Financial Conduct Authority Redress Scheme
Cathy Jamieson Excerpts(9 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Thank you, Madam Deputy Presiding Officer. Sorry, Madam Deputy Speaker. I always do that; I have been thinking too much about Scotland during the day.
I welcome the opportunity to speak in this debate. Hon. Members have given several examples about problems faced by their constituents. As a constituency MP, I have heard from a number of my constituents or small businesses that have suffered similar consequences.
The motion addresses the perceived failure of the FCA redress scheme. I was of course aware that the scheme had attracted criticism. We have heard quite a lot about that today, particularly in relation to some of the problems involved in the cases that hon. Members have raised. I will speak about them in more detail.
Before I consider the merits of the redress scheme, it is worth remembering how we got into the situation of needing such a scheme in the first place. We must therefore again address the mis-selling of interest rate hedging products that made the scheme necessary, as hon. Members have done during the debate.
Hon. Members are probably aware—the banks certainly are—that I have spoken often and at considerable length about the need for banks to eradicate the culture of mis-selling and to put their own house in order. The banks have a duty, whether we call it a fiduciary, an ethical or a human decency duty, to act in the best interests of their customers. Absolutely fundamental to that is the requirement to ensure not only that customers are sold products that they want and need, but that they understand the terms, conditions and caveats that underpin them.
From time to time, things can and do go wrong, and not even the most prescient among us can anticipate all the nuances and fluctuations in the money markets that may affect the products we purchase. However, just like the rewards associated with any product, the risks must be clearly stated from the outset. It can be argued that interest rate hedging products in and of themselves might not always be bad when sold in appropriate circumstances—they may help to shield bank customers and even small businesses from the risk of sharp interest rates movements—but, as we have heard this afternoon, it is clear that in many cases the risks have not been fully explained to, or fully understood by, the customers.
The FCA has clearly laid out the shortcomings in the information that it has provided. Nearly 19,000 small business customers of major UK banks took part in the review, and among the main problems they highlighted were the poor disclosure of exit costs, the failure to ascertain customers’ understanding of risk, the straying of non-advised sales into advised ones—that has been raised this afternoon—and the fact that the sale of products was driven by rewards and incentives. I will briefly take each in turn.
In its briefing, the House of Commons Library gives the example of a customer who was sold an interest rate hedging product that lasted longer than the loan whose risk it hedged. When the bank chose not to renew the loan, the customer was left with a stark choice between paying the extortionate breakage fees and continuing to pay the monthly cost of the hedging product. The latter option has been likened to a customer continuing to pay for the insurance on a car that they have sold. It is important to note that, unlike for a fixed-rate loan, an interest rate swap agreement is separate from the loan contract and must be terminated independently. From some of the speeches in this debate, it is clear that that has not always been entirely understood by those involved. Repaying the underlying borrowing does not automatically terminate the interest rate structures, and as we have heard, customers are not always made sufficiently aware of that.
Most of us who do not work in finance, banking or associated professions will perhaps have a rather sketchy understanding of the risk. There is nothing wrong with hedging against risk; it is a widely used practice that has occurred in many different manifestations for many years. However, the concept of hedging against risk has spawned a diverse range of products that are sometimes dizzying in their complexity, even for those who perhaps run their own businesses and think of themselves as if not “sophisticated” in the way defined, none the less as having a reasonably good handle on things, yet they find themselves caught out.
Derivatives are the most common example of that. Interest rate hedging products are not as complex as some derivatives, but they are complex enough to confound the unwary, especially where they involve structured collars that can effectively result in customers paying more if interest rates fall beneath an agreed level. That requires a finely balanced judgment by any customer, and an understanding of the vagaries of interest rates. It is crucial that the bank selling interest rate hedging products explains and defines the product to the customer and ensures that it matches their circumstances, but as we have heard, many banks did not do that.
Bob Stewart
Surely it is the bank’s duty when it starts to fiddle around with interest rates to warn the customer that that is happening and not just suddenly do it.
Cathy Jamieson
The hon. Gentleman makes a good point, and some of the concerns and examples have been about banks that seemed to be selling products, but not outlining the potential for interest rates to drop or giving customers information about the bank’s own forecasts. We have real difficulties with such circumstances.
Paul Farrelly
One issue that arose in many cases is that firms were not given a choice—the issue of conditionality, when a loan was advanced only if the customer took out a hedging product that was acceptable to the bank. I would want confidence that an easy test is being applied in the review process: if the bank was not the provider of the product, would it have accepted the company entering into an open-ended obligation? If the answer is no and the bank would otherwise have refused the loan, the sale was clearly inappropriate.
Cathy Jamieson
My hon. Friend makes a good point and I was going to say something about the circumstances that he and my hon. Friend the Member for Dumfries and Galloway (Mr Brown) mentioned and that element of compulsion. Clearly, many people felt that they had no option but to take those products or else they would not get the loan. As I am sure everyone understands, there are circumstances in which people rely on banks, and they trusted them and believed they were getting good advice.
Ian Swales
To emphasise that point, a constituent of mine was presented with an agreement to sign at the point when they thought they were signing a straightforward loan agreement. They literally did not have time to think, let alone make a choice.
Cathy Jamieson
Indeed, the hon. Gentleman makes a useful point and similar circumstances have been brought to my attention of people who thought at the point of signature that all they were signing was a refinancing agreement, and they had not understood the full consequences. We must drill down on those issues to ensure that people get the justice they deserve.
In some instances, product sellers painted only a partial picture of the product and the nature of the protection offered—I see the Minister is listening intently and I am sure she will agree. That resulted in customers purchasing products that were not appropriate to their circumstances, with the result that they lost money or spent money unnecessarily.
In the review, the FCA draws a distinction between sophisticated and unsophisticated customers. Under the terms of the agreement with the banks, only the cases of customers deemed to be unsophisticated were subject to the review. The FCA defines unsophisticated customers as those less likely to have had the expertise or resources to seek advice before purchasing an interest rate hedging product. People might suggest that that is a common-sense distinction, and one that correctly focuses on customers who were less likely fully to comprehend the nature and consequences of the product they were being sold, but the question of how the distinction was arrived at is an entirely different one. It will be interesting to hear the Minister’s view on that, and on the question of whether people ought to have the opportunity to appeal if they were put into the sophisticated category.
Paul Farrelly
I was going to ask the Minister about the tests but, as my hon. Friend has mentioned it, I will ask her. The tests applied in the review reflect the definitions in the legislation that allows small companies to file less information than large companies. The test of sophistication is size, and yet small-ish or relatively small firms were deemed as sophisticated. Does she agree that that needs to be reviewed?
Cathy Jamieson
My hon. Friend once again puts forth his points coherently. I am sure the Minister is considering her response. We must always look for unintended consequences. Did the review pull in all possible situations? Perhaps it could pull in more if the Minister is of a mind to look at things slightly differently.
Non-advised sales perhaps strayed into advice. The FCA describes non-advice sales as ones in which
“no personal recommendation is made and you leave the customer to decide how they wish to proceed.”
There is an analogy with other generic advice. If someone recommends that a person should buy household contents insurance without mentioning a specific insurer or policy, and if the recommendation is unconnected with the sale of a contract, that would not fall within the definition of advice. The FCA is clear that sales staff should avoid making personal recommendations, and therefore giving advice. It states that sales staff
“should confirm that the decision is the customer’s and that the”
salesperson “cannot give them advice.” The problem in many of the situations we have heard about today appears to be that sellers actively recommended and even promoted IRHPs to customers. My hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) outlined that in some detail, as did my hon. Friend the Member for Dumfries and Galloway. There were devastating consequences for businesses and lives in those situations.
I have criticised the sales-driven culture—the culture of targets, rewards and incentives—in the past. The banking sector will say that it is trying to address that culture and to move to a different approach, but the reality is that the culture was imported into retail banking from the more speculative areas of investment banking, where the risks were greater and the rewards higher. It simply was not appropriate for many of those small businesses and customers. Some of the overt incentives to sell such products, whether or not they were in the customer’s interest, have been removed, but I continue to worry. I want the Minister’s assurance that we are on top of the situation, and that there is no indirect pressure on staff to sell those products. We need to continue that culture change in our banks. That has to come from the top and go right through to the bottom.
On the perceived problems with the FCA scheme, the scheme was supposed to ensure that small business customers who were mis-sold products received an offer of fair and reasonable redress as soon as possible. The FCA tells us that more than 99% of redress offers have been communicated to almost 17,000 small businesses. More than £1.5 billion has been paid out in redress so far, including £300 million in compensation for lost opportunities. However, I think it would be fair to say, given the debate this afternoon, that it is evident that people still have concerns about the scheme’s shortcomings. I hope the FCA will take that into consideration, with support from the Minister. Customers who purchased caps that place a limit on interest rate rises are not included in the scope of the review, unless they have complained to the bank during the course of the independent review and are non-sophisticated customers. Other types of hedged loans were not included in the review process either.
My hon. Friend the Member for Newcastle-under-Lyme mentioned the case of Crestsign v. NatWest, illustrating the difficulty that some small businesses have experienced in getting redress from banks. The judgment in the case concluded that the bankers
“did not show themselves worthy of the trust that was placed…but unfortunately for Crestsign, the common law provides…no remedy because the banks successfully disclaimed responsibility for the advice they gave on the suitability of the swap, which was negligent but not actionable.”
In this case the bank managed to successfully argue that, since it did not owe its customer any duty of care, it had no obligation to pay compensation. We can see why people are concerned. The bank was able to argue its case after the event and was not held to account on whether it should have sold the product in the first place. Worryingly, the independent reviewer KPMG—independent reviewers are a crucial part of the FCA redress process—seemed to agree with the verdict. Does the Minister think that appeals need to be looked at?
I argued at the start of my speech that what we really need is cultural change.
Cathy Jamieson
I apologise, but I am at the limit of my time.
Will the Minister please address the lack of an appeal process? Will she address tax treatment by HMRC and look at having a review of compensation levels? I look forward to hearing what she has to say.
Taxation of Pensions Bill
Cathy Jamieson Excerpts(9 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
New clause 2—Pension flexibility: Treasury review—
‘(1) The Chancellor of the Exchequer shall, within a period of no more than 18 months from 6 April 2015, publish and lay before the House of Commons a comprehensive review of the impact of the changes made by this Act to the Finance Act 2004 and the Income Tax (Earnings and Pensions) Act 2003.
(2) The information published under subsection (1) must include—
(a) the distributional impact, by income decile of the population, of changes made by this Act to the Finance Act 2004 and Income Tax (Earnings and Pensions) Act 2003;
(b) the impact on Exchequer revenues of measures contained within Schedule 2: Death of a Pension Scheme Member, related to changes to the taxation of pensions at death;
(c) a behavioural analysis;
(d) an analysis of the cumulative impact of this Act on Exchequer revenues;
(e) an analysis of the impact of this Act on the purchase of annuities.”
Amendment (a) to new clause 2, line 13 at end insert—
“() an analysis of the impact of the changes introduced by this Act on the housing market;”
Cathy Jamieson
It is a pleasure to be here this afternoon for Report stage and Third Reading, and I do not think I can quite do justice to the excitement and delight that I felt when I saw that the final stages were indeed to be taken straight after the autumn statement. I am sure that is a view shared by the Minister, who will also be grateful for this miraculous feat of scheduling. Given the vast numbers who have turned out to hear us this afternoon, the excitement is obviously broadly shared across the House.
This is a serious Bill, however, and we have serious matters to discuss this afternoon, so I will now turn to the content of new clauses 1 and 2. There is a certain symmetry to the scheduling of today’s proceedings, because the reforms in the Bill were first announced in the Budget statement and we are now discussing the Bill’s final stages alongside the autumn statement. We should be impressed—if that is the right word—by the speed with which the Government have rushed through these very significant pension reforms, although, given that we will now rush through something else even more quickly as a result of the autumn statement, perhaps I should have waited to hear that statement before writing that line in my script for this debate.
Toby Perkins (Chesterfield) (Lab)
My hon. Friend has congratulated the Government on the speed with which they have brought in these measures. She will be aware that I have secured an Adjournment debate later today on the unintended consequences that have been visited on some of my constituents as a result of previous hastily introduced pension legislation. The Government have attempted to undo that legislation but, unfortunately, without any great success. Will my hon. Friend therefore temper her praise and reflect on the fact that hastily introduced pension legislation can often have unintended consequences?
Cathy Jamieson
I thank my hon. Friend for his intervention. If I had continued my speech for another couple of lines, he would have understood that my praise was somewhat tongue in cheek, given what I am about to say about the haste with which the measures have been introduced, about the impact that that has had, and about the concerns expressed by the industry. I know that my hon. Friend is taking up these issues on behalf of his constituents and putting them forward very seriously. We still do not know all the unintended consequences that will result from this Bill and the Pension Schemes Bill, which has now gone through the House, and that is one reason why I want to speak to the new clauses today.
At least one of the new clauses will seem familiar to those who had the pleasure, as I did, of serving on the Bill Committee. We have been consistent in our approach to the reforms. We have always said that we supported the principles of greater freedom and choice, but only when that leads to better outcomes for consumers. That is why we have consistently called on the Government to give us evidence that they have undertaken the appropriate assessment and analysis of the impact and potential consequences of the reforms. This also relates to what my hon. Friend has just said. For as long as we have pressed the Financial Secretary to the Treasury to provide that information, he has politely but firmly refused to do so. We on this side of the House are nothing if not persistent, however, and it would be remiss of us not to make one final attempt to bring the Government round to our way of thinking and to persuade them to accept our new clauses.
In a moment, I shall ask the Minister some questions on the figures that have been published today, but first I want to refer to some of the points that have been made about the speed with which the Bill has been taken through Parliament. Comments have been made in briefings and submitted in evidence as we have approached Third Reading. For example, the Association of British Insurers has stated that
“it is becoming increasingly clear that the first phase of the introduction of these reforms will be delivered in a period of regulatory uncertainty.”
The impact of that will be felt by the constituents of my hon. Friend the Member for Chesterfield (Toby Perkins). The ABI goes on to say:
“There is still a lack of clarity about what is expected of anyone offering retirement products from next April.”
I will come back to those points in a moment. The Bill has had thorough scrutiny, but a number of issues remain that we wish to pursue.
New clause 1 calls for a Treasury review within two years of the reforms coming into force on 6 April 2015, detailing the impact of the Bill on Government revenues, with particular reference to opportunities for tax avoidance and national insurance contributions avoidance. In Committee, we tried to get more details and figures, and the comments of John Greenwood and others were often quoted, particularly those relating to concerns that the Bill could allow individuals to divert large sums into their pensions through salary sacrifice. Those individuals would then be able to take as much as they wished from that pension in the following year, as 25% would be tax- free and the rest would be charged at their marginal rate, with no money deducted through national insurance contributions. Although the introduction of the money purchase annual allowance rules is supposed to prevent that, the reduced £10,000 limit is activated only after the pension has been flexibly accessed for the first time.
The Association of Accounting Technicians has raised concerns about this, saying:
“In the first year, before the £40,000 allowance is lost, individuals over the age of 55 will still have the scope to save tax and NI on the full £40,000, provided they have the necessary earnings, less their existing pension contributions. Where an individual flushes (passes) an extra £30,000 through pension rather than drawing salary they will achieve a saving of £3,600 in employee NI, more than £1,500 in income tax and, also, £4,140 in employer NI (13.8%) in the first year. A total loss to the public purse of £9,240. The “Freedom and choice in pensions” rules mean this money can be withdrawn immediately if an individual is over 55. This fact means that there will not be clear distinction between salary and pension for this age group.”
I have some questions for the Minister about that. Does he agree that the Bill, as it stands, would afford additional scope for tax avoidance of the type outlined? I know we have discussed this matter in Committee, but it is important to probe it until the last possible moment.
Ian Swales (Redcar) (LD)
The hon. Lady has obviously done a lot of research on this. As I understand it, once a flexible draw-down is started, the tax relief is then limited beyond that, so cascading £40,000 of tax relief year after year is not possible. That is my reading of the Bill.
Cathy Jamieson
I thank the hon. Gentleman for that intervention, as those are exactly the kind of detailed points that I hope the Minister will respond to when he gives his views on the provisions. These are exactly the sort of questions to ask: is that the type of tax avoidance that we have described and the AAT has suggested would be an issue? Is it possible? Is it an intended consequence of the Bill? During the Public Bill Committee he explicitly told us that allowing individuals to avoid income tax and national insurance contributions is “not the intention” of the reforms, and I had no doubt that he was genuine on that. However, people are still coming to us and repeatedly outlining concerns about the scale of tax avoidance that could be facilitated by the Bill. Therefore, it is important that we continue to pursue the matter, even at this late stage, and be given assurances on it.
Towers Watson has said that Ministers seem “sanguine” on this matter. I am sure that the Minister is not sanguine in any shape or form about the potential for tax avoidance, that he would want to close any loopholes and that he would want to send a clear message that it was not his intention that the Bill be used for any attempt at tax avoidance. That is particularly the case because, as has been repeated again today, tax revenues and the take into the Exchequer are falling, because of some of the Government’s other economic policies, particularly on wages and the impact on income tax and national insurance. It is not as though the Exchequer is going to be able to afford to lose hundreds of millions of pounds of tax income.
Interestingly, the written evidence from Towers Watson cited the Minister’s assurance that
“the government will be closely monitoring behaviour under the new system”,
and will take action “if loss accelerates” Towers Watson’s evidence suggests that it is very likely that action will be required. Complementing the AAT estimates of how much tax could be lost if individuals use salary sacrifice before they have accessed their pensions flexibly, Towers Watson provides an estimate of how much tax could be lost after a pension has been accessed flexibly and the money purchase annual allowance imposed. Towers Watson’s projection returns us to the point made by the hon. Member for Redcar (Ian Swales) and shows why we have pursued this matter vigorously. Towers Watson states that
“if £10,000 of salary is given up in exchange for an employer pension contribution, the employer could pay £1,380 less National Insurance while the employee would pay between £200 and £1,200 less”.
Although the annual allowance does not altogether remove the scope for tax avoidance, it does have a limiting effect, which of course we welcome. The crucial point made by Towers Watson, however, is that this is not a potential tax avoidance opportunity that has been “dreamt up by accountants”, but one that could be “created by legislation” before us today.
