Finance (No. 2) Bill

Anthony Browne Excerpts

2nd reading
Wednesday 29th March 2023 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

I beg to move,

That this House declines to give the Finance (No. 2) Bill a second reading because, notwithstanding the introduction of the multinational top-up tax and electricity generator levy, it fails to introduce a targeted scheme to address pension issues affecting NHS doctors, instead making blanket changes to tax-free pensions allowances which, as they will cost around £1 billion a year and benefit only those with the biggest pension pots, should not be the priority, and because it derives from a Budget which failed to set out an ambitious plan for growing the economy.

Six months ago the previous Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), described our economy as being stuck in a “vicious cycle of stagnation”, and on that one point he was absolutely right. To his credit, unlike many of his colleagues, he at least took responsibility, on behalf of the Conservative party, for more than a decade of economic failure.

However, although the previous Chancellor was right to point to our country’s economic stagnation, the prescription that he and the previous Prime Minister offered was nothing short of disastrous. They set the UK economy on fire, and people are still paying the price as a Tory mortgage penalty does lasting damage to the living standards of working people; yet the current Prime Minister and Chancellor expect praise for being better than the arsonists who preceded them. Could the bar seriously be any lower? British families and businesses deserve so much better than that. After 13 years of economic failure, people and businesses across the UK deserve a plan for the economy that offers more than managed decline.

[Anthony Browne (South Cambridgeshire) (Con)]

I fear that the hon. Gentleman may know what I am about to say. Is he aware that, according to the International Monetary Fund, economic growth in the UK—GDP, either per capita or in terms of constant prices—has grown faster than economic growth in France, Germany, Italy and Japan, faster than the G7 average, faster than the EU average and faster than the euro area average? That is quite a record, and one to be proud of, so it is not a case of 13 years of economic failure. I invite the hon. Gentleman to pay tribute to the Government’s success in ensuring that our economy grows faster than the economies of all those other countries that have faced similar international challenges.

[James Murray]

Just two weeks ago, we were promised a Budget for growth. Let us now look at the data that was published alongside that Budget. It shows that ours is the only G7 economy that is forecast to shrink this year. Our long-term growth forecasts were downgraded in the Office for Budget Responsibility report.

[Anthony Browne]

Will the hon. Gentleman give way?

[James Murray]

No, I am going to finish what I am saying before I give way again.

That data confirms that we are suffering the worst falls in household incomes in a century. The hon. Gentleman need look no further than the OBR report alongside the Budget, which make it very clear that this Government have little or nothing to be proud of when it comes to our economy. Across the UK, people and businesses want to get on with making our country better off, but we are being held back by a Government who are out of energy and out of ideas. That much is clear from the Bill that is before us today, which seeks to implement some of what the Government have promised.

Of course, consideration of any Bill on Second Reading must include what it omits as much as what it contains. Let us start with the fact that this Bill contains no mention of introducing stealth tax rises for working people, although we know that that is exactly what the Government are doing. We know that in the Budget of March 2021 and in the Finance Act that followed it, the then Chancellor, now the Prime Minister, froze the basic rate limit and personal allowance for income tax for four years. In the recent autumn statement of 2022 and in the Finance Act that followed that, the current Chancellor extended those freezes by a further two years. Now, following this month’s Budget, the OBR has made it clear that the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to its level in 2013-14. What is more, in a double whammy, families across the country will be hit next month by the Tories’ council tax bombshell, a move that will take the bill for a typical band D property above £2,000 for the first time. Look beyond the rhetoric from the Conservatives, and the reality is clear: their stealth taxes are hitting working people hard.

However, while the tax burden for working people is up, important measures that we have been calling for to make the tax system fairer are nowhere to be found in the Bill.

There is nothing in it to close the loopholes in the windfall tax on oil and gas giants, which we have been urging the Government to do for so long. Of course, we have been pressing for an extension of the energy price freeze for many months, and we were glad that the Government followed our lead in the Budget, but it is wrong that they are still leaving billions of pounds of windfall profits for oil and gas giants on the table when those windfalls of war should be helping to support families through the cost of living crisis.

