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NHS Pensions: Taxation

Volume 663: debated on Monday 8 July 2019

To ask the Chief Secretary to the Treasury to make a statement on the implications for patients of the taxation of NHS pensions.

The Government keep public sector pay and pensions policy under constant review in the context of the wider public finances. For the majority of savers, pension contributions are tax-free. The annual allowance is a fiscal measure that operates across all registered pension schemes in both the public and private sectors, alongside the lifetime allowance. The measure is kept under review by the Government to ensure that the benefit of tax relief on pension schemes remains affordable.

Some senior clinicians face pension tax charges owing to the increase in the value of their pension accrual. I understand that the Secretary of State for Health and Social Care is currently engaged in discussions with senior representatives of the British Medical Association. The Government are taking this issue very seriously, and that is the right place for those discussions to be held. However, the House will recognise that the same tax rules must apply identically to everyone in the same situation, regardless of their employer. It is simply not possible for the tax rules applying to senior clinicians in the NHS to be different from those that apply everywhere else.

I understand that the Secretary of State for Health and Social Care is to publish a consultation on proposals for a new 50:50 scheme providing pension flexibility for clinicians in the NHS. The scheme will give senior clinicians in England and Wales more choice in respect of their pension accrual, and will thus control tax charges. Since last autumn, all members of the NHS scheme on the taper have been able to elect for the pension scheme to pay any tax charges now, and so avoid any impacts on take-home pay, in return for an actuarially fair reduction in their pensions.

I recognise the concerns that have been raised, and I assure the House that the Government will continue to monitor the impact of pensions policies on public service delivery.

The unforeseen consequences of recent pensions legislation, initially supported in all parts of the House, are now resulting in very worrying consequences for the NHS as hospital doctors who have regularly worked weekend overtime to get waiting lists down are understandably refusing to continue to do so because they are being made worse off as a result. Can we imagine a conversation between couples along the lines of, “So you are leaving me and the children again this weekend to go voluntarily to work to make our family worse off?” It is not going to happen, is it? The same applies for GPs, many of whom are now doing fewer sessions each week than they want to and their patients desperately need in order not to be made worse off by breaching their annual pension allowance.

We do not have conscription for healthcare staff; we cannot force them to do weekend overtime or more sessions than they want to, and it is not surprising that they choose not to if they are being made worse off as a result. For example, in The Guardian this morning we learned of one senior anaesthetist who worked 27 Saturdays last year in order to reduce waiting lists and has now said he cannot afford to work any extra Saturday shifts this year because it would give him a large tax bill he cannot afford to pay.

Very few doctors have earnings that exceed the adjusted income threshold of £150,000, but due to the inclusion of hypothetical pension growth as income, doctors are being affected by tapering. This is different from what the Chancellor said in Treasury questions on 21 May when he said that someone has to be earning over £150,000 a year before the tapered annual allowance affects them. Taxable income and adjusted income are very different as regards pensions taxation.

The Government should also be aware that members of the imposed 2015 pension scheme had no option but to become a member of multiple schemes including the GP CARE—career average revalued earnings—scheme and as a result incur significantly higher annual allowance tax bills than those members who are protected members in only the final salary scheme. This means that all full-time consultants who are a member of more than one NHS pension scheme will be affected by the tapered annual allowance and will need to reconsider how much work they do for the NHS to mitigate these tax charges. Furthermore, this punitive pensions tax penalty means that doctors are not just working less but are retiring earlier than they would like to in order to avoid significant additional tax charges. In a survey of more than 2,400 consultants, more than half cited pensions taxation as a reason for their decision to retire early.

I therefore have five questions for the Chief Secretary. As the 50:50 pensions accrual option proposed does not remove the unintended consequences that are forcing doctors to reduce the work they do, can this be included in the consultation so that this issue is raised? Once the scope of the consultation has been extended to cover this essential aspect, can it then be launched as quickly as possible? Can the consultation be brief as the issues are well-known and well-rehearsed, and can the Government then respond quickly to it and if necessary legislate given that there is likely to be cross-party support for these important measures to protect the NHS? Can timely pensions statements be provided to all NHS staff who are affected by these measures? Finally, can the Government confirm that they understand the urgency and importance of this issue and that they will act without delay to prevent a deteriorating situation from getting even more acute?

