Taxation: Avoidance

Debate between Lord Willoughby de Broke and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, the lowering of the top rate of tax, for example, makes my noble friend’s point very clearly. By putting the top rate of tax at 50%, the previous Government, as the analysis has now shown, delivered absolutely nothing—or very little at best—in terms of revenue, and made this country uncompetitive. So we need wherever possible lower and broader taxes. I agree with my noble friend on that.

[Lord Willoughby de Broke]

Could the Minister just remind the House, further to the question from the noble Lord, Lord Forsyth, that tax avoidance is not illegal—that it is legal to avoid taxes—and that when individuals see the Government wasting a lot of their hard-earned money, they have a duty to avoid those taxes?

[Lord Sassoon]

I can certainly confirm that tax avoidance is not illegal. I can also say, building on the figures that I gave before, that of the £35 billion tax gap, £30 billion is estimated to be evasion and a relatively small part, £5 billion, to be avoidance.

EU: Member States’ Budgets

Debate between Lord Willoughby de Broke and Lord Sassoon

Tuesday 29th November 2011 Lords Chamber

[Lord Willoughby de Broke]

To ask Her Majesty’s Government what is their assessment of the proposal by the European Commissioner for Economic and Financial Affairs that the European Commission should have the power to scrutinise member states’ budgets and impose such financial penalties as the Commission deems fit.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Government strongly support the recently agreed economic governance legislation to strengthen the stability and growth pact. This provides for stronger and more responsible economic governance across the European Union. Under the new legislation, a range of financial sanctions can be imposed by the Council within the euro area where member states are deemed not to have taken adequate action. Sanctions are set out under Article 136, which applies to the euro area only.

[Lord Willoughby de Broke]

My Lords, I am grateful to the Minister for that reply. However, the statement by Commissioner Olli Rehn applies not just to the eurozone but to the whole of the EU, including this country. Therefore, will the Minister confirm that today’s Autumn Statement by the Chancellor is nothing more than an aspiration—a wish list? Will he confirm to the House that this will have to be ticked off and agreed by the European Commission before it can take any effect?

[Lord Sassoon]

My Lords, this country has always been party to the stability and growth pact, but as I am sure the noble Lord knows, under Protocol 15 the UK has an opt-out, which means that we have to endeavour to avoid excessive deficits but are not subject to any sanctions such as members of the euro area are. Furthermore, the UK secured particular treatment that ensures—has ensured and will ensure—that Parliament will always be allowed to scrutinise the UK’s budget ahead of the European Commission.

European Financial Stability Mechanism

Debate between Lord Willoughby de Broke and Lord Sassoon

Thursday 12th May 2011 Lords Chamber

[Lord Willoughby de Broke]

To ask Her Majesty’s Government whether, in the light of the constitutional convention that no Parliament may bind its successor, they will review the commitment made by the previous Government to participate in the European financial stability mechanism.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the constitutional question is a red herring in this case. The Government are focused on looking ahead. At the December European Council, the UK secured an agreement for the European stability mechanism to be replaced, by 2013 at the latest, with a permanent mechanism for assisting eurozone countries. The UK will not be participating in the permanent mechanism.

[Lord Willoughby de Broke]

My Lords, I am grateful to the Minister for that reply, and I am sorry that he thought that part of my Question was a red herring. I will try a fish of a slightly different colour. I remind him that at the Davos economic forum President Sarkozy of France said:

“To those who would bet against the euro, watch out for your money … Mrs Merkel and I will never—do you hear me, never—let the euro fall”.

Given that unambiguous recognition that the eurozone ought to be able to sort out its own problems, will the Government now stop pouring good money after bad and give notice that they will withdraw from the European financial stability mechanism?

EU: Financial Assistance

Debate between Lord Willoughby de Broke and Lord Sassoon

Wednesday 15th December 2010 Lords Chamber

[Lord Willoughby de Broke]

To ask Her Majesty’s Government whether the United Kingdom’s participation in the European Union stability mechanism, and the proposed loan to the Republic of Ireland, are in breach of the “no bailout” clauses enshrined in the Maastricht treaty.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, Article 125 of the treaty, on the so-called “no bailout” clause, states that a member state,

“shall not be liable for or assume the commitments”,

of another member state. Article 125 does not preclude member states from providing loans to one another. The European financial stability mechanism was established under Article 122.2, which allows the Union to lend to a member state that is in difficulties or,

“seriously threatened with severe difficulties … or exceptional occurrences beyond its control”.

[Lord Willoughby de Broke]

My Lords, I am grateful to the Minister for that slightly evasive Answer. The phrase about matters “beyond its control” simply cannot be the answer to the difficulties encountered by Greece, Ireland or other potential bailout candidates. Beyond that, could the Minister say whether it is right, when British taxpayers are facing cuts in services and higher taxes, that £7,000 million should be poured into the eurozone black hole in their name?

[Lord Sassoon]

My Lords, I did not intend to be evasive but to give a factually correct Answer in respect of Articles 125 and 122. I was not asked whether we thought it was proper to use Article 122 in this way. As to whether it is proper to extend loans, to answer a question that the noble Lord did ask, we have decided, in the exceptional case of Ireland, which is our fifth largest trading partner, that it is in the interests of the UK economy to extend a bilateral loan to it. That does not mean that we will participate in any other permanent arrangements that may be put in place for the eurozone.

