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deferred divisions

Volume 462: debated on Tuesday 26 June 2007

Motion made, and Question put forthwith, pursuant to Standing Order No. 41A(3)(Deferred Divisions),

That, at this day’s sitting, Standing Order No. 41A (Deferred Divisions) shall not apply to the Motion in the name of John Healey relating to Off-Road Vehicles (Registration) Bill [Money].—[Mr. Watts.]

Question agreed to.

Schedule 9

Insurance companies: transfers etc

I beg to move amendment No. 19, page 148, line 33, at end insert—

‘( ) In section 431 of ICTA, at end insert—

“(2ZG) The Treasury may by order amend the definition of “insurance business transfer scheme” given by subsection (2) above where it is expedient to do so in consequence of any amendment of section 105 of the Financial Services and Markets Act 2000.

(2ZH) The power conferred by subsection (2ZG) above includes power to make incidental, supplementary, consequential or transitional provisions and savings (including provision amending any provision of the Corporation Tax Acts relating to insurance companies).”.’

Schedule 9 includes a range of measures designed to simplify and clarify the tax law for transfers of life insurance business. We had a long and interesting debate on those matters in Committee. They are complex provisions and the Treasury and the industry have held extensive consultations on them over the past year. Amendments Nos. 19, 20 and 21, on transfers of business, relate to part of that consultation.

Amendments Nos. 22 to 29 apply to schedule 10. Although the schedule deals with a range of issues in insurance tax law, the amendments concentrate on only one aspect of the schedule—the treatment of structural assets, on which I wrote to the hon. Member for Fareham (Mr. Hoban) on 5 June, following our interesting debate in Committee. Amendments Nos. 30 to 32 are consequential amendments to the repeals schedule. I shall first cover the schedule 9 amendments on transfers of business and then the schedule 10 amendments on structural assets.

Amendment No. 19 introduces a regulation-making power to enable a quick and flexible response if the regulatory legislation in the Financial Services and Markets Act 2000 changes. It allows regulations to be made amending the tax law definition of insurance business transfer scheme. The definition is important as all the legislation in schedule 9 depends on it. It is wider than the definition that applies in the Financial Services and Markets Act, because the Act allows some types of scheme where policyholder protection issues are not as relevant as in most schemes carried out without court approval. However, tax law allows those excluded schemes to get the benefit of the tax-neutral treatment given by schedule 9.

The UK has to transpose the European reinsurance directive into UK law before the end of the year. That work is being done by the Treasury, and has been developed in close conjunction with Her Majesty’s Revenue and Customs. A consultation document will be issued by the Treasury shortly and will contain draft regulations amending FSMA to take the directive into account. In recent weeks, as the regulations were being prepared at the Treasury, it became apparent that changes would be needed to tax legislation as a result, because the latest draft of the regulations will create a new class of excluded schemes for reinsurance transactions. Under the current tax law definition, such a new class of excluded schemes would not get the benefit of the tax-neutral treatment. That is not sensible, so we are introducing this power to enable the tax law to be changed in line with changes to FSMA. The method we have adopted gives us the ability to make the changes quickly, and in particular to have them in place when the regulations come into force towards the end of the year.

It is clear from the pace at which the hon. Gentleman is dealing with these matters that he is not only uncomfortable but unsure about what he is saying. Given that tomorrow, the architect of the destruction of the British pensions industry becomes Prime Minister, does the hon. Gentleman not think that he, as the agent of the Prime Minister-to-be, should take these provisions away, reconsider them and bring them back to the House?

I thank the hon. Gentleman for that intervention. I did not know that he was an expert on the European Community reinsurance directive. If he is, and he has views on the regulations that we will produce for consultation in the coming weeks, I look forward to his submission. If he would like to meet to discuss the details, I would be happy to do so. We could meet in the House or in the Treasury. If he would like to cross the Floor of the House, we could meet as colleagues.

The hon. Gentleman clearly does not know a lot, as Opposition Members are aware. We did think that it was all Brown, but now we know that it is all Balls.

I think that I might move on and get back to the substance rather than “jokes”—I think that that is the word. I enjoyed that one very much.

In response to representations received from the life insurance industry, amendment No. 20 restores a provision that was unintentionally deleted by the Finance Bill, which we therefore correct. Amendment No. 21 adjusts the regulatory powers in schedule 9 to provide the flexibility needed to deal with future representations from the insurance industry. At present, the regulatory power provided in paragraph 60 of schedule 9 applies only to transfer schemes taking place from the day to be appointed under paragraph 17, which is likely to be in spring next year.

Not all the provisions in schedule 9 start from that appointed day. One such is proposed new section 444ABD, which starts from the Budget day. Discussions with the life insurance industry on the detail of the transfers of business legislation are continuing, and proposed new section 444ABD and other earlier starting provisions might need amending as a result. I do not know whether the hon. Member for Mid-Sussex (Mr. Soames) has views on that too; if he has, I would be happy to hear them. To give the flexibility to bring in agreed changes from the earliest possible date, Government amendment No. 21 amends the regulatory power. The regulations will be consulted on extensively and will be debated in this House, as they are subject to the affirmative procedure.

