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Lord Higgins: I shall need to think about the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins had given notice of his intention to move Amendment No. 76:

Page 9, line 11, leave out paragraph (e).

The noble Lord said: This amendment seeks to leave out paragraph (e). I apologise to the Committee. I do not wish to move the amendment.

[Amendment No. 76 not moved.]

[Amendment No. 77 not moved.]

7.15 p.m.

Lord Higgins moved Amendment No. 78:

Page 9, line 14, leave out paragraph (g).

The noble Lord said: I have been in this game for a long while. This is the more serious amendment.

The amendment seeks to leave out paragraph (g) which may be an important matter. It suggests that,

"a war disablement pension or war widow's or widower's pension"—

matters which usually raise serious concerns in the Chamber—apparently should be included as part of the income taken into account for the purpose of this legislation. Is that typically the case; namely, that such

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items are always included in income over all the elements of social security legislation, or is this in any way unusual? I beg to move.

Baroness Hollis of Heigham: The amendment asks us to disregard war disablement, war widow's and war widower's pensions for the purpose of calculating entitlement to pension credit.

However, I do not think that it would be right to calculate the amount of guarantee credit someone needs, or to reward pensioners for having saved, without basing entitlement on the amount of income already available to the pensioner. This amendment proposes to do that. It means that pension credit would be paid in addition to a war pension.

It is true that we do disregard some forms of income, such as attendance allowance. That is done because such payments are intended to meet exceptional needs or circumstances. For example, attendance allowance is paid to cover the extra costs of disability needs, not as an income replacement.

I wish to set out a worked example which I shall give with the usual qualification. If I am wrong, I shall come back to the noble Lord on the point. Let us take a war widow or war widower with a retirement pension of £77, and the average war widow or widower's pension of £175, which would total £252. Housing benefit and council tax benefit would be worth, say, £70 and could be disregarded, thus the income would be £322, tax free. If we were to accept the noble Lord's amendment, we would assume for the purposes of pension credit that the income was not £322 tax free, but rather a retirement pension of only £77, which would entitle the claimant to MIG totalling £23. I am sure that that is not what the noble Lord would wish. In no sense could that be regarded as targeting help for those who most need it.

Furthermore, the amendment would add to costs at a rate of around £250 million per year. We take the view that that would not be a reasonable use of public money, to say nothing of the proper treatment of war pensioners, war widows and war widowers. They are properly recompensed in the benefits they currently claim. To ignore those for the purposes of the amendment would be to assume an entitlement to MIG—the difference between £77 and £100—in pension credit. However, I do not think that incomes at the level to which I have just referred could possibly justify such a proposal.

Lord Higgins: I know that concerns have been expressed with regard to this point. It is helpful that the Government's view has now been put on the record. I shall need to consider it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 79 and 80 not moved.]

Baroness Noakes moved Amendment No. 81:

Page 9, line 18, leave out paragraph (j).

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The noble Baroness said: This is the last of a series of probing amendments looking at the elements of income specified in Clause 15(1). Paragraph (j) states,

"income of any prescribed description".

The amendment seeks to delete the paragraph from subsection (1). The Explanatory Notes state that the paragraph would be used to bring in items such as employers' sick pay, matrimonial maintenance payments and could also be used to take into account "new types of income". I hope that the noble Baroness will forgive me for pointing out that if she had an income tax definition, then she would not have to worry about prescribing additional items because those would automatically come into account, including, I suspect, new forms of income.

Perhaps I may concentrate on the element referred to as "new forms of income". Given her experience of other means-tested benefits, can the noble Baroness tell the Committee how often similar powers to specify new types of income have been used in the past; that is, why such a power is required by the Secretary of State? I beg to move.

Baroness Hollis of Heigham: I do not have a clue how often that particular phrase has been used. The noble Baroness is absolutely right—

Baroness Noakes: I thank the Minister. I wish to ascertain how often, having taken the power, it has been used.

Baroness Hollis of Heigham: The noble Baroness has rightly identified that a small number of older people have other forms of income. She cited employers' sick pay and matrimonial maintenance payments. We could, of course, seek to detail all possible income streams currently available in retirement within the State Pension Credit Bill and its regulations, but an element of "future-proofing" is always necessary to ensure that legislation is capable of being reasonably robust. It is a protection, a competence to embrace the new financial products which are continuously being developed and introduced to the market. It is for that purpose that we need this additional power.

I wish that I could give the noble Baroness a worked example. I try to do so when I can, but I cannot. But, for example, there has been much discussion in the press recently in regard to David Curry's Bill and new forms of financial products. We have to make sure that, where appropriate, any such development of new products is encompassed within the Bill. This gives us that flexibility.

I see no reason to believe that that power would be applied inappropriately. I cannot give the noble Baroness a worked example, but, in the future, should such a new scheme be devised, it would, where appropriate, fall within the framework of Clause 15.

Baroness Noakes: I thank the Minister for that explanation. I think I understand what she said. We should express some concern that "future-proofing"

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incorporates an ability completely to rewrite the rules for ever and a day without bringing them back for discussion. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 82 and 83 not moved.]

Baroness Noakes moved Amendment No. 84:

Page 9, line 18, at end insert—

"( ) For the purposes of this Act a person's earnings shall not include anything which would be chargeable to income tax under Schedule E to section 19 of the Income and Corporation Taxes Act 1988 (c. 1) (schedule E) but for the operation of Schedule 8 to the Finance Act 2000 (c. 17) (employee share ownership plans)."

The noble Baroness said: In moving Amendment No. 84, I shall speak also to Amendment No. 85. We have been through many examples of income which are or are not caught under Clause 15(1). Amendments Nos. 84 and 85 deal with the treatment of gains under employee share schemes.

I should point out that the drafting of the amendments leaves something to be desired. Both amendments refer to "Schedule E to section 19" of ICTA 1988, but they should refer to "Schedule E for the purposes of section 19". I hope that the Committee was not confused by this when reading the amendments.

The basic income tax rule—I am simplifying hugely—is that gains on employee share schemes are taxed as income unless there is a specific exemption. Of course, there are many exemptions as successive governments have encouraged employee equity involvement. The concern that these amendments address is whether the Department for Work and Pensions intends to treat such gains as income for pension credit purposes.

There are specific exemptions from income tax charges for employee share ownership plans—known as ESOPs—under the Finance Act 2000. Amendment No. 84 seeks to ensure that gains made by employees under ESOPs are not treated as income for pension credit purposes. ESOPs are designed to allow employees to build equity stakes—often modest ones—in their employers. The policy of successive governments has been to encourage this. I hope that the pension credit will not bring such gains within its net.

Amendment No. 85 is broader and covers all types of employee share schemes, including both unapproved and approved share option schemes, as well as ESOPs. Again, I hope that the Government will wish to continue to encourage employee involvement in their employers through direct share ownership and that they will not seek to treat the gains realised thereby as income for pension credit purposes.

I imagine that for many pensioners the issue of gains from such share rights will arise only when they are fairly near retirement, although many schemes have qualifying periods which could put such gains well into retirement age. So it is not an issue that could arise only once for a pensioner.

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I know that the Government have been encouraging share ownership by employees and I hope that the Minister will look kindly on these amendments. I beg to move.

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