further sum is paid.
(2) If this regulation applies to the earlier sum, and the payment of the further sum is a payment described in regulation 11, 11A or 12—
(a) the payment of the earlier sum is a payment of a prescribed description for the purposes of section 164(1)(f), and
(b) section 636A of ITEPA 2003 (exemption from income tax for certain lump sums) applies in relation to the earlier sum as if the earlier sum were a pension commencement lump sum.
(3) When deciding for the purposes of this regulation whether the further sum is a trivial commutation lump sum within paragraph 7A of Schedule 29, sub-paragraph (2)(c) of that paragraph is to be omitted.
(4) If this regulation applies to the earlier sum, and only the sums and assets mentioned in paragraph (1)(e) are used in paying the further sum, section 636B of ITEPA 2003 applies in relation to the further sum with the omission of its subsection (3).
(5) If this regulation applies to the earlier sum, and the sums and assets mentioned in paragraph (1)(e) are used together with other sums and assets in paying the further sum—
(a) section 636B of ITEPA 2003 applies in relation to the further sum as if instead of the further sum there were two separate trivial commutation lump sums as follows—
(i) one (“the first part of the further sum”) consisting of so much of the further sum as is attributable to the sums and assets mentioned in paragraph (1)(e), and
(ii) another consisting of the remainder of the further sum,
(b) the first part of the further sum is to be treated for the purposes of section 636B of ITEPA 2003 as having been paid immediately before the remainder of the further sum,
(c) section 636B of ITEPA 2003 applies in relation to the first part of the further sum with the omission of its subsection (3), and
2 July 2014 : Column 929
(d) for the purposes of applying section 636B(3) of ITEPA 2003 in relation to the remainder of the further sum, the rights to which the first part of the further sum relates are to be treated as rights that are not uncrystallised rights immediately before the remainder of the further sum is paid.
(6) For the purposes of paragraph (1), if the circumstances are as described in paragraph (1)(d)(ii), the member is treated as not having become entitled to the expected pension as a result of the cancelled contract having been entered into.”
(2) The amendment made by sub-paragraph (1) is to be treated as having been made by the Commissioners for Her Majesty’s Revenue and Customs under the powers to make regulations conferred by section 164(1)(f) and (2) of FA 2004.
Preservation of protected pension age following certain transfers of pension rights
7 (1) In paragraph 22 of Schedule 36 to FA 2004 (protection of rights to take benefit before normal minimum pension age) after sub-paragraph (6) insert—
“(6A) A transfer is also a block transfer if—
(a) it involves the transfer in a single transaction of all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the pension scheme from which the transfer is made which relate to the member,
(i) on or after 19 March 2014, and
(c) the date mentioned in sub-paragraph (7)(a) is before 6 October 2015.”
(2) In paragraph 23(6) of Schedule 36 to FA 2004 (meaning of “block transfer”) after “22(6)” insert “and (6A), but for this purpose paragraph 22(6A)(c) is to be read as if its reference to paragraph 22(7)(a) were a reference to sub-paragraph (7) of this paragraph”.
Operation of enhanced protection of pre-6 April 2006 rights to take lump sums
8 In paragraph 29 of Schedule 36 to FA 2004 (modifications of paragraph 3 of Schedule 29 to FA 2004 for cases where there is enhanced protection) after sub-paragraph (3) insert—
“(4) Paragraph 3 applies as if in sub-paragraph (8A)(a) for “is one third of” there were substituted “is—
where VULSR, VUR and LS have the same meaning as in sub-paragraph (1), and CAPP is”.
(5) Paragraph 3 applies as if in sub-paragraph (8A)(b) for “is one third of the sums, plus one third of” there were substituted “is—
where VULSR, VUR and LS have the same meaning as in sub-paragraph (1), and EP is the total of the sums, and”.”
Protected lump sum entitlement following certain transfers of pension rights
9 In paragraph 31(8) of Schedule 36 to FA 2004 (“block transfer” has meaning given by paragraph 22(6) of Schedule 36 to FA 2004)—
(a) after “22(6)” insert “and (6A)”, and
(b) at the end insert “, and reading paragraph 22(6A)(c) as if its reference to paragraph 22(7)(a) were a reference to sub-paragraph (3) of this paragraph.”
10 (1) In paragraph 34(2) of Schedule 36 to FA 2004 (modifications required by paragraph 31 in cases involving protected entitlements to lump sums) the sub-paragraphs treated as substituted in paragraph 2 of Schedule 29 to FA 2004 are amended as follows.
(2) In the substituted sub-paragraph (7A), in the definition of AC, for “(7AA) and (7B))” substitute “(7AA) to (7B))”.
2 July 2014 : Column 930
(3) After the substituted sub-paragraph (7AA) insert—
“(7AB) Where paragraph 1A applies to the lump sum, AC is the total of—
(a) the sums held, at the time the lump sum is paid, for the purpose of providing the pension at that time expected to be the pension in connection with which the lump sum is paid, and
(b) the market value at that time of the assets held at that time for that purpose.
(7AC) Where paragraph 1B applies to the lump sum, AC is the total of—
(a) the sums held, at the time the lump sum is paid, for the purpose of providing the expected pension (see paragraph 1B(2)(b)), and
(b) the market value at that time of the assets held at that time for that purpose.”
Reporting obligations
11 (1) In the Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567) after regulation 18 insert—
“Modified operation of these Regulations in the case of certain pre-6 April 2015 lump sums
19 Lump sums to which paragraph 1B of Schedule 29 applies
‘(1) Regulations 3 to 18 have effect subject to the following provisions of this regulation.
(2) Paragraphs (3) to (8) apply if—
(a) a lump sum is paid by a registered pension scheme (“the paying scheme”) to a member of the scheme,
(b) paragraph 1B of Schedule 29 applies to the lump sum, and
(c) the member’s becoming entitled to the actual pension mentioned in paragraph 1B(2)(h) of Schedule 29 has the effect that—
(i) the member also becomes entitled to the lump sum, and
(ii) the member’s becoming entitled to the lump sum is a benefit crystallisation event.
(b) regulation 3 so far as applying by virtue of that event, and
(c) obligations under regulation 14(1),
the benefit crystallisation event mentioned in paragraph (2)(c)(ii) is treated as occurring—
(i) in respect of the scheme to which the transfer mentioned in paragraph 1B(2)(g) of Schedule 29 was made (“the receiving scheme”) and not in respect of the paying scheme, and
(ii) when the member becomes entitled to the actual pension or, if later, on 5 August 2014.
(4) For the purposes of regulations 15(2)(a) and 17(5)(a)(i) and (7)(a)(i), that benefit crystallisation event is treated as occurring in respect of the receiving scheme and not in respect of the paying scheme.
(a) reportable event 7 (but not its definition of “the entitlement amount”),
(c) regulation 3 so far as applying by virtue of either of those events,
the lump sum is treated as having been paid—
(i) by the receiving scheme and not by the paying scheme, and
(ii) when the member becomes entitled to the actual pension or, if later, on 5 August 2014.
(6) For the purposes of reportable event 7 “the entitlement amount” is the total of—
2 July 2014 : Column 931
(a) the sums held, at the time the lump sum is actually paid, for the purpose of providing the expected pension mentioned in paragraph 1B(2)(b) of Schedule 29, and
(b) the market value at that time of the assets held at that time for that purpose.
(7) The scheme administrator of the paying scheme is to provide the scheme administrator of the receiving scheme with the following information—
(a) the date the lump sum was paid,
(b) the amount of the lump sum,
(i) the sums held, at the time lump sum is paid, for the purpose of providing the expected pension mentioned in paragraph 1B(2)(b) of Schedule 29, and
(ii) the market value at that time of the assets held at that time for that purpose, and
(d) a statement that no further pension commencement lump sum may be paid in connection with that expected pension.