The answer to my hon. Friend’s first question is that the Health Secretary is currently in discussions with the British Medical Association and other health representatives about precisely what can be done, and of course the consultation will come out shortly. Some of the issues he mentioned in terms of legislation will clearly be a matter for the new Prime Minister and Administration, but the fact that my hon. Friend has raised this urgent question today will draw to people’s attention the urgency of this issue and one would expect it to be considered very early on by a new Administration. The point I was trying to make earlier is that there is a fundamental distinction between how we deal with the issues in the NHS, on which the Health Secretary is leading, and the broader issue of our pension system, which is there to encourage people to save. That has to be considered in a holistic manner so we cannot just design it around one workforce. It has to be designed to work for everybody in both the public and private sectors. That takes time of course, and we are working through some of the conclusions of the reforms that took place a few years ago.

I am grateful to the hon. Member for South West Bedfordshire (Andrew Selous) for asking this urgent question. It follows a Westminster Hall debate two weeks ago on this issue, when Members from across the House raised concerns about the Government’s mismanagement of the interaction between their pensions relief policies and the NHS pension schemes.

The worst-case scenario that we all feared has become a reality. Hospital leaders are raising the alarm that waiting lists for routine surgery have risen by up to 50%. Unless this issue is dealt with, there is a risk that the approach of the end of the financial year will lead to even greater levels of working to rule after the summer.

The changes that have led to these issues relate to the interaction of the taper, which George Osborne introduced in the summer Budget of 2015, with other rules on tax reliefs and the three NHS pension schemes. Despite decisions being taken around these measures some time ago, there appears to have been next to no communication by the Government with representative groups about this issue until the crisis had already begun. That is very different from the “constant review” that the Chief Secretary to the Treasury has just referred to.

It is fair that tax reliefs should be consistent with other core principles of taxation and that the pension allowance should decline progressively for those people who earn high incomes. However, at issue here is the interaction of that system with the NHS pension schemes, on which the representative organisations maintain they were not properly consulted. Many consultants are only now becoming aware of their liabilities. I asked two weeks ago, and I ask again, whether the Government believe that their communication with those affected has been sufficient. Furthermore, does the Chief Secretary to the Treasury believe it is acceptable that many of those affected have not even received pension statements in a timely manner, due to delays by Capita? Surely that is only exacerbating these problems.

The Government have maintained—the Chief Secretary to the Treasury did this again a moment ago—that this issue will be solved by the 50:50 pension option proposed in the NHS people plan released last month. However, a number of representative bodies have already expressed concerns about this option. So my third and last question to the Chief Secretary to the Treasury is: what discussions has her Department had with the Department of Health and with those representative bodies about the 50:50 scheme? It has been painfully clear from the Westminster Hall debate, and again this afternoon, that there has been an abject lack of co-ordination across Departments on this issue.

I am sure that many of us are concerned about the lasting impact of today’s crisis. NHS staff retention is already poor. This issue is one of many affecting dedicated senior staff, with large numbers raising concerns about levels of stress and a general lack of resource. A whole variety of Government failures is driving these retention problems. Today’s crisis is likely to add to this, with confusion over pension relief pushing many to retire earlier than they previously would have done, or encouraging some to opt to take on additional private work. I am concerned not only for those consultants but for their patients. There are currently 100,000 NHS staff vacancies; that is one in 11 of all NHS posts. This latest failure will see yet more delays for people in desperate need of care, unless the whole of this Government, working together, get a grip.

We acknowledge that there is an issue. That is why the Health Secretary is poised to launch the consultation—

That is also why the Secretary of State is meeting representatives of the medical profession today. The hon. Lady asks whether the 50:50 scheme is enough and whether more can be done. Those are precisely the issues that the Health Secretary is discussing with those representatives of the medical profession. Of course he is working hand in hand with the Treasury to find NHS-specific solutions to deal with the problems that we all acknowledge and that have been raised today by my hon. Friend the Member for South West Bedfordshire (Andrew Selous). We all acknowledge that.