Some concern has been expressed by the industry that bringing forward the date from which regulations can have effect should not be used to impose changes to tax retrospectively. It is not our intention to do that, and in any case a statement of compatibility with the Human Rights Act will have to be made in relation to the regulations.

Amendments Nos. 22 to 29 amend the part of schedule 10 about structural assets. We had a substantial debate on the issue in Committee, which focused mainly on the complex issues of capital gains and the interaction with the tax law on life assurance companies as it affects structural assets. During that debate, the hon. Member for Fareham asked me some detailed questions, and I sent him an even more detailed written reply, which I hope cleared up his questions. Since that debate, we have consulted in further detail with the insurance industry on the issues that he and others raised, and have reached agreement about what is to be done. The amendments, particularly amendment No. 26, are the result.

The other amendments to schedule 10 correct minor errors or make technical adjustments to improve definitions and to improve that section of the Bill overall. All the amendments improve the working of schedules 9 and 10, and the insurance industry is fully satisfied with them. On that basis, I commend them to the House.

I am grateful to the Minister for spending some time discussing the amendments, although on several occasions he has referred to the debate in Committee on schedule 10 and structural assets. I asked lots of questions in that debate, and did not get many answers. I am therefore grateful for the letter that he sent to me explaining the Government’s views on structural assets, and the issues that the life assurance industry raised about the way in which assets held in funds were treated when sold, and what the appropriate capital gains tax treatment would be. It is important to acknowledge that the Treasury and the industry, by working together, have reached a satisfactory solution, and have made progress towards simplifying the tax regime for life assurance companies.

In the Economic Secretary’s letter to my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) on 21 June, he referred to regulations needing to be made for more complex areas. I would be grateful if he could outline when those will be introduced and what discussion there will be with the industry to ensure that consensus is reached on the right way of treating those more complex issues. Will they be decided on a case-by-case basis, or will general rules be introduced to cover all those complicated matters?

We will continue to consult the industry and will introduce the regulations at the earliest opportunity for consultation. We will ensure that we set out in writing the position case by case so that all the details are available. We will produce them when the consultation is completed. It is important to get the detail right. That is what we have done. We will consult fully to ensure that they are operational as soon as possible, but that will happen only once the consultation has been completed in a satisfactory manner.

I rise only to ask the hon. Gentleman if he will note with care the very powerful strictures to the Chancellor of the Exchequer—the future Prime Minister—from the hon. Member for Grantham and Stamford (Mr. Davies), who was most critical of the pensions policy—

Order. I have a great deal of affection for the hon. Gentleman, but he is going too far. We are discussing a set of amendments that are very tightly drafted. I know that he will have every respect for the Chair and will not proceed in that manner. I ask him not to do so, and I notice that he has been very kind in agreeing to my suggestion.

Amendment agreed to.

Amendments made: No. 20, page 159, line 34, leave out ‘omit “or as a business transfer-out”’ and insert

‘for “as a business transfer out” substitute “by being netted off against incomings in lines 11 to 15 of a revenue account”’.

No. 21, page 161, line 32, leave out from ‘made,’ to end of line 35.—[Ed Balls.]

Schedule 10

Insurance companies: miscellaneous

Amendments made: No. 22, page 162, leave out lines 39 to 41.

No. 23, page 163, line 29, at end insert—

‘(7A) In subsection (6) above “the relevant time” means—

(a) in a case where assets become structural assets held in any of the company’s non-profit funds by virtue of the commencement of this section, the end of the last period of account of the company beginning before 1st January 2007, and

(b) otherwise, the time when the assets become structural assets held in any of the company’s non-profit funds.’.

No. 24, page 163, line 38, leave out ‘subsection (6) above’ and insert ‘this section’.

No. 25, page 163, leave out lines 43 to 48.

No. 26, page 164, leave out lines 1 to 5 and insert—

‘(11) Regulations made by the Treasury may make provision for computing for the purposes of the Taxation of Chargeable Gains Act 1992 any gain or loss arising on a disposal by an insurance company of a structural asset held in a non-profit fund in any case where the condition in subsection (11A) is met.

(11A) The condition in this subsection is met if, in any period of account of the company in which the asset was held by it—

(a) income arising from the asset was (or, had there been any, would have been) referable to any category of long-term business the profits of which fell for that period of account to be computed in accordance with the provisions applicable to Case I of Schedule D, or

(b) the company was charged to tax on the profits of its life assurance business under Case I of Schedule D.’.

No. 27, page 164, line 18, at end insert—

‘( ) Regulations under subsection (3) or (11) above may be made so as to have effect in relation to periods of account current when they are made (as well as periods of account beginning later).”.’.

No. 28, page 170, line 1, leave out ‘sub-paragraph’ and insert ‘sub-paragraphs (4A) and’.

No. 29, page 170, line 21, leave out ‘84(2) to (6)’ and insert ‘84(2), (3), (5) and (6)’.—[Ed Balls.]

Schedule 19

Alternatively secured pensions and transfer lump sum death benefit etc

I beg to move amendment No. 44, page 226, line 8, leave out from ‘least’ to end of line 9 and insert

‘equivalent to minimum retirement income (see sub-section 8 below)’.