(8) The scheme administrator of the paying scheme is to comply with its obligations under paragraph (7) before—
(a) the end of 30 days beginning with the date of the transfer mentioned in paragraph 1B(2)(g) of Schedule 29, or
(b) if later, the end of 3 September 2014.
20 Lump sums to which paragraph 1B of Schedule 29 fails to apply
‘(1) Regulations 3 to 18 have effect subject to the following provisions of this regulation.
(a) a lump sum is paid by a registered pension scheme (“the paying scheme”) to a member of the scheme,
(b) paragraph 1B of Schedule 29 does not apply to the lump sum, but the conditions in paragraph 1B(2)(a) to (g) are met in the case of the lump sum, and
(c) as at the end of 5 October 2015 it is the case that the lump sum is to be taken as having been an unauthorised member payment.
(3) For the purposes of reportable event 1, and regulation 3 so far as applying by virtue of that event, the lump sum is treated as having been paid—
(a) by the receiving scheme and not by the paying scheme, and
(2) The amendment made by sub-paragraph (1) is to be treated as having been made by the Commissioners for Her Majesty’s Revenue and Customs under such of the powers cited in the instrument containing the Regulations as are applicable.
Scheme sanction charges
12 (1) In section 239(3) of FA 2004 (cases where person other than scheme administrator is liable for a scheme sanction charge)—
(b) in the case of a payment of a lump sum to a member where the conditions in paragraphs 1(1)(b) and (d) and 1B(2)(a) to (g) of Schedule 29 are met, the person liable to the scheme sanction charge so far as relating to any part of the lump sum within the permitted maximum is the scheme administrator of the registered pension scheme to which the transfer mentioned in paragraph 1B(2)(g) of Schedule 29 is made.”
(2) In section 239 of FA 2004 (scheme sanction charges) after subsection (3) insert—
2 July 2014 : Column 932
“(3A) For the purposes of subsection (3)(b) “the permitted maximum”, in the case of a lump sum paid to an individual, is the amount that in accordance with paragraph 2 of Schedule 29 would be the permitted maximum for that lump sum if the individual became entitled at the time the lump sum is paid to the pension at that time expected to be the pension in connection with which the lump sum is paid.”
(3) In section 268 of FA 2004 (discharge of liability to scheme sanction charges etc) after subsection (7) insert—
“(7A) Subsection (7) applies with the omission of its paragraph (a) if the scheme chargeable payment is a payment of a lump sum where the conditions in paragraph 1B(2)(a) to (g) of Schedule 29 are met.”
(4) In the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (S.I. 2006/572) in article 18 (which provides for paragraph 1(1)(b) of Schedule 29 to FA 2004 to be omitted in certain cases) at the end insert “, and section 239 has effect in the case of a lump sum paid to that individual as if its subsection (3)(b) did not include a reference to paragraph 1(1)(b) of Schedule 29”.
(5) The amendment made by sub-paragraph (4) is to be treated as made by the Treasury under the powers to make orders conferred by section 283(2) of FA 2004.
Power to make further adjustments
13 In section 166 of FA 2004 (payments by registered pension schemes: the lump sum rule) after subsection (4) insert—
“(5) The Commissioners for Her Majesty’s Revenue and Customs may by regulations amend Part 1 of Schedule 29, or Part 3 of Schedule 36, in connection with cases involving a lump sum within subsection (6).
(6) A lump sum is within this subsection if—
(a) the sum is paid on or after 19 September 2013 and before 6 April 2015, or
(b) the sum is paid before 19 September 2013, a contract for a lifetime annuity is entered into to provide the pension in connection with which the sum is paid, and on or after 19 March 2014 the contract is cancelled.
(7) The provision that may be made under subsection (5) includes provision altering the effect of amendments made by the Finance Act 2014.”
14 In section 282(1) and (2) of FA 2004 (making of regulations and orders) for “Board of Inland Revenue” substitute “Commissioners for Her Majesty’s Revenue and Customs”.
Commencement
15 The amendments made by paragraphs 1 to 5, 6(1), 7 to 10, 11(1) and 12(1) to (4) of this Schedule are to be treated as having come into force on 19 March 2014.”—
(Mr Gauke.)
Brought up, and added to the Bill.
Review of reform to the annual investment allowance
“(1) The Chancellor of the Exchequer shall, within three months of the passing of this Act, undertake a review of the impact on business investment of changes to section 51A of the Capital Allowances Act 2001 made by Finance Act 2011.
(2) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.”—(Catherine McKinnell.)
Brought up, and read the First time.
2.15 pm
Catherine McKinnell (Newcastle upon Tyne North) (Lab): I beg to move, That the clause be read a Second time.
2 July 2014 : Column 933
New clause 10 takes us back to 2010 and the heady first few months of this Government. It takes us back to a time when the coalition, having inherited a growing economy from the Labour Government, choked that recovery off by adopting an anti-growth, short-termist, short-sighted approach to supporting business and jobs. As hon. Members will be aware, one of the Chancellor’s first moves in government was to announce in the June 2010 Budget that he was cutting Labour’s annual investment allowance. The new clause asks the Government to undertake a proper review of the impact on business investment of that terrible decision. We need to learn the lessons from that dreadful mistake.
Before we consider the new clause in more detail I want to remind hon. Members of the background to this important issue. The annual investment allowance was announced as part of the 2007 Budget by the former Chancellor of the Exchequer, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It was introduced as part of a package of reforms to enhance Britain’s international competitiveness, encourage investment and promote innovation and growth. The new allowance replaced first-year capital allowances and meant that from April 2008, under the Labour Government, businesses were able to offset up to 100% of expenditure on general plant and machinery in any given year against taxable profits, up to a limit of £50,000.
We recognised the value of this important allowance to companies up and down the country in supporting them to invest for the long term, and in helping them to create and safeguard jobs. That is why Labour took the decision to double it as part of a series of measures announced in the March 2010 Budget—in order to
“support start-ups and small and medium sized enterprises…to position the UK as a leading centre for research and innovation, and to ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy.”
The March 2010 Red Book stated:
“In order to provide further cash flow support and an incentive to increase business investment, the Government will increase the threshold of the AIA to £100,000 for expenditure incurred from April 2010.”
That announcement was hugely welcome to businesses up and down the country.
Charlie Elphicke (Dover) (Con): Will the hon. Lady say what the allowance is today—is it £100,000 or has it gone up?
Catherine McKinnell:
We are still at 2010; we will get to the present day in due course, but the hon. Gentleman seems to miss the point somewhat. Obviously, the Conservative party would like to airbrush out the unpleasant blip in 2010, when it almost abolished the investment allowance, and all the impacts that flowed from that, which were evident from the fall in business investment. That is the point that our new clause reinforces. The decision taken at that time was terrible. I do not know what the thinking was behind it—whether it had been planned for a long time by the Conservatives while they were in opposition, or whether it was simply a case of spitefully thinking, “It’s a Labour policy, so we will
2 July 2014 : Column 934
reverse it”—but it had catastrophic implications. As the hon. Gentleman’s question indicates, they had to think again.
Sheila Gilmore: I am sure that my hon. Friend, like me, welcomes the Government’s conversion and the way in which they have changed their policy. However, it is reasonable for us to question why the original decision was taken.
Catherine McKinnell: We can only speculate on what on earth was going through the Chancellor’s mind when he slashed an incentive that was clearly supporting those businesses in the very manufacturing industries that he claims to champion in making long-term investments, and creating and safeguarding the jobs that we need so desperately.