Taxpayers and employers need to know whether the Government will regard the diversion of salary through pensions as legitimate. Some people have suggested that the Government drafted the legislation oblivious to the loophole they were creating and that when they realised the consequences, they came up with the money purchase annual allowance rules as a partial stop-gap. I am inclined to be slightly more generous, because I am sure that the Government were very conscientious in drafting the Bill and gave consideration to all its component parts. I am sure that the Minister will reassure us on that point in his response. I know that he is concerned about the potential for tax avoidance, because he has repeatedly told us that he will “closely monitor behaviour” under the new system and that he will work with the industry to ensure that the system remains “fair and proportionate”.
Ian Swales
I am following the hon. Lady’s argument closely. Is she suggesting that this Bill creates new avenues for employer contributions to pension schemes? As I understand it, what she describes is available in the current system.
Cathy Jamieson
I thank the hon. Gentleman for his intervention. I hope the Minister will provide a clear steer to people about what would be acceptable both to employers and employees. I would also be interested to learn what he plans to do if the system turns out not to be fair and proportionate, and what form the monitoring will take. That is why we have proposed new clause 1. We did debate the matter in Committee, but we are still concerned that we have not heard exactly how the monitoring will take place and what the Minister intends to do.
Essentially, new clause 1 asks the Government to commit to doing something that the Minister has already said that they would do—to monitor and review the reforms to ensure that they are not used for the purpose of tax avoidance. We simply want that commitment in the Bill, to ensure that there are reports back to the House.
When we first debated the issue, concerns were raised about the time scale in which we were asking for the review. We had not, at that stage, fully anticipated how long it would be before patterns were established and problems had manifested themselves, which is why the new clause includes a two-year-time frame.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Did I hear my hon. Friend correctly when she said that the Minister was minded to carry out a review of precisely the areas that we have suggested in new clauses 1 and 2? If so, will the Minister make that clear in his reply to my hon. Friend, because then we could avoid a vote on the new clause?
Cathy Jamieson
My hon. Friend makes an important point. As I have said, we did have some of this debate in Committee. I know that the Minister, at various stages, has said that everything is under review and that all things are reviewed. What we seek to do is to put some structure around that so that all reports are brought back before the House.
I think I have made my point in previous Bill Committees and probably at the Dispatch Box as well. Even in my relatively short time in this place and on the Front Bench, I have seen Ministers come and go before my very eyes. I have no doubt that the Minister is concerned to ensure that he does the right thing and monitors what is happening, but it is important to have that commitment on behalf of the Government, which is why I have tabled the new clause.
New clause 2 would provide for a Treasury review of the Bill’s operation within 18 months of 6 April 2015. Such a review would include an analysis of its distributional impact by income decile, an analysis of the impact on Government revenues of changes to the taxation of pensions on death, a behavioural analysis and an analysis of the impact on the purchase of annuities. Any Bill that will have a significant impact on not only people’s lives, but the broader industry and the economy, must be based on evidence, engagement and analysis. We know from our probing in Committee why the Government announced the reforms without consultation, and the Minister explained his position on concerns about the impact on the market. However, it would be helpful to have some idea of whether the Government had carried out the behavioural analysis and impact assessment that we are requesting, and indeed of not only the extent to which that had been done, but what information they could set out. Those points have also been pursued by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who worked tirelessly on the Pension Schemes Bill. That Bill includes provisions on the guidance guarantee, which is crucial to the Bill.
David Mowat (Warrington South) (Con)
Surely the purpose of such a review would be to drive action. We have an expectation of the Bill’s effect on the annuities market, so will the hon. Lady tell us how the results of the annuities aspect of her proposed review would affect a future Government’s actions? Does she think that it would make any difference to Government policy if there was a 10% or a 90% change in the purchase of annuities, because it seems to me that it would not?
Cathy Jamieson
The purpose of the monitoring is to determine whether the Bill has unintended consequences. We would want the process to deal with our concerns of whether the market responds to the changes and if the products that people have envisaged will be available. There is the oft-quoted example of what happened in Australia: people drew down money, but many found that they had not properly planned for the future.
The hon. Gentleman asks what the Government would do, but I think that the Government have a responsibility to keep all legislation under review by looking at its effects and examining whether measures are fit for purpose and if they do what they say on the tin. If changes need to be made, the Government of the day will bring forward appropriate provisions. They have a responsibility to make themselves aware of any unintended consequences that might arise from the Bill and they should tell us how they will close any loopholes.
Hywel Williams (Arfon) (PC)
I am sure that the hon. Lady agrees with the TUC when it says that it believes that
“greater emphasis should be placed on developing strong default options at retirement. These may include a combination of drawdown and annuitisation.”
Cathy Jamieson
The hon. Gentleman makes a valuable point. The Public Bill Committee examined what options will be available to people and how we can ensure that the balance is right so that they are encouraged not only to take up pensions at the earliest possible stage, such as through auto-enrolment, but to think about planning for their long-term future. The aim was to ensure that people would not think that there was a windfall at age 55, perhaps make wrong decisions about it, and find by their 75th birthday that they had not done the correct planning. The new clause is very much about trying to see how the provisions will impact on real people when the time comes for them to make these decisions. That is why we were talking about behavioural analysis; we want to ensure that lessons are learned from it.
David Mowat
Surely we know the answer to the question prompted by new clause 2(2)(e), more or less; it is that dramatically fewer annuities will be purchased. Okay, a review might show that the figure is 12% as opposed to 90%, but what action would be taken pursuant to that answer?
Cathy Jamieson
It is a bit chicken-and-egg: until we do the analysis, we do not really know the extent of the problem. The solution would come once the problems were identified. The hon. Gentleman makes an important point about annuities; that takes me back to the issue that I raised about the opportunity for new products. There is a relatively short period of time in which to develop them. The industry, of course, says that it will try to meet the “challenges”—it consistently uses that word—and ensure that there are options and products. None the less, I find it difficult to understand why the Government seem resistant to the new clauses.
I think it was Ernest Hemingway who said that his novels were like icebergs:
“There is seven-eighths of it under water for every part that shows.”
Sometimes the same can be said of legislation, because the devil is in the detail. One has to see the detail, and be on top of it over a period, to find out what the ongoing impact is. That is why, throughout the passage of the Bill, we have tried to identify and probe any fault-lines on the surface of the legislation.
The guidance guarantee has been the subject of considerable debate, although it essentially formed part of the Pension Schemes Bill. Although we have now seen information on the overarching standards and the apportioning of the levy, published on Friday by the Financial Conduct Authority, we have yet to see all the content of that guarantee. Of course, that is the responsibility of the Government, in tandem with delivery partners. It is vital that the guidance is up and running, and is equal to consumer needs, come April next year. The FCA policy statement published on Friday confirmed that, at least initially, there will be no “second line of defence”, as it was described, which makes it even more important that the guidance is fit for purpose.
In the Public Bill Committee, I talked about the potential impact of the reforms on eligibility for social care. We identified two separate but related points on social care that we believe the Government have not yet adequately addressed. The first is the impact that drawing down money under flexi-access may have on an individual’s entitlement to means-tested benefits and eligibility for social care. The second is a point that I raised earlier: the danger that too much emphasis has been placed on early access to funds. That may result in people taking too much, too quickly, and being left with insufficient funds to cover the cost of care later in life. That is why our review calls for a distributional impact of the reforms by income decile. That is also why we need behavioural analysis. Signs may emerge that consumers are accessing their pensions earlier, which increases the chance that they may be left short of money in later life.
As we heard in Committee, many individuals who access their pension flexibly risk being hit with an unexpected tax bill—a point that the Association of British Insurers highlighted:
“Many people will struggle to understand the tax consequences of these reforms. Apart from tax free lump sums, withdrawals from pension pots are taxable pension income…Not only may people find themselves unexpectedly paying higher rate tax, it is possible that some will be unaware that their tax may not be settled for a year after they have accessed their funds through a self-assessment process that they may be unfamiliar with.”
These risks have to be monitored and reviewed, so that any unintended consequences can be picked up and dealt with.
We also need to see—this comes back to the point raised earlier—whether the Bill results in a proliferation of new products. The impact of such products on consumer behaviour should be monitored. In its 2014 risk outlook the Financial Conduct Authority expressed concern that
“retirement income products and distribution may deliver poor customer outcomes”.
It said:
“While recent proposals for pension reform plan to allow consumers to access any amount of their pension pot at age 55, the need for consumers to understand the options available to them at retirement is still paramount. Any future innovation in decumulation products will compound these risks.”
The FCA was, again, trying to look to the future. We share those concerns. We do not want poor outcomes for consumers, and I am sure the Minister does not want that either.
A further issue is that new products may carry additional charges that eat away at an individual’s pension. Research from the House of Commons Library found that current income drawdown products could see 27% of an average pension pot of £30,000 eaten up in fees and charges. If the reforms lead to continued abuse of charges, the Government may have to consider the introduction of a charge cap.
The changes made in schedule 2 abolish the 55% tax on pension funds on the death of the member. We can see the Government’s reasons for doing this, but it would be worth monitoring the impact on consumer behaviour and Government revenue.
I said that I wanted to ask the Minister some particular questions in relation to the autumn statement and the figures that had been published. Throughout the Committee stage, when we were pressing for information and numbers, the Minister said that those would be published in due course. True to his word, that information is now available to us. What effect will the revisions have on the initial costings of the impact of these reforms? Has he had cause to reconsider the impact of the reforms? Can he explain why the tax take increases because of the annual allowance in 2015-16, but falls in subsequent years? What is the basis for those figures?
Can the Minister give us any more detail about the costing of the salary sacrifice and welfare forecast provisions? The numbers are there, but we do not have further information in the autumn statement policy costing document. In comparison to some of the figures provided in Committee, the estimates still seem low. Given that the Minister has revised his forecast to take into account salary sacrifice and welfare at such short notice that it is not included in the autumn statement documents, had the Government fully considered those factors when they initially drew up these reforms, or did they only later recognise the significance of those factors?
We have asked for a review, as set out in new clause 1, to show whether the Bill increases the scope for tax avoidance and the avoidance of national insurance contributions. In the light of the figures that have been published, is the Minister confident that all his projections will prove to be accurate?
I have had a fair opportunity to set out the case for new clauses 1 and 2, which will allow the Minister to keep his word and monitor, review and report information as appropriate. It is important that the clauses are added to the Bill to ensure that that happens. We need to keep a close watch on the progress of the reforms to make sure that they do not lead to adverse outcomes for consumers or place increased costs on the state. The Government have consistently assured us that they will closely monitor the impact of the Bill, so we see no reason why, even at this late stage, they cannot commit to make good on that assurance and accept the new clauses.
Hywel Williams
I rise to speak on behalf of Plaid Cymru and in support of amendment (a), which stands in my name, to Labour’s new clause 2. I agree with much of that new clause, but I wish to add that the Government should bring forward a report on the impact of the changes introduced by the Bill specifically on the housing market and introduce measures to rectify any problems, should it become apparent that there are negative consequences. I sincerely hope that my concerns are entirely unfounded.
Although we welcome the Government’s desire to reform the private pensions system, we in Plaid Cymru have concerns about the consequences of behavioural changes in the pensions industry, particularly in relation to individual pensioners taking large draw-downs of money. We are not against pension savers being able to access their pension pots as a lump sum. If that is how people wish to access their money, it is up to them to do as they see fit. Given the rates of return achieved these days, it is not surprising that many people will wish to take that route.
Our concern is that the effect might not be quite what the Government intend. Aside from consumer protection issues and stopping people being targeted by sharks and cowboys seeking to exploit those who are newly able to access comparatively large amounts of money, attention needs to be given to the longer-term possibility that those who draw down large amounts and whose subsequent investments fail, for whatever reason, will be left with little or no money on which to see out their final years, despite having contributed to a pension scheme for most of their lives, and that they will then become a burden on the public purse. It is fair enough to say that the buyer should beware, but we are not talking about purchasing a new television; a wrong decision in this case might have grave, long-term effects on people’s basic incomes.
As has already been mentioned, in Australia, where the Government have introduced changes similar to those intended here, many people took large draw-downs and invested the money in buy-to-let properties. As the TUC has noted, much evidence indicates that the same will happen here, despite Ministers’ talk of people making home improvements, buying new kitchens or going out and buying cars and other consumer goods that will boost the productive economy.
Research by the Australian investment management firm Challenger has found that one third of savers used their pension cash to buy a home, pay off an outstanding mortgage or make home improvements; one in five splashed out on a new car; and one in seven spent at least some of their pension on a holiday. The evidence from Australia is that, when given the choice, only one in 25 Australians now buy an annuity. In the US, another country where annuities are not mandatory, most people take their pension money as cash, rather than buying an annuity. Indeed, a buy-to-let property might appear to be one of the better options for many people, rather than keeping their money in their pension scheme or making other, more conservative investments.
Some large accountancy firms, such as PricewaterhouseCoopers, have said that the changes to the annuities system will be a net positive for the Treasury. They perhaps foresee the revenue raised through stamp duty and other associated taxes. But it is not the Treasury’s coffers that will suffer, at least not in the short term. It is the potential bubble in house prices that concerns me, particularly at a local level, and the potentially growing number of people who would then be unable to buy their own home, the strengthening of the historical over-reliance of the British economy on a buoyant housing market, and the potential effects on investors’ incomes should, or rather when, the bubble bursts.
I need hardly remind the House of the dangers of an over-inflated property market, of which buy-to-let is a significant factor, and indeed one of the significant causes of the financial crash in 2008. Even prior to the crash, in August 2007, Oxford Economics noted that buy to let
“is undoubtedly contributing to the overvaluation of housing.”
Were I cynical, I might even characterise inflation of the housing market as some sort of giant Ponzi scheme, helping to keep the economy afloat while doing little to contribute to productive capital, the epitome of the rentier society—if I were cynical.
Of more significance to my constituents, and to people throughout Wales and the more picturesque areas of the UK, is the potential that those taking large draw-downs would decide to buy holiday homes. I need not rehearse in any detail the arguments about the problems associated with an over-preponderance of holiday homes. Hon. Members who represent constituencies where that is a problem will be only too aware of the negative effects. Anyone who really wants to know about it might read my maiden speech from 2001, which addressed housing matters and this problem, in particular. To put it briefly, having too many holiday homes in an area has a negative, deadweight effect on the local economy. Local people, especially young people, are unable to afford homes because of price inflation and are forced to leave. In my constituency, and in much of rural Wales, there is the added dimension of the damaging effect that has on the Welsh language. We have been largely spared some of those effects over the years of economic difficulty, but now, if the Chancellor is to be believed, we are moving towards a new golden age of plenty, possibly financed in part by pension lump sums, with a consequent revival of these risks.
Cathy Jamieson
The new clauses ask for reviews and monitoring, and that is exactly what we want. As we have said repeatedly during the Bill’s passage so far, our proposals should not be interpreted in any other way. When a Bill is put before us, it is important for us to scrutinise it and try to improve it, and that was my reason for tabling the new clauses.
I am grateful to my hon. Friends the Members for Coventry North West (Mr Robinson), and for Chesterfield (Toby Perkins) and the hon. Member for Arfon (Hywel Williams) for their contributions. All of them have contributed additional information and raised additional issues which need to be considered, particularly my hon. Friend the Member for Chesterfield, who will initiate an Adjournment debate later. He did not want to reveal too much about that debate, lest we decide to miss his exciting speech. None the less, he did an excellent job in laying out some of the issues that he will refer to later on behalf of his constituents.
I have listened to the Minister. I am disappointed—as always—that he has not chosen to accept new clause 1 and new clause 2. On reflection, having listened to the debate, I am minded to press new clause 1 to the vote, but not to press new clause 2 at this stage.
Question put, That the clause be read a Second time.
Cathy Jamieson
I thank the Minister for bringing forward these amendments. We had a fair amount of debate and discussion in Committee on some of the issues, so I am not intending to ask him to go through each amendment, especially the minor and technical ones, in great detail.
I recognise that Government amendments 9 to 39 were brought forward as a result of the comments and concerns that we and the industry raised on the reporting requirements. The Bill as introduced placed a requirement on individuals who access their pension flexibly to inform all schemes of which they are a member that they are subject to the new £10,000 allowance. They would have been required to do that within 31 days of receiving a statement from their pension scheme and, as we said in Committee, failure to comply could lead to them being fined.
We pointed out in Committee that it was unreasonable to expect individuals to dig up information on schemes that they might not have paid into for many years and to which the annual allowance rules were therefore unlikely to apply. We also pointed out, with reference to evidence from both Ros Altmann and the Association of Taxation Technicians, that the 31-day time frame was a short and unreasonable deadline. The Government amendments change that, so that individuals will be required only to tell schemes to which they are currently contributing, or subsequently contribute to, that they are subject to the £10,000 annual allowance. They also change the length of time that individuals have to comply with this requirement to 91 days.
We welcome the Government amendments. Although we may not have persuaded the Minister to take on all our concerns, we are glad to have played some small part in persuading him to make those changes and to bring forward those amendments today. As I have said, we welcome and support them.
Amendment 1 agreed to.
Amendments made: 2, page 37, line 38, after “annuity””, insert “, “successor’s flexi-access drawdown fund””.
See the explanatory statement for Amendment 1.
Amendment 3, page 37, line 41, leave out “and 22A” and insert “, 22A, 27E and 27K”.
See the explanatory statement for Amendment 1.
Amendment 4, page 39, line 35, after “arrangement”,”, insert ““nominee’s flexi-access drawdown fund”,”.
See the explanatory statement for Amendment 1.
Amendment 5, page 39, line 36, after “annuity””, insert “, “successor’s flexi-access drawdown fund””.
See the explanatory statement for Amendment 1.
Amendment 6, page 39, line 39, leave out “and 22A” and insert “, 22A, 27E and 27K”.
See the explanatory statement to Amendment 1.
Amendment 7, page 42, leave out lines 1 to 3.
This Amendment, and Amendment 8, each remove a subsection inserted by the Bill into a version of section 576A of the Income Tax (Earnings and Pensions) Act 2003 because the subsections relate to payments not included in the lists of “relevant withdrawals” inserted by the Bill as introduced.
Amendment 8, page 44, leave out lines 28 to 30.
See the explanatory statement for Amendment 7.
