Finance (No. 2) Bill

Stephen Timms Excerpts

2nd reading
Wednesday 29th March 2023 Commons Chamber

[Sir Stephen Timms (East Ham) (Lab)]

Will the Minister give way?

[Victoria Atkins]

I am so sorry, but I must make progress; I am sensing your yawn coming on, Mr Deputy Speaker.

The Bill will simplify pension tax by increasing the annual allowance and removing the lifetime allowance. It also legislates for a range of administrative changes to deal with technical issues, improving and modernising the tax system and making it easier for businesses to interact.

This Finance Bill takes forward important measures that are needed to support enterprise and growth, including incentives for investment and support for employment in, for instance, the NHS. It seizes freedoms that are available now that we are outside the EU, it deals with threats posed to the sustainability of our public finances by the energy crisis and aggressive tax planning, and it supports our long-standing goals of modernising and simplifying the tax system. It delivers on an important part of the Government’s commitments in the spring Budget to create long-term economic growth, and for all those reasons I commend it to the House.

--- Later in debate ---

[Sir Stephen Timms (East Ham) (Lab)]

I am very pleased to follow the hon. Member for Amber Valley (Nigel Mills), whose pensions expertise we benefit from greatly on the Work and Pensions Committee.

I want to comment fairly briefly on two aspects of the Bill: first, the decision, at a time when the pension burden on ordinary families is rising so fast, to give a big tax cut to the wealthiest pension savers; and secondly, the abolition of the Office of Tax Simplification—and to reflect on the history of that initiative that led us to where we are today.

Table 4.1 in the Red Book tells us that the abolition of the lifetime pension allowance will cost the Government £1.8 billion in uncollected tax over three years. At a time when the tax burden on ordinary families is being raised to the highest level since the second world war, it seems extraordinary that the Chancellor thinks it is right to cut the tax on the 1% largest pension pots.

It is a big challenge for pensions policy that tax relief support for pension saving is so massively skewed in favour of the wealthiest. There are suggestions from time to time about how to use that relief more progressively to encourage pension saving among lower-paid workers. Instead, the Chancellor has made the unfairness £1.8 billion worse. It is difficult to understand how that can be justified.

It is a problem that Chancellors, Prime Ministers and Ministers completely unavoidably spend their time talking to people who are in that 1% wealthiest group—they are the people who make representations, who they sit next to at their dinners and so on. By giving a £1.8 billion tax cut to that group, the Chancellor has chosen the wrong priority. The hon. Member for South Thanet (Craig Mackinlay) rightly made the point in passing that it is creating a large tax avoidance opportunity for a large number of people. They will simply not pay the tax that the Bill imposes on them, but will instead choose to put an unlimited amount of money over a lifetime tax-free into their pension.

The Work and Pensions Committee’s report on saving for later life, published last September, highlighted the collapse of pension saving among the self-employed. In the late 1990s, about half of self-employed people were saving in a pension. By December 2021, that was down to 16%, compared with 88% of eligible employees, thanks to the success of auto-enrolment, which is not available to self-employed people. Pension saving for them is now at a very low level. Our report recommends that the Treasury and the DWP should set a date to trial ways to default self-employed people into pension saving, to work out how to replicate the success of auto-enrolment among self-employed people. Tax relief of £1.8 billion could have been a valuable incentive to make a success of an initiative along those lines. Unfortunately, the Government’s response to our report rejected our recommendation. Instead, the Bill is giving away that support to those who already have the largest pension pots. It is difficult to understand how that can be justified.

I was elected to the Commons in June 1994. As is usual, I served on the Finance Bill Committee the following year—some of my recently elected hon. Friends will have a similar privilege with this Finance Bill. One of the other members of that Committee was the Conservative Back Bencher Tim Smith, the MP for Beaconsfield, who no doubt you will remember, Mr Deputy Speaker. He moved an amendment in that Committee to require the Inland Revenue to prepare a report on tax simplification and to lay it before Parliament. To the fury of the Conservative Front Benchers on that Committee, not only did he move the amendment—that is a fairly normal thing to do—but he pressed it to a vote. Of course, all the Labour Committee members voted in favour of it, so it was agreed to and the Bill was amended in Committee. Ministers were absolutely livid. It was unheard of for the Government to be defeated in the Finance Bill Committee. I do not think that the relationship between Tim Smith and his party’s Front Benchers ever recovered.

Within a few weeks, the then Chancellor Ken Clarke was making a virtue of the fact he would bring forward proposals for tax simplification. The idea rapidly gained currency and Tim Smith’s idea was embraced. The spade work was done by Michael Jack, who became the Financial Secretary in 1995. What emerged from it—the hon. Member for South Thanet mentioned this—was the tax law rewrite project, which brought forward a series of five Bills under the Labour Government, which made tax law easier to understand. It certainly did not shorten tax law, but I think it made it easier to understand.

The Conservative party returned to the theme in 2010, with its manifesto commitment to set up the Office of Tax Simplification, which is abolished by the Bill. Michael Jack, a previous Financial Secretary to the Treasury, was the first chair of the project, and John Whiting of the Chartered Institute of Taxation did a lot of the spadework.

The Office of Tax Simplification was made statutory in 2016, so we understood it would be a permanent feature of the landscape. It had its first quinquennial review in 2021, when the current Prime Minister was Chancellor. That review concluded

“that the need for the OTS’s statutory function to advise the Chancellor on simplification of the tax system remains undiminished.”

What has happened in the past 18 months to mean that it is now being abolished?

PricewaterhouseCoopers makes the point that when Tim Smith’s amendment was moved in 1995, the volume of tax legislation was 5,000 pages and his aim was to reduce it. The hon. Member for South Thanet is correct that it is now 23,000 pages, so it is not clear that the need for simplification has ended. PricewaterhouseCoopers says the Office of Tax Simplification has a “high level of engagement” with the tax profession and that when the office consults on issues, it receives a lot of ideas and contributions about how to do things. PwC goes on to say:

“It has produced a number of insightful reports… The response from the Government has been mixed, however, and whilst some of its recommendations have been accepted, many have been watered down or simply ignored.”

The real reason that it is being abolished is that, in the end, the Government are not that interested and there are other priorities that have a higher weight than simplifying the tax system.

The closure was announced in the disastrous mini-Budget last September. For that reason alone, we ought to be a bit sceptical about whether it is a sensible thing to do. At the time, the then Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), said, rather as the Minister said in her opening speech:

“I have decided to wind down the Office of Tax Simplification, and mandated every one of my tax officials to focus on simplifying our tax code.”—[Official Report, 23 September 2022; Vol. 719, c. 937.]

If everybody is responsible for something, in reality nobody is, so I do not think we will hear much about further progress on that in the future. It sounds very much like the end of the project.

The Chair of the Treasury Committee, the hon. Member for West Worcestershire (Harriett Baldwin), asked about that in her intervention on the Minister. She has written to the Chancellor on behalf of her Committee to ask why the Office of Tax Simplification is being abolished; we will all be interested to see his reply. The Office of Tax Simplification has done valuable work and, having followed the progress of work on the issue since 1995, I am sorry to see it go. I will be interested to hear the Minister’s justification for the decision.

[Several hon. Members rose—]