Mr Gauke: This policy was part of a package that included a significant reduction in corporation tax rates, which more than offset any impact on investment from the changes to the annual investment allowance. The Labour party has made it clear that it would increase corporation tax. This week, it has set out its test, which is to have the lowest corporation tax rate in the G7. That would enable a future Labour Government to increase corporation tax to 26%. Will she rule out a Labour Government increasing corporation tax to 26%?
Catherine McKinnell: Once again, Conservative Members, and indeed the Minister, want to brush over this inconvenient part of their so-called plan. They clearly made a bad decision in 2010. The purpose of the new clause is to show that. If the reduction in the annual investment allowance was offset by the reduction in corporation tax, as the Minister argues, why did they revisit the decision and increase the allowance again? That would not have been necessary if their only plan for supporting business up and down the country, which was to reduce corporation tax, had been successful. We supported that plan, but it was not enough on its own to offset the damaging uncertainty created by slashing the annual investment allowance from £100,000 to £25,000 in one fell swoop.
Charlie Elphicke: Will the hon. Lady rule out an increase in corporation tax under the next Labour Government, should one ever be elected—yes or no?
Mr Geoffrey Robinson (Coventry North West) (Lab): We are not discussing that.
Catherine McKinnell: My hon. Friend makes a fair point: that is not what we are discussing. However, I am interested to know whether the hon. Gentleman will rule out slashing the annual investment allowance with no notice if the Conservatives are re-elected in 2015. Will he confirm that—yes or no?
Charlie Elphicke: I hate to disappoint the hon. Lady, but I am not part of the Government. It is not for me, a Back Bencher, to rule anything in or out. I am proud that the Government have set the annual investment allowance at £250,000 and have massively reduced corporation tax. That is really great for business.
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Catherine McKinnell: The hon. Gentleman is obviously not able to rule in or rule out any slashing of the annual investment allowance, but we have had so much chopping and changing that there is major uncertainty over whether the Chancellor and other Conservative Ministers have a sensible approach to investment. It is as though they do not understand that chopping and changing—slashing the annual investment allowance from £100,000 to £25,000 and then increasing it again—is the worst approach if we are trying to encourage business investment in this country. That is the kind of uncertainty that we have seen under this Government. Although the hon. Gentleman cannot rule anything in or out, I am interested to hear whether the Minister will rule out any further chopping or changing on this policy.
Gordon Birtwistle (Burnley) (LD): I am in favour of capital allowances. I had an engineering company, and we believed that the Government should support successful engineering and manufacturing companies. Does the hon. Lady accept that a capital allowance of £50,000 on its own is not enough to encourage growth in the economy? Under the Labour Government, from 2007 onwards, GDP went down by 7% in the manufacturing sector, and probably by even more in some manufacturing sectors. I accept that we should have capital allowances, but they should be linked to other things. Does she agree with that?
Catherine McKinnell: That is very much the point that I was making and that we have made all along. We had a financial crisis in 2008, and the Labour Government did everything that could be done in those difficult times to support businesses in order to maintain investment levels, safeguard jobs and lay the foundations for the jobs of the future. That is why Labour decided to bring in the investment allowance, and then to double it in the Budget in March 2010. We knew that businesses needed certainty at that difficult time in the economic cycle to make investment decisions. That proved successful.
The U-turn by this Government was not quick enough. We called for it in every Finance Bill. Their eventual U-turn proved that the annual investment allowance was a successful policy, because they recognised that it needed to be reinstated. We have had these debates many times. We have supported the reductions in the corporation tax rate as part of a package of measures to support investment, jobs and growth. Unfortunately, the Government thought that corporation tax rates would do the job on their own. That is why they decided to slash the investment allowance, and to put all their eggs in one basket—the corporation tax basket. We have made it clear that we support a competitive rate within the G7 and the current rate, in order to provide the competitiveness that will create jobs and growth. The hon. Member for Burnley (Gordon Birtwistle) is right that that has to be part of a package of measures.
One key issue that businesses always raise is certainty. In chopping and changing this policy, the Government have undermined the certainty that is needed to give businesses the confidence to invest for the future.
Mr Gauke: Will the hon. Lady give way?
Catherine McKinnell: I will give way again, but I hope that it is in order for the Minister to confirm that the Tory party will rule out any further chopping and changing on the annual investment allowance.
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Mr Gauke: Our plans on the annual investment allowance are clear: this is a temporary increase until December 2015. If the hon. Lady disagrees with that and has a different policy, I would be grateful to hear what it is. She talks about certainty. She has repeated the position that her party has taken this week, which is that this country should have the lowest corporation tax rate in the G7. The second lowest corporation tax rate in the G7 is 26.5% in Canada. That would allow a future Labour Government to increase corporation tax not just from 20% to 21%, but up to 26%. Is that the policy of the Labour party?
Madam Deputy Speaker (Dame Dawn Primarolo): Order. As interesting as some Members might find the debate on corporation tax and the future policy, that is not the subject of the new clause that we are discussing. Although the subject is linked to the question of allowances, it is not the substantive point. I would be grateful if Members addressed their remarks mainly to the new clause. They may use supporting arguments, but they must not allow those supporting arguments to become the only things that are debated.
Catherine McKinnell: Thank you, Madam Deputy Speaker, for your sage guidance. I agree that the Minister appears to be diverting the discussion away from the issue of concern: the Government’s approach to the annual investment allowance, which is the subject of the new clause. It calls for a review of the impact of the Government’s decisions on the allowance. He seems very reluctant to address that issue.
Mr Robinson: Strictly on the annual investment allowance, is my hon. Friend not absolutely on the button when she says that the question under discussion is not corporation tax or anything of the kind, but rather the AIA and the strictly temporary nature of the Government’s increase and extension of it? Will the Government commit to extending the AIA beyond the election, or is this just another election ploy?
2.30 pm
Catherine McKinnell: My hon. Friend raises an important point, and that is the first time we have heard a Government Minister confirm that this is a temporary measure. I think that reinforces the argument in the new clause, which is that we should analyse the impact of the various changes to the AIA, year on year—it has gone up, down and all around—on businesses and their investment decisions. Hopefully, that will inform any decisions on the allowance, whether by a future Conservative Government or, as is more likely, a future Labour Government.
Charlie Elphicke: The temporary nature of the investment allowance is clearly set out in a press release issued on 1 January 2013, and I am staggered that the hon. Lady says this is the first time she knew about it. The Labour party ought to brief itself better than that.
Catherine McKinnell:
Well, it simply reinforces the impression—in fact, the reality—that the Government are perfectly well disposed to chopping and changing their policy and approach to the annual investment allowance. That is the point we are trying to make, and
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the point behind the new clause. The Government should stop and take a look. I have heard from businesses that they would rather have no investment allowance than have chopping and changing of the AIA, because that can be destabilising for investment decisions. They would rather have a more stable approach to policy making than that being displayed by the Government.
Returning to the history of the investment allowance, the previous Labour Government doubled it, recognising its importance to giving businesses confidence to invest for the future, and to be supported within the tax system to make such decisions. What happened after it was doubled? We know that, in his infinite wisdom, the Chancellor decided as part of his emergency Budget—or so he called it—in June 2010, to announce to great fanfare that the annual investment allowance would be cut. However, it would not just be cut. At a time when the economy was growing after the financial crisis, the Chancellor decided that the best way to secure the recovery and back British businesses and jobs was to slash the annual investment allowance to just £25,000 from April 2012, as in the Finance Act 2011. He sought to reassure us that the impact of that reduction from £100,000 to £25,000 would be limited because:
“Over 95% of businesses will continue to have all their qualifying plant and machinery expenditure fully covered by this relief.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]
In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. HMRC’s tax information note at the time stated:
“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”
“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”.