Amendment 9, page 46, line 8, at end insert—
“() if the member is entitled to payment of a lifetime annuity under a flexible annuity contract as defined by section 227G(8), a relevant event occurs when the first payment of the annuity is made,
() if—
(i) the member is entitled to payment of a scheme pension under a money purchase arrangement under the scheme,
(ii) the member became entitled to the scheme pension on or after 6 April 2015,
(iii) the member became entitled to the scheme pension at a time when fewer than 11 other individuals were entitled to the present payment of a scheme pension, or dependants’ scheme pension, under the scheme, and
(iv) the scheme pension is not payable under an annuity contract treated under section 153(8) or (8A) as having become a registered pension scheme,
a relevant event occurs when the first payment of the scheme pension is made, and”.
This Amendment inserts, in a list that sets out the events that give rise to an individual first flexibly accessing pension rights, missing entries corresponding to the new section 227G(7) and (9) inserted by paragraph 65 of Schedule 1 to the Bill.
Amendment 10, page 46, leave out lines 26 to 41 and insert
“and
(c) the duties under regulation 14ZB and the circumstances in which the member will have to comply with them.”.
This Amendment condenses the text currently in the Bill of new regulation 14ZA(3)(c) and (d). New regulation 14ZA(3) lists matters that are to be explained in statements under new regulation 14ZA that are provided by scheme administrators to members.
Amendment 11, page 47, line 12, at end insert
“if active or contributing etc”.
This Amendment adds words to the title of the new regulation 14ZB to reflect changes to be made in that new regulation by, in particular, Amendment 12.
Amendment 12, page 47, leave out lines 13 to 35 and insert—
‘(1) Paragraphs (2) and (3) apply if—
(a) an individual receives a statement under regulation 14ZA from the scheme administrator of a registered pension scheme (the “flexed” registered pension scheme), and
(b) on the date of the relevant event concerned, or at any later time, the individual is an accruing member (see paragraph (6)) of the flexed or any other registered pension scheme.
(1A) In this regulation—
“the relevant 13-week period” means the period of 91 days beginning with—
(a) the date of receipt if the individual is an accruing member of any registered pension scheme on any day in the period—
(b) if not, the first day after the date of receipt when the individual is an accruing member of a registered pension scheme, and
“the intervening period” means the period—
(a) beginning with the date of the relevant event concerned, and
(b) ending with the first day of the relevant 13-week period.
(2) The individual must before the end of the relevant 13-week period—
(a) pass on a copy of the statement, or
(b) otherwise give notice—
(i) of receipt of the statement, and
(ii) of the date of the relevant event concerned or (if applicable) of its having occurred more than 2 years before the start of the relevant 13-week period,
to the scheme administrator of each other registered pension scheme of which the individual is an accruing member on any day in the intervening period; but this is subject to paragraph (5).
(3) Where, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on any day in the intervening period but becomes an accruing member of that other scheme on a day (“the activation day”) after the last day of that period, the individual must before the end of the 91 days beginning with the activation day—
(a) pass on a copy of the statement, or
(b) otherwise give notice—
(i) of receipt of the statement, and
(ii) of the date of the relevant event concerned or (if applicable) of its having occurred more than 2 years before the activation day,
to the scheme administrator of that other scheme; but this is subject to paragraphs (4) and (5).”.
This Amendment makes a change in new regulation 14ZB to simplify the obligations for individuals who have flexibly accessed their pension savings. Information will need to be provided to a scheme only when the individual is an accruing member of that scheme and within a 91 day period.
Amendment 13, page 47, line 37, leave out “a” and insert “an accruing”.
This Amendment, and Amendments 14 and 15, are consequential on Amendment 12 and make changes in new regulation 14ZB to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.
Amendment 14, page 47, line 38, after “becomes”, insert
“an accruing member of that scheme upon or after becoming”.
See the explanatory statement for Amendment 13.
Amendment 15, page 47, line 38, at end insert
“after the date of the relevant event concerned.”
See the explanatory statement for Amendment 13.
Amendment 16, page 47, line 42, after second “(3)”, insert
“, or has previously complied with paragraph (2) or (3),”.
This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZB more than once to the same pension scheme.
Amendment 17, page 47, line 43, at end insert—
‘(6) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—
(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or
(b) a relevant contribution is made under the scheme on that day.
(7) For the purposes of this regulation, a relevant contribution is made under a registered pension scheme if—
(a) a relievable pension contribution is paid by or on behalf of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme,
(b) a contribution is paid in respect of the individual by an employer of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme, or
(c) a contribution—
(i) paid under the scheme by an employer of the individual, and
(ii) paid otherwise than in respect of any individual,
becomes held for the purposes of a non-cash-balance money purchase arrangement relating to the individual under the scheme;
and in this paragraph “non-cash-balance money purchase arrangement” means a money purchase arrangement other than a cash balance arrangement.”
This Amendment defines terms used in the provisions inserted by Amendment 12. The definitions are largely based on the text currently in the Bill of new regulation 14ZD(1)(b) and (8).
Amendment 18, page 48, line 33, leave out “active member” and insert
“accruing member (see paragraph (7A))”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 19, page 48, line 34, leave out from “scheme” to end of line 38.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB. The text left out is replaced by the new regulation 14ZD(7A) inserted by Amendment 27.
Amendment 20, page 48, line 38, at end insert—
‘(1A) In this regulation “the relevant 13-week period” means the period of 91 days beginning with—
(a) 6 April 2015 if on that date the individual is an accruing member of any registered pension scheme, or
(b) if not, the first day after 6 April 2015 when the individual is an accruing member of a registered pension scheme.”
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 21, page 48, line 39, leave out from second “the” to end of line 44 and insert “relevant 13-week period,”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 22, page 48, line 47, leave out
“a member on the first day of that”
and insert
“an accruing member on the first day of the relevant 13-week”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 23, page 49, line 1, leave out from “Where” to “provide” in line 4 and insert
“, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on the first day of the relevant 13-week period but becomes an accruing member of that other scheme on a day (“the activation day”) after the first day of that period, the individual must, before the end of the 91 days beginning with the activation day,”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 24, page 49, line 16, after “becomes”, insert
“an accruing member of that scheme upon or after becoming”.
This Amendment, and Amendment 25, are consequential on Amendments changing earlier provisions of new regulation 14ZD and further change that regulation to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.
Amendment 25, page 49, line 17, at end insert “after 6 April 2015.”
See the explanatory statement for Amendment 24.
Amendment 26, page 49, line 21, after second “(3)”, insert
“, or has previously complied with paragraph (2) or (3),”.
This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZD more than once to the same pension scheme.
Amendment 27, page 49, line 22, at end insert—
‘(7A) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—
(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or
(b) a relevant contribution is made under the scheme on that day.”
This Amendment inserts a definition of a phrase used in the text inserted by the Amendments making changes in the earlier provisions of new regulation 14ZD. It replaces the text left out by Amendment 19.
Amendment 28, page 49, line 23, leave out “paid” and insert
“made under a registered pension scheme”.
This Amendment adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 29, page 49, line 27, leave out
“flexed or any other registered pension”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 30, page 49, line 32, leave out
“flexed or any other registered pension”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 31, page 49, line 34, leave out
“flexed or any other registered pension”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 32, page 49, line 39, leave out
“under which the contribution was paid”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 33, page 49, line 43, after “if”, insert
“active or contributing etc and”.
This Amendment adds words to the title of the new regulation 14ZE to reflect changes to be made in that new regulation by, in particular, Amendment 34.
Amendment 34, page 49, line 45, leave out from beginning to end of line 13 on page 50 and insert—
‘(1) Paragraphs (2) and (3) apply if—
(a) under paragraph 8C of Schedule 28, the drawdown pension fund in respect of an arrangement relating to an individual under a registered pension scheme (the “flexed” registered pension scheme) becomes the individual’s flexi-access drawdown fund in respect of the arrangement, and
(b) on the conversion date, or at any later time, the individual is an accruing member (see paragraph (6)) of the flexed or any other registered pension scheme.
(1A) In this regulation “the relevant 13-week period” means the period of 91 days beginning with—
(a) the conversion date if on that date the individual is an accruing member of any registered pension scheme, or
(b) if not, the first day after that date when the individual is an accruing member of a registered pension scheme.
(2) The individual must, before the end of the relevant 13-week period, inform the scheme administrator of each other registered pension scheme of which the individual is an accruing member on the first day of the relevant 13-week period—
(a) of the conversion, and
(b) of the conversion date or (if applicable) of the conversion’s having occurred more than 2 years before the start of the relevant 13-week period;
but this is subject to paragraph (5).
(3) Where, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on the first day of the relevant 13-week period but becomes an accruing member of that other scheme on a day (“the activation day”) after the first day of that period, the individual must, before the end of the 91 days beginning with the activation day, inform the scheme administrator of that other scheme—
(a) of the conversion, and
(b) of the conversion date or (if applicable) of the conversion’s having occurred more than 2 years before the activation day;
but this is subject to paragraphs (4) and (5).”.
This amendment makes a change in new regulation 14ZE to simplify the obligations for individuals who have converted their existing drawdown fund to a flexi-access drawdown fund, bringing that regulation into line with new regulation 14ZB as amended by Amendment 12.
Amendment 35, page 50, line 15, leave out “a” and insert “an accruing”.
This Amendment, and Amendments 36 and 37, are consequential on Amendment 34 and make changes in new regulation 14ZE to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.
Amendment 36, page 50, line 16, after “becomes”, insert
“an accruing member of that scheme upon or after becoming”.
See the explanatory statement for Amendment 35.
Amendment 37, page 50, line 16, at end insert “after the conversion date.”
See the explanatory statement for Amendment 35.
Amendment 38, page 50, line 20, after second “(3)”, insert
“, or has previously complied with paragraph (2) or (3),”.
This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZE more than once to the same pension scheme.
Amendment 39, page 50, line 21, at end insert—
‘(6) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—
(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or
(b) a relevant contribution is made under the scheme on that day.
(7) For the purposes of this regulation, a relevant contribution is made under a registered pension scheme if—
(a) a relievable pension contribution is paid by or on behalf of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme,
(b) a contribution is paid in respect of the individual by an employer of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme, or
(c) a contribution—
(i) paid under the scheme by an employer of the individual, and
(ii) paid otherwise than in respect of any individual,
becomes held for the purposes of a non-cash-balance money purchase arrangement relating to the individual under the scheme;
and in this paragraph “non-cash-balance money purchase arrangement” means a money purchase arrangement other than a cash balance arrangement.”” —(Mr Gauke.)
This Amendment defines terms used in the provisions inserted by Amendment 34. The definitions are largely based on the text currently in the Bill of new regulation 14ZD(1)(b) and (8).
Third Reading
Cathy Jamieson
It is with a heavy heart that I rise to speak for the last time on the Taxation of Pensions Bill. It has been such an enjoyable experience. I am not quite sure how I will fill my days in the next few weeks, given that I will no longer be poring over absolutely every detail of the legislation. It does not seem long ago that I spoke on Second Reading—in fact, it was only two short months ago.
I should like to start where the Minister ended—by thanking everyone who has been involved in the process. I particularly thank right hon. and hon. Friends who have supported me in scrutinising the Bill, including in Committee, not least my hon. Friend the Member for Scunthorpe (Nic Dakin), who kept us all in line. Whenever I was about to take perhaps more than my fair share of time, he would keep me on track. I thank the Clerks in the Public Bill Office for their drafting advice and the role they played in ensuring that amendments were tabled in the appropriate manner. I also thank Library staff, who were excellent as always; they efficiently answered all my questions and responded to all my additional requests for information.
I thank the Minister—[Interruption.] I was going to say that he has, at all times, been polite and courteous; I hope he hears that I am saying something reasonably nice about him. That is not always how things happen. Throughout proceedings on the Bill, he has said no to pretty much all our requests and new clauses, in the nicest possible way. As I have said when speaking to our new clauses and amendments, we have been very consistent in our approach to the reforms; we have been clear that we support the principle of the Bill. We support increased flexibility and choice for savers, and that is why we have long advocated reform to the annuities market to help people to shop around and get a better deal. But we have had concerns about the speed at which the reforms have been pushed through. There was no consultation prior to the Budget statement and it has been difficult at times to get to grips with all the figures and the behavioural impacts relating to the Bill because the Government were not able to publish that analysis.
Nevertheless, we have endeavoured to identify the potential problems that the Bill presents, and we have judged everything against the three tests that we set at the outset—the advice test to ensure that savers get the right guidance, the fairness test to ensure that there are decent products for low and middle income savers, and the cost test to ensure that the reforms do not result in extra pressures on the state. It will be difficult to measure the Bill’s performance against those tests until the reforms take effect. We therefore reserve judgment on how it will work.
The Minister recapped the key issues that we debated. We made our views on the guidance guarantee abundantly clear. There is not a great deal more that we can say about that until we see how it works in practice. Ensuring that guidance meets customer expectation and requirements is a responsibility that now resides firmly with the Government. Our new clauses, which the Minister rejected, were concerned with measuring and reviewing the impact of the Bill because we wanted to gauge the degree to which the reforms produce additional opportunities for tax avoidance and to ensure that the Minister continues to monitor the impact of the Bill carefully as it is implemented.
We did not press new clause 2 to the vote. It called for a comprehensive review of the impact of the reforms, to be published 18 months after they take effect. We were keen to ensure that the Minister had every opportunity to give us the facts and figures. With the autumn statement today and the publication of the OBR policy costings, we now have some of that information and some of the numbers that we did not have previously.
There is one issue that I wish to raise even at this late stage. The Minister mentioned earlier that the OBR has run the rule over the figures, but it is important to note that the OBR policy costings document refers on page 87 to seven measures in the policy decisions table that are judged to have high or very high uncertainty around the central costing. Interestingly, one of those seven measures is pensions flexibility. The document refers to decisions since Budget 2014 and goes on to say:
“This costing receives a ‘very high’ uncertainty rating. The yield over the scorecard period—and the resulting costs in the longer term—depends on take-up and on other behavioural responses. Some people will temporarily increase pension saving in order to benefit from tax-free lump sum withdrawals. It is possible that funds will be redirected from annuities and into other assets, such as other financial products or housing. It is also possible that such funds could be used to finance consumer spending”.
That is exactly what we have been highlighting throughout the Bill proceedings, and exactly why we felt it was important that a review was built into the process. I hope that if the Minister does not take my word for it, although he often did so graciously, he will take account of the OBR’s comments.
We are clear that the success of the Bill will depend on the tests of fairness and cost that we set out. If the reforms have adverse consequences for those on middle or lower incomes or those who cannot afford the expensive regulated advice, they will not have succeeded. If the reforms lead to higher costs for the state because people have accessed their pensions too early and need additional state support, they will, again, not have succeeded. We hope the Government have factored in all the potential consequences, as they have assured us. I am pleased that they listened to us on the reporting requirements.
Does the Bill not look much better since the Government showed some flexibility in their approach? The word “flexibility” was frequently used in our discussions because that is what the Bill is all about. Had the Government taken their own advice and been a little more flexible in their approach from the outset, and perhaps a little less hasty, we might have arrived at a position where the Bill had been significantly improved and some of the outstanding questions could have been answered.
However, we have had a relatively short period to consider the Bill, notwithstanding the fact that, as the Minister pointed out, I seem to have taken up in excess of 50% of the time available to make the points. It is the Opposition’s duty to scrutinise thoroughly, raise the issues, ensure that the Government have thought things through, press them on those points and lay out those areas where we think they need to continue to monitor and evaluate in future.
With those few words, the time has run out for those of us in this place. I would like to close by reiterating my thanks to everyone who has worked on the Bill. I have found this an interesting and enjoyable process—perhaps not everyone involved would agree—and I must say that I never thought I would say that about a Bill on pensions taxation.
The Economy
Cathy Jamieson Excerpts(9 years, 10 months ago)
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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
As always, we have had an interesting debate this afternoon. I remind the House of what my hon. Friend the Member for Nottingham East (Chris Leslie), the shadow Chief Secretary to the Treasury, said when he opened the debate. He suggested that the autumn statement would give the Chancellor some time to pause for reflection, giving him the opportunity to think about his nearly five years in office and the impact his decisions and choices have had on the living standards of millions of our constituents. It did not strike me during the Exchequer Secretary’s opening speech that she was in particularly reflective mode, but perhaps the Chancellor will be by the time we reach the autumn statement. I am sure that the Economic Secretary, who is going to respond to the debate, will have carefully considered all the points that we have made this afternoon.
We have heard about the glaring disparity between what the Chancellor promised in the autumn statement nearly four years ago and what has been delivered. As my hon. Friend the Member for Nottingham East pointed out, the Chancellor said that he would
“meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15.”
In reality, deficit reduction has stalled and borrowing is rising. He said that by this financial year he would
“get debt falling as a percentage of GDP.” —[Official Report, 29 November 2010; Vol. 519, c. 531-32.]
In reality—as he has admitted—debt will not start falling as a percentage of GDP until the middle of the next Parliament. He said that
“business investment…is set to grow by more than 8% for each of the next four years”.
In reality, he has delivered barely half that. He also said that
“exports are set to grow by an average of more than 6% a year.”—[Official Report, 29 November 2010; Vol. 519, c. 542.]
In reality, they grew by an average of 4.2% in 2011, 2012 and 2013. Moreover, he is set to miss his 2020 target by £330 million. That illustrates the chasm between the rhetoric and the reality—between what the Chancellor promised and what he has actually delivered.
Today’s debate could be described as a game of two halves. Speaker after speaker on the Opposition Benches talked about the impact of the Government’s programme on the real lives of our constituents, while a number of Government Members—although not all of them; we heard considered speeches from some—seemed to be living in a parallel universe that Labour Members may not recognise, in which things were now so much better.
Some of the speeches that we heard did reflect the reality of life for ordinary people. My hon. Friend the Member for Coventry South (Mr Cunningham) reminded us of the nature of the global financial crisis, and described the impact that it would have had if the last Government had not taken action to protect banks and savers. My hon. Friend the Member for Bristol East (Kerry McCarthy) spoke about the impact on jobs and living standards of the Government’s programme. She said that her constituents were finding it difficult to put food on the table, and referred to the costs of transport and energy. She talked about the issues that mattered to her constituents, which they brought to her every day. She also talked about food poverty and the importance of the living wage.