The important thing to remember is that, while we need to look for NHS-specific solutions—which is precisely what the Health Secretary is working on—the broader issue of taxation cannot be looked at just for one profession. The broader issue of the pension system has to be looked at in the round and in the whole. I am not going to stand at the Dispatch Box today and announce an entirely new pensions policy. We are pragmatically dealing with the situation that has arisen in the NHS, and of course we continue to review our pensions system to ensure that it makes financial sense for those people contributing to it as well as for the Exchequer. We pay more than £50 billion-worth of pension tax relief and it is important that we get value for money for that—that is why the reforms were conducted earlier—but of course we continue to review the arrangements to ensure that they are providing value for money as well as the right incentives for people to save for their later age.

In west Berkshire and Wokingham, we desperately need to recruit and retain more doctors and other senior medical personnel. Will the Treasury look at the 60% tax rate that kicks in at £100,000 for a band of income above that? A lot of important public service workers, not just in the NHS, are caught in that band and are paying higher marginal tax rates than people earning a lot more.

My right hon. Friend makes an interesting point. In general, I am in favour of lower taxes and a simpler tax system that always rewards those who go out to work.

Tapering lifetime allowances have already driven many senior doctors out of the NHS in their late 50s. The issue now is the tapering annual allowance, which is reduced by £1 for every extra £2 earned. This issue was raised in 2017; it has not just come to light. In May, the Chancellor talked about a threshold of £150,000, yet the problem kicks in at £110,000, and many senior consultants and GPs earn above that. The average extra bill is £18,500, but many have faced tax bills of almost £100,000. The British Medical Association survey shows that three quarters are citing this as a reason to retire. At the moment all income, including non-pensionable income, is included. That does not make sense, so can that be changed? It is not just earnings, but the growth of a pension, yet people might not live long enough for that to be income, so why is it counted? The BMA does not think that the 50:50 approach will solve the issue, so will the Treasury have open consultation and, because this is about interaction with the pension system, look at all the options? Otherwise, we will face a workforce meltdown.

As I said, the consultation will be launched fairly soon—the Health Secretary is looking at that—and people will of course be able to feed their views into it.

It is welcome to see a Treasury Minister answering this question; it was a Health Minister in the Westminster Hall debate. As a former cancer Minister, I was incredibly proud of our Government’s 75% ambition, and I doubt whether there is a Member in this House who does not support that. The news from my trust is that this pension issue is hitting radiology, which is hitting cancer diagnoses. Theatre lists are being cancelled because we cannot get anaesthetic cover, as my hon. Friend the Member for South West Bedfordshire (Andrew Selous) mentioned earlier, so may I stress to the Minister the urgency of the situation? We need to grip this and fast, because the longer this goes on and the further it falls, the harder it will be to retrieve. Urgency is the key word here.

I can assure my hon. Friend that I spoke with the Health Secretary earlier today. We are seeking to get the consultation out as soon as possible. The Government have been working on this now for a number of weeks.

This matters first and foremost because of the impact on patient care, not only through increased waiting times in hospitals but in patient’s ability to see a general practitioner out of hours. May I stress the urgency of the situation, as others have? Patients cannot afford to wait for the extended process of finding a new leader of the Conservative party.

May I briefly flag up another issue? One of my constituents, who wrote to me recently to say that he had requested an update on his pension, was told that it would take three months. He was then informed that Primary Care Support England had not updated his pension records for three years and that he would have to wait a further three months once they had been updated. Will the Minister also look at the delays facing doctors trying to get an update on their situation?

I thank the hon. Lady for her question. I will raise that matter with the Health Secretary. It is for the NHS to make sure that its pensions are properly administrated. As I have said, we are dealing with this issue urgently. We are not waiting for the election of a new Conservative Prime Minister to do that. My point about a new Prime Minister was that general tax and pension reforms are not likely to be happening in the next two weeks.

