Taxation of Pensions Bill

Debate between Tom Blenkinsop and David Gauke

Wednesday 29th October 2014 Commons Chamber

[Mr Gauke]

The hon. Lady raises an important point. First, the guidance guarantee will ensure that guidance is available to people on what their options might be, to point them in the right direction. Secondly, we recognise that the regulators have an important role to play. The Financial Conduct Authority is very engaged in this matter, setting standards and ensuring proper enforcement. She is right that we must deal seriously with any unscrupulous businesses out there that seek to exploit people, but we have a regulatory regime in place to address that very point.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Will the Minister elaborate on the tax implications for the Treasury of these legislative and policy changes?

[Mr Gauke]

The hon. Gentleman asks a very broad question about the tax implications. This is a tax Bill, so to some extent my entire speech is about the tax implications, but if he wants to intervene again, I will let him clarify.

[Tom Blenkinsop]

What are the Treasury’s estimates of the tax take to the Revenue arising from this Bill?

[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.

--- Later in debate ---

[Mr Gauke]

I would like to make a little progress. That brings me to the second main change in the Bill, which is to make annuities more flexible. Current tax legislation caters for two broad categories of retirement income: lifetime annuities and drawdown. As I have set out, we are making drawdown much more flexible. Let me explain how we are doing the same for annuities.

We think annuities will still be the right product for many people, as they provide the valuable security of a guaranteed income for life. The current requirements for a lifetime annuity, however, lead to an inflexible and restrictive product, and there is a clear demand for more flexible ways of getting income from one’s pension pot. We want these reforms to stimulate competition and innovation in the retirement income market. We want providers to innovate and create new products that will more closely reflect the changing needs of their customers. We have consulted extensively with industry on the changes that it would like us to make to enable this kind of innovation. The Bill will deliver those changes by allowing annuities to decrease, and by removing the 10-year guarantee period for guaranteed annuities. That gives significantly more flexibility to providers to offer products that meet individuals’ needs more closely. Those changes will apply to annuities sold after 6 April 2015.

The third major change in the Bill is a new method by which people can access their pension. Currently, people who want to take their pension as cash have to take their whole tax-free lump sum—25% of their fund—and place the other 75% in a drawdown fund. Any money they then draw down is taxed at their marginal rate. The Bill will introduce a new option by giving individuals the flexibility to take one or more lump sums from their pension fund—with 25% of each payment tax-free and 75% taxed at their marginal rate—without having to enter into drawdown. This lump sum is known as an uncrystallised funds pension lump sum, or an UFPLS. [Interruption.] It is perhaps not the most elegant of names, but try doing better with “uncrystallised funds pension lump sum”. These payments can be taken from funds that are uncrystallised—that is, have not yet been accessed. It will be open to schemes to provide this option from 6 April 2015 onwards. This does not change the amount of tax people pay on their pension, but it does provide them with extra flexibility and further choice about when and how to access their savings in a way that suits them.

I want highlight changes that we are making through the Bill to ensure that these reforms, which are intended to give individuals more choices about their income in retirement, are not exploited for tax purposes. If the Government were to take no action, an individual over the age of 55 could divert their salary each year into their pension, take it out immediately and receive 25% of it tax-free, thus avoiding income tax and national insurance contributions on their employment income. That is not the intention of the reforms.

The Government spend a considerable amount a year on pensions tax relief and have a responsibility to ensure that the money is used for genuine pension saving. Under the current system, individuals in flexible drawdown have no annual allowance. They are not entitled to tax relief on anything that they contribute to their pension after they have accessed it flexibly. Extending this rule under the new system would be disproportionate and would disadvantage average savers. We are in an era of much more flexible retirement. An individual might access their pension flexibly and then decide to return to work, or access it while working. They might still want to save into a pension. They might be automatically enrolled into a pension and be subject to a tax charge on the amount contributed. If we kept the current system, there would be a strong incentive to opt out of auto-enrolment.

Instead of having no annual allowance, individuals who access their pensions flexibly will, under the new system, have a lower annual allowance of £10,000, which will apply to their defined contribution savings. This approach allows people the flexibility to contribute to their pension even when they have flexibly accessed their pension rights. At the same time, it ensures that individuals do not use the new flexibilities to avoid paying tax on their current earnings. It will prevent those with the means to divert large sums into pensions from doing so, while allowing the vast majority of individuals to continue to save. The Government have worked very closely with industry to develop this measure, and will continue to do so to ensure that it remains fair and proportionate.