My right hon. Friend the Member for Oldham West and Royton (Mr Meacher) spoke about the impact of the fall in average wages, the problems caused by the fact that UK productivity is worse than that of other countries, and the lack of deficit reduction. My hon. Friend the Member for Edinburgh East (Sheila Gilmore) spoke of the importance of the tax credit scheme, which had caused many people to take employment. Lone parents in particular had obtained work and were making work pay—in some instances, for the very first time—owing to initiatives introduced by the last Government.
My hon. Friend also referred to the plight of the self-employed, as did the hon. Member for Enfield North (Nick de Bois). I do not think any Opposition Member suggested that self-employment was not worthy, and could not provide a good standard of living. However, the harsh reality for many of those who are self-employed is that they, too, may be under-employed. Because disposable incomes are lower now, they may find it difficult to sell their services and to earn enough to make ends meet. As we know, that can mean difficulties and long working hours for self-employed people and their families.
I was pleased to hear the hon. Member for East Antrim (Sammy Wilson)—who made a very good speech—point out that, although some developments had benefited his constituents and he did not want to talk down the economy, we should recognise the warning signs. Not all his constituents had experienced a recovery. I am glad that the hon. Gentleman supports the motion. The hon. Member for Strangford (Jim Shannon) said that new jobs had come to his constituency, but more money needed to be put into people’s pockets.
My hon. Friend the Member for Glasgow North East (Mr Bain) spoke passionately about the experience of both young and older people in his constituency who were trying to get back into work, and about the impact of child poverty. Interestingly, he also talked about the need to boost Scotland’s manufacturing sector—which has not always seen the benefit of the growth that the Government are talking about—and the need to boost infrastructure spending.
As I said at the outset, we heard some considered and carefully thought out comments from those on the Opposition Benches, and I am glad Members were able to express their constituents’ points of views. The thread running through all of them was very clear: we need a genuine economic plan that can deliver that recovery for the many, not just the few at the top. It must be a coherent and credible plan; it cannot be something that is just full of slogans but with no content, supposedly trickling down—like, indeed, the so-called long-term economic plan Treasury Ministers continue to boast about.
We need action on house building, currently at its lowest level since the 1920s, and we need to set the goal of having 200,000 new homes each year by 2020. We need the minimum wage to rise as a proportion of average earnings, and we need real incentives for a living wage. We need the expansion of free child care for working parents, paid for by collecting the bank levy in full. We need the cut in business rates for small firms, rather than focusing only on corporation tax cuts for big business. We need an independent infrastructure commission to deliver the transport networks our economy needs, rather than simply something that suits the Government’s short-term political needs. We have to tackle the abuse of zero-hours contracts, too. Speaker after speaker talked about the jobs that have been created, but the reality is—we heard this time and again from my hon. Friends on the Opposition Benches—that many people are under-employed, many people cannot get the hours they need to make a living, and many people are suffering from not knowing how many hours they are going to work each week. We need a real Labour economic plan that can earn our way to rising living standards not just for the few, but for all.
I am disappointed that we did not have an opportunity to speak a little more about some of the issues in the motion, and in particular about our proposal that the fines arising from the forex scandal should be put towards national health service funding. I was surprised that more Members did not pick up on that issue. I do not want it to be forgotten in this whole debate, so it would be helpful if the Minister in her summing up could be very clear about the following points. She has considerable experience in the banking sector and likes to listen and give careful consideration to any points made, and she is not afraid to act when she has to. Does she share my concern about the appalling situation in respect of the rigging of forex? Is she pleased to see that those record fines have been imposed, and will she give the commitment that that money ought to be used for our NHS? If she is able to do that today, it will at least give some indication that the Government understand the issues affecting ordinary people, and listeners will not leave this debate thinking that there is a parallel universe where the Government think everything is absolutely perfect, while we on this side of the House keep having to raise issues brought to us by constituents who are not feeling that recovery in any shape or form.
I want to conclude on the following point. I do not know how many times I heard the term “long-term economic plan” used during the course of the debate. The test for next week’s autumn statement—and, to an extent, the Government’s own long-term economic plan—will be whether the autumn statement delivers a plan that brings a recovery for the many, a fairer approach to balancing the books and a plan to save our NHS. I have to say, however, that I suspect it is only going to be a Labour economic plan that delivers that, because the Government only have until the end of March and that is not long term.
UK Acorn Finance (Mortgages)
Cathy Jamieson Excerpts(9 years, 10 months ago)
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Mr Llwyd
The hon. Gentleman is absolutely correct. That is certainly the conclusion to which I have come, as have several other Members of Parliament with constituents who have been badly affected by these scams—I can think of a worse word than scam, but not a polite one. As my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) said, the farming community is more vulnerable than the average person, or has been.
Burges Salmon, the solicitors, had a charge on my constituents’ property for their fees, and endowment policies were assigned. There was also, interestingly, an agreement with the lender for Burges Salmon, the solicitors, to step aside should the lender wish to repossess. As director of the UK Group—they are all the same creature under these different names, hiding behind the corporate veil as some people choose to do—Mr Phillips had his name on the clients’ mortgage, making him a joint owner of the property if the clients were to die; he automatically became the sole owner by survivorship. I think that is hugely unusual.
There were broken promises of funding by Peter Williams and UK Group, upsetting key suppliers to clients, and particularly feed merchants. In effect, they were closing the farm and income stream down, making it impossible for Mr and Mrs Williams to pay the mortgage. That must be the most obvious breach of fiduciary duty there could possibly be, and I hope that the Government—I see that the Minister is listening intently—will be able to do something about this matter. Those are the main points on the way that those involved go about their business.
To my knowledge, there are 44 different complainants, all of whom had complained to Avon and Somerset police by June 2013. The victims are seriously concerned that the police allege that there is no evidence of wrongdoing by any of those involved. The victims have documentary evidence and other evidence that fraud has been committed, as I will now summarise. The police consistently refused to look at the evidence.
There have been fraudulent valuations. A number of valuations are available and in the possession of victims, with widely varying calculations for the same property over very short periods. E-mails and notes also indicate that inflated valuations were being sought by UK Acorn companies in order to lend at a supposedly 70% loan-to-value ratio—but in fact at a much higher LTV or even negative equity. Once money had been paid, minus the huge fees that were withdrawn, there was no chance of escape for the poor people who had entered into the mortgage agreements. Other brokers appear to have been involved; there are numerous companies—I will not go through them all, but they include Commercial First.
Karen Phillips of UK Group—the daughter of Mr Desmond Phillips—has admitted in a hearing in Exeter county court that she substituted execution pages of documents from one document to another. She claimed that she had done so with permission, but could not provide any proof. The above was common practice at UK Group and went alongside the planting and forgery of signatures—graphologists’ opinions have been sought and that has been proved in at least one or two cases—and deeds not being signed according to the Law of Property Act 1925. Signatures were obtained from victims and witnessed afterwards, in some cases, by people who had never met the signatory.
A number of tricks were regularly used to get loans through without proper advice and before the victim had a chance to understand properly what they were signing. That is disgraceful. There was a churning of mortgages, as I have explained, with numerous short-term mortgages. That churning was commonplace at UK Acorn Finance and the charges to be paid for those activities were not disclosed to victims before the commencement of the series of transactions.
In some documented cases, the changing of the mortgage did not provide the victim with any additional funds at all, merely adding further gross fees for the perpetrators. Surely that is fraud by misrepresentation. Evidence suggests that both the brokers and the lenders were involved in defrauding not only the borrowers, but the lenders to them and in the securitisation of the supposedly long-term documents.
Strong documentary evidence also suggests that most of the mortgages were set up to fail and that once executed, the lenders did their best to thwart the victims’ efforts to fund the repayments. The use of LPA receivers was suspect at the very least and it was the same character virtually each time. He certainly did not appear to have aimed to maximise the returns from repossessed properties, further disadvantaging victims. Des Phillips and others associated with him have purchased a considerable number of repossessed properties.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I am listening very carefully to the right hon. Gentleman, because I was not aware of these circumstances until he brought them to my attention. He has referred to police involvement, but I am wondering whether any of these firms or the people involved had contact either with the Financial Ombudsman Service or the Financial Conduct Authority, or its predecessors, in addition to the police. I am sure he will have more to say about the police, but did they also have contact with those organisations?
Mr Llwyd
Yes, they did, and I want to say a brief word about that towards the conclusion of my remarks. At least 44 cases were reported to the Avon and Somerset police, who unfortunately, took very little interest in what was going on—the chief executive of Avon and Somerset police is an ex-partner of Burges Salmon, by the way, so that is another interesting piece of information. Peter Williams was at one time a partner in Burges Salmon, as was John Smith, the chief executive of Avon and Somerset police, who was appointed in 2009. Avon and Somerset police describe themselves on their website as long-standing clients of Burges Salmon. That article also appears on Burges Salmon’s website.
All known complaints to the police and those handling this matter remain unanswered, and I have to ask why. Interestingly enough, they said that they could not find any criminal behaviour, but a detective constable, Niki White, of Avon and Somerset police came up to attend the repossession hearing in the Williamses’ case. Why exactly I do not know. On the one hand she was pretending to give some succour or comfort to the Williamses that the police were doing something, but on the other hand a letter from the manager of the financial investigation and economic crime section of the police to the solicitors acting on behalf of the perpetrators says:
“In your letter dated 16th August 2013, you have questioned DC White’s attendance at Court on the 7th August 2013. Her attendance on that day was to ensure that the Court understood the extent of the Police involvement and were not misled into believing that a criminal investigation was already underway.”
That was despite the police at the same time telling the right hon. Member for North Somerset (Dr Fox) that an investigation was under way and that it was an in-depth investigation. But interestingly, a couple of months after that letter, they say that
“we have been in discussion with other regulatory agencies. The purpose of this was to look at whether there are…other opportunities to address the situation or to influence regulation of this kind of activity in the future.”
They say that unfortunately they have not been able to progress it further. So they have concerns both on the criminal side, it seems to me, and, as the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) says, on the regulatory side, which I am sure we all share.
However, Avon and Somerset police have consistently blamed the Serious Fraud Office for not opening an investigation. That is ironic, because the police themselves have refused to open an investigation, although they have said to at least one Member of Parliament that they have done so. They have also tried to block Dyfed Powys police in Wales from investigating. I believe that something is amiss in Avon and Somerset police. As I have said, John Smith, the chief executive, is now writing to complainants and making decisions, but not mentioning the fact that he used to be a partner in one of the firms that is, or should be, in the firing line.
Let me say a word about Mr Desmond Phillips. Again, this touches on the important point that the hon. Lady made about regulation. In 1975, at the age of 22, Mr Phillips was made bankrupt. In 1976, he was convicted of theft at Shepton Mallet magistrates court. In 1987, his timber and haulage business collapsed, leaving creditors with a loss of £300,000. In 1991, Phillips’s company brokering endowment policies collapsed. Many customers were farmers. Insurance companies claimed that they were owed £300,000 on commissions that had been paid out on policies that failed to materialise or were subsequently cancelled.
In 1992, Phillips underwent his second bankruptcy, owing £170,000. That was discharged in the late 1990s. In 1994, the BBC Radio 4 programme “Face the Facts” was the first programme on Phillips. In 2008, there was a judgment against Phillips at the High Court in Manchester for £250,000 and costs. That was subsequently paid, I believe. In 2010, there was an individual voluntary agreement in respect of all his debts. In 2011, Acorn subsidiary UK Country Capital collapsed, owing £17.3 million to Barclays bank. On 16 April 2014, “Face the Facts” described him as “The Country Rogue”.
Two bankruptcies, one IVA and 14 county court judgments have been recorded against Mr Phillips and, believe it or not, a couple of years ago his licence to lend was renewed by the regulatory authority. That is quite incredible. I have documentation with me to show that Clive Maxwell, chief executive of the Office of Fair Trading, said that he was a fit and proper person to be lending money. I find that utterly incredible and I am sure that the Minister, in due course, will want to consider that aspect. In fact, Phillips’s licence was renewed in May 2012, so that was after most of the bad things that had happened and certainly after what had happened in the case of the Williamses.
I have said that I cannot understand why Avon and Somerset police have not researched this matter properly. I have myself dealt with the Serious Fraud Office and the Attorney-General and have met His Honour Judge Geoffrey Rivlin, the senior adviser to the fraud office. I was told by the fraud office that it deals only with very large frauds. In my instance, it is for £1.5 million, but if we multiply that by anything between 30 and 50 constituents or Members of Parliament, it is a massive fraud. No one can deny that.
I have said that there is a dossier of 44 cases that alleges similar conduct in them all. An especially incriminating document was prepared by Mr Levy, a barrister who specialises in this area. It is entitled “Appointments under flawed security”. He questions why Acorn has persistently used the LPA receiver Mr Burd. The only possible explanation is that Lloyds bank was comfortable with the methods used, because it was lending on to Acorn, as we know, and it was turning a blind eye to all that was happening, in breach of any fiduciary understanding that I have ever come across anyway.
In case anyone thinks that I am just a conspiracy theorist, the following Members of Parliament, to my certain knowledge—I am sure that there plenty of others—are also involved in trying to deal with the matter: my hon. Friend the Member for Carmarthen East and Dinefwr, the hon. Members for Vale of Clwyd (Chris Ruane), for Brecon and Radnorshire, for North Cornwall (Dan Rogerson), for Brigg and Goole (Andrew Percy), for North East Somerset (Jacob Rees-Mogg), for Pendle (Andrew Stephenson), for Penrith and The Border (Rory Stewart) and for Thirsk and Malton (Miss McIntosh), the right hon. Members for South East Cambridgeshire (Sir James Paice) and for Preseli Pembrokeshire (Stephen Crabb), the hon. Members for Caerphilly (Wayne David), for Wantage (Mr Vaizey), for Folkestone and Hythe (Damian Collins), for North Devon (Sir Nick Harvey) and for Selby and Ainsty (Nigel Adams), the right hon. Member for Bexhill and Battle (Gregory Barker) and the hon. Member for Somerton and Frome (Mr Heath). There is also a Member of the other place who is actively involved in trying to assist people whom he knows.
As I said, I have been in contact with Avon and Somerset police, North Wales police, the Attorney-General, the Serious Fraud Office, the regulators and His Honour Judge Geoffrey Rivlin, the chief adviser to the SFO. So far, very little has been achieved, and it is to my huge regret that that should be so.
The conclusion that I draw from this terribly unhappy affair is that even if the modus operandi of UK Acorn and the allied companies is not fraudulent—I believe that it is—they of course have been in flagrant breach of their fiduciary duties to the borrowers. What that means may be obvious, but I will explain it. There is a fiduciary duty on a lender to ensure that the borrower can sustain the payments under the mortgage; otherwise, it is a straightforward taking of his property. That is an obvious point, but in this case there have been instances in which there has been overvaluation of properties in order to make an advance that would not be sustainable on the business case. That is clear in virtually every case that I am aware of. I think there are elements that are criminal, and I hope that we will be able to shine a light on this behaviour, but even if I am wrong, there have been serious, repeated and consistent breaches of fiduciary duty.
I put to the Government the following points. I know that the Minister is in the Treasury, not the Home Office, but will she please pass some of this information on to her colleagues in the Home Office? I am sure that she will. I ask the Avon and Somerset police to come clean as to why they are not properly investigating or, alternatively, to say that they will now investigate thoroughly these very, very serious complaints. They are complaints that have ruined the lives of, to my knowledge, 44 or 45 families. I am sure that Members of Parliament will know of many other people who were affected, and there will be others who have not complained. There is even a woman who has completely lost her mind and is in prison as a direct result of the situation. I could name her, but I do not want to embarrass her. She is contact with me, and she is still in prison.
There are others who have lost absolutely everything. They have the shirt on their back, and that is about it. In the meantime, Desmond Phillips is still lending money recklessly and making huge amounts of money against the assets of innocent people whom he has duped. I would ask also that the Avon and Somerset police fully assist the Serious Fraud Office to undertake its work. I believe that we are talking about a massive fraud, in which the SFO, if it has any purpose at all, should be involved. I have been trying to persuade Sir David Green to get involved, and I do not know whether the problem is one of resource, or what it is. To my way of thinking, if we send the SFO one file that shows underhand behaviour, the SFO should consider it. We have sent 36 files to the SFO, all of which show similar, if not identical, MOs, which suggests to me that something is really amiss.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I congratulate the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) on securing the debate. He referred at the outset to his profession as a lawyer, and he has more than done justice to the case on behalf of his constituents. He said that he felt frustrated and aggrieved that a solution had not yet been achieved. It is clear from his presentation and the vigour with which he has prosecuted the case that the lack of a resolution of the situation does not reflect a lack of effort on his behalf.
I was not aware of the issue before the right hon. Gentleman brought it to my attention, and I am grateful to him for supplying background information. As the representative of a rural constituency, it occurred to me that many more people may have fallen prey to similar situations but, for various reasons, may not yet have approached a Member of Parliament or felt able to go into the public domain. We can only try to understand what it must have been like for the right hon. Gentleman’s constituents to have lost not only their family home and heritage, but their livelihood. Other Members, no doubt, have constituents who have been in similar circumstances.
It was interesting to hear the right hon. Gentleman’s description of the process. The Minister may want to say more about this, but it seemed to me that some of the issues that go back some time might now be caught by changes in the regulatory environment. I hope that is so, and I seek an assurance on that. Sadly, the situation the right hon. Gentleman described mirrors complaints we have heard about the financial services sector and the small business environment. In some cases, there have been suggestions of predatory—I use that word advisedly—activities, in which people came together to try to buy up small businesses that were in difficulty. A collection of people with connections would benefit from that, and they would not have the best interests of the clients at heart.
The right hon. Gentleman put across the point about fiduciary duty extremely well. On a day when we have heard that the Financial Conduct Authority has, at long last, taken steps to deal with some of the worst excesses in the payday lending industry, it is timely to reflect on what other areas need to be tightened up to ensure that practices such as the right hon. Gentleman described cannot happen. There are parallels between failing to carry out due diligence as to whether people can afford a product and whether it is the correct product for them; and instead of getting people out of a spiral of difficulty, setting them off on a downward spiral into further debt and increased interest charges, with the subsequent loss of their home and livelihood.
