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Lord Hodgson of Astley Abbotts: I am grateful to the Minister. One matter on which I am not clear concerns equity release. If one had no savings other than a principal sum released from one's home, over and above the £6,500, which is free, the rest will have a deemed income stream of 10 per cent attached to it. Am I right in thinking that?
Baroness Hollis of Heigham: I am not sure where the noble Lord is coming from. If the equity release scheme provides an income flow analogous to an annuity, or something like it, it will be treated in that sort of form. The read across is to income flows not capital, and therefore to notional income derived from capital for these purposes. After all, someone could take an equity release scheme for 25 per cent, 50 per cent or 75 per cent of the value of house, depending on the person's age and so forth. I believe that that should be treated as income in a similar way to other forms of retirement pension income.
Lord Hodgson of Astley Abbotts: It is just that that equity release does not have to take the form of annuity. An equity release can take the form of a capital sum, which may be used in any way one wishes. It does not have to be put into a savings instrument carrying a fixed return. It can be just a capital sum, for instance, a mortgage, out of which one has a capital sum which can subsequently be deployed. Let us suppose that that sum was £20,000, for whatever reason, and one had no other savings. Would £19,000 therefore carry a £1,900 pension savings credit?
Baroness Hollis of Heigham: My understanding is that if there were no other savings, and we are talking of a lump sum, that would be the case. If I am wrong on that, I shall write to the noble Lord.
Baroness Turner of Camden: Before the Minister sits down I wonder whether she could answer a question I have. A number of financial services providers have been putting home income plans on the market with a view to attracting pensioners who have a property but a very low income, and persuading them that they can add to their income through a home income plan. I take it that income from a home income plan will be covered by what the noble Baroness has just said?
Baroness Hollis of Heigham: Yes, that is my understanding.
Baroness Barker: Before the Minister sits down, one of the purposes for which people use equity release is in the repair of property. If equity was released for that purpose, presumably it would not be taken into account? I refer to calling down small amounts of money in order to make capital repairs.
Baroness Hollis of Heigham: I do not know. Perhaps I may follow that through. I cannot see how that would fit into any obvious policy point with which I am familiar. Perhaps I may check on that. The read across to capital is where one has capital because it has come as a lump sum. If some of that capital is used for purposes which you and I would regard as perfectly sensible, in other words, one is not getting rid of that capital by divesting it in order to increase one's pensioner credit—for example, by buying a replacement car or replacement furniture and probably, but I shall check, repairing one's home—that would then be acceptable. That would not be regarded as divesting oneself of capital which one has perfectly properly drawn down from one's property. However, if that is not the case, I shall write to the noble Baroness.
Lord Hodgson of Astley Abbotts: I am grateful to the noble Baroness. We have had a useful exploration of this topic. As I said, this is a probing amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Barker moved Amendment No. 87:
- Page 9, line 18, at end insert—
The noble Baroness said: All the amendments we have discussed so far on the subject of earnings have, by and large, dealt with income which is either predictable or within the control of the person who receives the benefit. Amendment No. 87 is a probing amendment to raise the issue for when the department considers what will be done about the minority of pensioners—I accept it is a minority—who are receiving small amounts of unpredictable income.
I imagine that the noble Baroness will say that the five-year assessed income period will deal with many such problems. Indeed, it will. The torment of people who receive small amounts from books which, by
This is a way of saying that there are a number of such small oddities. There may be a number of pensioners who receive income over which they have no control. Can the Minister say whether such issues will be taken into account in the consideration of what will be considered as earnings?
Baroness Hollis of Heigham: Along with polygamy, Amendment No. 87 takes the prize for the most ingenious amendment, or the one most coming in from offside.
Amendment No. 87 proposes a £1,000 annual disregard on income from royalties, which is equivalent to a weekly disregard of £18. In discussing Clause 15 and the sequence of amendments we have had, I have been trying as far as I can to share with noble Lords as much of the detail of the regulations concerning what income streams will and will not be taken into account. I understand the problem we are in where I cannot lay out a tidy shopping list of regulations. However, there are still certain infrequent or less common forms of income on which we have yet to make a firm policy decision as to how, if at all, we take them into account. Income from royalties is one such area. I have to say, frankly, that until I saw the amendment it did not occur to me to consider how to deal with a book seven years down the line when one is back down to receiving £220 per year royalties.
According to the family resources survey, there are currently some 26,000 people over the age of 60 with some income from royalties. Of those, around half have royalties below the suggested limit of £1,000 per year. Although it was not mentioned by the noble Baroness, perhaps we should consider, almost in the same breath, how public lending rights are treated, which are analogous. I am thinking of a situation in which I might receive royalties of X, but my public lending rights will be, perhaps, £247. We need to have a read across in that way.
It is difficult, because of the small survey sample sizes, to say exactly how many of those 26,000 pensioners would also be entitled to pension credit, but we estimate that perhaps 10,000 might be. Income from royalties is currently taken into account and treated as a form of earnings in relation to MIG and, compared to a continuation of the current MIG policy, the cost would be approximately an extra £5 million.
These are not simple matters. As I said, until the noble Baroness mentioned it I had not picked up on the fact that we must also consider PLR and related issues, particularly given the royalties "bunch". There are very complex rules. Most royalties are received in the first two years of a book being published. There may then be another chunk if the book goes into paperback. Equally, one may have worked over a long period of years writing the book. We therefore need an equalisation mechanism. These are complex areas.
Perhaps the noble Baroness will allow me to return to the issue when we have got our head round this small, complex system. Even the Inland Revenue has considerable difficulty working out whether Schedule D or Schedule E applies and as to whether or not the book was written by virtue of one's occupation, if one is a university academic. That counts differently for tax treatment. I believe there may be some interesting questions to follow on this matter. If I can write to the noble Baroness and place a copy in the Library so that we do not trouble the House on Report, I shall do so. If not, she may have to revisit the matter and I shall see whether I can get a more satisfactory answer for her.
Earl Russell: I declare an interest in Amendment No. 87. The Minister's response was generous, thoughtful and helpful. However, the problem goes a little wider than just royalties. There is a problem in cases where income is received in a regular way and the amount that is coming in when the tax is due is a great deal less than at the time when the tax is assessed.
The classic example is the woman who was bankrupted by being left £1 million in shipping shares. The shipping shares were assessed for duty in April 1929 and the duty was payable in October 1929. Is it possible to have some thought on that problem as well—although I hope that those particular circumstances may not recur?
Baroness Hollis of Heigham: I cannot conceive how the noble Earl can contemplate the Chancellor of the Exchequer producing a situation in which shipping shares worth £1 million in April are virtually worthless by October. The noble Earl normally tells me that he is not worried—if I may paraphrase him—about what the present Government may do but what the present government after seven may do. With regard to that situation, God knows what has happened to the economic cycle—and I bet He does not either.
More generally, to make the picture more complex, one of the things that we are trying to do with the five-year assessment period is to look at stable income. Royalties of this sum are small and irregular. If they were bunched in one or two years and were substantial, that might be a reason for delaying the five-year assessment for, say, two years if that was the main source of income, until the flow had become steady. The issue is complex. I shall write to the noble Baroness or, if necessary, we shall revisit the matter.
"( ) For the purposes of this Act, a person's income shall exclude royalties, up to a maximum of £1,000 per year."
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