[Tom Blenkinsop]

The Minister will be aware that the Pension Schemes Bill is in Committee. I am a member of that Committee, and in our fourth sitting, on Thursday 23 October 2014, a gentleman called Mr John Greenwood, a Financial Times journalist who has written quite a lot on this subject, said that the Treasury’s new policy to limit the amount of money that could be taken out at once

“will impact on only 2% of the population”.

[Mr Gauke]

That is true. However, as I have said, we have tried to ensure that we do not give people an opportunity to use the new arrangements as a way of avoiding substantial amounts of tax, while also ensuring that, in an era of more flexible working, we do not prevent people from gaining access to their pensions and then making further contributions in the circumstances that I have described. We concluded that introducing a reduced £10,000 personal allowance was the best way of striking a balance between those two objectives. We will, of course, continue to look at the matter closely to ensure that the system is not exploited at a significant cost to the Exchequer.

[Tom Blenkinsop]

The Minister is being very generous with his time. He is also, potentially, being very generous with the Treasury’s coffers. Mr Greenwood said that the allowance

“will impact on only 2% of the population, so it is a penalty with no teeth for 98% of the population.” ––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 126, Q284.]

What is the Treasury’s forecast of the potential loss of national insurance contributions?

[Mr Gauke]

The Office for Budget Responsibility will return to the issue of the forecast at the time of the autumn statement. Mr Greenwood’s evidence featured some eye-watering numbers, but they were based on extraordinary assumptions about behaviour. All the changes resulting from the reforms that we have announced since the Budget will be announced in the autumn statement in the usual way. We certainly do not recognise some of the numbers that have been floated in relation to cost, but the numbers have not yet been certified by the OBR, so I cannot give the hon. Gentleman the answer that he seeks at this stage. Of course we have been mindful of the impact on the Exchequer, but we believe that our proposals will not put it at risk of losing substantial sums. As I have said, we are not preventing people over 55 from drawing down part of their pensions while continuing to make contributions, or retaining the flexibility to do so. We might have closed off that option, but we decided not to.

Finance (No.2) Bill

Debate between Tom Blenkinsop and David Gauke

Tuesday 8th April 2014 Commons Chamber

[Mr Gauke]

Again, we are seeing movement in the right direction. In the Budget, the Chancellor announced additional support for exports through the expansion of the direct lending scheme. Moreover, in 2012-13 British business received £4.3 billion of support from UK Export Finance, which was a 12-year high.

[Tom Blenkinsop]

I think I am right in saying that the UK current account deficit has not been as bad as it is now since 1955, when records began. The Minister may wish to correct me, but I am certain that that is the case.

[Mr Gauke]

The Government are taking steps to ensure that we can export more. We recognise that we need to export more, and that we need more business investment. However, the way in which to ensure that that happens is not to try to avoid a competitive tax system, or to turn our back on the progress that we have made. All that would put the recovery at risk, and I fear that it is what we would get from Labour.

Oral Answers to Questions

Debate between Tom Blenkinsop and David Gauke

Tuesday 5th November 2013 Commons Chamber

[Mr Gauke]

I entirely agree. That £2,000 for every business will feed through by helping businesses take on new staff, invest in their business or pay higher wages. It is a positive contribution, which contrasts with the proposals that we inherited for an increase in employer’s national insurance contributions.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Why since 2011 has SME investment and lending to SMEs fallen by £30 billion?

[Mr Gauke]

We have had to deal with the aftermath of a banking crisis that occurred, in part, because of failed regulation set up by the previous Government.

Income Tax

Debate between Tom Blenkinsop and David Gauke

Wednesday 28th November 2012 Commons Chamber

[Mr Gauke]

In the Office for Budget Responsibility assessment there is a tax cut of £100 million that goes to those who are paying the 50p rate.

