Age-related Tax Allowances

George Howarth Excerpts

Monday 9th September 2013 Westminster Hall

[Mr Gauke]

In a moment I will turn to what we are doing with the basic state pension and the steps we have taken to ensure that it is rising more quickly than it otherwise would have.

My hon. Friend the Member for Suffolk Coastal touched on simplification. We want to make the tax system simpler and easier for people to understand, and the changes to age-related allowances are an important part of that. It is worth pointing out that we are not the only people to conclude that such allowances add unnecessary complications to the tax system. A 2009 report by the Public Accounts Committee commented:

“The age-related allowance rules are complex and hard for older people to understand and place too much emphasis on older people having to prove their eligibility, resulting in errors in claims and potential overpayments of tax.”

And, in March last year, the Office of Tax Simplification published its interim report on pensioner taxation, highlighting no fewer than nine complexities.

The taper feature is one of the main sources of complication in age-related allowances. It is worth setting out how it works, to demonstrate the degree of complexity in age-related allowances. The taper removes an individual’s age-related allowance where their income exceeds the aged income limit,—£26,100 in 2013-14—at a rate of £1 for every £2 over the limit. The age-related allowance is reduced up to the point at which the income tax allowance is exactly the same as the normal personal allowance. That taper creates a 30% effective rate of tax for individuals on modest incomes and, most importantly, brings hundreds of thousands of people into the self-assessment system when, in many cases, they would otherwise have no need to complete a tax return.

Our changes to age-related allowances will remove such complexity and confusion for older taxpayers. The simplification is not only of benefit to taxpayers; a simpler tax system is also easier for the Government to administer, enabling HMRC to focus on reducing the tax gap, which I know the hon. Member for Luton North cares about passionately.

[Mr George Howarth (Knowles) (Lab)]

I apologise, Mr Hollobone, for not being here at the commencement of the debate; I had inescapable commitments elsewhere in the House. May I press the Minister to respond to a point? The arguments he puts would be better received by those affected if they did not compare the changes to their tax allowances with the fact that those at the higher end of the income scale have received benefits that amount to about £100,000, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out. That comparison is what makes the situation so objectionable.