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Lord Higgins: I am grateful to the Minister for that further comment. I do not want to prolong proceedings unnecessarily. This subject is rather like peeling an onion—one keeps getting more and more layers that one did not expect. The noble Baroness has now suddenly said that, since 1998, if one was polygamously married quite legally in another country, one can bring in only one wife.
Baroness Hollis of Heigham: I did not actually say that. I said, prevented from settling in Great Britain with a husband if another wife is already in the country. In other words, going back and importing yet another one in.
Lord Higgins: I understand. Otherwise one is slap into the Human Rights Act problems. I think that we should study carefully what the noble Baroness has said to see what further complications may ensue. If anything, the matter is more complicated than I had supposed. I am grateful to the noble Baroness, as always, for her extremely clear exposition. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 68 and 69 not moved.]
Clause 13 [Transitional provisions]:
Lord Higgins moved Amendment No. 70:
- Page 8, line 18, at end insert "or"
The noble Lord said: In moving Amendment No. 70, standing in my name and that of my noble friend Lady Noakes, I shall speak also to Amendment No. 71.
Amendment No. 71 is a rather unusual amendment. It seeks to knock out the words "or savings" from Clause 13(1). Clause 13(1) states:
- "The Secretary of State may by regulations make such transitional provision, consequential provisions or savings as he considers necessary or expedient for the purposes of, or in connection with",
Baroness Hollis of Heigham: I can well understand the noble Lord's perplexity. It is a quite technical matter. He may see the need for the words after I have explained the matter to him.
The amendment limits the power of the Secretary of State to introduce regulations that will protect pensioners who get income support—MIG—immediately prior to the introduction of state pension credit.
Clause 13 provides for the transitional powers that the Secretary of State will require in order to provide for the smooth transfer of 1.8 million pensioners from the current system of financial support in income support to state pension credit. Subsection (1) provides the power to make transitional, consequential and savings provisions. The distinction between them is quite technical. A savings provision preserves the effect of a provision that has been repealed or amended. It is normally applied in limited cases so as to preserve rights that have accrued under those provisions.
It is essential that the Secretary of State has a range of powers available to him to introduce regulations that will enable him to transfer people from MIG to pension credit without fuss and hassle. It would be unfair on these pensioners if they could lose income because the Secretary of State had not been granted the power to protect them.
No one will lose out. It is the Government's intention to ensure that a person who should qualify for protected support under the IS scheme will not lose out from the introduction of state pension credit, and that the calculation of their new entitlement will take account of the protection they receive. We do not think that there are any such people whom we would not cover by the transitional regulations. But if there are, the power to save existing provisions will ensure that if any unforeseen issues are identified before the introduction of state pension credit the Secretary of State will be able to protect the very small number of people who could be affected. Any provisions made under the savings power would then work in tandem with any of the other arrangements for transition.
Previous social security legislation has included powers that have permitted successive Secretaries of State to protect the position of people who transfer from one scheme to another. It seems unwise to depart from this principle now.
State pension credit is being introduced to improve the financial position of many pensioners. It makes little sense to penalise some of the poorer pensioners by removing these essentially protective transitional powers. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: I am sure that the draftsman gave careful attention to the provision. But it seems to me that if there is not a misprint, there is a word missing. If one leaves out the transition and consequential provisions and so on, Clause 13(1) reads:
- "The Secretary of State may by regulations make such . . . savings as he considers necessary or expedient".
Baroness Hollis of Heigham: The noble Lord is confusing "savings" in the form of cash savings, which is not what the matter is about, and saving an existing right or entitlement. That is the point about transitional protection. I agree with the noble Lord that the provision does not bear the conventional use of the word "savings". This is a quasi-legal term. It is a power to save for a few individuals the current rights that they enjoy. Without that power, he might be able to pick up only the people not protected by conventional transitional arrangements.
Lord Hodgson of Astley Abbotts: Would it be helpful if the word "legislative" was inserted in front of the word "savings"?
Baroness Hollis of Heigham: This is a fairly conventional clause which is put into all changes as a form of belt-and-braces safety net in case there are some instances which are not caught up by the conventional regulations which offer transitional protection. Some benefits one keeps for ever and a day—for example, invalidity benefit going over to incapacity benefit. With others one takes the people out, and so on. But one needs the extra power. The word "savings" is often used to refer to savings provisions. I can understand why the noble Lord has perhaps assumed that the term relates to cash savings. But it does not. It is about keeping those powers available.
Lord Higgins: I did not suppose that "savings" related to cash savings. It simply did not make sense. It may be a technical expression. I do not know to what extent it has ever been challenged in the courts or elsewhere, but on the grounds of clear drafting and so on, it is a remarkably esoteric and unnecessarily obscure way of putting the matter. If the provision simply wants to say that the Secretary of State may preserve existing provisions as a transitional
arrangement, that would be sensible. I do not want to press the point. But it is not a satisfactory way of drafting legislation. I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
Clause 15 [Income and capital]:
The Deputy Chairman of Committees (Lord Dean of Harptree): If Amendment No. 72 is agreed to, I shall not be able to call Amendments Nos. 73 to 81 inclusive on grounds of pre-emption.