Equitable Life (Payments) Bill

Debate between Lord Willoughby de Broke and Lord Sassoon

Wednesday 24th November 2010 Lords Chamber

[Lord Sassoon]

My Lords, first, I thank noble Lords for their valuable contribution to this afternoon’s debate. It is clear that there is a depth of support for ending the plight of Equitable Life policyholders and that we all agree that this saga has gone on for far too long. I am particularly grateful to the noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lord, Lord McKenzie of Luton, for making it clear at the outset that the Opposition support the Bill.

The matter of Equitable Life is very complex and continues to affect directly the lives of a very large number of people, both in Britain and abroad. There is a pressing need to get on and reach a resolution swiftly, as policyholders have already waited 10 years for the Government to address this long-standing issue. Many of those people are elderly, as we have been reminded, and should not have to wait a day longer than necessary for justice. I shall not repeat the steps that we have already taken since coming into office, but I am grateful to my noble friend Lord Kirkwood of Kirkhope for recognising the steps that the coalition Government have taken.

I am getting somewhat experienced in doing Second Readings and other readings in this House. A great number of technical questions were asked today in relation to the length of the debate. Noble Lords will perhaps forgive me if I inevitably have to leave a number of points on the table, but I will write to sweep up the points that I cannot answer now. I note that the Benches behind the opposition Front Bench are commendably empty of one or two of the usual suspects who tend to come in during my closing remarks, but I will deal with as much as I can.

First, I want to take the opportunity to recognise those who have continually fought in the interests of policyholders, going back to 2000. That point was first mentioned by my noble friend Lord Kirkwood of Kirkhope. Particular mention must go not only to the Parliamentary Ombudsman but to the Equitable Members Action Group and the Equitable Life Trapped Annuitants, who have been referred to already. The Government have held meetings with these parties on numerous occasions and I commend them for their commitment to this cause. Their views have helped us to shape our understanding of the issue and given us an insight into the views of the broader group of policyholders. Their insights have of course proven invaluable. We need to get this right. The best way to achieve that is to interact with the people directly affected and to gain a clear understanding of their position.

There has, of course, been disappointment from those policy action groups about the amount that we have made available for the scheme, but we have had to strike a difficult balance between the valid, deserving cause of policyholders and the wider interests of British taxpayers. It is important to remind the groups that the Parliamentary Ombudsman herself stated that it was appropriate to consider the potential impact on the public purse of any payment. I know, as has been recognised today, that there are many important conversations to be had about how the scheme will operate. It would be preferable to have had all those conversations before turning our attention to the Bill but, in the context of needing to get on and conclude this episode, we wanted to make sure that the process was not unnecessarily extended.

I shall address some other, specific points that came up. The noble and learned Lord, Lord Davidson of Glen Clova, and the noble Lords, Lord Willoughby de Broke and Lord McKenzie of Luton, in different ways, raised the question of the quantum of the pot and the size of the cut for non-WPAs. I can confirm that it is, on average, around 66 per cent. One question was how this compares with a spending review where the departmental cuts were, on average, around 20 per cent. First, the spending review was not a linear exercise; there were different cuts in different areas. Secondly, it has been a difficult balance between fairness to policyholders and fairness to the taxpayers. It is important that we have still managed to cover the costs of payments to the WPAs who purchased their policies after 1 September 1992. I will come back to that cut-off point in a moment, but it is important to recognise that we have covered those payments in full, because we believe that that is the hardest-hit group. It is also important that non-WPAs are still getting more than twice what they would have received with a scheme based on the loss figures produced by Sir John Chadwick’s methodology.

We accept that the relative loss figure is around £4.3 billion. At the end of the day, it has essentially been a matter of judgment as to what the appropriate number should be. Approximately £225 million of the initial £1 billion is for WPAs and their estates, leaving approximately £775 million for the lump-sum payments to non-WPAs. Based on the current Towers Watson estimate of WPA losses, that leaves approximately £395 million for the rest of the WPA losses from 2014-15 onwards.

There were questions from the noble and learned Lord, Lord Davidson, and the noble Baroness, Lady Drake, about an appeals process. There will indeed be means by which policyholders can raise concerns about any incorrect application of the scheme rules to individual cases. Full details of that will be included in the document setting out the scheme design, but I can say today that it will certainly include a process whereby, if a policyholder believes that the rules of the scheme have been incorrectly applied to his or her data, he or she will be able to raise a query with the delivery body stating the nature of the concern. The query will be pursued by the delivery body and, if there is merit in the challenge and the challenge is upheld, a recalculation will take place.

If the challenge is not agreed by the delivery body, the policyholder will have the option of taking the case to the review panel. The panel will consider the case in full and will be able to make a fresh decision based on the facts of the case. If a complainant’s case is upheld, again, a recalculation will be carried out. The review panel will be independent of the original decision-making process and will be suitably qualified to consider the complaint in full according to public law principles, although it is too early at this stage to state who might be on the panel.