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[Anthony Browne]

I thank my hon. Friend for his interesting speech.

[Craig Mackinlay]

Don’t worry; there is a lot more yet.

[Anthony Browne]

I am sure there is, and I might intervene later.

My hon. Friend makes an interesting point about moving the 45% additional rate to £100,000, which I have previously recommended. Does he agree that it would be a good guiding objective for this Government, and indeed any Government, to try to reduce all marginal tax rates below 50%? It is a good, Conservative principle, but it applies to everyone, that people who work extra should keep at least half the money. People should never have to give more than half to the Government.

[Craig Mackinlay]

My hon. Friend speaks a truism that should not need to be spoken from the Conservative Benches, as it should be patently clear.

A sole trader who is running a good little business and doing quite well might be knocking on the door of £100,000 in profits—I would have thought that is not an unusual amount for some in the south-east of England, even in the building trades. Too many of them will say, “I’m not going to pay 60%, plus 2% national insurance. I will work four days a week and spend the fifth day on the golf course.” We are losing out through the 60% rate.

Ministers will not be surprised by my objection to corporation tax being increased from 19% to 25%.

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[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the right hon. Member for Dundee East (Stewart Hosie). I will start where my hon. Friend the Member for South Thanet (Craig Mackinlay) did: people think that Finance Bills are a little dry, but somebody must have a sense of humour to produce a 456-page Bill and then hide in clause 346 the abolition of the Office of Tax Simplification, probably at the exact time that we really need it. When I used to practise as an accountant, I had a copy of all the tax legislation on my desk. I sense that if I were still working, I would need a much bigger desk for the successive Finance Bills we have had over the past 13 years. Perhaps at some point, we should stand back and think, “Do we really need to keep adding all of this stuff every year? At what point are we going to start taking away stuff that we have now effectively duplicated?” I suppose it would mean that I could work from home, because I probably could not carry all of those books around, so maybe there are some bonuses there.

Much of the technical stuff in this Bill has been pre-consulted on—we have seen it for a long time—and most of it is to be warmly welcomed. I will quickly mention clause 25, which finally sorts out the net pay arrangement for pensions. We have been trying to find a solution for this for quite some years; to put people whose pension scheme has chosen the net pay arrangement, rather than the other way of doing it, into the position that they should have always been in. We have finally found a solution through which HMRC will make it good, which is to be warmly welcomed. I cannot quite see a start date for that in the Bill, though—I hope it is soon—and it would have been nice if HMRC had actually paid some back pay. People who are saving pretty small amounts, who are the ones on the very lowest levels of income, could have had the tax back that they should have been getting for the past decade or so, but perhaps we should not be too greedy.

I want to focus most of my remarks on the pensions tax changes, and then on the corporation tax and the multinational top-up tax. There is a theme in those things: we have some welcome measures, but we end up on a rather haphazard journey to a very strange place where things competing with each other everywhere, and I do not quite have an idea of what we are trying to achieve.

On the pensions tax stuff, we had clearly created a problem through the reduction and freezing of the lifetime allowance. The only solution to a problem caused in that way is to undo what we have done, and it makes sense to scrap that completely. I would have probably preferred to have a higher lifetime allowance and scrap the annual allowance: if we are aiming to limit how much tax relief people get on pensions saving, I am not quite sure why we need to do it on a year-by-year basis when we should probably be more worried about the overall total. It seems a bit harsh to me that somebody who starts a business, scrimps and saves, saves every penny and reinvests it, and finally sells that business for a decent amount now cannot get the same pension as somebody who has been employed for all that time, taking much less risk, because they are capped on the £60,000 they can put in per year and by how many years they can look back. I am not sure what policy objective we are trying to achieve there, but it is welcome progress.

