Age-related Tax Allowances

Baroness Hoey Excerpts

Monday 9th September 2013 Westminster Hall

[Mr Gauke]

If the right hon. Gentleman looks at the measures in the 2012 Budget, he will see that the amount raised from the wealthiest, in increased stamp duty on the most valuable properties and the cap on reliefs used by the wealthiest to reduce their income tax bills, raised far more money than the cost of reducing the 50p rate of income tax—a rate that the evidence suggested was not raising anything like the sums for which the previous Government hoped. There is a good reason why the Government in which he served for many years had a top rate of income tax of less than 50p: a top rate of 50p is not a terribly effective way of raising revenue. We must place this in the context of all the other measures that the Government are taking for pensioners. The overall tax system remains favourable to them, and there are measures that protect pensioner benefits, not least the triple lock for the increases in the basic state pension.

[Kate Hoey (Vauxhall) (Lab)]

I, too, apologise for not being here earlier, particularly to support my hon. Friend the Member for Luton North (Kelvin Hopkins) in his moving of the motion.

Does the Minister not agree that so many pensioners feel aggrieved about the change because having worked hard all their lives and saved for their retirement they now discover that they are getting absolutely no interest on their savings? Many of them have been living on their savings interest, and now they do not even have that—and will not for the next few years, it seems, if the Bank of England’s new independent director is right. Does the Minister not understand just how angry many pensioners are? They feel they have been let down.

[Mr Gauke]

The hon. Lady makes an important point about the difficulties faced by many of those who rely on their savings to support themselves. It is in all our interests that we have a strong and growing economy, and in the current economic climate it is right that we have low interest rates. We acknowledge that that creates difficulties, but the alternative—higher interest rates—would have significantly damaged the economy over recent years. Importantly, we have been able to bring in the triple lock, which has enabled us to increase the state pension at a faster rate than before and has included the largest-ever cash increase. That demonstrates the Government’s commitment to supporting pensioners wherever we can.

It is also worth re-emphasising that as a result of the decision to remove age-related allowances no one will pay more tax than before. Other factors, such as wage inflation and increases to the basic state pension, may, of course, affect tax liabilities, but no one will pay more tax from one year to the next because of the policy change alone. In fact, people over the age of 65 who pay no income tax at all—about half of all pensioners—are completely unaffected by the reform.

It is also worth reminding right hon. and hon. Members that, as the Chancellor announced in the Budget two years ago, the Government remain committed to exempting pensioners from national insurance contributions. There is a strong, principled case for that, because people have contributed throughout their working lives on the basis of a return, and I distinguish that argument from the one about personal allowances. I have debated this matter on a number of occasions and have never heard a strong case for those under the age of 65 having a lower personal allowance than those over that age.