Some of the problems may be picked up by changes in the regulatory regime. However, I am concerned that, as the right hon. Gentleman has indicated, notwithstanding all the concerns about the individual whom he mentioned, that person is still deemed to be a fit and proper person. I am sure the Minister will want to reflect on that and tell us whether anything can be done to bring the matter to the attention of the regulatory authorities. In addition, perhaps the Home Office can be asked to look into the problems with the police. I cannot speak for the police and I do not know what the Home Office or the Serious Fraud Office would do, but a significant amount of evidence has been presented. Even if that evidence had been thoroughly investigated and nothing was found to be wrong, the process should be transparent and should not leave a scintilla of doubt about whether there were conflicts of interest or inappropriate behaviour. At the moment, no one can have confidence that the matter has been fully investigated.
I echo the points that have been made by the right hon. Gentleman and other Members on behalf of their constituents, and I look forward with interest to what the Minister has to say. She may have difficulty commenting on some of the specifics of the case, but I hope she will take up the point about passing information to the Home Office. I also ask her to consider whether anything further can be done to make sure that the Financial Conduct Authority is aware of the concerns raised in the debate. It is important that we assess which of the practices involved in the case would be caught by the changes in regulation, and whether there are any potential loopholes. I have taken a particular interest in having a fiduciary duty in financial services more broadly, and I continue, through Finance Bills and other measures, to try to have it written into legislation that anyone in any circumstances providing financial information and advice should be a bound by such a duty, as the right hon. Gentleman suggested.
I look forward to hearing what the Minister has to say. The issue’s being considered here today will not undo the wrongs and damage that have been done to the right hon. Gentleman’s constituents and others, but I hope it will be of some comfort to them to know that people are interested in it and wish to pursue it, in order to ensure that these things do not happen to anyone else in the future.
Priti Patel
I fully understand the impact on the individuals. We should be clear that people have lost their livelihood; this is about losing not just bricks and mortar and a roof, but an entire livelihood.
Cathy Jamieson
When the Minister makes her representations and passes information to the FCA, might she not want to highlight this issue? It appears that the intention has been to use a loophole—redefining a domestic premises as a business premises—potentially to get round some of the regulations.
Priti Patel
The point is well made. This is clearly about the impact on individuals and their livelihoods. We need to ensure that loopholes are closed and that individual protections are put in place. The Government are clear about being committed to introducing FCA regulation, where there is a clear case for doing so, in the right and proper way. However, there is a balance: we do not want to impose greater burdens, additional red tape and costs on financial firms, but we want to ensure at the same time that consumers are protected.
Businesses are expected to be better placed than consumers to judge whether contracts they make with other businesses are in their interests, so they do not necessarily need the protection of FCA regulation in the same way. However, the point that has been raised really is valid, because we are talking about the impact on smaller businesses. Of course, such businesses have a different right of recourse—to the Financial Ombudsman Service. This is always about the right kind of protections and information, and making sure that consumers are protected and loopholes closed. At the same time, however, there is, from a regulatory point of view, a fine balance.
I reiterate that this is a serious and significant case, and there are avenues I can look into—speaking to the Home Office, in particular, and asking Treasury officials to look into the issue.
For micro-businesses—businesses with a turnover of less than £2 million and fewer than 10 employees—the Financial Ombudsman Service is an independent, non-Government body established under statute to provide proportionate representation and independent resolution of complaints against financial services firms. That is predominantly for bank customers. Those decisions are binding, which is to be welcomed.
The right hon. Gentleman has made representations on behalf of his constituents, but there seems not to have been the positive engagement he is looking for, so we will address the issue on that basis.
I want to touch on the subject of fraud. If it is believed that a business is a victim of fraud, there is an additional avenue to explore. From April 2013, all reports of fraud are now made to Action Fraud rather than the police. The right hon. Gentleman spoke in some detail about Avon and Somerset Constabulary. Obviously he has engaged with it on behalf of his constituents; but Action Fraud is a Government-supported specialist fraud reporting and advice service. It is not a law enforcement body and therefore does not investigate crimes, but it provides a portal for the collection of crime reports and information so that they can be analysed. Going by the files and information that the right hon. Gentleman has sent me, there is a lot of information that could be analysed through law enforcement mechanisms. Where viable that would be sent out to the local force. I should be happy to discuss with the right hon. Gentleman how matters could be followed up using that avenue.
Although business lending is not regulated, the major lenders already take steps, as we have heard, to prevent repossessions and insolvencies. I understand the highly specific nature of the case that the right hon. Gentleman has brought to the House today, but there are processes through which businesses affected by repossession and insolvency can work properly with third parties on repayment plans and so on.
Cathy Jamieson
Given that the case we have heard about today concerned not only a business but a home, will the Minister commit at least to seeing whether anything else should be done about insolvency practice and guidelines in such circumstances?
Priti Patel
I am sure that the Government can look into that, because small businesses in particular suffer in such circumstances. Small businesses that are closely intertwined with family business become subject to different conditions from those affecting larger ones, and the implications are different for them if they reach the devastating time when they go into insolvency and get an individual voluntary arrangement. The process is traumatising, which takes us back to the point made by the right hon. Gentleman: it is a question of an individual’s livelihood, as well as a business.
Treasury
Cathy Jamieson Excerpts(9 years, 10 months ago)
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Cathy Jamieson
I may have missed this, but did the Minister give an assurance regarding the larger credit unions that operate a wider scope of banking services in relation to current accounts?
Taxation of Pensions Bill
Cathy Jamieson Excerpts(9 years, 11 months ago)
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Mr Gauke
At the time of the Budget, we set out our estimates of the implications for the public finances, certified by the Office for Budget Responsibility. We have also made a number of announcements since the Budget that will have a revenue impact. The Office for Budget Responsibility will return to this issue at the autumn statement, when it will set out its numbers in the usual way. The estimates have yet to be certified by the Office for Budget Responsibility—as one would expect, given that we are still some way from the autumn statement—but an update on the numbers that were published in March will also be set out in December.
The changes we have announced have resulted in moving some revenue from one year to another, rather than fundamentally changing the face of the public finances, so in broad terms their overall tax impact is not considerable, certainly when compared with the substantial changes that the Government have made, such as increasing the state retirement age or reforming public sector pensions.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
To follow up the question from my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), there has been a suggestion that the change could lead to a windfall for the Treasury at a time when that would be very helpful for future Budgets. What does the Minister say to that suggestion, which has been made by some in the real world out there?
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I look forward to an interesting debate on the detail of the Bill, both today and in Committee.
Opening the debate on Second Reading of the Pension Schemes Bill, the Minister for Pensions said:
“we will be very busy over the remaining months…taking the pensions system to a…better place.”—[Official Report, 2 September 2014; Vol. 585, c. 195.]
I agree with the first part of that statement: we will indeed be very busy. As for the second part, the extent to which we can improve the Bill remains to be seen. The efficacy of any Bill should be judged only according to its outcomes, and at this stage there are a number of concerns about the outcomes of this Bill, which are far from certain. There are a number of unanswered questions. My hon. Friends have asked a number of them today, and I am sure that more will arise during the Bill’s passage.
As the Institute for Fiscal Studies said at the time of the Budget, the reforms in the Bill will change the pensions landscape dramatically, in the ways in which people take income in retirement and the pensions industry is structured. As the Minister has explained, from 6 April 2015 those aged 55 and older—I should perhaps declare an interest, as I am a member of that age group—will be granted far more freedom. They will be able to gain access to as much of their pension savings as they wish, as often as they wish.
The Minister for Pensions has described the Opposition’s view of the new freedom as “ambivalent”, but that is something of a misrepresentation. We are not ambivalent about what the Bill purports to achieve. Since the reforms were announced in the Budget statement, our position has been consistent, but, for the avoidance of doubt, I shall restate it. We support increased flexibility and choice for savers, which is why we have long advocated reform of the annuities market to help people shop around to get a better deal. However, it would be remiss of us not to identify and highlight the potential problems and pitfalls that the Bill presents. One of my main concerns, which has already been raised today, relates not just to what it seeks to achieve, but to the speed at which it seeks to achieve it.
Sammy Wilson (East Antrim) (DUP)
Does the shadow Minister agree that, given the increasing array of choices now available, one of the most important decisions anyone can make will be how comfortably can they live in retirement? The guidance and help the Government provide on making these difficult choices is very poor.
Cathy Jamieson
The hon. Gentleman makes a very important point which I will deal with in some detail. It is one of the most crucial issues not just in respect of the Bill, but of the wider pensions landscape.
Dame Anne Begg
There is confusion as to what the proposals will mean in practice because there has not been the discussion across the political spectrum and among social partners that took place for the accumulation stage—making sure that more people save for their retirement. There has been little if any discussion about the decumulation stage, beyond criticising annuities. That is part of the problem with this process: the Government pulled a rabbit out of a hat at the Budget, without building a broad consensus to ensure that everybody is on board.
Cathy Jamieson
My hon. Friend makes a valuable point which I will address in due course. Before I do so, I want to put on the record one of the concerns expressed by the TUC, which, in keeping with the point made by my hon. Friend, said that it believes that
“the measures contained in the Bill are being rushed in, thus overturning the emphasis on consensus and consultation that has been a positive feature of pensions policy making over the last decade.”
Sheila Gilmore (Edinburgh East) (Lab)
Is my hon. Friend concerned that, given the speed of these changes, some of the other longer-term reforms such as auto-enrolment may be impacted on? Is she worried that these issues might not have been properly looked at?
Cathy Jamieson
There are two pension Bills running side by side in the House and I do not want to stray into discussing the detail of the other one which is being considered in Committee—I am sure you would not allow me to do so, Mr Deputy Speaker. However, my hon. Friend makes a valuable point.
Lady Hermon
The hon. Lady is being very generous in taking a number of interventions. She has the opportunity to confirm that the Labour party would support an amendment to the Bill to make it a specific criminal offence for unscrupulous, so-called pensions advisers to swindle innocent people out of their pensions and lifetime savings. Is that not a valuable amendment that could easily be made and confirmed by the Financial Secretary this afternoon?
Cathy Jamieson
The hon. Lady makes an important point, and I listened carefully to her intervention on the Financial Secretary. As a constituency MP, I am aware of people who have been swindled out of their life savings through unregulated, unscrupulous people giving them bad advice; indeed, the Financial Secretary has heard me talk about this issue when considering other Bills. I am very interested in what the hon. Lady said about such an amendment, which we would want to consider to give as much protection as possible to consumers.
Sammy Wilson
A point that the Financial Secretary skirted round when he announced the changes to annuities was that they can now go down, as well as up, as a result of this legislation. Does that not bear out the concern raised by the hon. Member for North Down (Lady Hermon)? If such flexibility is provided for the providers, there is a real danger that people could be sold a pup and find that their income unexpectedly diminishes over time?
Cathy Jamieson
That is an important point, and these are exactly the reasons why it might have been useful if more time had been provided for discussion within the industry and with the partners in the process, so that we can get to that better place that I talked about at the outset. It is not just about giving people more choice; it is about giving them the ability to make choices that are wise not only at the moment when they choose to draw down or take part of the lump sum, but that are based on providing for the future.
One of our concerns is that although the reforms may well give greater choice, we have to consider whether that greater choice translates into better value and a better deal for those involved in the process. People making use of the flexibility will of course have new opportunities, but as we have heard, new opportunities potentially bring new risks. Those who purchase the wrong products, invest unwisely or fall victim to unscrupulous practices in the unregulated market will see their money swiftly evaporate. Those who use the new flexibility to take out cash from their pension savings may find that they are paying a higher rate of tax. We can also expect a deluge of new products to flood the market, and while some of them may well be good, by the very nature of things, some may well be less so. That is why it is important that people get good-quality guidance to help them make the right choice.
Debbie Abrahams
Is my hon. Friend concerned about the question of the capacity to deliver the advice that the guidance guarantee is meant to supply? According to evidence that the Pension Schemes Bill Committee took last week, the figure is less than 25%. It is not just that poor advice might be given; there may be none at all.
Cathy Jamieson
My hon. Friend makes an important point, and I read with interest the transcript of the Committee’s evidence session. People need good-quality guidance to help them make the right choices. We must guard against mis-selling, for example—we cannot afford a repeat of the payment protection insurance scandal. We must prevent people from falling victim to exploitation and illegality. We know that pension liberation fraud has already endangered millions of pounds in savings, affecting many people. That is the reason why I am concerned about the way the Government have handled these reforms, which to some seem a bit rushed and haphazard.
Barbara Keeley (Worsley and Eccles South) (Lab)
Is there not also the concern that people will end up spending a lot more of the pensions they have drawn down into savings accounts on social care? This Government have forcibly removed £4 billion from adult social care budgets, so we know that people are paying more for social care. If the money is held just in savings accounts, many more people will end up being liable for those costs.
Cathy Jamieson
The point my hon. Friend makes is absolutely crucial for many people, which it is why it is so important that they get guidance, so they can make sensible decisions to provide for the long term. I will say a bit more about social care and other services later, if I have the opportunity to do so.
After the Chancellor announced the overall pensions reforms to the House in the Budget statement, we set out three tests against which we believe they should be measured. The first was the advice test: would there be robust advice for people on providing for their retirement and measures to prevent mis-selling? The second was the fairness test: that the new system would be fair, with those on middle and low incomes still being able to access the products that give them the certainty in retirement that they want. The third was the cost test: that the Government must ensure that these reforms do not result in extra costs to the state, either through social care or pensioners falling back at a later stage on means-tested benefits such as housing benefit. We stand by those tests and would argue that so far, the Government have been unable to give assurances on any of those points.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Is my hon. Friend aware of a study carried out by Ipsos MORI which showed that 12% of those who were eligible to do so would withdraw their pension pot entirely next year? When asked what they would do with it, one in five suggested that they would use at least part of it for a holiday.
Cathy Jamieson
Yes, I am indeed aware of that report. I shall go on to raise similar concerns and seek answers from the Minister to them in due course.
In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.
I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.
The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.
To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that
“good consultation and a good period to execute”
improved the chances of legislation being successful.
However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.
I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.
However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:
“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”
The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.
I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:
“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]
Perhaps the Minister will be able to respond to that question when he sums up the debate today.
In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.
Mr Gauke
As ever, the hon. Lady is making a thoughtful and probing speech. It would be fair to say, however, that her tone is not one of great enthusiasm for greater flexibility and choice in the pensions system. Will she tell the House whether her party is considering reversing the changes that we are introducing today?
Cathy Jamieson
I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise
“complex, opaque and overpriced products”
that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.
Cathy Jamieson
I agree with my hon. Friend. That fiasco is a recent memory for many of us, and it is our responsibility to ensure that all the risks, as well as all the upsides, are explored.
I should like to quote the ABI, which has stated:
“Giving customers more choice is welcome but it is also imperative to recognise that good guidance and advice is vital to prevent people making decisions which could lead to retirement poverty and/or to them giving up valuable benefits.”
That is a very important point. People in the industry also recognise that we need to have some caution and ensure that we do the right thing.
That brings me neatly to the fraught issue of the guidance guarantee. The Minister talked a bit about that in responding to interventions, and although I recognise that it is not within the specific ambit of the Bill, it has a great bearing on it. That guarantee is integral to the measures in the Bill, because if the Bill is to be a success, the guidance must be fit for purpose. It is not unfair to say that the continuing concerns and confusion over the guidance guarantee do not give confidence to people who are worried about how they are going to access the guidance. It seems as though the guidance was a secondary consideration. As I have said, the pension reforms were announced without the prior consultation with the industry that we might have expected. Some of the confusion was added to when the Chancellor stated that his reforms would be accompanied by advice, given that we know that what he really meant to say, and what was promised in the Budget, was unregulated guidance.
We then had the unedifying and unhelpful intervention by the Pensions Minister, who appeared to make light of the need for guidance by saying:
“If people…get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”
That is not helpful at all and has not been during the process. On Second Reading of the Pension Schemes Bill, the hon. Member for Reigate (Crispin Blunt), who is in his place, asked for clarification on how the guidance guarantee would be funded. The Pensions Minister answered by saying that
“the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off seedcorn, getting-the-thing-going fund…if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so.”—[Official Report, 2 September 2014; Vol. 585, c. 198-99.]
That is a bit vague and non-specific. Less than a year from when this Bill comes into force, surely he should know exactly what the guidance will look like.
We now know that the Government propose to deliver the guidance across three platforms, only one of which will be face to-face guidance—that was what was initially promised. We also know that the Money Advice Service will not be involved in the delivery. The three agencies involved will be: the Pensions Advisory Service, which will provide over-the-phone guidance; Citizens Advice, providing face-to-face guidance; and gov.uk, to which this Minister referred. That raises the question of how the Government will ensure that guidance delivered across three different mediums will be of a consistent standard.
The crux of the matter, and what the consumer needs to understand, is: what will the guidance consist of? Will it be an interactive exchange, or will it be a list of questions that must be asked and areas that must be covered? The Financial Conduct Authority appears to think it will be the former, saying it should cover:
“the key facts and consequences of each”—
option—
including financial consequences, e.g. tax implications.”
The Pensions Minister, however, seems to think it will be the latter. He has said that there is a “world of difference” between
“a guidance conversation to get people to base camp”
and a
“sophisticated, individualised, tailored piece of…financial advice recommending products.”
The Pensions Minister has, however, been keen to assure us that the guidance is not being offered on the cheap—his preferred epithet is “budget”. The levy on the pensions industry will not be set at the level required to pay for
“full-blown, regulated, independent, tailored financial advice.”—[Official Report, 2 September 2014; Vol. 585, c. 199.]
Rather, it will be designed to generate only so much as is required to pay for what he terms the “cost-efficient” guidance version. To summarise, the guidance guarantee seems to amount to the following: it will not be regulated, personalised, or product-specific; it will be “cost efficient”, “substantially cheaper” than advice and funded by a “modest” levy on the industry—enough to get people to “base camp.”
That was what was said almost two months ago, but, sadly, judging by the evidence given to the Pension Schemes Bill Committee, things have not progressed much since. So bereft has been the Government’s approach to information gathering and analysis that we still do not know how many people are likely to take advantage of the new flexibilities. In evidence to the Work and Pensions Committee in April, the Pensions Minister was unable to give any firm indication. He said:
“I am not sure there is much point in me guessing. As I say, HMRC assumed that about 30% would take the cash...some of the annuity providers are saying it might be 70%- odd. We do not know.”
