Pension Schemes Bill [HL]

Lord Warner Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Lord Warner (CB)]

My Lords, I rise with the rather dubious proposition that, as the last Back-Bencher to speak in the debate, I should be brief. I will have to take a bit of time because I will talk about something that has not really been discussed this afternoon and I hope to persuade the Government to add something to the Bill that is not already there.

The issue I wish to raise is that of senior doctors’ pensions, where anomalies in the pension taxation system are resulting in doctors having to reduce significantly the contribution that they are willing to make to the NHS, sometimes by retiring early and sometimes by reducing the time they are willing to devote to NHS work. The problem is caused by the tax charges many senior clinicians incur due to exceeding their pension threshold and which can result, in some instances, in them in effect paying to go to work.

Let me illustrate the problem that the current pensions taxation situation has caused with some figures provided by the Royal College of Physicians from a survey of nearly 3,000 members. Of these members, 45% of respondents reported that in the past two years they have decided to retire at an earlier age than planned. In the past two years, 38% of clinicians aged 50 to 65 have reported having had an annual pension tax charge due to exceeding their pension threshold. These numbers are rising, not diminishing. Once the decision to retire is taken it is much less likely to be reversed. We know that senior doctors told the royal college that they are doing so as a result of these tax charges. Some 62% of senior clinicians said that they were avoiding extra paid work such as waiting list initiatives or covering for colleagues; 43% are bringing forward their own retirement; 25% have reduced the number of programmed activities they work. Similar data is available from the Royal College of Surgeons and the Royal College of Emergency Medicine.

I know from my conversations with the BMA—as an ex-Health Minister I still have a reasonable relationship with the BMA—that its members have the same concerns, with the most recent BMA survey of more than 6,000 doctors from hospitals and general practice across England, Wales and Northern Ireland revealing that 42% of GPs have already reduced the number of hours spent caring for patients because of actual or potential pension taxation charges. In addition, 34% of GPs now plan to reduce their hours. Some 30% of hospital consultants have already reduced their hours and 40% have told the BMA that that was also their intention. Data from an earlier BMA Scotland survey had similar findings.

The impact of the pension tax charge is hitting direct patient care. A recent survey by the British Society of Gastroenterology showed that 40% of its consultant membership had dropped at least one endoscopy list. This resulted in 74% reporting a rise in two-week waits for endoscopy for patients suspected of having cancer, with 22% saying that the increased wait was an extra four weeks. It is now the case that figures for cancer waiting times, routine care waiting times and A&E performance are the worst since records began and 11 million patients are waiting more than four weeks for GP appointments. A lot of this is directly related to the pensions problems.

These are big numbers and they relate to an experienced group of doctors that the NHS relies on very heavily. We are seeing losses of senior doctors on a scale not seen before, seriously damaging the NHS and putting patients at risk. These doctors realise that they are in society’s higher earnings band, but even high earners can reasonably expect to be paid for their labour rather than working for nothing or, in some cases, paying to go to work.

In the time available to me I have struggled to find out who is to blame for this mess. It is somewhere in the territory of the Government and employer failure to understand how these tax arrangements would impact many public sector workers, not just doctors. Whoever is to blame, it certainly is not the fault of doctors. They have often been presented with an unexpected tax bill at the end, or even after the end, of a tax year. As far as I can judge, doctors were given too little advance explanation and warning about the tax and pension changes to plan their finances in advance and to mitigate the financial risks. As a result, doctors are now taking understandable steps to limit their financial exploitation.

The profession’s leaders have made all this information available to the Prime Minister, the Chancellor and the Health and Social Care Secretary as part of the ongoing review led by the Treasury. However, in the meantime, senior doctors continue to leave and cut their workloads. Waiting times lengthen. Unless something is done urgently, we will soon reach the end of another tax year and another tranche of senior doctors will receive a tax charge. They will add themselves to the growing numbers deciding to retire early or cut their hours working for the NHS. Every month that passes without a government solution being implemented, the more experienced doctors leave the NHS.