With this it will be convenient to discuss the following amendments: No. 47, page 226, line 9, at end insert—

‘(1A) The total amount of a spouse’s, or civil partner’s alternatively secured pension paid to a spouse or civil partner of a member of a registered pension scheme in each alternatively secured pension year in respect of a money purchase arrangement under the pension scheme must be at least equivalent to the Minimum Retirement Income for the alternatively secured pension year (but subject to sub-section 5 below).’.

No. 45, page 226, line 10, after ‘dependants’’, insert ‘(other than spouses’ or civil partners’)’.

No. 46, page 226, line 11, after ‘dependant’, insert

‘(other than the spouse or civil partner of a member)’.

No. 49, page 226, line 31, after ‘(1)’, insert ‘(1A)’.

No. 48, page 227, line 7, at end insert—

‘(8) In relation to minimum retirement income as mentioned in subsection (1) above, the following provisions shall apply—

(a) the amount of the minimum retirement income in respect of each tax year shall be set by the Treasury by order at the level of the standard minimum guarantee prescribed under section 2 of the State Pension Credit Act 2002 (c.16);

(b) before making an order under this subsection, the Treasury shall consult such persons as it considers appropriate;

(c) an order under this subsection (other than the order that applies to the first tax year during which this section is in force) must be made on or before the 31st January of the tax year before the tax year to which the order applies.’.

Government amendment No. 33

The amendments would amend schedule 19, which introduces a minimum draw-down from alternatively secured pensions. Those pensions have been a feature of Finance Bill debates in three of the past four years. It may help hon. Members if they understand some of the background.

In response to concerns expressed by the Christian Brethren, the Government legislated in 2004 for alternatively secured pensions, which in effect ended compulsory annuitisation at age 75. In 2006, they introduced new rules to determine the tax on the annuitised pot of ASP members on death. However, the Economic Secretary decided that even the new complex rules on inheritance tax and ASPs were not enough to discourage people from buying them and therefore introduced even more draconian rules, increasing the tax rate on death to a maximum of 82 per cent. and introducing a new minimum draw-down from the funds, which is the focus of the amendments.

The amendments are relatively modest compared with those tabled in previous years. The Pensions Bill was amended in the other place to reflect proposals made by my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind) in his private Member’s Bill to set up a retirement income fund as an alternative to compulsory annuitisation. We will have a longer and fuller debate on the issues when the Pensions Bill returns from the Lords shortly, but my amendments are narrowly drafted to reflect one particular aspect: the draw-down.

Schedule 19 as drafted stipulates that an ASP member must withdraw a minimum of 55 per cent. of the basis amount for the ASP year. That amount is determined on an annual basis by the Government Actuary based on the life expectancy of a 75-year-old. My approach is to substitute 55 per cent. with the minimum amount of income required to ensure that someone does not need to rely on state benefits—a concept that underpins the Bill of my right hon. and learned Friend and the amendments passed in the Lords.

I accept that setting any minimum level of draw-down is difficult, but by setting the minimum threshold in that way, it would give members of ASPs more freedom over the use of their retirement assets. My concern about the Government’s approach is that it compels members to draw down income that could be surplus to their immediate needs if they have income from other sources. Based on the way in which the schedule is drafted, if members do not draw down 55 per cent. of the basis amount, they will be penalised. My measure could be criticised for being as crude as the Government’s approach, in that it does not take into account other sources of income, but it would give members of the ASP scheme more flexibility. That would increase the flexibility and attractiveness of ASPs and would make the product much more suited to the needs of pensioners.

As the debate in the Lords demonstrated, there is a growing consensus on creating more flexibility in pension arrangements. In the debate on that point in the other place, Lord Turner of Ecchinswell, who is the architect of the pensions reforms going through Parliament at the moment, said that

“there are two arguments, but two arguments only, for compulsory annuitisation. One is that people should not fall back on the means-tested benefits of the state; the other…is that tax relief is given to pension contributions as they go into the scheme, and it is therefore reasonable that as money comes out of the scheme, those are taxed moneys out.”

He also argued that

“if we took those two principles, we might well end up with a rule establishing a minimum level of annuity that people had to buy, plus an appropriate set of rules as to the tax treatment…I have found it difficult over the years to understand what the arguments against that approach are.”

Lord Turner hits the nail on the head. Increasingly, it is the Government who are out of step with the views of pensioners and the industry, and it is the Government who need to understand more about the pressures that are arising in the pensions debate.

My amendments do not tackle the exit charge on death, which is also addressed in Lord Turner’s comments, but they do tackle the amount to be drawn down from the fund. Increasingly, people will look for alternatives to annuitisation as the growth in defined contributions schemes increases, and my amendments would make an ASP more attractive to those approaching retirement. It is worth reflecting on the pressures in the system. The Office for National Statistics shows that between 1997 and 2005 employee membership of defined benefit pension schemes, such as the scheme that hon. Members benefit from, fell from 46 per cent. to 35 per cent., while membership of defined contribution schemes increased from 10 per cent. to 15 per cent. Those are the people who will end up on retirement with a pot of money to be invested in annuity or some alternative way to provide a retirement income—perhaps something that is more flexible than the arrangements on offer at the moment.

The switch from defined benefit to defined contribution schemes has been especially evident for smaller employers. That is an indicator of the potential increase in demand for annuities, but as Lord Turner indicated in the same debate:

“The bigger the imbalance is between demand for and supply of that capacity, the lower the annuity rates will be.