We are also reduced to guessing because, despite a freedom of information request from the shadow Pensions Minister, the Government have refused to publish any analysis they have conducted of the behavioural impact of these reforms. We do not know how many people are likely to make use of the new guidance, but a guidance pilot conducted by Legal & General found that only 2.5% of those offered guidance accepted it. The Pensions Advisory Service has estimated that take-up in the first year will be about 25%, so what happens in respect of the 75% who do not take the guidance? What backstop measures, or second line of defence, will be in place for those who do not take up the offer of guidance? In the first year at least, the answer appears that there will be none at all.
Again, the FCA has raised concerns about that, saying,
“we will have the usual supervisory work going on keeping a very close eye on products as they develop. If people choose not to take the guidance, they choose not to take the guidance.”
That means that, potentially, up to 75% of people using the flexibility in the first year will access their pensions and use the money without taking any guidance at all. I do not know whether the Minister finds that concerning, but I do, and I am not the only one. Just Retirement has described the lack of a backstop as
“a massive threat to the pensions freedom reforms.”
The need to install a second line of defence was endorsed by others within the pensions industry, including the ABI, which also expressed doubt about the rigour of the FCA’s consultation on guidance.
The ABI’s head of policy said:
“We have discussed it with our members. We are a little concerned the FCA consultation…was narrowly drawn, which is understandable because it didn’t have much time.”
Why did it not have much time? Is it because the Government are in such a terrific hurry to force these reforms through? We are being left in a situation where the first tranche of people taking advantage of these reforms could be seen to be the guinea pigs in this process, and that is not acceptable.
Let me deal with a point that my colleague raised about the Ipsos MORI research. The extent of the concern has been laid bare by that, because it found that up to 200,000 pension investors could take advantage of the new flexibility in the first year alone. It is estimated that that would generate an additional £1.6 billion of pension income for Treasury coffers, which is why I was asking the Minister what estimate he had made as to what the Treasury would receive. It might be seen as good news for the Treasury, but perhaps not as such great news for savers, because only 38% of these pension investors were able to state accurately how much tax would be deducted from a medium-sized pot and only 6% could accurately predict what rate of tax would be applied to large pension pots.
Sammy Wilson
I know that the shadow spokesperson is not as cynical as I would be about some of this, but does she accept that HMRC’s own figures indicate that over the next budget period there will be a £4 billion windfall to the Treasury as a result of these changes? Of course, in the much longer term tax revenues will fall because there will be less income from the tax on annuities.
Cathy Jamieson
I would never suggest that the hon. Gentleman is cynical. He raises an important point, which again shows why I was trying to press the Minister on some of that.
I realise that I have taken up a considerable amount of time, and I want to give opportunities for other hon. Members to speak. However, I wish to raise just one other issue as I draw to a conclusion. I have mentioned the areas of uncertainty about the guidance versus advice debate, but I ask the Minister also to comment on the announcement about the abolition of the 55% tax on pensions at death—the so-called “death tax announcement”—made at the conference recently. I think that, at the time, the Minister said that annuities would not benefit from the tax cut. But it was certainly my understanding—the Minister can correct me if I have misunderstood—that the so-called value protected annuities will certainly so benefit, and that is still on the Treasury website. I have written to the Chancellor to ask for information, but I have not yet had a response. Clearly, uncertainty remains over the added potential for tax avoidance, which has been produced by the Bill.
In order to deter avoidance, the Government have introduced money purchase annual allowance rules, which, as the Minister said, places a £10,000 limit on the annual amount that can be saved tax free through money purchase agreements. The intention is to ensure that individuals do not use the new flexibilities to avoid tax on their current earnings. However, the rules still allow for £2,500 a year of salary to be “washed” tax free through salary sacrifice arrangements. I am interested to hear what the Government have done to address that risk and what further action they plan to take to guard against the new flexibilities being used in such a way.
Mr Love
When it was suggested to the Pension Schemes Bill Committee that there would be ways in which people, especially those over the age of 55, could use the new flexibilities to avoid taxation, the Minister did not seem to be at all concerned. Is the shadow Minister concerned, and will it be an issue for the Bill?
Cathy Jamieson
Yes, the shadow Minister is concerned as, I am sure, are the Ministers on the Front Bench, who will have to say something in response as they wind up the debate this afternoon. It is a matter that we will have to explore further in the Bill.
In conclusion, we are serious about getting pension reform right. We want people to have the freedom to choose the retirement product that works for them, and we want them to have good products from which to choose. It would have been better if the Government had consulted further on the reforms and conducted a full and thorough analysis of all the tax implications before they announced the Bill. None the less, we still have the opportunity to look at the Bill in greater detail and on that basis we will not be opposing it today.
Ian Swales
I thank the hon. Lady for her clarification. I am sure that the Exchequer Secretary would be interested to hear more about how she defines “unscrupulous”. I agree with her, but there is more to do to be clear what that means or about conduct that the Financial Conduct Authority would regard as unscrupulous.
All this liberalisation of pensions, as the hon. Member for Amber Valley mentioned, makes pension savings more like other kinds of savings. We are also providing a big tax advantage. Removing restrictions on when pensions are taken and removing some of the tax charges and restrictions on death means that we are moving closer and closer to a simple tax-free savings market. Such a market is especially attractive for people who are very close to retirement. I have done some sums, and if one is about to take one’s pension pot, there is quite an incentive—because of the tax-free 25%—to throw in the maximum possible amount of money in the months before retirement. Somebody paying tax at the basic rate who puts a lot into their pension pot in March and starts their pension in April or May would make a 6% return on their money simply by putting it in and taking it back out again. A higher rate taxpayer would make a 16% return on their money simply by putting a lump sum into their pension pot immediately before they retire and then drawing it out again. There will therefore be clear consequences of the flexibility that we are creating. People will be more inclined to put their money in if they know that they will be able to get it out quickly. There are clear benefits to getting the tax-free amount very quickly.
We have heard about the possible later costs to the state in respect of care and so on. By definition, if people take more out of their pension pots earlier, more people will need state assistance later in life with health or care costs. I know that the Minister is aware of that issue, but I do not know whether the possible costs have been calculated or estimated.
I am more confident than most that the responsible part of the industry will come up with new products and innovations. As I said to somebody from Just Retirement last week, what people need is plain language. Even the word “annuity” is not plain language. People want a secure income in retirement. The vast majority of people who retire do not want to buy a sports car, but to have a certain income throughout their retirement. The more the industry wraps things up in mumbo-jumbo that people do not understand, the more suspicious people are of its motivations.
We are already seeing warning signs. For example, Fidelity is saying, “All this flexibility means complexity, which means higher costs, because we are not set up to run bank accounts.” I am concerned that the industry will see the changes as a new way to levy high charges. It will say that the very flexibility that the Government want to see is expensive to provide. I hope that we see the right level of competition in the market and that people come in who do not levy those high charges.
We have seen a huge fall in the number of annuities that have been taken out recently. Just Retirement has seen a 50% fall in demand for annuities. I suspect that that is partly due to uncertainty. People want to be clear what the new rules are before making a decision. Demand may pick up again, particularly if there are new products. However, there is no doubt that fewer people will take out annuity-type products.
Cathy Jamieson
I am listening carefully to what the hon. Gentleman is saying. Does he agree that there are concerns for people who have relatively small pots, because companies might feel that it is not in their financial interest to offer them products? How can we ensure that there is equality?
Ian Swales
The shadow Minister makes a good point. If we create a spectrum of products that is genuinely complex, the charges might be inappropriate even for those with medium-sized pots because of the flexibility that is offered. We need to hear more from the industry about that.
Finally, on timing, I know from personal experience that when the date that one has defined as a potential pension date is approaching, the industry offers what it calls warm-up packages. I have had my first warm-up package for next year. The industry is not waiting until April next year. It has to get on with this right now. If there is any uncertainty in the minds of Ministers, they had better get moving pretty quickly, because the industry has to get all its systems, documentation, regulations and new products in place so that it can offer them to the cohort that is approaching retirement in just a few months’ time—from April onwards. The ABI is already concerned that it is getting towards the eleventh hour, when clarity on all this will be needed.
Despite all the reservations that I have expressed, I very much support the Bill and commend it to the House. I am sure that when it emerges in its finished form, it will be an excellent piece of work.
The Exchequer Secretary to the Treasury (Priti Patel)
This has been a wide-ranging and constructive debate; it has been engaged and informed, and I thank everybody who has participated. Before I address some of the specific points raised, I wish to reiterate the main purpose of the Bill.
The Bill is intended to put in place the most radical reform to the way people take their pensions for nearly a century. It is a fundamental principle for this Government that those who have worked hard and saved all their lives should be free when they reach retirement to choose how they spend those savings. That is because we believe in personal responsibility, and that the money someone has earned is their money.
The Bill will remove the limits on withdrawals from drawdown and the restrictions on the shape of annuities, and it will create new and more flexible ways for someone to put the money in their pension pot to good use and provide for their future as they wish. As a result of the reforms, people will rightly have the freedom to choose how to spend their savings. That, in turn, will incentivise the pension industry to provide real choice through a range of innovative new products.
I would like to address points raised by the Opposition; first, the myth that the Government have not consulted. The Government have consulted extensively on implementation and legislation, and we have received wide support from consumer groups and the industry. I note that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) quoted the chief executive of the ABI. He has also said that the ABI
“welcomed the reforms as good for those who were faced with the double challenges of increased longevity and very low interest rates when they came to make retirement decisions. The industry is behind these reforms. We want them to be a success and our members are working flat out to get everything ready for April 2015.”
The Government are putting in place comprehensive guidance. There has been discussion on guidance—I will come on to it in more detail—and I want to make it abundantly clear that we have brought forward an amendment to the Pension Scheme Bill to achieve just that.
On fairness, the old system was unfair and it disadvantaged those with a moderate amount of savings. Our Government reforms will make the system more flexible and fairer for all. On cost, as the Financial Secretary has clearly stated, we set out the costings at the Budget. Since the Budget, and as a result of consultation, we have introduced further changes and the OBR-certified update will be provided at the autumn statement.
There have been a number of positive views from the industry. It is wrong and misleading to imply that there is no support from the industry. The consultation has been extensive. There has been a 12-week consultation on the best way to implement the changes, followed by consultation on the Bill itself. It is important to move quickly, because people are making binding decisions every day with what are, frankly, limited choices in the current marketplace.
Cathy Jamieson
I am sure the Minister did not intend to suggest that I, or any other Opposition Member, said there was no support from industry. For the record, that is not what we said. We recognised that concerns had been expressed. That is different from saying there was no support.
Priti Patel
I am grateful for that clarification. There is extensive support from the industry. I pay tribute to the industry for the way it has worked with us through the consultation to bring the changes together in such a constructive and supportive way.
Finance Bill
Cathy Jamieson Excerpts(10 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
New clause 13 and new schedule 5 make provision to ensure that individuals who wish to make use of the new pension flexibilities announced by the Government do not face detrimental tax consequences if they take their tax-free lump sum and then defer a decision on how to access the remainder of their pension savings.
On Budget day, the Government announced radical reforms that will enable people with defined contribution pension savings to have more choice and control over their pension wealth from next April. The greater choice and flexibility that these reforms will give pension savers have been widely welcomed. There has been broad consensus that individuals who have been responsible and saved for their future should be trusted to access their pension savings in the way that most suits them.
We announced a consultation on the detail of these longer-term proposals, which has now closed. We will publish a response in the near future, and legislation will be brought forward later this year to implement the necessary changes, but the Government wanted to make sure that people who are approaching retirement now would not miss out. As a first step, we introduced clauses 39 and 40 to ensure that individuals nearing retirement this year can benefit from a wider range of options before next April. We expect that this will enable around an extra 85,000 people to access their pension wealth as a lump sum this tax year. In addition, 400,000 people will have the option of receiving significantly greater withdrawals from their pension savings, but we did not want to stop there.
Usually people lose the advantages of a tax-free lump sum if they do not decide what to do with the rest of their pension savings within six months of taking the lump sum. On 27 March, the Government announced that those who had already taken a tax-free lump sum from their defined contribution pension savings, but had not yet secured their pension, would be given more time to decide what they wished to do with the rest of their retirement savings. We also did not think it would be fair to prevent people from taking their tax-free lump sum now simply because they wished to wait to access their pension savings more flexibly from next April, so the Government promised to introduce new provisions in the Bill to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next.
The provisions are technically quite detailed, but their purpose is not. Full pension flexibility for defined contribution savings will be introduced in April 2015, and until that happens we want people to be able to take their tax-free lump sum and to have until October 2015 to make their pension choices without tax consequences. The changes made in new clause 13 and new schedule 5 will enable people to take a tax-free lump sum and to wait until April 2015 to decide how they want to access their pension savings: by transferring the rest of their pension savings to another pension provider to enable them to access them more flexibly; by repaying the lump sum when the scheme that paid it will accept it in order to access the whole of their savings more flexibly; or by receiving the rest of the pension savings as a lump sum under the higher limits that clause 40 provides. Those changes also ensure that people who have the right to receive a tax-free lump sum at an earlier age, or of a larger amount than is normally allowed, can use the new flexibility and keep those rights.
New clause 13 and new schedule 5 help people who have worked hard to save into a pension, enabling them to take some of those savings tax-free now, and to take advantage of the new flexibilities for the rest of their pension savings.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I understand that the Minister is trying to introduce an element of fairness into the new arrangements while avoiding unintended consequences. Can he give us some assurances about the time scale for the rules being brought in, and tell us whether he has done additional work to ensure that there are no unintended consequences?
Mr Gauke
We have been engaged in a consultation process, which closed recently, and have engaged fully with all interested parties more generally on this policy. I will address some of these points when I respond to new clause 9, but we will respond shortly to the consultation, setting out the details of how the policy will be taken forward. This is an important matter, and it is important that we get things right. There are a number of aspects to it, and new clause 9 takes us into some of those aspects that, although perhaps not relevant to the Finance Bill, are of significance none the less. I can assure the House that there will be plenty of opportunities to debate the details, given that legislation on the subject will be introduced, as the hon. Lady knows full well.
Cathy Jamieson
I understand the point about the timing of the guidance, and I will discuss that in my speech. The Pensions Minister has said:
“Face-to-face, the Chancellor used that phrase, and we will honour that, of course. But if face-to-face means individuals sitting down for an hour with someone every-where in the country, that would be very, very expensive. Face-to-face could involve groups, for example; a lot of the conversation’s generic.”
Some people may have concerns about what is being referred to in terms of guidance. Will the Minister give us some further information at this stage?
Mr Gauke
The hon. Lady, perfectly understandably, is seeking more information at this point. I do not think I am being in any way unreasonable in saying that we will set out the details of this in the near future. We are working very closely with interested parties, whether the industry or consumer groups, to ensure that we get this right. We have set out the broad principles behind our guidance guarantee, and we believe that we can deliver something that provides the protection that all Members want.
Mr Gauke
I used the word “shortly;” I could have said “in due course,” but I hope that my hon. Friend is more encouraged by “shortly.” He will just have to be a little more patient, but I can assure him that it will not be very long before he will be satisfied on those details.
Let me say a brief word about guidance, which I have touched on already. The Government believe that, as people have greater choice over retirement, they will need the right support and guidance to make the choice that is right for them, so we are working to ensure that everyone approaching retirement with a defined-contribution pension can receive impartial, face-to-face guidance on the choices available to them. However, the guidance guarantee is not a tax rule, so I hope that hon. Members will understand that although it is a very important part of the radical reforms that we are introducing from April 2015, it does not form part of the changes being discussed today.
The Government have already published information on the impact of clauses 39 and 40, as well as on new clause 13 and new schedule 5, and have consulted further on their broader proposals. New clause 9 is therefore unnecessary. Whether that is enough to persuade the hon. Member for Kilmarnock and Loudoun not to press her case, I somewhat doubt, and no doubt she will put it very reasonably, but I hope that she considers my response reasonable as well. Whether she considers it reasonable or not, that is my response.
The overall purpose of the changes that the Government are making today is to enable people who had recently taken the tax-free lump sum from their defined-contribution pension savings to use the new flexibility, while remaining in broadly the same tax position. I therefore hope that new clause 13 and new schedule 5 will be added to the Bill, and I request that new clause 9 is not pressed to a vote.
Cathy Jamieson
I want first to put something on the record. Earlier, the hon. Member for Redcar (Ian Swales) suggested that when the Labour Government left office the tax gap was £42 billion, but the most recent HMRC figures show that in 2009-10 it was £32 billion. I think that addresses the point that he raised yesterday with my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood).
To return to issues from today’s debate, as I observed in Committee, the amendment that we moved then and the discussion on it addressed some of the most important clauses in the Bill. The Minister suggested yesterday that I could make the most unreasonable things sound reasonable. I think that today he has done a reasonably good job of putting across the Government’s view. However, I would have to say at the outset that he has not said enough to convince me not to press our amendment—he still has time to say something during the debate—and I will explain why.
As I have said, the reforms provided for in these clauses are very important. Our primary concern in tabling new clause 9 and in pressing it is to ensure that those affected have the information that they need to make an informed choice, because that is very important indeed.
Gregg McClymont
On that point, my hon. Friend, as usual, is making an eloquent, precise case. There is an issue not just around informed choice, but around our ability to predict our own longevity; there are substantial issues. The evidence is that it is very difficult for us to predict our own longevity, both for obvious reasons and in terms of biases inherent in our human nature. Therefore, this is not just about choice—although we think that is important—but about how one makes such decisions on one’s own.
Cathy Jamieson
My hon. Friend makes an extremely important point. My understanding of the research is that, when asked to predict their longevity, people significantly underestimate it and do not always predict long enough into the future, particularly when anticipating their potential care needs or support needs. For understandable reasons, people do not want to think of those things during their earlier years, but increasingly they will have to do so.
I heard the Minister say that some of the issues that have to be dealt with, such as guidance and so on, do not form part of tax law. Of course he is correct on that, but there is an issue about a joined-up approach to government. Already we have concerns—I shall say more if time allows—about how all the Government’s policies on social care and some of the other economic issues that people have to think about will come together. It is important to ensure at every stage that there are no unintended consequences.
As the Minister accepted, we tabled our new clause, as always, in a spirit of being reasonable and sensible. Indeed, I was a wee bit excited when he seemed to suggest that some of the things we might be saying were worthy of further consideration. Of course, my excitement was short-lived, as he then said that he would not accept our new clause.