Therefore, in the Chancellor’s terms, only 5% of businesses would have been affected by his decision to slash the allowance. In anyone else’s terms, however, that is somewhere between 100,000 and 200,000 firms. That is a significant number of businesses that are employing—or potentially employing—a significant number of people, while also indirectly supporting employment through their supply chains. That seems to ring true of the Government’s approach because when they speak about being pro-business, they seem to forget the many businesses out there that do not fit the Tory vision of what businesses are, and it seems that those 100,000 or 200,000 firms did not feature on the Chancellor’s radar.
Let us remind ourselves briefly of some of the views expressed at the time about the decision the Chancellor took. The independent Institute for Fiscal Studies commented that losers from the cut
“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply to more firms in the manufacturing and transport sectors, it may also be true for some capital intensive service sector firms.”
A senior economist at the manufacturers association, the Engineering Employers Federation, said that financing cuts to corporation tax by
“cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”
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In evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation and now director of the Office of Tax Simplification, expressed his concern that the measure would particularly hit medium-sized firms.
The June 2010 Budget cut the annual investment allowance to £25,000 from April 2012 on the grounds that, in the Chancellor’s view, only 5% of firms would be affected. We then had two autumn statements and two Budgets, at which we put these arguments to the Government, before the Chancellor announced in the autumn statement 2012, again to great fanfare, that he would “temporarily” increase the AIA—the one he had just cut to £25,000—to £250,000 from January 2013.
What happened to business investment between the June 2010 Budget and the 2012 autumn statement that drove the Chancellor to move from feeling perfectly comfortable in slashing the annual investment allowance, because more than 95% of businesses would be unaffected, to announcing in 2012 a significant increase in the AIA to £250,000? Let us cast our minds back to what the Chancellor said when he announced that decision in autumn 2012. He said he was increasing the annual investment allowance because:
“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]
What exactly does that say about the Chancellor’s cavalier approach back in 2010? Surely the complete opposite—[Interruption.] I see Government Members rolling their eyes, but unfortunately they need to face the truth.
Dr Thérèse Coffey: The hon. Lady is right—I should not roll my eyes; I should get up and engage in debate. We know about the note left by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne): “There is no money left”. Since then, the Office for National Statistics has confirmed that the recession was even deeper than expected. The Government made choices at the time, and there was a clear intention to start to reduce the rate of corporation tax in the grand fiscal regime. Nevertheless, there has certainly been a successful demonstration of industrial strategy, and many more millions of jobs are now being created. It is right that we put our backing behind reinvestment in capital allowances.
Catherine McKinnell: It is a little desperate to try to justify what is proven to have been a flawed decision-making process back in 2010. By the Chancellor’s own accounts, the measure was a huge blow to all those businesses that aspire to grow, invest for the long term and create jobs.
Sheila Gilmore: Does my hon. Friend agree that it seems odd to suggest that the chopping and changing was due to a sudden discovery that the economy was improving? The decision, in effect, to reintroduce the allowance was taken in 2012, when growth was extremely low. It would appear from these plans that, having declared an intention to increase the allowance briefly to £500,000 for one year only, it could drop down to £25,000 in January 2016. What kind of investment planning are companies able to do on that basis?
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Catherine McKinnell: As ever, my hon. Friend makes an insightful intervention and raises the key question. The Government need to take a step back and look at the impact their decision-making is having on businesses and their ability to make the long-term decisions necessary to secure the jobs, economic growth and the rebalancing of the economy that we all wish to see.
The Chancellor and his Treasury Ministers cannot have it both ways: either the annual investment allowance supports growth and the creation of jobs or it does not. Labour welcomed the decision to increase the allowance from January 2013 to £250,000, because we know it is important to support business growth and to foster long-term investment. However, we are concerned—this is why we have tabled new clause 10—about the Chancellor’s erratic and, frankly, bizarre approach to this important issue. Slashing the allowance from £100,000 to £25,000 and then announcing that they would temporarily increase it to £250,000, all in the space of just two and a half years, does not, and did not, inspire confidence in the Government’s long-term approach and strategy for supporting growth and investment.
Gordon Birtwistle: As I said, I fully support any funding that goes into capital allowances, but we have to remember that in 2010 companies were not making much profit. They were mainly on their knees from the recession that had been created previously. Companies can only set their allowance against profit, so if they are not making a profit there is no allowance to claim. The Inland Revenue was probably right to say that only 5% of companies were taking it up, because we were coming out of recession. A lot more companies are now busy working hard and making a profit, so the capital allowance is more beneficial to them as they are getting it back against the tax that they are paying now that they were not paying in 2010.
Catherine McKinnell: I know the hon. Gentleman’s interest in this issue is sincere. The Treasury may or may not have been right in its assessment that only 5% of businesses would be affected, but that is still 100,000 to 200,000 businesses—not to mention the supply chain. The new clause seeks an assessment of the impact of the decision taken at the time. How much of an impact did it have?
The hon. Gentleman says that, as we come out of recession, some businesses will be making more profit and will therefore be able to make more use of the annual investment allowance. That was exactly the point of bringing in the allowance in 2010. We had been through a global financial crisis and we knew that many businesses would be very uneasy about making the sort of long-term financial investments, on which they would not see a return immediately, that are necessary to create jobs. The intention of introducing and doubling the allowance in 2010 was to give businesses the confidence to invest. We know that it was welcomed by business at the time and we know that this Government’s decision to slash it to £25,000 was abhorrent to many businesses, particularly in the manufacturing sector. They needed the support and confidence to make the investments that we need to start seeing the benefits of now.
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2.45 pm
Gordon Birtwistle: The hon. Lady is being very generous. Does she accept that if a company is not making a profit, it will not have the capital resources to purchase the assets against which they can get the capital allowance? What is the point of the Chancellor making it available if companies, which are coming out of recession and really struggling with cash flow, will not be able to find the cash to buy the assets to claim the allowance against? Surely it is better saving it until companies are beginning to make cash profits. They can then buy the assets to improve the profitability of the company and claim the asset back.
Catherine McKinnell: I think the hon. Gentleman is rather confused. The purpose of the allowance is to enable companies to invest and to take advantage of tax support. If they are not able to take advantage of the annual investment allowance, there is no cost to the taxpayer, so why chop and change the regime and create uncertainty? Businesses need, from one year to the next, to be able to project and say, “This year we cannot afford to make an investment, but next year we can afford to invest so much in plant and machinery and we will be able to offset so much of that against tax.” The Government, however, have been chopping and changing the allowance. Companies cannot make long-term investment decisions from one year to the next without knowing exactly what their tax position will be.
The hon. Gentleman is actually making a very good argument for new clause 10 and I will be very surprised if he does not support us in the Lobby this afternoon. He speculates on companies that may or may not be able to invest and take advantage of the annual investment allowance. Our new clause asks the Government to undertake a proper review of the impact of slashing the annual investment allowance and then increasing it on a temporary basis. Many businesses have said to me—I am sure they have said it to the hon. Gentleman—that it is that uncertainty that creates the difficult environment for businesses to invest. They do not know, from one year to the next, what any tax allowance might be. We want to get to the bottom of that, so the mistakes the Chancellor made in 2010 will not be repeated.
Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced at the 2012 autumn statement:
“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years, the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem”.
Hon. Members do not need to take it from me, but from a whole range of sources who have raised this as a concern. The Institute of Chartered Accountants in England and Wales welcomed the increase to the allowance, but said:
“We are less enthusiastic about the frequency of the change to this amount.”