I expect the Minister will tell me that this is a very complicated matter and that a review is under way in time for an announcement in the Budget. However, we are now on to not our first but our second review. So far, the Government have produced just a couple of modest tinkering moves, including a temporary scheme for refunding annual allowance payments at the point of retirement, so doctors can put off paying the debt. The catch about that is that they also charged 5% a year for the pleasure of doing so. These measures have not convinced anybody that the Government are serious about fundamentally resolving this problem.

In contrast to such totally inadequate tinkering is the solution, supported by, among others, the Royal College of Physicians, the BMA and the Treasury’s own advisory body, the Office of Tax Simplification, that the Government should remove completely the annual allowance, including the taper in defined benefit schemes. I recognise that this might cause convulsions in Great George Street and I suggest that maybe a more modest approach would be to require the Secretary of State immediately after the Bill’s Royal Assent to make regulations that enable doctors and NHS workers in the NHS Pension Scheme to pass for payment by the scheme any such transfer of payments tax charges from HMRC, with any such payments attracting no interest or detriment to the scheme’s participants.

Before deciding what to do in Committee, I would welcome the Minister’s response to my two suggestions. One way or another, the Government will have to remove this unplanned tax burden from scarce senior doctors. If they do not, even more patients will suffer and NHS England’s long-term plan will not be delivered. I wish to hear what the Minister has to say.

Pension Schemes Bill [HL]

Lord Warner Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Baroness Neville-Rolfe]

My Lords, I have tabled Amendment 83, which sets a deadline for a review and is essentially probing in nature.

I am unashamed. I want to put pressure on the Government to do something—and fast—about the impact of the cap on senior or long-serving doctors and consultants. We have a mini-crisis here which dates back many months, and the situation is even more serious given the potential impact of Covid-19. I join others in commending the Secretary of State and the CMO for today’s all-party meeting, and for setting out all that is being done to manage this alarming virus—including encouraging clinicians out of retirement.

There is a pension problem. As my noble friend Lord Balfe told Parliament on 30 October, a BMA survey showed that 42% of GPs and 30% of hospital consultants were reducing their hours. There have been similar figures from the Royal College of Physicians. Doctors are attracting substantial tax bills to care for their patients, and are therefore reluctant to do extra sessions to clear waiting lists or to take on management. There are reports that as many as half our doctors are retiring younger than they used to and that the lowering of the annual allowance from £255,000 in 2010 to £40,000 today, and the increase in the retirement age to 65, may well be factors.

The situation is worse in hospitals than in GP practices, mainly because the latter earn less. However, GPs can be caught out if their practice income peaks temporarily because of a vacancy or because a doctor is missing. The reward for all the extra work and stress can be an extra tax charge. This is especially difficult for small practices, which, unfashionably, I have found to be the best, because they provide continuity of care, which saves on drugs bills and hospital costs. However, that is a matter for another day.

That brings me to hospital consultants, who are generally better paid than GPs but are critical to patient outcomes. I will never forget the lady consultant at King’s who managed me through the latter weeks of a pregnancy, when my youngest son refused to move.

The situation is serious. The impact of the coalition fix—to allow people to carry forward unused allowance from the previous three years—is, I think, running low. The DHSC consulted recently on proposals to allow senior medical staff to opt to build up a pension at a lower rate. This was, however, dismissed by the BMA as a sticking plaster. Understandably, it wants a change in the rules. As always, given the noises made by senior politicians, there is much hope—including on my part—about next week’s Budget.

What, therefore, can and should be done? I look forward to hearing from other noble Lords who have been kind enough to support this amendment, and from the noble Lord, Lord Warner, whose Amendment 86 proposes new regulations to ensure that NHS pension scheme members are reimbursed if they are worse off. I look forward to hearing how that would work.

Other approaches might include getting rid of the annual pension cap—the so-called annual allowance—and relying entirely on the lifetime allowance, which has been reduced over time. Alternatively, and perhaps more radically, we could move relevant senior medical staff on to non-pensionable pay, above a certain level, but pay them as salary the notional employer pension contribution that they miss out on. They would have a higher tax charge, but they would not be punished for working, which I think is the concern.