There is an interest for everyone who buys an annuity in ensuring that those who do not need to buy one do not push their demand into the market and therefore decrease yields.”—[Official Report, House of Lords, 6 June 2007; Vol. 692, c. 1142-1148.]

If, through amendments such as these we can make alternatives to annuities more attractive, that will benefit those who wish to buy annuities instead of making their own arrangements in retirement. That reflects the growing consensus in the House of Lords debate. Lord Turner supported that principle, as did Baroness Hollis, a former Minister at the Department for Work and Pensions. Lord Howarth of Newport, having seen the damage that the Chancellor had caused to pension funds, also supported the proposals.

There is a progressive consensus on this issue, but the Government are out of step with it—

Compulsion to take out annuities is increasingly regarded as a barrier to saving for retirement, so we need a wider range of options. The amendments would give greater flexibility as to the minimum income to be drawn down from an ASP, thus creating a more attractive alternative to an annuity. There is cross-party support in the Lords for the principle, and it is time for the Government to decide whether they want to be part of the consensus, or to continue in their dogged determination to oppose giving people choice over how they manage their retirement funds.

I listened carefully to the hon. Member for Fareham (Mr. Hoban), and will try to deal with the points that he made. Ministers faced some distraction from those on the Opposition Front Bench, but we managed to focus on the issue at hand.

We are very keen to see a progressive consensus being formed in this House, and I encourage pretty much all hon. Members—not all, but almost all—to consider joining us in that cause in due course.

Before I turn to alternatively secured pensions, I shall speak briefly about Government amendment No. 33, which makes a minor change to the pension commencement lump sum rules included in schedule 20. One of the technical improvements in schedule 20 will allow more time for the tax-free pension commencement lump sum to be paid, and to allow it to be paid after a member has reached age 75, if the entitlement to that lump sum arose before that age. However, the published Bill omitted a consequential amendment to a regulation-making power in the Finance Act 2004, with unintended and potentially adverse results. Government amendment No. 33 will be welcomed by the industry, because it allows the regulations to continue to operate as originally intended. I am sure that the proposal will be uncontroversial for most hon. Members.

I turn now to ASPs, the subject of amendments Nos. 44 to 49 and one I spoke about at length in our debate on pension term assurance during the Committee of the whole House. Unfortunately, I was not able to attend the Committee stage, as I had to attend the ECOFIN meeting in Brussels—

I think that he was quite busy at the time, but I cannot remember exactly why. I think that he is quite looking forward to his new job—

Thank you, Madam Deputy Speaker.

As my right hon. Friend the Chief Secretary to the Treasury made clear in the debate in the whole House, it is important to set out the principle behind the generous tax relief that we provide for pension savings. First, we believe that generous tax relief is provided to support pension saving, where that produces an income in retirement. Pension tax relief is not there to support pre-retirement income, nor to support accumulation or inheritance.

Secondly, we believe that pensions should get more favourable tax treatment compared to other forms of savings, in recognition of the fact that they are less flexible than other savings and are locked away until retirement. Thirdly, we believe that incentives for employer contributions should be provided and, finally, we consider the pensions tax incentives must be affordable and fall within the current fiscal projections. Given that we are talking at the moment, in 2006-07, about a total of £16 billion of tax incentives to encourage people to save for retirement, as a sensible and proper Government we need to make sure that we use that £16 billion wisely. That is why it is right to take these issues seriously.

How much of that £16 billion goes towards tax incentives for those saving on alternatively secured pensions? I just want to get an idea of the scale of the issue.

I cannot give the hon. Gentleman a detailed answer. I would say that, in Finance Bill terms, it would count as “neg”—negligible. Without wanting to return to the earlier debates about the philosophical difference between zero and close to zero, my guess is that it would be pretty close to zero.

The Government believe that the best way for the majority of people to save is to secure an income in retirement by saving through a pension and then purchasing an annuity. An annuity provides an income for life, regardless of how long life turns out to be. As one of our steps towards a progressive consensus, I should point out that the Pensions Commission endorsed that basic principle in its report when it said:

“since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive is to ensure people make adequate provision, it is reasonable to require that pensions savings is turned into regular pension income at some time”.

On that point, as on many other points, I can agree with the conclusions of the Pensions Commission.

Given the consensus that the Economic Secretary mentioned and the way he warmly commended the conclusions of the Pensions Commission, does he also agree with the views of Lord Turner expressed in the debate on pensions in the House of Lords two weeks ago?

As I said, we are looking to forge a progressive consensus and I look forward to doing so. It should be possible to have a consensus that is progressive if we can involve most Members of the House—although perhaps not all. I quoted the Pensions Commission in that context as an example of one area where we can reach a consensus. On the particular opinions that Lord Turner set out in the House of Lords, I disagree with him and will set out why during the course of my speech.

I am sorry to disturb the hon. Gentleman. I see that he has sprung back into life. I am happy to take his intervention.

The hon. Gentleman does not have to apologise at all. He is boring us all sideways as it is. Just for the convenience of the House of Commons, would he have the good manners to define for all of us who sit on this side of the House what exactly a progressive consensus is?

I will therefore hesitate to attempt to give the hon. Gentleman a definition either of progressive consensus or of good manners.