Let me be clear, the Opposition welcomed the 2013 increase in the annual investment allowance to £250,000, but we share the very serious concerns about the extremely complex manner in which that was implemented. As hon. Members may be aware, many organisations and
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individual businesses raised concerns that the increase to £250,000 would run from January 2013 to January 2015, rather than over companies’ usual accounting periods, making it problematic for firms, particularly small ones, to administer. Indeed, as the Association of Taxation Technicians neatly put it at the time,
“the chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses.”
The Opposition also welcomed the Chancellor’s announcement in Budget 2014 to extend the period of the temporary increase to 31 December 2015, with the allowance being temporarily increased again to £500,000 from April 2014. The straight fact, however, is that the Chancellor and his Government have tied themselves in knots over this vital issue. Just last year, when we considered in Committee what is now the Finance Act 2013, the then Economic Secretary to the Treasury, the Secretary of State for Culture, Media and Sport, the right hon. Member for Bromsgrove (Sajid Javid), explained why the increase in the allowance to £250,000 from January 2013 would be a temporary measure only. He said:
“We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent.”––[Official Report, Finance Public Bill Committee, 16 May 2013; c. 145.]
A matter of months later, at Budget 2014, the Chancellor decided to about-turn once again, and extended and temporarily increased the annual investment allowance further—before, presumably, he intended it to return to £25,000 from 1 January 2016. As the Chartered Institute of Taxation put it so well, the one thing businesses need most, particularly in challenging economic times, is certainty. They need long-term stability and predictability to give them the confidence to invest, to make plans for the future and to take on more staff. What they have got from this Government, however, is a continual chopping and changing, with U-turn after U-turn and what seems to be a complete lack of strategic thinking.
What we need to hear from the Minister today is confirmation that the Treasury and his Government have taken seriously the impact of their decisions on business confidence, investment and jobs. We need to know that they have learned from the Chancellor’s mistake back in 2010, and that they will properly review its impact to ensure that the same mistake is not made again.
What assessment has the Minister made of the number of businesses that were not able to grow after the annual investment allowance was slashed? How many jobs could have been created during the last three years of flatlining growth while we have undergone the slowest recovery for 100 years? How many households could have been better off as a consequence, but will find themselves worse off in 2015 than they were back in 2010? Let us not forget that in 2010, back when the Chancellor was slashing the annual investment allowance, he said that the economy would have grown by 9.25%
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by now. Instead, it has grown by just 4.6%—far slower than in the United States or Germany. Indeed, GDP growth this year is still expected to be lower than the Office for Budget Responsibility forecast in 2010.
On Monday, my right hon. Friend the shadow Chancellor made an important speech about Labour’s approach to developing a business tax system that promotes long-term investment, supports enterprise and innovation and, most importantly, provides a stable and predictable policy framework for business, which is founded on fairness. Yesterday, my right hon. Friend, the Leader of the Opposition set out how a future Labour Government will mend Britain’s fractured economy and develop a genuinely long-term approach to backing growth in every part of this country to ensure rising prosperity for all.
It is this long-term approach to growth and backing Britain’s business and jobs that has been so lacking from this Government, and nothing illustrates it better than their shambolic and chaotic approach to the annual investment allowance since 2010. For that reason, I urge hon. and right hon. Members to back new clause 10 this afternoon, to ensure that the Government understand the impact of the Chancellor’s dreadful decision making back in 2010, and that they do not make the same mistakes ever again.
Charlie Elphicke: This new clause highlights two problems relating to its proposers and their party. The first is that they are stuck in the past. They have talked about the past and completely failed to set out their case for the future and the kind of Britain they would like to create. They just want to talk about something that happened previously. This is another one of the instrumentalised nuggets of attack, policy and press strategies referred to by Labour’s head of policy.
Catherine McKinnell: Let me correct the hon. Gentleman. He seems not to have been paying attention to my final comments, which were very much about Labour’s strategy for boosting economic growth and sustaining long-term economic stability for the future. The purpose of new clause 10 is to reflect back on past mistakes, of which we believe the Government need to take account.
Charlie Elphicke: Let us be clear what we are talking about. Labour and the hon. Lady want to spend two hours of the time available to debate this Bill talking about a period of nine months that happened nearly two years ago. In 2008, Labour introduced the annual investment allowance—an interesting point to which I shall return. It was set first at £50,000; then raised to £100,000; in April 2012, it was reduced to £25,000, which lasted nine months until January 2013, when it went up to £250,000—a far greater amount than under the legacy left by Labour.
Charlie Elphicke: Let me develop my point, and I shall give way again in a few moments.
It is important and instructive that this Government have incentivised investment. What the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) did not develop during the debate is what underpins the whole issue of investment allowances and capital allowances.
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Why we need capital allowances takes us to the whole issue of business investment. The challenge we all face, and have done for a very long time, is the rising corporate cash balances—about £750 billion—and the desire of us all to see that money spent.
Let us look at the Government’s policy in this area. They initially announced a reduction to £25,000 from April 2012. The hon. Lady’s first argument was that that created some form of uncertainty. The traditional argument goes, “We need to give businesses time to plan ahead; otherwise, we create uncertainty.” Well, the reduction was part of the June 2010 Budget, and it was about two years after the policy was announced before it came into effect, so I do not think that the certainty argument succeeds. The Government increased the amount substantially after only a short period of time, highlighting their concern to ensure investment.
The second problem I have with the hon. Lady’s case is that it is high risk to consider a policy on setting an investment allowance or a capital allowance on its own, as the Minister argued in an intervention. It is instructive that when Labour introduced the investment allowance, they funded the initial £50,000 by reducing general capital allowances from 25% to 20%. All policies need to be seen in a package taken together; they cannot properly be considered and debated unless the other pieces in the jigsaw are taken into account.
Stewart Hosie: That argument is fine as far as it goes, but in the space of seven years, we went from the abolition of the industrial buildings allowance to having an annual investment allowance of £100,000, which was then reduced to £25,000 followed by the very welcome increase to £250,000 for two years—and then there was another change. Of course making that many changes in such a short period of time is going to have an impact on planning for investment. Surely the hon. Gentleman can understand that.
Charlie Elphicke: The hon. Gentleman reinforces my point, which is that under Labour there were substantial reductions and changes to capital allowances that were part of the 2008 package. As I said, the main rate of capital allowances was reduced from 25% to 20%, followed by the creation of what was effectively the old first-year allowance—initially at £50,000. A number of other changes went on in parallel, including the phased withdrawal of the industrial and agricultural buildings allowances—IBA and ABA. We need to look at all policies in context and think about what else was going on, and that includes the changes that the Government announced in the Budget of June 2010. No policy can be viewed in a vacuum.
3 pm
The decision to cut the annual investment allowance from £100,000 to £25,000 from 2012 was made as part of a general, much wider reform of corporation tax, which was set out capably at the time by Stuart Adam of the Institute for Fiscal Studies in his slides presentation “Business and capital taxes”. Writing about corporation tax reform, he said that the headline rate should be cut from 28% to 24% over four years, and that the small companies rate, the allowance for plant and machinery,
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and the annual investment allowance should all be reduced. It was clear that a reduction in corporation tax was being funded by a reduction in capital allowances. Less tax, less reliefs: that was a very classic, sensible, free-market, pro-growth, pro-business approach. Lowering the headline rate reduced the complexity of the tax system.
I do not think that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) is right to look back into the past; I think that she would do better to look into the future. Rather than viewing one small nugget of Government policy in isolation, whether instrumentalised or not, we should look across the piece to establish what was really going on. I hope that, as recovery builds, we shall see more business investment, and that the £750 billion on which companies are currently sitting will go into the economy to drive our growth agenda.