Many very intelligent people have spent hours trying to fix this problem, so it probably is not easy. There are ways to do it, and we must have a solution by the time this Bill reaches Report if the NHS is to overcome today’s growing challenges.

[Lord Warner (CB)]

My Lords, Amendment 86 is in my name and those of the noble Baronesses, Lady Altmann and Lady Janke. It is a rather simple amendment for tackling a complex problem that is, as the noble Baroness, Lady Neville-Rolfe, has said, causing a great deal of damage to the NHS and to patients.

I will not go into the intricacies of the interrelationship between pensions and tax policy, or repeat the data that I laid out at Second Reading about how this is affecting doctors. The noble Baroness, Lady Neville-Rolfe, has given a reprise of some of that data. There is plenty of data showing the impact on doctors and the NHS; you do not have to look very far to find it. Noble Lords will therefore be relieved to hear that I will not go over that ground again.

The point of this amendment is to address what is happening on the ground now in our NHS. We have arrived at a situation in which doctors can neither control their pension growth nor predict their tax bills; that is where we have got to. Tax bills cannot be calculated until the end of the tax year in which the tax has been incurred; by then it is too late for doctors to adjust their earnings. In some cases, the tax bill exceeds the entire take-home pay that the doctor would earn in a given tax year. We are getting to the point where doctors have to pay to work: that is the situation we have created.

The only way that they can avoid the tax bills is to reduce their work in anticipation, which is what they are doing. I have previously set out the implications of that form of workload reduction, so I will not repeat them, but they include, in many cases, taking early retirement. The serious implications this has for patients and the running of the NHS needs no exaggeration. Suffice it to say that there has been a very large decrease in NHS medical clinical capacity, with very serious implications for patients and the functioning of the NHS. The latest BMA survey of 6,000 doctors shows that even more doctors, in this year and in the past, are planning to reduce their work commitments in the tax year, which is only a month or so ahead. This is why the situation is incredibly urgent.

This problem was so serious that NHS England acted to take the unprecedented step of agreeing to cover annual allowance payments for NHS doctors for the current tax year to try to ease the significant winter pressures on the NHS. At present, as far as I know, there is no plan to suggest that this short-term mitigation will continue into next year, let alone the longer term. It is all very well for the Government to pass last week an NHS Funding Bill, but if there is a serious shortage of doctors, it will not do patients much good.

The Government have been reviewing this problem for some time, but my information from the BMA and others is that they have not so far offered any worthwhile mitigation scheme. All that is available is the option of paying these large tax bills from future pensions by generating a loan against your pension which attracts a high rate of interest and effectively reduces your pension. This option will not reduce the outflow of doctors. Amendment 86 requires the Secretary of State to extend the NHS England scheme on a permanent basis. It also prevents doctors incurring any interest-bearing loans that will reduce their eventual pensions. It has been prepared with the help of the clerks, for which I am grateful, and discussed and agreed with the BMA and other professional bodies.

I am not saying that my amendment is the only solution to the problem—the noble Baroness, Lady Neville-Rolfe, has given some other options—but it is an attempt to apply an urgent response to stop more doctors leaving the NHS or reducing their capacity. If the Government can come up with a better solution, I will be delighted. So far, there is no sign of a solution acceptable to the profession that would stop the NHS haemorrhaging doctors.

Let us remember again that the new tax year starts in a month, and that the coronavirus epidemic threatens all of us. I listened yesterday to the Prime Minister and the Health Secretary referring to bringing back retired doctors; that seems to be an important part of their emergency plan for dealing with a potential epidemic. I wonder how aware they and their No. 10 special advisers are of this own-goal lurking in the bureaucracy. We can ill afford to lose doctors from our NHS through a self-inflicted government muddle when a solution is to hand.

[Baroness Janke (LD)]

My Lords, I too have signed both amendments which, as has been said, relate to the current situation of the punitive pension taxation on doctors in the NHS. The annual allowance means that retired doctors working additional hours may incur large tax bills even if they have had only a modest rise in pensionable pay; and the taper results in a further problem, as there is an effective tax cliff edge where people can incur additional tax bills of up to £13,500 if they cross the threshold by as little as a pound.