Will the Economic Secretary kindly enlighten us on another matter? When talking about the way in which the Government are approaching the issue, he referred to principles. What is his view of principle 6 from the Financial Services Authority, which is entitled “Treating customers fairly”? What about pensioners who die the day before they reach their 75th birthday? Their pension estate is effectively untaxed. Then there are those who, unfortunately for them, die shortly afterwards. The tax rate that applies varies between 0 and 82 per cent. How is that fair?

If I can make some progress, I will explain why the approach we are taking to ASPs is right and why it would be quite wrong to go down the route of the amendments. I would point out to the hon. Gentleman that the vast majority of pensioners have bought an annuity well before the age of 75 and would never be able to consider the option of an ASP in any case. It is only those with the largest pension pots who would be able to consider doing so. [Interruption.] From a sedentary position, the hon. Member for Tatton (Mr. Osborne) asked why we introduced ASPs. He knows very well that in the Committee on the Finance Bill in 2004, the then Financial Secretary said:

“We have made this concession because people hold significant, principled, religious objections to the pooling of mortality risk.”—[Official Report, Standing Committee A, 8 June 2004; c. 485.]

We thus introduced a way of allowing people with principled religious objections to save in a pension after the age of 75.

As we have discussed many times in Committee, it is impossible in tax law to distinguish between people with different religious convictions. More importantly, in the year or so after we introduced ASPs, it became increasingly clear that people were using ASP vehicles as a way of substantially avoiding tax. We thus acted in last year’s Budget to tighten the laws on inheritance tax to prevent people from using ASPs as a vehicle for passing on tax advantage for inheritance. Even after those changes, such practices continued, so we acted in the pre-Budget report to protect properly the principle that pensioners’ tax relief was provided to produce income in retirement, rather than to give a tax advantage to inheritance. That is what we are doing through the ASP changes in the Bill.

Our application of the principles has been consistent. Furthermore, we have consistently demonstrated that when people are trying to get round the principles by giving a tax advantage to inheritance, we are willing to act decisively, as we did in the pre-Budget report. We have made it clear that an annuity is the best way for the vast majority of individuals to secure an income in retirement. An ASP allows those with religious objections to the pooled mortality risk in annuities to have a guaranteed lifetime income without an annuity and without a tax advantage to inheritance. While the ASP is not a mainstream product—it is blind to religion—the Bill allows a small minority, if they are well advised, to continue to use ASPs to draw an income in retirement without buying an annuity, but only in a way that is consistent with our principle that pension tax relief should not be used to give a tax favour to inheritance.

The Conservative amendments would replace the proposed minimum income for ASPs of 55 per cent. with an amount that would substantially jeopardise our objectives for ASPs. As I said, the purpose of tax relief is to encourage and support pension saving to produce an income in retirement. The danger of the official Opposition’s proposals arises from the specific income from pension savings that they specify must be delivered. Under those proposals, a person with an ASP fund worth £1 million would receive an income that was 10 times lower than that allowed under the Bill. Someone with a large pension pot would have to take a small income and would thus have a large tax advantage pot to pass on to their successors. On the other hand, a person with a much smaller pension fund—£50,000, for example—would draw an income that could well lead the fund to run out much earlier than would be sensible. The proposals would put the most vulnerable in a dangerous and disadvantaged position, while they would give the richest a substantial tax advantage to inheritance.

Let me cite a tax adviser who responded to our announcement in the pre-Budget report. Mr. Tom McPhail, the head of research at financial advisers Hargreaves Lansdown, told the Financial Times on 22 March that the changes in the Bill mean that the

“door has effectively been closed on using pensions for inheritance tax planning purposes”.

The problem with the Opposition amendments is that they would reopen that door and allow some of the £16 billion of tax relief to be used to the advantage of inheritance tax planning. There might be some Conservative Members who would think that that would be a step forward, but I think it would represent a substantial step away from the progressive consensus that Labour Members wish to reach. I hope that the hon. Member for Fareham will not attempt to advantage inheritance tax planning, so I urge him to withdraw the amendment, rather than trying to waste taxpayers’ money through breaking our principles and encouraging inheritance tax planning.

On a point of order, Madam Deputy Speaker. You refused to allow the Economic Secretary to define a progressive consensus, but the flim-flam argument that he has recently constructed to oppose the amendment is wholly based on a progressive consensus, and no one on this side of the House has the remotest idea what he is talking about.

That is not a point of order for me. However, following this debate there will be a debate on Third Reading, and perhaps the hon. Gentleman will wish to catch my eye.

The reality is that in the Finance Act 2004 the Government let the genii out of the bottle. They introduced changes that led people to think that ASPs were an appropriate form of tax planning and of securing an income in their retirement. The Government legislated for that. Only last year, in the Finance Act 2006, the Government introduced changes to tighten up the rules, and this year they have come back and tried to restrict ASPs to make them less flexible and less attractive to people as a means of providing flexibility in retirement.

The problem with the Government’s approach is that they are out of step with the desire of most people in this country to have greater control over their pension funds. They are out of step with the people of this country who want choice—[Interruption.]

The Government are out of step with people who want to have choice in their lives, who do not want to be patronised or directed by the Government as to how they use their pension funds in retirement. On that basis, I urge my colleagues to vote in favour of amendment No. 44.