Mr Robinson: I am very pleased to be able to contribute to a debate whose purpose we seem to lose sight of from time to time. The purpose of the new clause is to review the reforms of the annual investment allowance that have taken place since the Government came to power, and to see what lessons—in very simple terms—can be learnt from them. I do not see why the hon. Member for Redcar (Ian Swales) should not see fit to join us in the Lobby when we vote on the new clause, as I understand we shall do in due course.
No doubt the Exchequer Secretary will recall our Committee discussions in 2010, which were mentioned by the hon. Member for Dover (Charlie Elphicke). In 2010 we were discussing measures to be introduced in 2012, and while we considered that to be an appropriate period in which the Government could introduce the changes that they wanted to make, we strongly opposed those changes. I think that we were sensible to do so, and I think that we have been proved right.
It has proved to be a long road to Damascus for the Government. Many arguments can be made for a broadly neutral approach to taxation matters, and I believe that that is a long-standing aim of the Treasury. Indeed, we were very much on that tack ourselves when we came to office. However, the realities of government, and the realities of the Government’s own Budget of 2010, should have informed them that they could not be so purist in their theory as to ignore the fact that, during the five or so years to which the Budget looked ahead, they would require a massive increase in investment in order to sustain the increased levels of growth that they wanted and the whole country needed, and that to secure that increased investment it would be necessary, in turn, to generate a massive, unprecedented level of exports. We made that case ourselves, but it did not carry the day.
I believe that it was the then Exchequer Secretary who said, “We do not really see what is wrong with companies just investing their depreciation levels.” I pointed out to him that that would barely replace the assets in real terms, and that it was not the way in which to generate an increase in growth, far less the increase in productivity on which the exports could be based. Heaven knows, we need the productivity now more than ever, given that sterling is relatively high. In certain markets we are up against considerable competitive pressures, which we can only fight with real productivity, which is dependent on investment.
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We made the case for some element of discrimination in relation to investment, and that remains the Labour party’s preference. While, as the hon. Member for Dover said, there may have been—and may still be, for all we know—massive cash hoards among the bigger companies in the economy, much of the investment that we need must come from the small and medium-sized enterprises, which I do not think are so rich in cash, especially the small-company element. Although the relatively small sum of £100,000 was not to be sneezed at, we welcome the Government’s conversion to £500,000. Why that is to last only until the election I cannot imagine, unless it is due to some very short-term electoral consideration on the Government’s part, which I do not think is realistic even in my wildest dreams. I am slightly reminded—although I must not digress—of our recent debate on the Office for Budget Responsibility, when, for purely party-political reasons, the Government refused to extend the OBR’s remit to an audit.
Be that as it may, we are discussing something else now, namely the fact that the Government will not tell us whether they will maintain the same level of AIA beyond the election—which ought to be possible—and for how long it could be maintained beyond the election. After all, the Government have plans. They have a forward look, and in that forward look must feature the proposed level of AIA. They might have to disentangle it from the accounts in due course, but a simple statement from the Exchequer Secretary would set a lot of minds at rest, and provide the element of forward certainty that is so important to small and medium-sized companies, whose investment programmes often run over several years. Smaller companies in particular may not be able to afford a massive investment all at once. As I am sure we shall hear later from the hon. Member for Dundee East (Stewart Hosie), one advantage of the annual investment allowance relates to the setting off of past losses against future profits, and there are other instances in which they can be most helpful. I will not go into them, however, because I know that the hon. Gentleman wants to do so.
Let me return to the question of why the Government’s approach is still so short-term. I must tell my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) that my only reservation about the review is that the Government have chopped and changed so much, so quickly and, in fact, so excessively over the past four years that I wonder whether anyone would get any meaningful information out of it. I fear not. However, we should be happy about the Government’s apparent damascene conversion. At least they have come round to the idea of annual investment allowances in principle, particularly for smaller companies.
Ian Swales: Will the hon. Gentleman give way?
Mr Robinson: I will in a moment.
We may well see some element of discrimination in favour of smaller companies in the pattern. We do not want too much discrimination, because it could lead to complication, but I nevertheless feel that the Government should be thinking along those lines, which they probably are. No doubt the Exchequer Secretary will tell us when he winds up the debate. However, at present we have a short-term view of what is essentially a long-term problem. It is not that the level of investment has fallen under this Government or the last Government, or that manufacturing
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has declined under this Government as a proportion of GDP—which it probably has not, because GDP has still not reached the level at which it stood back in 2007. Generally speaking, however, manufacturing has been on a long-term slide, arguably since 1870 and certainly from the 1960s onwards, irrespective of which party has been in power.
Ian Swales: Will the hon. Gentleman give way?
Mr Robinson: I will come to the hon. Gentleman, if he will just be patient.
Inherent in the problem is the disinclination of the British economy as a whole to invest. Germany can be taken as a paragon of virtue in this respect. The Germans save more than us, and they generally invest more. They have better plant and equipment and higher productivity. They invest more in plant and equipment, but also in industrial relations. Their industrial work force is better equipped technically, from the top to the bottom, and better equipped physically with modern plant and machinery and computers.
Why is that? No one knows. There is a deep-lying cultural factor. However, it seems to me that if we are to offset it, the more we can afford to encourage investment the better, as long as that is intelligently done. I think that the dangers of misapplication can be much exaggerated, and that the loss of potential output through increased productivity can be underestimated.
If the hon. Member for Redcar still wants me to give way to him, I will do so.
Ian Swales: I have enormous respect for the hon. Gentleman’s experience in this regard. He has spoken of the importance of long-term certainty. I struggled in vain to find in the major speech made by his leader yesterday any mention of this issue, or indeed any mention of manufacturing. I wonder what he is saying to businesses that may be concerned about the potential for a future Labour Government.
Mr Robinson: I wish I had not given way, because when I do we always get into this tiresome point. The Government seek to find refuge by going back nearly five years. The Minister has been at the Treasury for four and a half years now, and his party has been in government for that long. They own the situation now, although I know they do not want to, as all they want to do is airbrush the last four and a half years out of existence—they did that again today—and concentrate on where they are now as if they took power just six months ago. When we are having a narrow debate on the question of our having a review of a particular failed policy of the Government that is relevant to this issue, the hon. Gentleman wants to bring in the whole of Labour party policy. That is tiresome and irrelevant and a waste of this House’s time. I am sure that when the Minister replies to the debate, he will not get into that.
We are discussing a very important point. If there is genuine change introducing some element of discrimination in favour of investment for the reasons I have given, we will welcome that. Indeed, we welcome the commitment on £250,000 and £500,000. We will welcome it doubly if the Minister will extend that commitment beyond the election, to put it bluntly to him. I do not know what our policy on that will be—or whether we will go into
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such detail in the manifesto—but I will certainly support such a proposal, both in principle now and as party policy if it finds such favour. The Government, however, can do something about this now. Will the Minister tell us whether there is a change of policy and a change of principle on their part? If so, why will they not maintain the amount of the allowance and achieve the levels of investment, productivity and exports on which our future depends?
Gordon Birtwistle: As a business man, I had an engineering company that required a lot of investment. We had to invest heavily to ensure that we were competitive in the markets of the late 1990s and early 2000s. To me, the most important things for investment are confidence and cash. If companies have the confidence to invest, and the cash to invest from the profits they are making, they will invest. The capital allowances that the Government allow them to have against their profits is very helpful and it does persuade—it persuaded me on a number of occasions to buy some very expensive computer-controlled engineering machines. But when there is no confidence and when there is very little cash around, not many companies think about how much capital allowance they will get if they invest.