This huge disincentive to retired doctors who are working to fill staff shortfalls in the NHS has exacerbated the existing pressure. As the noble Lord, Lord Warner, said, the impact was such that NHS England took the step of agreeing to cover the annual allowance payment for NHS doctors for this tax year as a temporary mechanism. As he also said, it seems that so far there are no plans for this to be a long-term solution.

--- Later in debate ---

[Baroness Altmann]

I take my noble friend’s point on the specific proposals in Amendment 86 in the name of the noble Lord, Lord Warner, which I have signed. However, were the amendment to be redrawn to suggest that an extension of the current arrangements for 2019-20 be brought forward also into 2020-21, would that address my noble friend’s concerns about the unauthorised scheme payment and the charges to the scheme? We could time-limit this but also address the urgency, because even if something is reported in the Budget, it is unlikely that the staff will have the reassurance for the forthcoming tax year, which is only a few weeks away.

[Lord Warner]

I just want to amplify the point made by the noble Baroness, Lady Altmann. Those of us who have been around in government for some years know that the announcement of review reports in Budgets do not necessarily mean that anything in those reviews will be rapidly implemented. My suspicion would be that any such reviews would have a longish period of consultation and would not appear in the next finance Bill—that is a likely outcome. Building on what the noble Baroness said, I need to go back to my clients—if I may put it that way—who will want to know what the position is. If I prove to be right over what happens on 11 March, would the Government be willing to consider something along the lines of buying two to three years for the NHS doctors? Will they help me get the wording right, so that it does not fall into the elephant traps that the Minister has set out? When we get to Report, we cannot just leave this; we have to come back to this issue with some credible solution. I would be delighted if the announcement on 11 March delivered a quick response, but if we do not deliver a response that covers the next two financial years, we will put the NHS in great peril.

[Earl Howe]

My Lords, my answer to my noble friend and the noble Lord, Lord Warner, has to be exactly the same as that which I have already given. I can do no other than urge all noble Lords to wait for the Budget announcement. I cannot comment on what ideas the Chancellor has in front of him on this issue. Those ideas may or may not include those that have been articulated by my noble friend and the noble Lord—I do not know. I suggest that we get past next week and then take stock. No doubt noble Lords will consider how best to approach this on Report, if they feel that to be necessary.

--- Later in debate ---

Moved by

[Lord Warner]

86: After Clause 128, insert the following new Clause—
“National Health Service Pension Schemes: tax charges
(1) The Secretary of State must by regulations made by statutory instrument make provision to ensure that the National Health Service Pension Schemes reimburse their members for pension tax charges to the extent necessary to fulfil the objective of subsection (2).(2) The objective of this subsection is that in any tax year, for a member of the National Health Service Pension Schemes, the member’s income less annual allowance pension tax charges is not smaller if the member’s income is greater.(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”

[Lord Warner]

I wish to respond to the Minister before I withdraw my amendment.

[The Deputy Chairman of Committees]

Once the noble Lord has spoken, the question has to be put.

[Lord Warner]

I thought that I am allowed to say whether I am withdrawing the amendment.

[Baroness Fookes]

It has not yet technically been moved, and you are now moving it. Perhaps I should clarify for the Committee that where there is a group of amendments being debated together, only the first amendment is moved. If a noble Lord wishes to move an amendment, it has to come in its numerical order. The noble Lord was not moving his amendment, he was speaking to it.

--- Later in debate ---

[Baroness Fookes]

Yes, he must move it, because he has started to speak to it.

[Lord Warner]

I beg to move Amendment 86. In response to the Minister, I think we will need to have some kind of meeting after 11 March, which may involve some of the parties who are very anxious about this. I hope the Minister will take away that thought and get back to me, and to others, when he has had time to consider.

[Baroness Fookes]

If no member of the Committee wishes to respond, the noble Lord may withdraw the amendment.

[Lord Warner]

I beg leave to withdraw the amendment.

[Baroness Fookes]

I am sorry about the schoolmistressy lesson on the subject.