Question put, That the amendment be made:—

Schedule 20

Pension schemes etc: miscellaneous

Amendment made: No. 33, page 235, line 46, at end insert—

‘(2A) In paragraph 1(6) (power to provide that certain lump sums are to be treated as pension commencement lump sums), for “(1)(c) and (e)” substitute “(1)(a) and (c)”.’.—[Mr. Timms.]

Schedule 27


Amendments made: No. 30, page 293, line 17, leave out ‘the words “, or as a business transfer-out,” and’.

No. 31, page 295, line 44, leave out ‘84(2) to (6)’ and insert ‘84(2), (3), (5) and (6)’.

No. 32, page 296, line 14, leave out ‘17(5)’ and insert ‘17(4A) and (5)’.—[Mr. Timms.]

Order for Third Reading read.

I beg to move, That the Bill be now read the Third time.

It is a pleasure to begin by thanking all those who have contributed to the consideration of the Bill in the Committee of the whole House, in the Public Bill Committee and over the past couple of days on Report. We have missed my right hon. Friend the Paymaster General—I believe she has been missed on all sides. This would have been her 13th Finance Bill, and I know that the whole House would want to join in paying a tribute to her.

The major changes in the corporate and personal tax systems in this year’s Budget have been possible because of the unprecedented stability and growth that the Government have delivered over the past decade—record levels of employment, low inflation, and the second highest GDP in the G7 per head, as opposed to the lowest when we came to office. This is the longest expansion among the entire Organisation for Economic Co-operation and Development and the longest on record for any G7 country, so it is no surprise that the International Monetary Fund praised the UK in February for our

“decade long record of strong and steady macroeconomic performance”.

The Bill continues that progress. It enhances competitiveness, supports investment and innovation, increases fairness, including safeguarding the revenues to deliver world class public services, and addresses the growing challenge of climate change. Clause 2 reduces the main rate of corporation tax from 2008 to 28 per cent., a lower rate than any of our major competitors. Clause 3 phases in necessary increases to the small companies rate, with the proceeds recycled to businesses that invest.

To support investment, clause 36 extends the enhanced 50 per cent. rate of first year capital allowances for small businesses for another year, and next year a new annual investment allowance will provide 100 per cent. first year allowances for the first £50,000 worth of expenditure on most plant and machinery—a big cash flow benefit to companies that reinvest their profits, so offsetting the small companies rate increase for investing small companies.

Changes announced this year, which will be legislated for next year, include a big simplification of the income tax system, with just two rates at 20p and 40p, and measures to take 200,000 children out of poverty and to take nearly 600,000 pensioners out of income tax altogether. The Bill also includes measures to safeguard revenues, dealing with schemes such as those that we debated today, which are unfair on the vast majority of taxpayers who pay their fair share.

The Bill introduces reforms to determine penalties for errors. not only on the basis of the amount of tax understated, but by the type of behaviour that caused the understatement and the extent of taxpayer disclosure.

The Bill includes measures to protect the environment. This has been a decade of unprecedented macroeconomic stability and uninterrupted growth, but the Stern report made it clear that such success will not be possible in the future unless we make reducing carbon emissions a priority.

No, I will not give way.

The Bill rises to that challenge with targeted and economically efficient carbon saving measures—for example, to air passenger duty and vehicle excise duty. There are measures to reduce household carbon emissions as well, including incentives for energy efficiency in the current building stock and in new build. [Interruption.]

Clause 19 is particularly interesting. It will help to kick-start the market for zero-carbon homes like those planned for Galleons Park, a development going forward in my constituency.

Finally, on the environment, clause 16 implements—

Clause 16 implements the legislative framework that will enable greater use of auctioning to allocate allowances in phase 2 of the European Union emissions trading scheme, helping to strengthen its long-term integrity and efficiency. The system of charges for tackling climate change across the UK, which this Finance Bill introduces, is now an important part of Government economic policy, with a significant fiscal impact on the UK as a whole.

Over the past 10 years, the UK has enjoyed more stability in GDP growth and inflation than in any decade since the war. Low inflation, low interest rates, high employment, high growth and rising prosperity are the remarkable achievements of this Chancellor over the past decade. For the future, we must continue to deliver the right policies for Britain, enhancing international competitiveness, encouraging investment and innovation, increasing fairness, safeguarding revenues for world-class public services and taking action on climate change at home to support our leading role abroad. That is what this Bill does, and I commend it to the House.

The Opposition will vote against the Bill tonight, because it is flawed in a number of fundamental respects. In particular, we will vote against it because it implements a Budget that was a tax con and not a tax cut. It provides a significant landmark, in that we will overtake India and have the longest national tax code in the world. Thanks to this Chancellor’s tendency to micro-manage, tax law has mushroomed, which has increased costs for business and severely damaged our competitiveness in the globalised world economy.

We remain opposed to the increase in tax rates for small businesses in clause 3. That increase comes on top of interest rate rises and falling living standards. It is an increase that many hard-pressed small businesses can ill afford. And many small enterprises will be hit with a double whammy, with the loss of industrial buildings and agricultural buildings allowances. That change was made without warning or consultation, and investment decisions taken as long as 24 years ago could be affected by that retroactive legislation.