On the question of why we are covering the cost of post-1992 WPA losses in full, throughout this process the policyholder groups have made it clear that, due to the nature of their policies, WPAs have been one of the hardest-hit groups. They were particularly vulnerable to losses because they were unable to move their funds elsewhere or to mitigate the impact of their losses through employment. They are also generally the oldest policyholders. In answer to the specific question from the noble and learned Lord, Lord Davidson, approximately 37,000 WPAs will be paid under the scheme.

The noble and learned Lord also asked about the role of reliance. Given the time that has elapsed and the almost impossibility of policyholders proving what they would have done in a counterfactual situation, faced with properly regulated returns, a truly reliance-based approach is impossible in this case. I have explained the approach that we have taken.

On the question of how fairness has been worked out within the compensation pot and the principles that applied, the independent commission is now considering the split of the pot. It has made an interim report and its final report will be published by the end of January. The noble Lord, Lord McKenzie, asked about public scrutiny of the commission’s report. At the time we publish the document, I anticipate that my honourable friend the Financial Secretary will want to make a Statement in another place. Before we get to that, there is a further round of consultation by the commission. Therefore, I believe not only that is there a full consultation process but that there will be appropriate opportunity for Parliament to consider the results of the commission’s work. The commission’s report will of course be made available to both Houses of Parliament.

My noble friend Lord Kirkwood of Kirkhope asked about the scheme paying out. I confirm that it is our ambition to make the first payments in the middle of 2011. This is a complicated scheme, and we must get the details right. We believe that starting to make the payments in the middle of next year is an ambitious but achievable target.

My noble friend also asked whether we might in any circumstances be able to pay out more than £1.5 billion. I should make it clear that £1.5 billion is the figure that we judged the British taxpayer can afford to pay, so I cannot hold out any hope of us finding more money at a future date. This process has dragged on too long already, and we need finality.

On capital thresholds and the way in which benefits operate, capital limits do not immediately cut off eligibility for benefits because they work on a sliding scale, gradually reducing support for individuals with larger assets. It is unlikely that many recipients who would otherwise have been eligible for means-tested benefits will receive large enough payments to affect their eligibility dramatically.

In answer to a couple of questions from the noble Baroness, Lady Drake, we have no plans to make interim payments. Again, they would introduce more complexity and could delay the set-up of the overall scheme. We want to focus on getting the main scheme up and running as quickly as possible.

There was a question about consistency with similar payment schemes. The independent commission will consider aspects of fairness that it deems appropriate and the Government will take its advice very seriously. However, it is important to remember that the specific features of the Equitable Life payment scheme make it very different from some other pension schemes, so there is no broad read-across.

There were a couple of questions, including from the noble Baroness, on the gross/net issue. The calculations for the WPA payments are being made on a gross basis. The noble Baroness asked a broad question about long-term savings, which links back to my noble friend’s question about different regulatory regimes. I think that in some ways she answered my noble friend’s question when she pointed out that we had been through one very significant change in the insurance regulatory regime a number of years ago and are about to go through another fundamental change to the overall regulatory set-up. Of course, there is never a no-failure regime in financial regulation, but the landscape will change significantly. In that context, we take the sustainable and healthy long-term savings market in the UK extremely seriously.

I am conscious that one very important question was asked by the noble Lord, Lord Willoughby de Broke, and was touched on by the noble Lord, Lord McKenzie of Luton. That is the question of the pre-1992 with-profit annuitants. The first issue here is that they took out policies before any maladministration could have affected their decisions. That is the first and principal reason why they have not been included in the Government’s proposed payment scheme. WPAs were affected by Equitable Life being run badly, in part as a result of the Government’s maladministration. Sir John Chadwick and Towers Watson looked into what these WPAs would have received had there been no maladministration. They concluded that the pre-1992 WPAs received more from Equitable Life than they would have if the society had been properly regulated. That is because Equitable Life paid out more to them in the early years than it would have done if there had been no maladministration. Even though it paid out less than it should have done in later years, the former overpayment outweighs the latter, so it is the Government’s view that no compensation is due to that category of annuitants.

[Lord Willoughby de Broke]

My Lords, I direct the noble Lord’s attention to paragraph 15 of the Explanatory Notes, which says:

“They are a group of policyholders who are ‘trapped’ in their policies, in receipt of a declining income in their retirement and generally the eldest”.

That is the absolute definition of the pre-1992 annuitants. Their income has gone down very significantly since 2002 and it was not, as I said, their fault that they did not know that there was maladministration. It is grossly inequitable that they are left out of this arrangement altogether and just abandoned to twist in the wind by the Government.

[Lord Sassoon]

My Lords, I am conscious of the time that we have got to. I can only repeat that, while I accept what the noble Lord reads out as factually correct, he omits to point out what I have said: it is nevertheless the fact that those pre-1992 annuitants could not have been affected by maladministration, which is the purpose of this compensation scheme. Although I entirely accept the analysis of what has happened to their income levels in recent years, the judgment is that, on balance, they were paid more in the early years than they should have been, and that exceeds the reduction in more recent years. It is a regrettable situation but not one that it would be proper to bring into the compensation scheme.