On the Opposition’s reasoned amendment, I am sceptical about the attraction of trying to have different tax regimes for different sectors. It becomes hard to work out which occupations we like and which we do not, and to which we want to give favourable status. Even if we wanted to do it, it becomes hard. Do I want a favourable tax regime for doctors regardless of where they work? I then have to define “doctor” and work out what sort of doctors I want to favour. Do I want it for people who work in the NHS, in which case it would have to include whoever is being paid large amounts, whether finance directors, human resources directors or diversity officers?

It would be slightly bizarre to give a more generous tax regime to a finance director in an NHS trust being paid a large amount of money, but not to somebody owning and running a business, trying to create jobs in the economy. That would be hard to do, and we would have to go through every senior public sector worker, as my hon. Friend the Member for South Thanet did, working out who to include. Even if we did that, how on earth would we work out which organisations to include? Most high-paid NHS staff are not employed by NHS England, but by God knows how many trusts around the country. If we wanted to apply the regime to GPs, too, they all have their own businesses. It would be phenomenally difficult to work out how to do that, if we think about how the lifetime allowance being set that way was causing a problem and driving people out.

[Anthony Browne]

My hon. Friend is making some excellent points about the problems of having sector-specific lifetime allowances, which would proliferate and become unbelievably confusing, as he says. We have all made the case about other public sector workers who would be affected by the lifetime allowance. We could introduce a regime where we exempt them one by one and effectively have a regime for all public sector workers, but does he agree that it would be unfair and economically irrational to have a completely separate pension regime for public sector workers and a far more punitive one for private sector workers, who are important for generating wealth in the country?

[Nigel Mills]

I agree with my hon. Friend. I remember the anger when I was first elected about people working in the private sector getting a very small pension and seeing the large generosity of the public sector ones that they could never dream of aspiring to. To have a more generous tax arrangement on top of a more generous pension that they were effectively paying for would be hard to sell to people. I think the Government have found a sensible fix on that.

Where has this situation left pension tax policy? We now have a regime where when someone earns the money and pays it into their pension, they do not pay income tax and national insurance on it, and when they draw the pension, they pay income tax, but not national insurance. We are not quite sure we like that. If someone is earning too much—more than £260,000 now—we start reducing the amount they can put in every year from the £60,000 cap down to a £10,000 cap. Then, if someone wants to draw their pension, they can have a quarter of it completely tax-free, even if they do that 10 years before they retire, but now we do not like that either, because that might be too much, so we have capped it at the level of the lifetime allowance that we have just scrapped. What are we trying to do? Added to that is the fact that if I have a defined-contribution pension that I do not draw and leave in my estate, there is no inheritance tax on it. I do not even pick up the tax at that point.

If we stood back and said, “What are we trying to incentivise and encourage people to do by the £50 billion or so of annual tax that we forgo”—or defer, strictly speaking—“on pension saving?”, I am not sure we would design this system. The Government would be well advised to create some kind of commission or review to look in the round at all the various ways we incentivise pension saving and all the ways we tax it and try to work out what a coherent system that people have some hope of understanding would be. I suspect we would get far better outcomes if we did that. I encourage the Government to do that. That would need to be on a long-term, cross-party basis. It cannot be done on a whim every few months.

The danger is that we get to a Finance Bill or Budget and we want a bit of money here, or we have found a little fire we want to put out there, or we want to make another tweak, and we end up building and building more and more strange bits on to this rather ugly looking house until it finally falls over. We should try to get it in some kind of shape before we get into that position.

Moving to the various corporation tax measures in the Bill, I am prepared to accept the rise in corporation tax. Given the fact we bailed out nearly every business in the economy three years ago in the covid pandemic, there is justification for saying that we need to pay those bills, and corporation tax, which businesses only pay when making a profit, is the right way to do that. It takes a little bit of believing to convince ourselves that we can raise the rate that businesses pay on all their future profits—all the fruits of their investment—and that that will not deter investment, but a short-term deferral of when they pay tax by having full expensing will somehow encourage loads of investment, even though they will end up paying the extra 6% on the profit they will earn from the use of new machinery at some point in the future. They will not pay it in the first year, but they will pay more in all of the subsequent years.