Quite simply, new clause 9 would require the Treasury, within six months of Royal Assent, to publish and lay before the House any analysis it prepared before the publication of Budget 2014 relating to the impact of the changes made in clauses 39 to 43 and the relevant schedules, and that the information published include any assessment made of the impact of the provisions for independent face-to-face guidance on the Finance Act 2004. That is important, because without it, as my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said in an attempt to elicit information, which has not so far been possible, it will be difficult to scrutinise provisions in a Bill that is to come in due course, shortly, when time permits—whichever one of the time scales so beloved of Ministers is utilised. The new clause also asks that we be provided with information on the distributional impact of the changes by income decile, a behavioural analysis and the financial risk assessment. As our new clause and the points I have made show, our concern about some of the reforms extends to the face-to-face guidance that the Government have committed to providing.
We discussed this issue extensively in Committee. I think Labour Members made a number of valid and reasonable points on the potential pitfalls for savers who have money at their disposal—those who, perhaps for the first time in their life, have a significant pot of money and have to make a decision. Lest anyone suggest that our concern is patronising or that we are somehow not trusting people to decide what to do with, essentially, their own money, let me say that it is important to understand that for many people, having significant pots of money at their disposal will be an entirely new experience at a time in their life when, as we have heard, they may not properly have predicted what resources they are going to need or their own longevity. It is therefore a bit disappointing that the Government have not been able to answer our questions. Looking back over the Hansard report of the Committee stage, I was struck by the amount of time we spent dealing with some of these questions and, unfortunately, not getting the answers from the Government. Some of the responses we got from Government Members were, I would say, misunderstandings if not misrepresentations of our own position, which led us to believe that the Government might simply not want to engage with those issues.
To ensure that the Government are held to account, we have set three tests for the pension reforms. The first is the advice test—ensuring that there is robust advice for people who are providing for their retirement and that measures are in place to deal with mis-selling. In Committee, I and others quoted a number of cases brought to us by financial advisers in our local areas and by constituents in which people had been given so-called advice—often, information provided by unregulated people—and had therefore made wrong choices, which cost them significant sums. We do not want that to happen again.
Gregg McClymont
On the question of guidance, the Pensions Minister’s comments about Lamborghinis were particularly unfortunate. Does my hon. Friend agree that the biggest danger is not that hard-working, sensible people will blow their own money, but that they will take it as cash and not invest it because they have no confidence in the financial services industry, so their money will not be working for them? Is not that as big a danger, if not a greater danger, than the Lamborghini sort of stuff the Pensions Minister raised?
Cathy Jamieson
If I did not know better, I would suspect my hon. Friend of having read my speech. I was just about to come to that very point. The infamous Lamborghini comment might have been made in jest, but that sort of joke is entirely lost on those who have already lost their savings because of poor or insufficient advice. My hon. Friend makes a very valid point indeed about people’s confidence in what they can do with their own resources. To an extent, the Government may have begun to acknowledge the need to expand the range of choices available and ensure that consumers have help to navigate those choices—I think that was the phrase used. That sounds pretty sensible and commendable, but we need to make sure that it actually happens.
The second test we have set is the fairness test—the new system has to be fair to those on low and middle incomes, which means they still should be able to access products that give them the certainty in retirement they want, and the billions we spend in pensions tax relief must not benefit only those at the very top. That is why we have called for restrictions on pensions tax relief for those earning more than £150,000 a year. The third test is the cost test: the Government have to ensure that the policy does not result in extra cost to the state. That point was made earlier, and I think the Minister, to his credit, understands that there is an issue with social care and pensioners having to fall back on means-tested benefits—housing benefit, for example—later in their life if they do not properly or sensibly manage their resources. As yet, however, the Government have not explained how all that will be joined up in policy terms. In our view, if the Government’s pensions reforms fail any of those tests, the negative impact on savers could be considerable.
In Committee, my hon. Friend the Member for Islwyn (Chris Evans) talked about protecting people from the “sharks in the market”. That brings us to the vexed question of guidance. Going back to the Chancellor’s no doubt innocent slip, there is a serious point to be made about definitions. When pressed subsequently, the Chancellor said:
“There is a technical distinction between advice and guidance. The budget document exists, I don’t get up and read it out because it contains all the technical details of the Budget and we publish it at the same moment. The speech needs to also communicate in English so people watching it can understand what is meant.”
I understand that, but as I emphasised strongly in Committee, there is a world of difference between advice and guidance in technical terms and in terms of legality. The Government need to deal with that.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I am listening carefully and trying to understand. Is the hon. Lady suggesting that the Government should be people’s financial adviser? I am not sure that is what the role of Government should be. I thought the reform was about opening up choices and making sure that people realise what steps they can take, not telling them what direction they should go in.
Cathy Jamieson
It is important that Government use language consistently and do not inadvertently mislead people about what they are going to get, whether it is guidance, advice or information, given face-to-face, over a telephone or through the internet.
The Red Book states:
“from April 2015, all individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement”.
One might consider that a good and positive measure, but it raises some questions—questions that largely accord with the three tests we have set. First, there is a question about cost: the budget for guidance of just £20 million—£10 million each for 2015-16 and 2016-17—gives rise to some concern, as does its including no provision for this year. According to the tax impact and information note, the measures in the Bill will enable up to 400,000 people to draw down their pensions. I note that the Minister referred earlier to an updated tax impact and information note. Perhaps he can tell us whether he has revised any of those sets of numbers. We need to understand why nothing has been put aside for that free and impartial guidance in this financial year.
Gregg McClymont
Before my hon. Friend moves off the important topic of guidance, I am sure she will agree that the context to this is that the median pension pot is much smaller than many hon. Members imagine: it is well below £30,000 a year. Moving from guidance to advice potentially means that a significant proportion of a person’s pension pot is eaten up by the cost of advice. We should all bear that in mind during the debate.
Cathy Jamieson
Once again, my hon. Friend makes an important point and anticipates some of the things I want to mention before bringing my remarks to a close. I understand that in some instances pension pots are relatively small, and we do not want a scenario in which people find that a fairly high percentage of their pension pot must be spent on taking the advice to which he refers.
In that context, I would be particularly interested to know whether the Government have conducted any serious work on how and when savers will invest the money taken out of their pension pots, particularly when those pots are relatively small. Industry analysis from Australia, which has total flexibility at the de-accumulation stage, has found that over half of pension lump sums are spent on homes and cars.
Again, before people get excited and claim that I am somehow suggesting that people should not be in charge of their own money, let me make it clear that there is not necessarily anything wrong with that. For many people it might seem to be the reasonable thing to do. They might wish to pay off a mortgage or debt, buy the car they had not previously been able to afford, or make improvements to their home. Of course they ought to be able to make that choice, but they ought to be able to do so in the knowledge of what they might face in later years.
The potential impact of that change on the wider economy has already been mentioned, particularly in relation to the housing market. For example, what are the implications of people with substantial pension pots deciding to invest in property, particularly in the buy-to-let market? I also think that the Government must look at the impact on household savings ratios, given that the OBR has projected that they will fall from 5% in 2013 to just under 3% at the end of the forecast period. In the midst of any economic recovery that has been driven by consumer savings, any change in the way people choose to invest their savings and the consequent impact on the household savings ratio should be looked at very carefully.
In conclusion, I think that this is a crucial issue for thousands of people across the country. Many people do not think about pensions and long-term savings, and not because they have no interest in them or do not want to save, but because they are trying to manage their expenditure week by week and do not have the opportunity to look at the longer term. Everything we can do to encourage good-quality financial education is important, which is why we must get the guidance and advice absolutely correct. People also need to be confident that the information they get from the industry itself will be tailored and suitable for them.
Gregg McClymont
Perhaps this time I am not anticipating what my hon. Friend is about to say, as I think she is bringing her remarks to a close. It strikes me, having listened to the Government on this issue, that the employer is never mentioned. One arm of the Government is promoting workplace employer pensions, but what is the employer’s role in relation to greater flexibility and choice?
Cathy Jamieson
Once again, my hon. Friend makes a valid and important point. He is correct that I was about to conclude my remarks, so I will resist the temptation to go into great detail on that issue, other than to say—we raised this in Committee—that in some ways there seems to be no joined-up government here, with pensions sometimes seeming to be at odds with other aspects. Rather than all pulling together in the interests of the consumer, there could be tensions, which I think the Government should address.
As I have said, this is a crucial issue for thousands of people. We need to get it right. I am of course aware that there is further legislation coming down the line. However, given that the Minister indicated that at least some of our requests for information are reasonable and relevant to the matter being discussed, I hope that even at this late stage he will agree to our new clause, which we will want to press when the time comes.
Finance Bill
Cathy Jamieson Excerpts(10 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
Again—I hope the record will pick that up—this is for investment managers, not hedge fund managers. That is the argument the hon. Gentleman is making, which is different from the argument we have heard from the Opposition on occasions. For example, in July last year, the Leader of the Opposition accused us of making a tax cut for hedge funds. In the shadow Chancellor’s response to the autumn statement in December last year—he gave a speech that many of us will remember for a long time—he called on the Government to reverse the tax cut for hedge funds. It appears that the Labour Front-Bench position is to accept that there is no tax cut for hedge funds. That, I suppose, is progress. [Interruption.] As the hon. Member for Kilmarnock and Loudoun says, it is for investment managers, not hedge funds. She is still wrong, but she is perhaps less awry than she was. That is progress, and I hope that the Leader of the Opposition and the shadow Chancellor will withdraw any suggestion of a tax cut for hedge funds. We will be looking out to see whether that features in any Labour party promotional material over the months ahead, but I am glad we have made progress on that front at least.
In conclusion, clause 107 supports the Government’s objective to create a more competitive tax system and will increase the attractiveness of the UK as a location for fund domicile. Amendment 67 would serve no useful purpose, given the information already made available about this measure. New clause 7 rectifies a minor omission from clause 105 and ensures that the reduction in the SDLT higher rate threshold to £500,000 operates as intended. I therefore move that new clause 7 be accepted and request that amendment 67 not be pressed.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Let me begin where the Minister left off, on new clause 7. It is worth noting that section 74 of the Finance Act 2003 provides SDLT relief for lessees of flats who collectively acquire the freehold of their block under rights afforded by the Landlord and Tenant Act 1987 and the Leasehold Reform, Housing and Urban Development Act 1993. The relief sets the rate of SDLT according to the consideration for the freehold divided by the number of flats, which brings the amount of SDLT paid by lessees more into line with what they might have paid had they been able to acquire the freehold of their flats separately. As the Minister said, such acquisitions are commonly undertaken by a company in which the lessees are shareholders. Under such circumstances, the 15%, higher rate SDLT charge in schedule 4A to the Finance Act 2003 will apply if the main consideration exceeds the higher rate threshold.
The Minister pointed out that clause 105 reduces the higher rate threshold from £2 million to £500,000 for transactions where the effective date is on or after 20 March 2014. However, clause 105 omitted to apply the reduction to the relief in schedule 74 to the Finance Act 2003, an omission that new clause 7 rectifies. It is welcome that the Minister has brought forward something to deal with that earlier omission and I will therefore not take issue with him on that at present.
Let me turn to amendment 67 and stamp duty reserve tax. I hope hon. Members will forgive me if I confess to having a sense of déjà vu, because it is not the first time we have debated this issue. Not only did we debate it in Committee, as the Minister acknowledged; we also debated it in last year’s Finance Bill. In fact, it is almost a year ago to the day that my esteemed colleague the hon. Member for Nottingham East (Chris Leslie) was standing at this Dispatch Box trying, as I will be, to make the Government see sense and accept our call for a report to be published. [Interruption.] I think my hon. Friend is indicating that he failed on that occasion.
Cathy Jamieson
The hon. Gentleman says I am a better woman, but I have to confess that I was not able to persuade the Minister in Committee. However, as always, I am an optimist by nature, so I will venture forth today in the hope, even at this late stage, that the Government can be made to see the light and accept our call for a report to be published.
As I mentioned, it is almost a year ago to the day that my colleague the hon. Member for Nottingham East was standing at this Dispatch Box. It would be remiss of me not to remark briefly that, some 15 years ago to the day, I was in the Scottish Parliament for the formal opening of that august institution. If anyone had suggested to me then that 15 years later I would be standing at this Dispatch Box discussing stamp duty reserve tax, I might have fled and looked for something else to do. Who knows? It certainly was not something that was on my agenda at that point.
However, to return to the amendment, for the benefit of anyone who may have forgotten, amidst all the excitement of the last year, exactly what we were speaking about on that occasion, I want briefly to recap some of the key points from the debate. It is worth noting what our amendment 67 proposes. For those who are following this debate with avid interest, it asks the Government to insert at the end of clause 107, page 90, line 33 a new section 5A, stating:
“The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.”
A new section 5B is then proposed:‘
“The report referred to in subsection (5A) must in particular consider…the impact on tax revenues;…the expected beneficiaries; and…a distributional analysis of the beneficiaries.”
I shall return to those issues in responding to the Minister’s points.
Mr McKenzie
Why does my hon. Friend think that the Government are so reluctant to produce this report if, indeed, they see the change as beneficial to all? We see this £160 million giveaway as being beneficial to only one particular group, and not our constituents.
Cathy Jamieson
I thank my hon. Friend for that intervention. I can only hazard a guess as to why the Government consistently refuse to look at producing any report or to accept any of the requests—quite reasonable requests—that we have brought forward, seeking further information, further transparency and these particular pieces of information. I am forced to conclude either that the work has not been done or that the Government, for whatever reason, do not wish to share those facts and figures with us. That is a pity because it would help hon. Members of all parties if this information were put forward. I shall come on to deal in a few moments with some of my hon. Friend’s other points, particularly regarding how his and my constituents will be affected.
As the Minister said, the Government new clause removes the stamp duty reserve tax charge for which fund managers are liable when investors sell or surrender their units in UK unit trust schemes or shares in UK open-ended investment companies. Some people have argued that SDRT could essentially be considered as some form of transaction tax—not a term that everybody would use, but it has certainly been argued in that context—currently levied at what seems to be a not unreasonable rate of 0.5%. This is the element that the Government propose to remove.
As I have indicated, our amendment would require the Chancellor to publish a report—I always try to be reasonable, fair minded and mild mannered in my requests to the Minister, as he knows from our many discussions in Committee—to show exactly who benefits and who would be left worse off through the abolition of SDRT on investments in those units trusts and OEICs. As I said in Committee, in these straitened times, hon. Members—as my hon. Friend the Member for Inverclyde (Mr McKenzie) suggested—could be forgiven for assuming that such a generous tax break would fall to those who really need it, such as the millions of hard-working taxpayers who are £1,600 a year worse off under this Government than they were in 2010.
Cathy Jamieson
I will give way to the Minister, who I am sure will want to tell me what he is doing for those hard-working taxpayers.
Cathy Jamieson
As I said in Committee and as we have seen in some of the to-ing and fro-ing this afternoon, this tax cut relates to investment fund managers. I hope the Minister will listen very carefully to my points. As my hon. Friend the Member for Inverclyde and I have said, the families that, according to the Institute for Fiscal Studies, will be £978 a year worse off by the next election thanks to the Government’s tax and benefits changes will want to know exactly who benefits from this particular tax cut. I am sure that the Minister is now going to tell us how giving investment fund managers that tax cut will provide support and assistance for the hard-working families in my and my hon. Friend’s constituencies.
Mr Gauke
I have already set out how this tax cut will benefit those contributing towards their pension. I take it from the hon. Lady’s earlier answer to my intervention that she accepts that this is not a tax cut for hedge funds. Will she explain precisely what the Leader of the Opposition was on about when on 10 July 2013 he told the Prime Minister in Prime Minister’s Question Time that there was a £145 million tax cut for “hedge funds”? The Leader of the Opposition was wrong, was he not?
Cathy Jamieson
I am going to come on to the issue of who benefits, but I noticed that, once again, the Minister was not able to say how this particular tax cut proposed by the Government is going to benefit our constituents.
Let me deal with the Government’s tax impact note, which provides some information, saying that the chief beneficiaries of this particular initiative will be the 100 UK fund managers who control 2,500 investment schemes. Hon. Members would doubtless be very concerned if they thought that the overall health of the UK’s investment industry was somehow at risk, which is why the initiative was brought forward. One might think that it was somewhat ailing if it was deserving of a tax cut amounting to, as my hon. Friend the Member for Inverclyde said, £160 million a year. However, if we look at the reality of the industry, we could readily say that it is in pretty good health, raising the question of whether the industry really needs the Government’s help, which could more usefully be put to assisting those hard-working families feeling the squeeze as a result of Government policy.
According to the Investment Management Association, as of January 2014, its members managed over £4.8 billion in the UK on the basis of OEIC funds alone and around £4.5 trillion overall. The association also tells us:
“UK assets under management and funds under management are at record levels, and the UK retains its position as the second largest asset management centre in the world after the US.”
It could well be argued, therefore, that the UK’s investment industry is doing okay— without the intervention or assistance of the Government.
Cathy Jamieson
I will give way to the hon. Gentleman if he will tell me how this particular tax cut benefits my constituents and those of my hon. Friend the Member for Inverclyde.
Simon Kirby
I have been listening carefully to the points the hon. Lady is attempting to make. I still do not understand, however, whether hedge fund managers will benefit from this change; it seems quite clear that they will not.
Cathy Jamieson
If the Government, of course, were to produce the report requested in this mild-mannered, sensible and reasonable amendment, we would perhaps have more information on who would benefit—exactly what amendment 67 calls for.
Mr Gauke
The hon. Lady always puts forward her proposals very reasonably, but I have to tell her that there is no need for a report on this issue. Schedule 19 stamp duty reserve tax is not paid by hedge funds, so abolishing schedule 19 SDRT does not benefit hedge funds. Does she accept the point that this has nothing to do with hedge funds?
Cathy Jamieson
I want to move on to discuss further who exactly it does benefit, which is the crucial point. We sometimes hear from the industry that there is some kind of existential threat presented by people moving to Luxembourg, Switzerland or wherever else, but it seems that despite all that, the industry is, as I said, in pretty good health.