Baroness Noakes moved Amendment No. 72:
- Page 9, line 6, leave out subsection (1) and insert—
The noble Baroness said: We now turn to a large batch of amendments which deal with an important part of the Bill; namely, the definition of income and capital. I referred in previous amendments to different definitions of income used in the Bill. All of these, to a greater or lesser extent, draw on the definitions of income and capital that are contained in Clause 15. There are a number of concerns which will be explored in the amendments. They are partly about the theoretical bases of the calculations and getting clarity about what is and what is not intended. Lying behind a number of these amendments are some practical issues and, in particular, the impact on savings. That is an important aim which the Government have and which we, on these Benches, share.
Amendment No. 72 is a probing amendment. It deals with the complication of defining income and capital in the Bill. It eliminates the list of income sources in subsection (1) and in later regulations and replaces it with the simple concept of using the definitions that have been developed and are used for income tax purposes.
I am sure the Committee will be aware that there is an extensive body of case law about whether something is or is not income for the purposes of tax rules. I suggest that we use that. I am well aware that the Department for Work and Pensions has developed over the years its own rules on what it treats as income, capital and so on. However, in the interests of simplicity, accessibility and understanding, I suggest that the income tax rules are a good basis. It is the Inland Revenue's core business to define income, to spot new forms of income which may not have been brought previously within the net. On the ground of public sector efficiency income might be left to the Inland Revenue while the Department for Work and Pensions deals with its core role—calculating and paying benefits.
I refer to the Government's consultation paper on pension credit in November 2000. In referring to the integration of tax and benefits, the aspiration was
I hope that this simpler approach—it will be consistent with the Government's aims for the tax and benefit system and more understandable and simpler for those dealing with the system—will be commend itself. I beg to move.
Baroness Hollis of Heigham: The big difference is that something like 1.7 or 1.8 million pensioners currently enjoy minimum income guarantee under social security legislation. I understand that only about 70,000 or so (if that) of pensioners who will be entitled to state pension credit pay tax. Therefore, to move all those on to a tax basis would seem to be folly.
Amendment No. 72 seeks to bring the treatment of income in pension credit fully into line with the tax system. Pension credit and its new income assessment share many of the objectives of the new tax credits, both incorporating longer awards and a simpler administration process. But we designed pension credit to suit the needs of pensioners. It is more tax-like, wherever that made sense, but we are not being driven by dogma.
Pensioners themselves are not interested in the arguments about tax-like or benefit-like systems. Most do not pay tax. They will be more interested in whether we can deliver a system effectively meeting their needs without stigma—the word used by the noble Baroness, Lady Barker—which they see as an entitlement and, therefore, have no hesitation and no obstacle to claiming. That is why we have concentrated on designing a system that effectively gives extra money to pensioners who need it most as well as rewarding thrift when we come to the savings element.
Research has demonstrated concerns about the claims process and weekly means tests. We have gone to the five-year period. The tax system and the new tax credits deal with a quite different group of people from the group pension credit has been designed to help. Unlike people of working age—those are the people the tax credits deal with—pension credit has been designed to help pensioners. Few pensioners have contact with the tax system. Pensioners' income fluctuates much less than the incomes of the working age population. Pension credit is not taxable. So where a tax-like approach was not sensible, we chose a different solution for pension credit.
For instance, the new tax credits will usually assess someone on the basis of their income over the previous year. That relates back to an earlier discussion. This
Another example is the treatment of capital in pension credit. In the consultation document we said that we would consider the options for reforming the system to take income from capital into account. We could follow the tax system and take actual income and savings into account but we have listened to pensioner groups which said that pensioners would find it onerous and complex to record actual income from their savings. What is gross? What is net? We decided, therefore, on the notional rather than actual rate of return, plus the £6,000 disregard. This will be simpler for pensioners who will not have to declare precisely how much interest they have received.
Not following the tax-like approach here has also allowed us to deliver on our objective of taking many pensioners out of the capital rules—by ignoring the first £6,000 of savings. I hope that the Committee agrees that this makes better sense. When I referred to 70,000 who may pay tax, I should have said that 70,000 people may come within the new tax credit framework, not necessarily paying tax.
The noble Baroness referred to the consultation document. In that document we said that we sought to simplify and raise the guaranteed minimum income level to over £100 a week by 2003. We are doing that. We said that we wanted to replace the old pound for pound withdrawal system by a much fairer system which would abolish the savings trap. We are doing that. We said that we would abolish the capital rules and replace them with an income test more in line with the income tax system. We are not doing that, as I have said, because we listened to pensioners and pensioner groups prefer the approach that we have adopted. That was not necessarily our first thought but it is so after consultation. That is the point of a consultation paper.
We said that we would move away from the intrusive weekly means test to a system where awards are fixed over much longer time periods. We are doing that. We said that we would reduce the income tax burden on pensioners by raising the personal tax allowances available to those aged 65 or over. We are doing that.
In terms of the consultation document to which the noble Baroness referred, we have met our proposals apart from that on the treatment of capital, and there we have moved in response to pensioners' organisations and the consultation exercise. That is, of course, what a consultation exercise is for.
In the light of this response, I hope that the noble Baroness will feel able to withdraw the amendment.
"(1) Income and capital shall be defined and treated as for income tax purposes."
"The Government will look to the tax system to consider whether there could be alignment with tax rules on the treatment of income, smoothing the path to greater tax benefit integration in due course".
That is very laudable. However, the way in which the pension credit has been constructed goes completely against that aim because it uses income concepts which are in some cases alien to those for income tax purposes and, in particular, the deeming of income to which we shall refer later.
6.30 p.m.
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