Finance (No. 2) Bill

Anthony Browne Excerpts

Committee of the whole House
Wednesday 19th April 2023 Commons Chamber

[Kirsty Blackman]

An awful lot of people work hard. The specific issue that many of our constituents have raised is in the NHS. I have not been approached with this concern by senior police officers, but I have been approached by NHS doctors. If the hon. Gentleman feels particularly strongly about senior police officers, he could table an amendment so that people employed in the wider public sector, or in the police service, can be included in this measure. I think both police officers and NHS staff could be included, but it would be ridiculous to include everyone, no matter how little they do for the public good.

[Anthony Browne (South Cambridgeshire) (Con)]

Not only NHS staff and senior police officers but state school headteachers, senior civil servants in our local authorities, air traffic controllers and senior Government scientists are affected by the lifetime allowance. In fact, about half the people affected work in the public sector. If the hon. Lady follows her rationale, she would end up with a completely different tax regime for public sector pensions. Does she think that would be fair for private sector workers?

[Kirsty Blackman]

Given how much we have relied on our public sector, and given how unwilling this Government are to come to the table on pay negotiations, it would be totally reasonable for this House to say, “Our public sector is incredibly important. We want to support our public sector workers, and therefore we want to give them differential access to lifetime allowance exclusions.”

Amendment 22 is consequential on amendment 21. Amendment 23 would allow the Secretary of State to specify which NHS bodies, or types of bodies, are covered, given that the NHS is structured in different ways in England, Scotland and throughout these islands. It makes sense for the Secretary of State to make that decision.

The amendments cover NHS staff who work, on average, at least 15 hours a week so that they cover all the NHS staff who have come to us with pension concerns, particularly doctors but also other senior NHS staff. I have a large teaching hospital in my constituency, and there is another hospital just over the boundary. There is a medical school too.

[Anthony Browne]

Will the hon. Lady give way?

[Kirsty Blackman]

Not just now.

A significant number of doctors live and work in Aberdeen, and a number of them have come to me with concerns about the pension regime. One of them did not realise that he was about to hit the lifetime allowance until his accountant came to him and said, “This is how much you are required to pay in tax.” He had tipped over into this additional tax because he had taken on hours to teach junior doctors and medical students how to be better doctors. He had taken those extra hours on at the request of the hospital. This was because the immigration laws and rules have meant that a number of our doctors are struggling to jump through the hoops that the UK Government have put in a place or they are feeling that the Home Office is particularly against doctors coming from other countries.

That constituent had been asked to take on those hours as a result of the changes in some of the departments. He had willingly taken on those hours because he knows how important continuing professional development is in the NHS and how important it is to have a new generation of doctors coming through, but he had then been hit with a massive tax bill as a result. When I met him, he said to me, “I do not want to take on any more teaching as a result of what has happened to me. The amount I have been taxed means that the teaching costs me money. I don’t see why I should be asked to do this when I am training the next generation of doctors.”

[Anthony Browne]

I am glad that the hon. Lady recognises the dangers of high levels of taxation in discouraging people from work, as I believe those on both sides of the House can agree on that. Her amendment mentions the NHS and people who work for “an NHS body”. What does she think about this applying to GPs? The overwhelming majority of GPs do not actually work for the NHS—they are self-employed or work for their partnerships. Does she think that GPs should be excluded from this legislation as well?

[Kirsty Blackman]

That is one reason why our amendment 23 would allow the Secretary of State to make those specifications, so that all the people considered to be working for NHS bodies—GPs are commissioned by NHS bodies—are included. The measure was intended to allow that level of flexibility. If I had not intended to allow that level of flexibility, we would not have tabled amendment 23 to allow the Secretary of State that flexibility. We referred to NHS bodies and specified a number of hours so that someone who works for the significant majority of their time in private practice and private systems, and perhaps works an hour or so every few months for the NHS, would not be caught by this measure. The intention is that those people who work for a significant amount of their time in contributing to the health of the population, making people better and well, ensuring that they stay healthy and live longer lives, are recognised and given the opportunity to benefit from this measure.