The country was in a mess in 2007. There was a reduction of over 7% in GDP in 2007-08, so nobody was confident enough to take the step to invest. The confidence had to be put back into the industries to persuade managing directors to invest. We know that billions of pounds were stored in banks waiting to be invested, but the confidence was not there to invest.
If Members look at Hansard, they will see that the Chancellor complimented me for putting pressure on him to bring back capital allowances, and my hon. Friend the Minister will remember the meetings I had when I was the Parliamentary Private Secretary to the Chief Secretary to the Treasury. At every meeting we had I was constantly on to him about the need to try to give confidence to companies, to persuade them to invest in the future of manufacturing in the UK. The answer came back, “There is no confidence at the moment, but we hope there will be soon, but we have all this money stashed away in banks, which is moderately safe.” It was not totally safe, because the banks were not out of the mess they were in, but companies felt it was safer there, rather than invested in capital plant in manufacturing industry.
3.15 pm
Chris Williamson (Derby North) (Lab): Will the hon. Gentleman touch on why he objects to the proposal of my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell)? I have not heard any criticism or, indeed, any reference to it so far.
Gordon Birtwistle:
As I said to the shadow Minister, capital allowances are very close to my heart. I believe they are the way to go, but they have to be linked to other financial policies, which the Government have to put in place to work with them. Capital allowances on their own are no good. We must have other structures within the Government’s scheme of things to ensure companies have confidence. It is no good saying, “You
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can have a capital allowance against a new machine that you want to buy, but we are not prepared to give you the confidence to do that because we are going to increase our taxes so you aren’t going to make any money—so why would you really want to invest in the UK?” We need to create an environment whereby companies will say, “We’ll invest in the UK because the tax regime in the UK is good. We’ll invest in the UK because we feel that the training programmes in the UK will train our young people to do the jobs. We’ll invest in the UK because of the apprenticeship programme that is going ahead, and because we know we will have the future work force to deliver products that we will be able to sell around the world.”
Dr Whiteford: The hon. Gentleman is right to say people will make investment decisions on a range of issues, but does he agree that stability is a very important component of that?
Gordon Birtwistle: Absolutely: stability, confidence, cash, training programmes, and an economic strategy for the future are vital for companies to decide to invest.
I agree with, and certainly do not have any real objections to, the Opposition proposal, but it is not linked to anything. If the Labour party wants to put forward a new economic or industrial strategy that links to this, I would be the first to support it, but this is just one element of a major programme that needs to be put in place.
Ian Swales: I pay tribute to my hon. Friend’s experience on this issue, and his campaigning, which lay at the heart of the increase to £250,000. Does he agree that tax allowances alone do not prevent investment, and in fact capital allowances are a time-shift—in other words, one still gets the tax allowance, but one just gets it later?
Gordon Birtwistle: My hon. Friend is right. We must remember that claiming a capital allowance on a profit is time-lagged, because companies will have worked for a full year and will have produced products at, it is to be hoped, a profit, and it then takes a full year for the accountants to go through the profits, so that is two years from the start, and at the end of the second year the company knows from its audited accounts how much profit it has made and how much it can invest. This does not all happen on day one or even at the end of the trading year, because they do not know just how much can be offset against tax in respect of purchases using capital allowances.
My constituency has a high proportion of manufacturing, and unemployment has gone down from more than 10% to 4.7%. That is because we are manufacturers. We make things. We create the wealth for the country. One company in my constituency, Lupton and Place, was contemplating buying a new injection moulding machine—it makes aluminium castings for the automotive industry—and it thought about that for quite a long time. I had meetings with it to discuss various schemes that might assist it to do that, but no such scheme was available. However, as soon as we announced the new capital allowances, it immediately ordered the machine. It cost €400,000. It did not get the capital allowance against the whole lot, but it did get the capital allowance against £250,000, as the sum was at the time. Although
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there was some money that it did not get a capital allowance against, under our strategy it was able to write the rest of it off against depreciation of the machine over the next few years.
I accept the need for capital allowances, therefore, and I hope the Minister takes that back to the Chancellor, as I have done on many occasions, to ensure that companies keep investing in this country. However, the main factor before people invest in anything is confidence—confidence that the country is going forward, and that there is growth and companies can see profits coming. People are not going to invest anything in anything unless they get a return. Returns are important for shareholders, business owners and partners in business, and if there is not going to be a return on the investment, they are not going to invest. If the confidence to invest is there and the cash is there to support the purchase, either from their own resources or from banks to ensure that the investment is made, capital allowances will be a major player in the investments that take place. On their own, they are not enough; they need to go with an overall industrial strategy. I am pleased to say that I believe that is happening.
Mr Gauke: It is a pleasure to respond to this debate, and in particular to follow my hon. Friend the Member for Burnley (Gordon Birtwistle), who has been a great advocate for manufacturing industry over the years he has been in Parliament. He has provided a strong voice on the issue of capital allowances.
Labour’s new clause asks that the Chancellor review the impact on business investment of changes to the Capital Allowances Act 2001 made by the Finance Act 2011. The new clause is identical to the new clause 5 we opposed in Committee and we will be opposing this new clause for the same reasons. As set out in our corporate tax reform road map, the Government’s central objective is to secure a low corporation tax rate, with fewer reliefs and allowances. We remain of the view that that strategy provides the best incentives for business investment. As part of that approach we reduced the annual investment allowance to £25,000 a year in the Finance Act 2011, at the same time as we were setting out our plans to reduce corporation tax—we have extended those plans and as of next April our corporation tax rate will be 20%, the lowest in the G20.
Chris Williamson: The Minister is trying to set out the Government’s position, which he would assert is one of success. If their policies are really so effective, how does he explain the fact that we are living through the slowest economic recovery for more than 100 years?
Mr Gauke: If the hon. Gentleman wants to debate that, I am happy to do so. We faced a crisis in the eurozone and we had to deal with the impact of the financial crisis that occurred on the last Government’s watch. Clearly that had a considerable impact on the growth of the UK economy and the economies of other developed countries, but the reality is that our economy is now growing strongly, and we need to ensure that that continues to be the case. There are risks to a recovery, but if we are to compete and succeed, we need to ensure that we have a competitive tax system, the conditions for growth and credible fiscal plans, all of which this Government are delivering as part of our long-term economic plan.
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Chris Williamson: The Minister has just asserted that the economy is growing strongly, but I am surprised by that. Will he help the House by comparing that “strong growth” with the growth that took place in the 1950s, 1960s, 1970s and even in the 1980s, at a time, before the regrettable election of Margaret Thatcher, when regulation was significantly greater than it is today and when trade unions were more numerous than they are now? How does this “strong growth” compare with what happened in the period I have just outlined?
Mr Gauke: It is a little difficult to compare a period in the 1980s before the election of Margaret Thatcher, given that she was elected in 1979. What I say to the hon. Gentleman is that we are forecast to have the fastest growth in the G7 this year. Clearly, Members on both sides of the House should welcome that, but we must not be complacent because we have further to go and we need to ensure that we stick to the plan to deliver that growth on a sustainable basis.
Stewart Hosie: The Minister has said he has plans for low corporation tax, and fewer reliefs and allowances—I understand the strategy. He will be aware that the argument is that it helps to establish profitable businesses but is less helpful to growing, investing businesses. Even if he was right, that would rather argue against the Government increasing the annual investment allowance to £250,000. Therefore, is the report envisaged in the new clause not precisely what is required to identify whether that allowance is at the correct level?
Mr Gauke: I am grateful to the hon. Gentleman for returning me to the subject matter before us, and no doubt you are, too, Madam Deputy Speaker.
