Finance Bill

Lord Davies of Brixton Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 19th March 2025 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I welcome the opportunity to contribute to this debate on the Finance Bill, particularly as it is the first such Bill from our new Government. I disagree with the noble Baroness, Lady Penn, about the usefulness of the debate; I have found it an ideal opportunity to raise issues. We have the ear of the Minister, who is sitting here and listening to every word we say. In practice, we could raise any issue we like; the breadth of the Finance Bill is such that we are not restricted to narrow topics. The ability to take part in this debate, albeit with a short period, I think is valuable.

The good news is that there is very little in the Bill about pensions, although this is the calm before the storm. We have the pensions Bill coming up and, presumably, in next year’s Finance Bill, there will be inheritance tax on unused pensions—perhaps the Minister could confirm that.

Three clauses in the Bill deal with pensions. The only material change is in Clause 34, which tells us that administrators now have to be resident in the UK. I am a bit surprised that that was not already the case, but can the Minister give us clue as to the ideas that lay behind that decision, because there is very little in the Explanatory Notes?

The main issue I want to raise, in the little time left to me, is the impact on recipients of the state pension of the decision to continue the freeze on income tax personal allowances until 2029, as the previous speaker mentioned. Successive Governments have decided to freeze the personal allowance. It is clearly a good way of surreptitiously increasing the tax burden without touching the standard rate. My main point is that we are storing up a problem for the future with frozen personal allowances, albeit up to 2028-29—I really should not believe rumours, but there are some rumours that maybe that would not be stuck to following the Statement that we expect next week, because it is a way of meeting the fiscal requirements. I ask the Minister: are the Government sticking to the decision to increase personal allowances at the end of the current freeze period?

The problem that I wish to highlight and bring to the attention of the Minister is the impact of frozen personal allowances, albeit up to 2029, coupled with a state pension most of which, for people on low incomes, is covered by the triple lock, so you have the frozen personal allowance and the state pension increasing faster than inflation. Using figures from the OBR, I calculate that the impact will be that by 2027-28 the new state pension will be greater than the personal allowance. I think pensioners should pay tax like everyone else, but the problem is that the state pension is not included within the PAYE system. As soon as the income of people on low incomes who depend mainly on the state pension passes the personal allowance, there will be a big political consequence. There will be no way to collect that tax from many low-income pensioners without sending them a brown envelope saying, “You’ve got to pay some money because you haven’t paid enough”. The political downside of that I urge my noble friend to appreciate.

For example, let us take someone on £15,000 a year: that is hardly a high income, but it is roughly £2,000 more than the personal allowance. They will be liable for 20% tax on £2,000, which is £400. As they are not part of the PAYE system, they will get that demand for £400 in a brown envelope at the beginning of the next fiscal year. That sounds like a political calamity to me, and I hope my noble friend will be seized of the importance of doing something to avoid this problem.