Budget Statement

Lord Davies of Brixton Excerpts

Thursday 16th March 2023 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, it is a pleasure to take part in this important debate and particularly to hear the maiden speech from the noble Baroness, Lady Moyo. I am sure that she will be an asset to the debates in the House, even if I do not necessarily always agree with what she says.

It is no great surprise that I am going to focus on what the Chancellor said about pensions, but I have a couple of more general points. First, it is shocking that there is nothing in the Budget about social care. We were told by the last Prime Minister but one that this Government had an oven-ready plan. Clearly we do not even have the recipe, let alone the ingredients. Secondly, credit was taken in the speech by the Chancellor for past rises in tax thresholds, with the claim that these had lifted 400,000 pensioners out of absolute poverty. Perhaps we should now also be told how many pensioners will be pushed into poverty by the decision to freeze tax allowances for the next five years. You cannot take credit for one without taking the blame for the other. I very much hope that a forthcoming Labour Government will reverse this decision and revert to Rooker-Wise, particularly for the personal allowance.

“Pension” appears 11 times in the speech, once as part of “suspension” and a couple of times when referring to the Department for Work and Pensions. The main references to pensions were about tax allowances, which I will come to in a moment, but the Chancellor returned yet again to the issue of pension fund investment. Lots has been said on this by the Government but very little done. This time, we are promised

“measures to unlock productive investment from defined contribution pension funds and other sources”.—[Official Report, Commons, 15/3/23; col. 841.]

As ever, on this issue the devil is in the detail. I am a sceptic but, until we see concrete proposals, it is just so much hot air. Can the Minister tell us when the Government will actually come up with some firm proposals?

I turn to pension tax allowances. First, I welcome the decision on the aggregation of pension input amounts where employees belong to more than one scheme for the same employment. While it looks like a technical issue, and is not mentioned specifically in the Chancellor’s speech, it is one of the most significant decisions and truly to be welcomed. It is an issue I have raised several times in this House and at a meeting with the Minister for Health, so I am pleased that what seemed obvious has at last been accepted by the Government. Other Members were involved, of course, not least the noble Baroness, Lady Altmann, but I also need to mention that it was an issue of importance to the late and sadly missed Lady Masham.

I do not agree so much with the proposed abolition of the lifetime allowance. I need to mention that I have an interest in the matter, in that I could benefit from the change, but I still think it is wrong, particularly in current circumstances. Clearly, there is a crisis in the NHS—the shortage of doctors—that requires urgent action. It has been widely acknowledged, not least by the Chancellor himself as chair of the Health and Social Care Select Committee, that pensions tax was one of the factors involved and that action is required, but a more targeted approach would be better than the blunderbuss adopted by the Chancellor. I believe that the most immediate problems around retaining doctors in the NHS arise from the annual allowance, not from the lifetime allowance, so to deal with the undoubted problems, it would be better to spend money on reducing the impact of the former rather than the latter and target the problems of the NHS specifically.

Pensions taxation is a complex mess that needs thorough review. We continue to suffer from one-off decisions that increase complexity and unfairness. The Chancellor based the argument for change in the lifetime allowance on the concerns of many senior NHS clinicians, but he went on to say that he realised the issue goes wider than doctors. That was echoed by the Minister in her introduction, but in his interview this morning on the “Today” programme, the Chancellor referred only to doctors. What we do not know from the figures from the Treasury or from the OBR is how many of those being helped by this change are doctors, and how much of the resources being employed to facilitate the change are going specifically to doctors as opposed to other parts of the public service. I accept that doctors are a priority—that is clear—but the point is that it is for not the sake of the doctors but for the sake of people on the waiting lists.

The noble Lord, Lord Willetts, said we could not have a special one-off for the doctors. I am afraid that that is clearly not correct. There is already a special one-off for the judges. We passed an Act last year creating a scheme specifically for the judges that addressed exactly the same problem. I explained this in debates and was told, “There will not be any more special cases”. Well, I think doctors are a special case here, and a more targeted approach could have been adopted. Can the Minister tell us who else will benefit from the change, and why, in the current context, they represent such a priority to spend such an enormous amount of money? How much of the total cost will go to other groups of employees?

There are other more technical points that need to be clarified. Looking at the impact of abolishing the lifetime allowance, the OBR flagged this as a major uncertainty, both in relation to the cost and the numbers involved. Commentators, not least the coalition Government’s long-serving Pensions Minister, have cast considerable doubt on whether this change will actually achieve the stated objective of keeping people at work. On the other hand, I have no doubt that changing the annual allowance will have a direct impact in terms of keeping doctors working. 

What research has been undertaken to ascertain the impact of the changes to the tax credits? It is worth noting that, of the total cost over the next five years, £2 billion is being spent on abolishing the lifetime allowance and only £1 billion on adjusting the annual allowance, but to my certain knowledge it is the annual allowance which is the focus of the particular problems that people face.

There are also practical issues. What about those who have agreed to retire over the next three weeks? The change will not come into effect until 6 April, so can they reverse their decision? Those who have retired over the past few years—while the Government were refusing to acknowledge the problem—will have a justified sense of grievance at having paid a substantial amount of tax that the Government now declare they should not really have paid.

Finally, on a slightly more positive note, I welcome the first step in limiting the generosity, and I use the word advisedly, of the

“anomalous but much-loved tax-free lump sum”—[Official Report, Commons, 19/3/85; col. 791.]

the words of Nigel Lawson back in 1985.