My understanding, from everything that the Government have said previously about this, is that one of the biggest concerns in this area relates to NHS doctors. If the Government feel that there are other significant areas of the public sector where people could and should benefit, I look forward very much to the Minister standing up and explaining all of those. I am sure I will be asking further questions about this in Committee.

The lifetime allowance was in place for a reason and it does not work in relation to senior NHS staff, but it does work in relation to those places where people are not contributing to the health and wellbeing of our population and where people have not been on the frontline during the past few years, working under immense pressure for the public good. SNP Members will therefore vote against clause 18 standing part of the Bill if we have a vote on that. That clause is about the abolition of that lifetime charge. We do not agree that that should apply to everyone. The Government need to bring in a bespoke scheme to solve this problem, rather than applying it to everybody, no matter how much money is involved and how little public service they provide for that income that they receive. I ask the House to support amendment 21, which stands in my name and those of my colleagues.

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Unlike the Labour and nationalist parties, I want everyone to have the same opportunity. There could not be a better domain than pensions policy for showing where we seek to support those who wish to provide for themselves and their families. Of course, by doing so, they are relieving the burden on the state and allowing it to focus taxpayers’ resources on the most vulnerable in society.

[Anthony Browne]

Does the Minister agree that the 80% of employees who work for the private sector make a valuable contribution to the wellbeing of the country as well? Does he agree that they would have a right to feel annoyed at the idea that there should be an especially punitive regime just for private sector workers, which the public sector workers do not get punished by?

[Andrew Griffith]

My hon. Friend makes exactly the point that I was making, and does so extremely well. It is wrong for us in this House to seek to assign to ourselves the ability to judge the virtuous nature of people’s activity. I am sure that an accountant in the private sector works as diligently as an accountant seeking to drive value for money and the best medical outcomes in the NHS. With the greatest respect, I think that the hon. Member for Aberdeen North goes a little too far in seeking to “unbake” the wonderful cake of our mixed economy health system, which involves contributions from the private sector, private forensic laboratories and private diagnostic machines, and the wonderful work of our clinicians, and administrative, ancillary and domiciliary staff, who are mostly in the public sector. As I have said, her approach is the wrong basis on which this House should proceed.

Clauses 18 to 23 will reform pension tax thresholds to remove the current disincentives for highly experienced individuals to remain in the labour market or even to return to the workforce to build up their retirement savings. Currently, there are limits placed on the amount of tax-relieved pension savings individuals can make each year and an additional second restriction that applies to the total. That is an unusual feature of the tax system, where almost every other allowance is on an annual basis. The Government listened to stakeholders from across the public and private sectors, who have said that the annual and lifetime allowances can influence the timing of retirement and act as a barrier to remaining in the workforce.

The changes made by these clauses will increase the annual allowance from £40,000 to £60,000 and remove the lifetime allowance charge from 6 April 2023. The changes will ensure that pensions tax does not act as a barrier to staying in or returning to work, and will eliminate the chilling impact that the mere fear of triggering an extra tax charge has, even for those who are not immediately subject to falling foul of the cap. Much as the opposition parties may not wish to hear this, these changes command support across the economy. The Guild of Air Traffic Control Officers told us that pension taxation risks causing its members to reject tasks essential for the safe and efficient operation of air traffic control in the United Kingdom.

Dr Vishal Sharma of the British Medical Association has said that this is

“an incredibly important step forward”.

He said that the abolition of the lifetime allowance will mean that

“senior doctors will no longer be forced”—

his words—

“to retire early and can continue to work within the NHS, providing vital patient care.”