In the same Budget package, however, there are measures to deal with stamp duty avoidance on properties over £2 million, a stamp duty increase on properties over £2 million, which is bringing in revenue, and caps on reliefs directed at high-earning individuals. So who is paying the stamp duty and not benefiting from the reliefs as before? They are high-earning individuals. They are paying for the cut in the 50p rate five times over as a consequence of the measures announced in the last Budget. That is the explanation to the hon. Lady’s constituents, and mine, of how the cut is being funded.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Will the Exchequer Secretary confirm that the expectations in the OBR’s assessment in March on income tax and VAT receipts are not being met?

[Mr Gauke]

The hon. Gentleman tempts me down that route, but we have an autumn statement next week on that matter, when we will hear the OBR numbers.

Oral Answers to Questions

Debate between Tom Blenkinsop and David Gauke

Tuesday 6th November 2012 Commons Chamber

[Mr Gauke]

There will be a range of options—the minimum is 2,000, and the maximum is 50,000—but this is not going to be a matter that is compulsory. It will not be the right answer for every business, but there are some businesses that need flexibility to find employee status somewhere between a full employee and someone who is self-employed such as a partner, as many hundreds of thousands of people are. I think that it is a sensible, pragmatic response.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

5. What the level of public sector net borrowing was in the (a) first six months of 2012-13 and (b) equivalent period in 2011-12.

Changes to the Budget

Debate between Tom Blenkinsop and David Gauke

Monday 11th June 2012 Commons Chamber

[Mr Gauke]

I am not sure that that particular policy announcement will necessarily do my hon. Friend any good, but he is absolutely right to ask the Government to continue to focus on the big issues that the country faces, and we will do so.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Given that other applications of VAT are being U-turned, why is its application to sports nutrition products not being U-turned as well?

[Mr Gauke]

We think it right for sports nutrition products to be subject to the standard rate of VAT. VAT should be a broadly based tax, and we believe that our policy addresses an anomaly in the system that needed to be dealt with.

Living Standards

Debate between Tom Blenkinsop and David Gauke

Monday 5th March 2012 Commons Chamber

[Mr Gauke]

If we had pursued the policy advocated by the Opposition, our market rates and gilt yields would be going up and we would be facing a very significant problem. We have record low interest rates at present. That does not necessarily mean mortgage rates will remain at their current levels for ever across the board, but the fact is that the tough steps we have taken have ensured that interest rates are much lower than they would otherwise be, which is to the advantage of both mortgage holders and businesses looking for finance.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

We have debated this question before, and it was clear that quantitative easing is what has led to the reduction in interest rates. The recent £50 billion of quantitative easing has, in effect, been an attack on pension funds; it has wiped out almost a quarter of private pension funds compared with the situation before the last general election. Will the Minister confirm that further credit easing will also affect private pension funds?

[Mr Gauke]

Credit easing will benefit businesses. I should also point out that the current low interest-rate trend was in place before the additional quantitative easing undertaken by the Bank of England.

The simple truth is that the Opposition have no credible response to the economic challenges we face. It took the coalition Government five days to come together in the national interest to forge a joint commitment and approach to tackle the deficit, yet 18 months later the Opposition remain confused and conflicted. Every now and again a member of the shadow Cabinet—even the shadow Chief Secretary—crops up to say they will be fiscally credible but, in practice, they oppose welfare reform, for instance, and say it affects the poorest, even when a household receives more than £26,000 a year. They also oppose reforming universal benefits, even though that protects the richest, and they oppose anything that affects the squeezed middle. Clearly, their economic plan involves more spending, more borrowing and more debt.

However many Opposition days they have, and however many economic policy relaunches they make, it is clear that Labour was irresponsible in government and is irrelevant in opposition. We are fixing the failures of the past and are repairing our economy. This Government are committed to supporting families across the country through difficult economic times.

It is, of course, a tough challenge to secure our economic stability and lay the foundations for sustainable growth, but we are determined to restore the UK’s prosperity, and we will put fairness at the heart of our recovery by protecting living standards for our poorest and most vulnerable families, by lifting millions out of tax, by taking steps to reduce the cost of living and by refocusing welfare on those who need it most. Yes, that means that those on the highest incomes will bear the heaviest burden as we pull together to tackle the deficit, but it is absolutely right that those who can contribute the most do so.

A fair and sustainable recovery demands leadership, and that is exactly what this Government are providing. It is this coalition Government alone who are determined to face up to today’s economic challenges, and to build tomorrow’s fair, prosperous and sustainable economy.