One of the things that worry Opposition Members is that the only people about whom the Government seem to be genuinely concerned are those who are already wealthy and privileged. They have cut the top rate of income tax for those earning more than £150,000 per annum—we discussed that earlier, so I shall not say more about it at this stage—and, as bank bonuses rise again, they continue to oppose our proposal for a bank bonus tax to help young people back into work. They have failed to balance the books, as they promised to do, yet it seems that they can still find £160 million a year for those who may not need it as much as others.
Mr McKenzie
Is it not typical of the Government that they can find that £160 million while telling our constituents that times are still hard and they must tighten their belts? The cost of living is driving many of them to despair.
Cathy Jamieson
Once again, my hon. Friend has made a very valid point. As he says, many of our constituents in the real world are at the point of despair. VAT has risen, tax credits have been cut, and wages have not kept pace. As my hon. Friend knows very well from his own area, many people are on zero-hours contracts, or are working fewer hours than they would like. Furthermore, the bedroom tax—which we have debated on numerous occasions, and which has been mentioned earlier today—is still having an impact on many people throughout the country.
While all that is happening—and while our constituents are continually coming to our surgeries and contacting us in other ways to tell us about the problems in their lives and how difficult it is to make ends meet—the Government still cling to the notion that the much vaunted recovery is benefiting everyone. I must tell the Minister—I am sure that he has heard similar comments even from Members on his own Benches—that those benefits are not being felt by most of my constituents, and I suspect that they are not being felt by most of the constituents of my hon. Friend the Member for Inverclyde, whose seat is not far from mine.
I could not swear to this, but I strongly suspect that if I asked my constituents what one policy would really improve their quality of life and living standards, they would not be queuing up to tell me that the answer was tax cuts for investment funds. I may be wrong, and I have no doubt that the Government would advance a different argument. Perhaps they would argue that the removal of SDRT for unit trusts and OEICs will produce a fair and proportionate tax rate which will create jobs, revitalise communities and rejuvenate local economies, for that certainly seems to be what they are trying to claim. During last year’s debate, the then Financial Secretary to the Treasury implied that it would create more jobs in regional economies by encouraging investment funds to move to the United Kingdom. What concerned us at the time was the fact that there was scant evidence to back up any of that, and, I cannot, try as I may, find any additional supporting evidence in the tax information impact note attached to this year’s Bill.
In Committee, the Minister told us a wonderfully heart-warming story—to which he has referred again today—about a 22-year-old investor who would benefit from the Government’s changes to the tune of some £4,600. At that time, I questioned whether this was a real 22-year-old who had been found by the Government Actuary’s Department—where from, I do not know. Perhaps the Minister now knows whether it was a real live 22-year-old. In any event, I was interested in the notion.
Mr McKenzie
My hon. Friend has described a number of desperate scenarios with which the Government could help to deal, but they have chosen the desperate scenario of a fund that has grown by 6.5% for the last four years and is worth trillions of pounds, and have decided to give this particular desperate fund an extra £160 million.
Cathy Jamieson
As I said earlier, one thing that the Government could do and have consistently refused to do would help thousands of people throughout the country: they could abolish the hated bedroom tax. They could also accept our proposal for a tax on bankers’ bonuses, and adopt our properly designed programme to get young people back into work and give them the start that they want. Until we get young people into work, ensure that they have adequate housing and ensure that they can have a decent quality of life, the majority will not have an opportunity to think about saving from one year to the next, let alone trying to invest for the longer term. In Committee, I asked whether it was only me—or only Opposition Members—who held this view. My hon. Friend the Member for Gateshead (Ian Mearns) made a powerful speech in which, like my hon. Friend the Member for Inverclyde, he described the reality of what was happening to young people in his constituency.
I have looked at the tax information impact note again, in search of further details of that 22-year-old’s story, but I can find nothing that explains how such people will benefit. The only reference to benefits for investors was this rather disappointing revelation:
“This measure could improve returns on investments (including pensions) but would otherwise have no impacts on individuals or households.”
I do not yet see how the measure can benefit the people we are trying to represent.
I am sure that we would all like to hear the next chapter in the 22-year-old’s life story, and if the Minister has any more information to illustrate the fact that he is just the kind of person who stands to benefit from this measure, I am genuinely willing to hear it. However, in the absence of any such information, I shall return to the subject of amendment 67.
Our amendment invites the Government to lay out clearly and transparently exactly who will benefit from this policy and by how much. In Committee my hon. Friends expressed on a number of occasions the view that this is just another tax break for the Government’s friends in the City. While it does look like that, we are open to giving the Government the chance to prove otherwise. That is why our amendment asks the Treasury to publish the costs to the Exchequer in order to ensure that a list of beneficiaries and a distributional analysis for the abolition of stamp duty reserve tax are put into the public domain. That way we will be able to see all the facts as to who the Government are really concerned about.
Of course, if the Government do not agree to our amendment, we will be forced to conclude that this is just another tax cut for the wealthy, just as we suspected all along. We would also have to conclude, in the absence of any information to the contrary, that any claims of jobs created in regional economies are about as robust as the Prime Minister’s stance on Europe has been, and we would have to look a lot harder to try and find something in this which would create jobs, as seems to have been suggested on previous occasions, because I cannot for the life of me see how that stacks up. If we really want to tackle some of the regional imbalances, let us look at some of the announcements that have been made today, in terms of the reports put forward by the Opposition, about how we can create more wealth and look to ensure that power and resources are devolved to some of our cities and we tackle the issues around infrastructure in the regions.
In the light of the response when we tabled this amendment in Committee, I have to say that I am not at all confident that the Government are going to agree to provide us with the transparency we so urgently need. Again, if we look back to what was said in Committee, we find that the Government were not particularly transparent in terms of the information we were given, because, along with the story of the 22-year-old, speakers on the Government side were keen to stress that, because it is fund investors as opposed to fund managers who will benefit from the removal of SDRT, it would greatly boost investment. Again we have to question whether any increased investment would directly benefit those investment fund managers. Hon. Members were also very helpful in trying to enumerate how many people are currently employed by the industry, but try as they might, they failed, as did the tax information and impact note, to detail that important point about how many jobs would be created by the abolition of SDRT.
We also heard that the tax as it currently operates is
“an uncompetitive charge that puts UK-domiciled funds at a disadvantage to funds domiciled elsewhere”.––[Official Report, Finance Public Bill Committee, 10 June 2014; c. 412.]
That does not square with the idea that the UK investment management industry is doing so well that it is the second largest in the world, beaten only by the US.
I want to draw to a conclusion soon because I put quite a number of questions to the Minister in Committee and it would be useful for us to give him some time to respond to them, as he was not necessarily able to do so in Committee. It is important that we give him the chance again today, therefore. Unsurprisingly perhaps, the Minister is continuing to steadfastly—albeit politely—refuse to countenance our amendment for two reasons. First, he seems to be suggesting that the information requested has already been covered by the tax information and impact note, which, as I hope I have outlined, it does not seem to me to do in any clear and transparent way. The other argument that came up in Committee is that it would be difficult and it would perhaps take longer than six months to do. I am sure—and I am sure the Minister will understand this—that should he wish it to be so, he would be able to utilise all the capacity of the Government to overcome any difficulties, and indeed to ensure more information and a report were brought forward, and I am sure he would also be able to use his good offices to have his Government provide us with considerably more information than is currently contained in the tax information and impact note. It would also be helpful if the Minister could give us more information in his winding-up speech as to why he thinks it would not be possible to do this within a six-month deadline, as we have asked in our amendment.
In conclusion, this is all about priorities. The Government’s measures will reduce Exchequer revenues by more than £800 million over the course of the next five years if this particular measure goes ahead. That funding could be used in a variety of ways, and the Government have to be held responsible for the choices they make. Our amendment simply asks them to undertake that assessment and put the information in the public domain, so that we can see who benefits from this initiative and how it would benefit the wider public. The Government have not made that case; they have not shown how the measure would have an impact on our constituents—for the most part they seem to suggest it would not have any impact on them—and they have not answered the questions put previously about job creation and the impact on the regional economies.
Let me therefore remind the Minister of some of the questions we posed in Committee—I am sure other Members will wish to contribute, but he will also want to answer these in his summing up. The Investment Management Association is saying that the industry is doing very well, so why are the Government handing this tax break to the industry? What evidence can the Minister provide to us, even at this late stage, to suggest that the measure will have a positive impact on the UK economy and, in particular, the jobs market? Unless my memory fails me, he has not so far been able to give me a concrete number on the jobs he expects to be created or any more information about the regional benefits that have been referred to. Can he do that now? It would be helpful if he could do that and if he could set out all that information today. In those circumstances, perhaps I would consider whether our amendment was necessary. I suspect that he will not be able to give that information and will not be able to provide the clarity and transparency we seek, so I strongly suspect that when the time comes, I will seek to press my amendment to a vote.
Mr Gauke
It is a pleasure to respond to this short debate. The hon. Lady has an admirable ability to make unreasonable requests in a very reasonable way, and it falls to me once again to decline her offer, as Treasury Ministers have done in the past when a review or report is sought from them during a Finance Bill debate.
Let me quickly try to address some of the points raised, the first of which relates to the impact on the industry, the competitiveness argument and what we can do to assess that. It is worth pointing out that this measure came into effect only on 30 March, and it will take longer than six months for evidence of how the benefits of the change are accruing to investors to become available. So the report requested in amendment 67 will not adequately be able to do justice to that question.
Another area we have debated on a number of occasions is who benefits from this measure, and I will return to our little engagement on hedge funds. It is worth pointing out that the National Association of Pension Funds, the Association of British Insurers and the Investment Management Association stated their disagreement with the Labour party’s position and its policy proposal last year to reintroduce the schedule 19 charge. They say it would
“impose a £145 million annual cost on the ordinary savers, investors and pensioners, who are the beneficiaries of its abolition.”
That would weaken the UK’s competitiveness as a place for funds to be domiciled. If we are competitive in this sector, we will have more growth and more jobs. Let us be clear that this is not about jobs in the City of London—not that there is anything wrong with jobs in the City of London. The fund management industry directly employs 30,000 people throughout the United Kingdom, and about a half of those jobs are linked to fund domiciles. The jobs are located in many, if not all, the regions and nations of the United Kingdom.
Cathy Jamieson
Of course I recognise the value and the range of those jobs. Will the Minister tell us exactly what assessment the Government have done on the risk of reintroducing the measure, or indeed on the risk associated with producing a report? Surely he will want to investigate fully the number of jobs that he seems to think might be lost if our measure went ahead.
Mr Gauke
The hon. Lady puts her finger on an important word, which is “risk”. Yes, a number of jobs are involved. Some 30,000 people are employed in this industry in the UK. About 10,000 jobs are located in regions and nations such as Scotland, the north-west of England and the west midlands. If we have an uncompetitive tax system in the UK, that sector will suffer. There will be a threat to those jobs. We want to see an expanding and thriving sector, but there is a lot of competition from other jurisdictions in which funds can be domiciled. If we do not compete in the sector, we run the risk of losing those jobs.
There is not only the issue of the industry itself and the jobs that can be encouraged and protected in this country if we have a competitive tax regime, but the underlying point that it is the investors who indirectly bear the burden of this tax. That means that contributors to pension schemes—people in auto-enrolment schemes—will receive less in their pension if this tax remains in place. That is something that we should all seek to address. If we want policies that will be good for jobs and good for savers, then abolishing schedule 19 is a good policy. But what do we get from Labour? We get it embarking on a process to reinstate the policy because it misunderstands it. It thought that it was something to do with hedge funds. After it was explained to Labour Members—I have to say that it has been explained to them time and again—they refused to abandon it. I do not know whether it is still their policy to reverse this, or whether they are calling for a report. As I understand it, it is still the policy of the Opposition to reintroduce this tax.
Office for Budget Responsibility (Manifesto Audits)
Cathy Jamieson Excerpts(10 years, 3 months ago)
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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
We have had what could best be described as a very interesting debate. Let me begin by picking up a point made by the hon. Member for Wyre Forest (Mark Garnier), who said that the sums done by the Scottish National party and the Scottish Government did not add up. The Scottish Government’s child care proposals provide a good example of that. The Scottish Parliament Information Centre has studied the figures, and has demonstrated that the SNP’s sums do not add up and its policies do not make sense. However, that is not the subject of today’s debate.
I think that the debate has been useful, although, like others, I was a bit disappointed that the Chancellor had not seen fit to come to the House and defend the Government’s position. As for the Financial Secretary, I know from previous debates that she generally seeks to build consensus. Perhaps she was simply given a script and told to make the best of a bad job, but I was nevertheless surprised that she did not adopt her usual tone. It seemed to me that her heart was not in the argument that she was presenting, and that, given the opportunity and a slightly different setting, she might have adopted another approach.
We heard a number of thoughtful and considered contributions, not least from my hon. Friends the Members for Coventry North West (Mr Robinson), for Eltham (Clive Efford), for Edinburgh East (Sheila Gilmore), for Leeds East (Mr Mudie), for Oldham East and Saddleworth (Debbie Abrahams) and for Derby North (Chris Williamson). I have already mentioned the hon. Member for Wyre Forest. He too made a thoughtful speech, although I did not agree with everything that he said. We made one interesting discovery, namely that the hon. Member for North East Somerset (Jacob Rees-Mogg) has not ruled out standing for the leadership of any political party. I look forward to observing his progress in the coming weeks and months.
My right hon. Friend the Member for Morley and Outwood (Ed Balls) explained our proposal very well, in his usual careful, considered and consensual style. I found it difficult to understand why Government Members took such exception to the way in which he set out what I thought was a very good case. The OBR already scrutinises the Government’s spending and tax policies and assesses whether they are reasonable, and we are merely asking for what is, essentially, a logical extension of that. We are suggesting that the OBR should perform the role that we propose not just for the current Government, but for prospective Governments.
As a number of my hon. Friends have pointed out, it would be sensible to require the OBR to audit only the manifestos of parties with 5% of the seats in the House. We need not involve it in every party manifesto. Ultimately, what the public want to know is that someone has looked at the sums of the parties that are likely to be in government to ensure that they add up.
Some Members on the Government Benches spoke as if the OBR would suddenly have to have a raft of civil servants and new people to do costings all over the place, every day of the week, for months and months. Let me again put on the record what my right hon. Friend the shadow Chancellor said in his letter in September to the head of the OBR:
“The reform I am proposing would mean the Opposition would submit costings for proposed manifesto commitments on spending and tax—obtained from, for example, the House of Commons Library, Parliamentary Questions or the Institute for Fiscal Studies”—
it was interesting to note the number of times that Government Members referred to that; I hope that they will take account of the findings of that august body as the debate continues—
“and the OBR would ‘provide independent scrutiny and certification’ of those costings.”
Therefore, it is not the case, as seemed to be suggested, that the OBR is being expected to do all the costings. It is being expected to certify those.
Ian Swales (Redcar) (LD)
The hon. Lady mentioned the Institute for Fiscal Studies. A look at its remit shows that this kind of work falls squarely under its banner. It also receives more than half its funding from the public purse, directly or indirectly. Does she not think that it could fulfil the role that the motion describes?
Cathy Jamieson
The IFS’s role is slightly different from the one that has been proposed. This is about scrutinising and certifying the policies and plans for government. One hon. Member mentioned the difference between costings and audit. We are saying that the costings should be looked at. That role is slightly different from the one that the IFS fulfils.
We are confident that our policies will stand up to that scrutiny. We are confident enough to say that we want the OBR to run the rule over all the spending commitments in our manifesto. As Members have rightly said, we recognise the need to restore trust in politics. The public want assurances that our policies add up. They want the OBR, having done the work, to be in a position to give them the quality assurance that they seek. We strongly believe that the other major parties should be prepared to do the same thing. That will enable the electorate to make an informed decision based on facts. That is important.
Cathy Jamieson
I am very short of time, unfortunately.
It is important to recognise that a number of people—Members have referred to this—have shown support in principle. The Government’s argument is twofold. First, they want to preserve the independence of the OBR. My hon. Friends have advanced a number of arguments as to why the Government seem to be the only people at this stage who are bringing party politics into the debate on the OBR. It is not Members on the Opposition Benches who are doing so. Secondly, it is important to recognise that the Government’s other objection is that there is insufficient time. However, we have the information and discussions have taken place with the head of the OBR. If we do not make a decision quickly and put measures in place, we will run out of time, but there is still a window of opportunity.
I hope that when he sums up the Minister will be able to answer some of the questions that the Financial Secretary to the Treasury was unable to answer earlier. What discussions have Ministers had with the OBR since the plans were first mooted? Our integrity, why we are making the proposal and what we have done about it has been questioned, but it is also the responsibility of Government to take these matters forward. I hope that the Minister will be able to give us information on that.
As far back as 2010, the Chancellor himself said that this was a
“legitimate matter for the House to debate and decide.”“—[Official Report, 12 October 2010; Vol. 516, c. 142.]
It is unfortunate not only that in the intervening years he has not seen fit to address the issue, but that he has not seen fit to turn up today to give us any more information. That leaves Opposition Members with no option but to draw the conclusion that the only reason why the Government do not adopt a consensual approach today and embrace the opportunity to take this proposal forward is that they have no wish to do this whatsoever, and I am sure the public watching will also draw that conclusion. The public will then also draw the inference that those of us on the Opposition Benches draw: that the Government do not wish to have their policies put under the same scrutiny as we are prepared to have our policies put under.
Oral Answers to Questions
Cathy Jamieson Excerpts(10 years, 3 months ago)
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Mr Osborne
I agree with my hon. Friend that one of the big challenges now is to improve productivity, which was clearly impaired by the financial crisis. Obviously, in doing that we need to make sure that the data we receive from our ONS is of the highest quality. People at the ONS work incredibly hard on that, but of course there is always room for improvement, as the Governor of the Bank of England pointed out today, and we will work with the Bank and the ONS to ensure that any improvements that can be made will be made.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Is it not the truth that people in employment have seen their living standards fall year on year under this Chancellor? So can he tell us, will working people be better off next year than they were in 2010—yes or no?
Mr Osborne
The many thousands of people who are getting jobs in the hon. Lady’s area are better off, and of course—[Interruption.] Let me explain to the shadow Chancellor: if you bring the British economy to its knees, if you have the deepest recession for 100 years, if you preside over the biggest banking crisis in our history, you make this country poorer. But it is by fixing those problems, by working through our long-term economic plan, that we are going to make the country richer again.