The Office for Budget Responsibility forecast in the June 2010 Budget stated that the cuts in the corporation tax rate would more than offset the reduction in investment allowances such that the
“cost of capital for new investment is lower for all non-financial companies, and the rate of return from the existing capital stock is higher”.
That very important point could easily be missed from this debate. However, we also recognise that in the current economic climate, businesses face particular challenges. Having got the corporation tax rate down significantly, making a temporary boost to support and encourage increased investment was both appropriate and desirable. That is why we introduced a temporary generous increase in the annual investment allowance at the 2013 Budget, and we have gone on to double its generosity a year later.
Bob Stewart (Beckenham) (Con): Would the Minister like corporation tax to come down below 20%, if possible? Is that ever envisaged?
Mr Gauke:
My hon. Friend raises an interesting point, which I could spend some time discussing. Some challenges are involved in reducing corporation tax below 20% in terms of ensuring that such a tax cut is well focused in encouraging increased investment. He will be aware of some of the difficulties that occurred when the previous Government temporarily introduced a 0% corporation tax rate for smaller businesses; that resulted in quite a lot of tax-motivated incorporation. I
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will not detain the House for long on this point, so I will just say that some issues would need to be addressed in respect of that.
What would certainly be damaging would be to reverse the considerable progress we have made on reducing corporation tax. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) placed great emphasis on providing certainty for businesses, and I would agree on that, but what we have done in reducing the corporation tax rate from 28% to 21%, and then to 20% as of next April, has undoubtedly helped the UK’s competitiveness position. One could quote survey after survey demonstrating that the UK is now viewed much more favourably as a place in which to do business because of our corporate tax regime, and it would be damaging were we to reverse this. Labour is on the record as wanting to put corporation tax back up to 21%. That would be the first increase, as a revenue raiser, in corporation tax since the 1960s, and we have heard a significant hint this week that Labour may even increase it to 26%.
Mr Gauke: I hope that is not the case and I am delighted to give Labour’s Front Bencher an opportunity to put an end to such suggestions.
Catherine McKinnell: Once again, the Minister is trying to change the subject from the annual investment allowance to corporation tax. Given that he acknowledges the importance of certainty in this area and that a reduction of the AIA back down to £25,000 is already on the horizon, does he accept that it would be beneficial for the Government, for Members of this House and for members of the public to have an assessment of the impact of that slashing to £25,000 in 2010, in order to inform the Government’s decision making in the future?
Mr Gauke: That is the fourth opportunity the hon. Lady has had to provide some reassurance to businesses and investors looking to the UK as a place in which to do business that a future Labour Government, should that misfortune occur, would not increase corporation tax to 26%. That is the fourth time she has ducked that opportunity. Corporation tax is linked very heavily with the annual investment allowance; they are not separate issues. If our debate is about ensuring that we have certainty for investment in the UK, it is a very salient point.
3.30 pm
Chris Williamson: I am interested in the Minister’s comments. Will he comment on the fact that corporation tax in the United States is up to 35%? Furthermore, does he believe that businesses have a responsibility to contribute to public services and infrastructure investment in our country? If we enter into this arms race and continue to reduce corporation tax, we end up in a situation where we either put the burden of funding our public services and infrastructure investment on ordinary taxpayers, or are forced to make even deeper cuts than we have seen under this Government over the past four years.
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Mr Gauke: As always, the hon. Gentleman’s questions are interesting and could take me in a number of directions. Let me just say this: it is important that the United Kingdom has a competitive tax system. It is the case that corporation tax will continue to play an important part in our tax system, and it is important that it is properly enforced. Indeed, the UK is leading the way on international reform to ensure that we have an international tax system that takes a contribution from companies. In the end, however, it is always individuals who pay tax—whether it is the shareholder, consumer or employee. All tax is paid by people even if the cheque is written by the company.
Let me return to the measures that we have set out. The Office for Budget Responsibility has said that the measure to extend the AIA is expected to bring forward another £1 billion of business investment in the short and medium term. Although the Government rightly keep all tax policy under review, there is limited merit in conducting an evaluation in the way that the amendment suggests, and there are also a number of obstacles that make it impossible. Her Majesty’s Revenue and Customs will not have the relevant data to conduct such an evaluation for another year, and as the hon. Member for Coventry North West (Mr Robinson) said, it would be extremely difficult to isolate the impact of this change from the other factors influencing business investment, and from subsequent changes, in the ex-post data.
An important point was made by my hon. Friend the Member for Burnley (Gordon Birtwistle), who said that a number of factors are involved in business investment, not least confidence. As my hon. Friend the Member for Dover (Charlie Elphicke) pointed out, the AIA has been set at various levels over this period; identifying a direct link between the level of AIA and business investment is extremely difficult.
Dr Whiteford: The Minister is quite right to point out that there have been dramatic fluctuations in these types of allowances over a long period, but surely that emphasises the point about trying to get better at assessing their impact. If these allowances are a good thing at the moment, the Government might be well advised to consider bringing some stability to the system and committing to them over a slightly longer period.
Mr Gauke: The point I was making is that it was this Government who introduced a corporate tax road map in 2010. That road map has provided a great deal of certainty to businesses and set out our plans for corporation tax. Given that we have been able to make progress with corporation tax rates in the current circumstances, although businesses feel uncertain about the challenges that lie ahead, including the referendum in Scotland and the possibility that an anti-business Government might be elected at the next general election, it would be helpful to have an annual investment allowance in place.
Catherine McKinnell:
The Minister seems to be completely obsessed with corporation tax. Whatever question is put to him about annual investment allowances, he responds with an answer on corporation tax. I wonder whether that reinforces our call for the Government to be forced to look at the issue of annual investment allowances—the chopping and changing of them, and
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the lack of certainty—so that they address AIA as a serious issue that concerns businesses up and down the country.
Mr Gauke: The hon. Lady does not seem to recognise that there is a link between the annual investment allowance and corporation tax; it is an allowance set off against corporation tax. The two are not separate subjects. Of course, if we are discussing certainty within our tax system, one has to look at the bigger picture, and this Government, through the corporate tax road map, have provided much greater certainty for businesses in this country. The biggest threat to the certainty of our tax system at the moment appears to be a Labour party that is at least considering increasing corporation tax to 26%, which would be a huge increase and deeply damaging for the UK’s competitiveness.
Chris Williamson: Let me return the Minister to the historical context. He keeps implying that a Labour Government would be anti-business, but I challenge him to compare the economic growth record of previous Labour Governments with that of this Conservative Government. I think he will find that the Labour record compares extremely favourably. The truth is that Labour Governments have invested in our economy; what we should be concerned with in this place is improving the living standards for the British people, and they have always achieved that.
Mr Gauke: We saw the economy shrink by 7% in a year or so under the Labour Government. That is not a record of which to be proud.
Mr Gauke: I will give way one last time.
Chris Williamson: The Minister seems to imply that the worldwide downturn—the economic recession that was a consequence of the banking crash—was the responsibility of the previous Labour Government. It is a ludicrous assertion. Surely he will accept that there was an international banking crash that led to the economic difficulties with which the Labour Government were faced in 2007.
Mr Gauke: Let me summarise the hon. Gentleman’s position: when the economy grows under a Labour Government, the Labour Government get the credit, but when it shrinks under a Labour Government, that is to do with international factors. At least we know where he stands.
We have heard a lot of criticism of the reduction in the annual investment allowance, and I have attempted to try to put that in the context of what we have generally done within our tax system. The impression given by the hon. Member for Newcastle upon Tyne North at all times was that it was a disastrous decision that resulted in business investment being slashed. I do not accept that position at all, and I have made it clear, by putting this in the context of what we are doing with corporation tax, that we are encouraging investment.