The MSC legislation inflicts another blow on many small businesses. In an era when we need to get better and better at high-tech, high-value industries, why does the Chancellor insist on kicking the contractor community yet again, when their work is pivotal in the IT sector?

We welcome a number of the environmentally related provisions in the Bill, but we fail to see why Ministers cannot answer the basic question of how many zero carbon homes there are in this country. They have given us about four different answers, but still they cannot give us a conclusive one.

We welcome the clauses on microgeneration, but it is a matter of regret that once again the Government rejected the request that they account to Parliament on the critical issue of microgeneration after we re-tabled the amendments to last year’s Finance Bill tabled by the hon. Member for Nottingham, South (Alan Simpson).

We have severe concerns about the drastic restrictions on sideways relief in schedule 4, which could have a hugely damaging impact on scientific research and the innovation that we need to fight climate change. Those restrictions will catch a huge number of innocent transactions. The Minister has said that he can solve the problems with guidance. For the reasons that we set out throughout the debate, one cannot draft excessively wide legislation and allow HMRC discretion to cut down its scope with guidance. [Interruption.] Frankly, that contravenes the spirit underlying the 1688 Bill of Rights and the fundamental constitutional principle that it is for Parliament to determine taxation and not the Executive. [Interruption.]

The Bill’s provisions on pensions continue to demonstrate the Chancellor’s mismanagement of the tax system—[Interruption.]

Significant restrictions are being introduced on ASPs a matter of months after their introduction on A-day. There is little doubt that such instability is one of the main reasons for the collapse in the savings ratio since the Chancellor entered No. 11 Downing street. Small wonder that confidence in saving has sunk to such lows when the Chancellor not only raids pensions funds for billions of pounds every year but pulls the rug from under the feet of savers when they invest in products that his own legislation has been responsible for creating. It is a further blow to savings that the Government have this evening once again resisted our efforts to scrap the annuity rule, which causes so much anger among people who have made the effort to act responsibly and save for their old age.

We have sought safeguards in relation to the significant powers of arrest and surveillance that the Bill extends to the combined HMRC organisation. Of course, we support the use of powerful tools in the fight against tax fraud, particularly organised crime and missing trader intra-Community fraud, but it is vital that such powers should not be used as leverage in ordinary day-to-day tax disputes. It would not be acceptable if someone was threatened with arrest if they made a mistake on their tax return. We are pleased that the Government have responded to concerns expressed about the concept of “HMRC thinks”, which was almost universally condemned. It would be highly inappropriate to give HMRC the power to penalise taxpayers when it merely thinks that they have done something wrong.

We continue to support the Government’s efforts to crack down on MTIC fraud. We welcome the fact that they have now got their derogation from the European Union, but regret that the heavy price they paid was to give up all resistance on the loss of £7.2 billion of our rebate. In negotiating the derogation, it seems that the Treasury finally gave up the last semblance of resistance and handed over £7.2 billion more of our money to the EU.

On the last full day of his term as Chancellor, this Finance Bill is typical of the 10 years that we have seen of him—not all bad, by any means, but defective in some very fundamental respects. The Bill creates further complexity and instability in our tax system, just as every one of his other Finance Bills has, to the detriment of our global competitiveness. It fails to provide effective measures to tackle climate change. It penalises small companies with higher taxes and more tax complexity, just as the Chancellor has done so many times in the past. It undermines confidence in pensions. Just as we see the Chancellor’s 10 years in office ending with figures showing poverty and inequality increasing in Britain, the Bill does nothing to help those on low incomes, and the Budget actually shifts the burden of tax on to the poor and away from those on middle incomes. Above all, we decline to give the Bill a Third Reading because it implements a Budget that was characterised by the spin and the cynically, nakedly political motivation that has typified the Chancellor’s years at No. 11—and will no doubt continue to characterise his years at No. 10.

Another year, another Finance Bill. It has been a great shame not to see the Paymaster General here, although I have seen her in action in Westminster Hall and she seems to be very well. Perhaps she will be here next year, even though the current Chancellor will not.

One of the issues that came up in last year’s Finance Bill was the clear lack of consultation on significant changes to the taxation system, particularly in relation to the inheritance tax treatment of trusts. This year, that has raised its head again in some important respects. The Treasury has been ignoring the impact that some of its decisions will have on some very vulnerable groups. For example, this afternoon we discussed steps to abolish the industrial and agricultural buildings allowances. Again, there seems to be no understanding of the impact that these changes will have in rural areas, particularly on tenant farmers. We merely heard a restatement of the fact that the package was cost-neutral overall.

There is not simply a lack of consultation but a lack of openness and clarity. One need only look at the Chancellor’s Budget announcements on personal taxation to see that key vulnerable groups are again being ignored. He announced, to paraphrase, that the basic rate of income tax would be cut by 2p next year to make the system fairer and to reward work, but did not say that that cut would be paid for by abolishing the starting rate that he himself introduced, meaning that many low-paid workers would see their marginal rate of taxation double. At best, people would be no worse off if they claimed tax credits and other benefits, but those not entitled to those benefits, such as pensioners, the under-25s and couples without children, would lose out. That was not made clear. That was why the right hon. Member for Birkenhead (Mr. Field) said that we need to publish the impact of these decisions at the time when they are announced so that we have greater clarity and can hold the Government to account for their decisions. There are probably still people out there who do not know whether they will be better off as a result of the Chancellor’s announcements. I still do not understand why Conservative Members showed timidity and failed to support a provision that would provide much greater clarity. It was a good principle, which, instead of being rejected, should have been applied to the impact of the business taxation package in the Bill.

