The Economic Secretary to the Treasury (Richard Fuller)
Thank you very much, Mr Deputy Speaker.
Let me begin by thanking my hon. Friend the Member for Central Suffolk and North Ipswich (Dr Poulter) for securing the debate and for the points that he has raised. I also note the contributions of the hon. Members for Central Ayrshire (Dr Whitford), for Strangford (Jim Shannon), for Llanelli (Dame Nia Griffith), for Carmarthen East and Dinefwr (Jonathan Edwards) and for East Dunbartonshire (Amy Callaghan), who made, forcefully, the point that this is an issue that affects all parts of the United Kingdom.
Because these issues are complex and my hon. Friend rightly set them out in full in order to put them on the record, I am rather short of time, so, if I may, I will move rather quickly in responding to some of my hon. Friend’s recommendations. Let me add that I shall be happy to follow this up with other Members who have spoken if they want to raise specific constituency points.
I think that everyone present has noted the pressures on our NHS. Indeed, before taking on my new role, I spent a considerable amount of the last six months with my own GPs. I know that the issues relating to pressures on GPs are complex, including the overall questions of compensation and burnout, and my hon. Friend rightly mentioned the issue of abuse of NHS staff, which has occurred to a shameful degree over the last six months and which no member of our health service should ever have to deal with.
However, my hon. Friend focused on the issue of pension tax and the NHS, and made three specific recommendations. The first concerned the differential use of CPI figures, and he was right to raise that issue, because it is the spike in inflation that has laid bare some of the problems in the way in which calculations are made. The issue relates to the disparity between the CPI figure used for uprating the opening value of a member's benefits and the CPI figure used to assess revaluation in public service schemes. This effect is particularly notable in the NHS pension scheme, where accrued benefits are adjusted upwards each year by CPI plus 1.5%—which, to be fair, makes it one of the most generous pension schemes available.
I understand that this difference in figures will lessen the headroom that scheme members have in their annual allowance calculation. That may cause more members to exceed the annual allowance, and cause those who already routinely exceed it to exceed it by more, with the result that some may receive annual allowance tax charges. The British Medical Association has asked the Government to amend the Finance Act 2004, so that the CPI figures used in uprating the opening value and the figure used for revaluation in public service schemes are the same. However, there are some further issues that must be considered in this discussion, which my hon. Friend may not have mentioned.
First, the Government have a duty to balance support for all pension savers across the United Kingdom. The use of September CPI to measure inflation in the year before the tax year is a well-established feature that is used across the tax system. Any changes would impact all pension savers, not just NHS staff.
The current approach provides certainty to individuals at the start of the tax year about what their opening pension value will be for annual allowance purposes. I appreciate that, for those with a defined benefit pension alone, this certainty may not be seen as much of an advantage. However, for others across the country who may have some defined benefit accrual but are now saving into a far less generous defined contribution scheme, this certainty allows them to plan their finances and pension contributions for the coming year.
Richard Fuller
I really cannot; I have only two and a bit minutes left.
Secondly, there is a perception that the use of different CPI figures will disproportionately hit senior NHS staff. This is said to be because the revaluation of accrued rights in the 1995 and 2008 sections of the NHS pension scheme will lead to a large pension input amount for clinicians, while the annual allowance calculation will use a lower CPI figure when calculating their opening value. This is the so-called pseudogrowth that my hon. Friend mentioned. I am afraid that this point ignores the fact that, for most NHS employees in the 1995 and 2008 sections of the NHS pension scheme, their accrued benefits remain linked to their final salary, which means that they do not have their benefits revalued each year.
Thirdly, I have heard concerns over so-called negative accrual that cannot be used to offset positive accrual in later years. This point conflates actual pension accrual that benefits pension savers with notional accrual used for the purposes of the annual allowance calculation. It is a fact that defined benefit schemes are more difficult to compare against the annual allowance than defined contribution schemes. In a given year, where individuals accrue rights to future annual pension payments, it is necessary to calculate a comparable figure for their savings to test against the annual allowance to ensure fairness between those in defined contribution and defined benefit schemes. On this point, my hon. Friend and other hon. Members have raised an important issue this evening, and I will go away and consider it further.
In response to my hon. Friend’s second recommendation, I know that the BMA and others have said that the action taken at Budget 2020 on the tapered annual allowance was not enough. However, the cost of this intervention was £2.2 billion over five years, and it was targeted at the very highest earners in society. It will be hard to justify focusing more Government support on them, especially in the current climate. This includes replicating the temporary scheme used in the 2019-20 tax year.
My hon. Friend’s third recommendation for an unregistered scheme was also mentioned by the hon. Member for Carmarthen East and Dinefwr. I understand the comparison that senior clinicians draw with the position of the judicial pension scheme 2022, which is unregistered for tax purposes. However, I believe that a distinction remains to be drawn between NHS high earners and the judiciary, and that there are unique circumstances relating to judicial appointments—in particular, that judges are unable to return to private practice after taking up office, and that many judges take a significant pay cut to join the judiciary. However, we all recognise that there are significant issues around doctor and GP retention, and the points raised this evening have struck a chord with me. I look forward to discussing them further with hon. Members.
Question put and agreed to.