The Forces Pension Society said that this is a positive development and that it had been lobbying for it for several years. It said that these changes will help keep our streets safe. Marc Jones, chairman of the Association of Police and Crime Commissioners, confirmed that, as it relates to the police, they

“will be a game changer for thousands who love their jobs and do not want to retire.”

To support those who have left the labour market to return and build up their retirement savings, these clauses will also increase the money purchase annual allowance from £4,000 to £10,000 from April 2023. This will enable more individuals who have previously retired to return to the workforce and to continue to build their savings. In line with these headline reforms, there are also technical changes. They increase the minimum tapered annual allowance from £4,000 to £10,000 and the adjusted income level required for the annual tapered annual allowance to apply to an individual from £240,000 to £260,000.

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However, what the Chancellor announced that day, and what is legislated for in this Bill, goes much further than the fair fix that was needed for NHS doctors. Rather than introducing a targeted scheme to keep doctors working, instead the Conservatives have introduced an expensive blanket change that will benefit all those with the biggest pension pots.

[Anthony Browne]

The hon. Gentleman is making the case for a special NHS-only or doctors-only regime. Does he accept that senior workers in other parts of the public sector are affected by the lifetime pensions allowance? There was already a separate scheme for judges, and we know about the former Director of Public Prosecutions having his own individual scheme, but does the hon. Gentleman accept that there are senior police officers, senior local authority civil servants, senior Government scientists, air traffic controllers—as we have heard—and other workers across the public sector who are disincentivised from continuing to work by the current regime?

[James Murray]

I thank the hon. Gentleman for his intervention, but the argument we were hearing from hon. Members on both sides of the House was about NHS doctors and keeping them in work. The Chancellor himself, when he was Chair of the Select Committee, said that we needed targeted intervention to help NHS doctors. No one was talking about a wider scheme to affect everyone with the largest pension pots until the Chancellor stood up and made his announcement on Budget day. I respectfully suggest the hon. Gentleman focuses on our amendments in hand and on new clause 5, which suggests that, rather than proceed with a blanket scheme affecting everyone with a pension pot, we should do what I thought there was an emerging consensus around and develop a targeted scheme for NHS doctors.

Otherwise, the Government’s approach fails the critical test for any Government spending—whether they are spending public money wisely. Yet Ministers refuse to entertain the prospect of a targeted scheme for NHS doctors instead. That is why we have tabled new clause 5, which would require the Chancellor to make recommendations on what a scheme targeted at NHS doctors would look like. We believe that is a crucial question to be answered. I hope that any Conservative Members, including the hon. Gentleman, who are concerned about spending public money wisely, getting value for money and supporting our NHS, will vote for new clause 5 in the Division Lobby later.

[Anthony Browne]

Will the hon. Gentleman give way?

[James Murray]

No; I am going to make some progress. The hon. Gentleman has intervened quite a lot and I am looking forward to his speech, as I am sure everyone in the Committee is.

When the Economic Secretary responds, I would be grateful if he could address the points set out by new clause 4, in particular by giving some much-needed clarity on the scale of the impact the Government expect their changes to pension allowances to have. Can he tell us how many people are expected to stay in work or return to work as a result of these policies? What sectors do they work in? How many of them are NHS doctors? Those are important questions, yet it has been hard to get exact answers from Ministers. The Office of Budget Responsibility has said the changes to pension contribution allowances will increase employment by around 15,000, but Paul Johnson of the Institute for Fiscal Studies has said that figure is “optimistic”.

When the Financial Secretary to the Treasury was asked on Second Reading of this Bill how many doctors would stay in the NHS because of these measures, she confidently quoted Department of Health and Social Care statistics that around 22,000 senior NHS clinicians would have been expected to exceed the £40,000 annual allowance this year. However, she may not have known that, at the very same time, the permanent secretary who oversees Government spending was appearing before the Treasury Committee, where the hon. Member for South Cambridgeshire (Anthony Browne) was asking her questions. When asked about the evidence on how many of those 22,000 NHS clinicians would have been discouraged from working by the cap, she said the evidence was “mixed” and that they would need to do further evaluation.