Throughout our proceedings, there has been a lack of transparency. I wonder whether, in some cases, it was deliberate to hide unpalatable proposals. However, in others, it was probably inadvertent and a result of the complexity of the proposals. Again, the Bill would have benefited significantly from open consultation before going into Committee. That option is available to other programmed Bills, and I hope that Treasury Ministers will take that up with the Leader of the House.

I hope that the Treasury will pay serious attention to that proposal because it has the support of several bodies and representative groups, including the Low Incomes Tax Reform Group, the Institute of Directors, the British Chambers of Commerce, the Society of Trust and Estate Practitioners, the Association of Taxation Technicians and the Chartered Institute of Taxation. They all believe that there is an opportunity for genuine consultative sessions that would benefit the measure, resulting in more workable proposals. There is an opportunity to raise issues on which there has not been adequate consultation and explain more complex issues, especially given that we have a system whereby third-party relaying of information occurs. Such consultation is not intended to duplicate matters on which widespread pre-legislative scrutiny has already occurred.

I hope that Treasury Ministers will take the proposal on board and take it up with the Leader of the House. I hope that they will be constructive about the matter, because they have been so about other matters and we have held genuinely useful debates. [Interruption.] For example, we have received responses to our concerns about the word “think”—[Interruption.]

There has been significant movement on the powers that HMRC officials can take up when they believe that there may have been abuse by the taxpayer. Treasury Ministers have accepted the spirit of the Conservative amendment on statutory references to Public Bill Committees. I am sure that that is a significant step forward. We have also held some constructive debates today on issues such as inheritance tax—Ministers are open minded about discussing the principles of that.

Sadly, there has been a refusal to give way on some important principles. I have already mentioned the amendment of the right hon. Member for Birkenhead, but another problem is the Government’s failure to acknowledge the difficulty that high fuel costs in rural areas represent, let alone to discuss any action that might be taken to help create a level playing field. Again, Conservative Members are happy to recognise the problem but fail to make any proposals to tackle it.

Most important, the Bill shows no genuine willingness to strengthen green provisions. The Government broke cross-party consensus on microgeneration to try to provide stronger incentives and accountability on such issues. There is still no clear sense of what constitutes a zero carbon home or when we will experience a non-linear progression to the number of such homes that will be provided. Retrospective increases in air passenger duty will do nothing except strengthen public cynicism about the Chancellor’s motives. They are clearly an effort to increase taxation rather than change behaviour.

If the Treasury and the future Prime Minister, who currently leads the Department, wish to convince the public that they are serious about tackling climate change, dealing with poverty and improving the lot of those on low incomes, they must do much better than the Chancellor’s 11th Budget and the Bill that we have considered.

Some changes were intended purely to grab headlines without due care and attention being paid to their impact on behaviour or the effect of personal tax changes on people on low incomes. The impact of the changes in business taxation on small businesses has also not been taken into account. If the Chancellor wishes us to believe that he is a man of substance, he must do more to convince us than we have seen in this year’s Finance Bill. Indeed, he should probably apologise for some of the measures in this year’s Budget. For those reasons, we shall not support Third Reading.

The Chief Secretary said that the Budget, the Bill and future legislation would lift people out of poverty. That may happen if the tax credit system works, the child tax credit take-up rate is more than 80 per cent., that of working tax credit is more than 60 per cent. and unclaimed entitlement is rather less than £5 billion. When I cited those figures in the debate yesterday, the Chief Secretary said:

“I do not know the basis of the figure quoted by the hon. Gentleman”.—[Official Report, 25 June 2007; Vol. 462, c. 119.]

The take-up rates were published by HMRC in 2007 and the entitlement figures, claimed and unclaimed, were also published by HMRC in 2007. If he did not know then, he certainly knows now.

More importantly, the cumulative effect of the Finance Bill, the Budget from which it flows, and Finance Bills subsequent to this year’s Budget will be a tax take on business, particularly small business, leading to a loss of competitiveness, particularly for small businesses in Scotland. If all the provisions on personal taxation are put in place, it will lead to a tax take, particularly from the poorest and most vulnerable in society, with at least 52 per cent. of the working population in Kirkcaldy and Cowdenbeath being worse off.

I will not take any interventions. It is very late and, with the greatest respect, the hon. Gentleman has rarely been in the Chamber over the past two days, let alone the past six or seven weeks, while we have been debating these important matters. Indeed, there have been so few Scottish Labour Back Benchers here that I was not sure that they had not all gone on holiday for the duration of the debates.

The Finance Bill and the Budget will tax businesses more and make Scottish businesses, especially the small ones, less competitive. The conclusion of all the measures on personal taxation will make the poorest and most vulnerable worse off. For those two reasons, if for no others, we will oppose the Bill’s Third Reading tonight.

Question put, That the Bill be now read the Third time:—

Bill read the Third time, and passed.