It seems clear that the Government simply do not know how many people will be brought back into work as a result of their changes to pension tax-free allowances. They certainly do not know how many NHS doctors will come back into work, and they have clearly failed to do the thinking on how a bespoke approach for NHS doctors could operate.

That is why we oppose the Conservatives’ pension changes and why we will be voting for a fair fix for doctors’ pensions to get them back into work. We will be voting to spend public money wisely. We will be voting against a Government who choose to cut tax for the richest 1%, while pushing up stealth taxes and council tax on working people across the country.

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[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell). I agree with everything he said.

I am a little surprised that we have ended up having to have this debate again today. Generally speaking, people who campaign for their own interests and ask for a special scheme for doctors do so because that was their particular area. However, if we stand back and ask how it is possible to make a special scheme for one particular sector work, we quickly realise that it is fiendishly difficult to do. There are all sorts of scenarios where we hit a problem. For example, some people have split careers, spending some time in the NHS and the rest of the time outside it. Others have split jobs where they might be a consultant for a couple of days a week and then spend another couple of days training the next set of doctors as a university lecturer. That puts them in a different pension scheme that is not subject to the same tax regime. They might say, “I have an NHS pension but I’ll pay it all on my other one,” so that would not work. What about people who are not employed by the NHS or any of the myriad trusts and organisations?

I do not want to pick too much on the amendment tabled by the hon. Member for Aberdeen North (Kirsty Blackman), because I have tabled enough in my time to know that they are not always drafted precisely. However, if we use the word “employed” in draft legislation, that cannot be stretched to include a partner in a GP practice, because they are not employed by anybody. If we use the phrase “employed in an NHS organisation”, that cannot be stretched to include somebody working as a locum, because they are a contractor rather than somebody who is employed. There is all manner of people in the NHS family who we want to encourage to stay in work, but this is not how we will achieve it.

I also think that the hon. Lady has chosen the wrong mechanism. This would result in her having a nightmare. As soon as a person who used to be exempt ceased to work more than 15 hours or retired, the lifetime allowance would kick in and clobber them when they drew their pension. I understand her intention, but I suspect that her mechanism of choice would be disastrous.

Having thought through the scenarios, how do we pick a sector and get the right people? Are we trying to help doctors or are we trying to help anybody who happens to be employed by the NHS? As I said earlier, we are basically helping accountants, finance directors and procurement directors—all manner of people who are paid very large amounts by the NHS. I probably do not have the same amount of sympathy for their contribution to public service as I do for that of frontline doctors. It is bizarre to give a tax advantage to an NHS finance director, who gets a very generous pension, and not to an entrepreneur who is trying to grow the economy and create jobs to pay for all of this. That seems to create a huge iniquity.

If we stand back and think about how we want tax policy to work—heaven forbid that the Opposition get into government and try to do this—it would be really hard, as my hon. Friend the Member for South Cambridgeshire (Anthony Browne) has said, to go down the route of justifying different tax rates for public sector employees. If we start asking why we are charging them the same income tax and national insurance, we will end up in a horrible world and a very complicated tax regime.

Those of us who have very good public sector pensions should be very careful. Unlike my hon. Friend the Member for Poole (Sir Robert Syms), my lack of career success means that I am not worried about the lifetime allowance, including under the old level, because 20 times my pension gets me nowhere near it. Strange situations are being proposed. When I was first elected 13 years ago, a big issue on the doorstep was, “Public sector pensions are too generous. It’s not fair. I work in the private sector, basically paying for that, and I’m going to get a tiny pension. People in the public sector are being paid the same or more than me, and they are getting a massively generous pension. It’s not fair.” The coalition Government’s response to tackling that perceived unfairness was to change the scheme from final salary to average salary. If we load on to that generous, inflation-protected, state-guaranteed pension a more generous tax treatment than that received by private sector pensions, that would recreate that horrible argument.

It is foolish and damaging to go down the route of cherry-picking favoured sectors and giving them different tax treatment from other sectors. It was a mistake to take that approach to judges and to Directors of Public Prosecution, and it would be a mistake to apply it to doctors. The tax system should apply to everybody across the board in the same way. If we want to provide more reward to people, we should do so by pay rather than by tax. That is a far better approach.

I want to address where the Government have ended up. We have a very complicated pensions tax regime where people do not pay tax on the way in or on an annual basis. Instead, they pay tax on what they draw out of the pension when they get to the end, unless they draw out a quarter of it as a lump sum, in which case they do not pay tax on it all. We have chosen a pension model whereby the state pension broadly provides people with subsistence to live on, and if people want more than that, we incentivise them with a generous tax regime so that they can save it themselves. The implication is that a higher earner gets a greater tax incentive because, unlike a lower earner, they save tax at 40% or 45%. They probably pick up a bit more tax at the end, but a large amount of people pay a lower marginal tax rate when they retire than when they are working. That is the system that we have chosen.

We then thought that perhaps that was a bit too generous to higher earners, so we introduced an annual cap and a lifetime cap. Quite why we needed both, I do not know. If we want to limit how much tax relief we give people, we could choose one of the two and still get to the right answer. The Government have now chosen the annual approach rather than the lifetime approach. The problem is that that does not help people whose earnings are not consistent. If someone is earning a relatively high amount at age 25 and then keeps earning it, that system will work very well for them. If someone starts a business that struggles in the early years and they cannot pay themselves a big salary or make big pension contributions, but then finally it is successful and they sell it and make a lot of money, under this new regime they would not be able to put that much in their pension because they would only be allowed to put in 60 grand a year. I think we could have chosen a higher lifetime allowance and not bothered with the annual allowance. That would have achieved a similar outcome, but we have not done that.

To complicate things further, we have decided that if people earn too much, we will start taking their annual allowance off them completely, meaning that they will be able to put next to nothing in a pension scheme. That does not strike me as being a pensions tax regime that incentivises people to save money in the way we want them to or to use it in their retirement. Effectively, as soon as people hit 57, that gives them a tax incentive to take a lump sum before they retire. We are saying, “The more you earn, the better off you are—unless you earn too much, in which case you are being made worse off and put back to where you started.” In order to put out this particular fire, I urge the Government to step back and consider what they are trying to achieve with the £50 billion or so a year of tax we defer—we actually lose the vast majority of it—and what they really want people to do with their pension savings. How can we use the tax regime to incentivise that and make it fair all the way around? We must come up with a coherent tax regime that drives our policy, rather than come back every couple of years, tweak things, find another fire to put out and think, “Well, it’s not quite working how we wanted, so let’s move it around,” and end up in a confused mess.

This should be a warning to us. If we have a confused mess, with different competing objectives, and we do not think about the whole system, we end up with an unintended consequence. The consequence we had was senior doctors retiring far earlier than we wanted them to because we got the pensions tax regime wrong. If we do not fix this, I suspect there will be another unforeseen consequence and we will have to come back and tweak it in another couple of years. Let us do the job properly, have a coherent regime and use the very large amount of money that we invest to drive the behaviours that we want.

[Anthony Browne]

I preface my comments with an absolutely fundamental underlying principle of all economic policy. Whatever we are talking about, I think this should be our first, axiomatic ground rule: whatever is right for the Leader of the Opposition should be right for everyone. There is a fundamental principle here, which is fairness, and I will come on to that.

First, though, I want to mention some of the underlying principles of the annual allowance versus the lifetime allowance, because during almost all of the previous Labour Government’s time in office, there was not a lifetime allowance. It was brought in at the tail end of the Labour Government. One of the Government’s concerns about tax relief for pensioners is the need to limit it so that we do not end up creating huge amounts of dead-weight costs for pension relief, particularly for the well paid. That is why we have an annual allowance that limits tax relief.