I thank my right hon. Friend for her statement. Will she confirm that this problem, as she said at the beginning, was created in 2016? Working hard for a few weeks now is probably necessary, but it ought to have been possible, by paying attention to the representatives of consultants and GPs and to those in these sorts of areas with similar earnings, to realise that this problem should not have been allowed to continue for quite so long. Will the Minister’s advisers look at the British Medical Association’s “Frequently asked questions”, which in February spelt out many of these issues? I ask, for the sake of those involved and the patients they wish to serve, that there should be a bit more speed—I almost gave it in Latin, but I might have sounded like a Tory leadership candidate. Get on with it, please.

My local hospital made it clear today that the 50:50 contribution proposal will not solve this problem because, as other Members have said, the problem is the taper. The problem is in the Treasury, not in the Department of Health and Social Care. How many more people have to wait longer for their operations before the Chief Secretary to the Treasury focuses on her day job and gets a solution to this problem?

The answers to the problems within the NHS lie within the Department of Health and Social Care, which is why the Department is launching a consultation. As I said earlier, we need to make sure that the pension tax system is designed around all employees. Of course NHS employees are extremely important, but we need to make sure the system works for all employees. That is a longer-term task, but we are specifically looking at the 50:50 idea in the consultation. No doubt the Health Secretary is talking about other ideas that could be introduced, and I am sure he is very interested in the right hon. Gentleman’s views, too.

We have created the most unbelievably complicated tax system. If working additional time makes the pension pot larger, there could be a 55% tax charge when taking those surplus benefits, and restrictions on the annual allowance are resulting in these large tax bills.

It is not surprising that many health professionals are choosing not to do the extra work or are simply retiring earlier. My right hon. Friend the Member for Wokingham (John Redwood) makes a key point, because extra earnings would take many of these people into the slice above £100,000 to £125,000, where a 62% tax charge applies.

This is not just an NHS problem. My concern is that we are putting a brake on those entrepreneurs who want to create enterprise, jobs and the tax payments of the future. A simple step would be to get rid of the lifetime allowance.

I agree with my hon. Friend that we need a simpler tax system that has the right incentives throughout. It is a major task for the new Prime Minister to ensure that our tax system is simpler and has proper incentives. My hon. Friend can raise these issues during the consultation, but there is no doubt in my mind that the British tax system is too complex at present.

I am taken aback by the Minister’s complacency. We all know that patients are suffering because of this policy. What can be done to ensure that doctors who want to do the right thing by taking extra work and doing extra shifts are not left out of pocket?

I disagree with the hon. Lady. We are taking steps to deal with this issue, and the Health Secretary is currently meeting representatives from the medical profession to discuss this in more detail. Wide-ranging reforms to the taxation and pension systems are not things to be wished overnight; they have to be properly worked through.

May I add to the sense of urgency by speaking up on behalf of the chief executive of my local community hospital trust? This is affecting not only clinicians but senior staff, too. They want to continue in many cases, but now they are leaving. These are highly valuable, experienced people whom we need to run these trusts. Please can we sort this out as soon as we can?

My hon. Friend is right about ensuring these people do not face very high marginal rates and an undue tax burden, which is precisely what the Opposition propose—they want to see taxes raised for higher earners.

The Chief Secretary keeps saying this is a matter for the NHS, and certainly the problems it has created for waiting lists and operation times are a problem for the NHS, but does she not accept that this problem has been created by the Treasury? The Treasury needs to look at how to resolve the problem, and it needs to consider what is creating these problems within the NHS, rather than passing the buck to the Health Secretary.

There are specific issues affecting the NHS that the Health Secretary is rightly looking at and is about to conduct the consultation on. As I have said, the Treasury constantly reviews our tax system to make sure that it has the right incentives in it and that it is helping people to save for later years.

In addition to the important points made by my right hon. Friend the Member for Wokingham (John Redwood) and my hon. Friend the Member for South Thanet (Craig Mackinlay), would it not be simpler and fairer to restrict pension relief to the basic rate and scrap all annual and lifetime allowances?

I thank my hon. Friend for his policy suggestion. I am afraid that during this urgent question I will be unable to commit to it, but it is certainly an interesting idea.

Constituents have been raising this issue with me. Not only have clinicians been affected, but patients have been left waiting longer for treatment, which seems totally unnecessary, given that the problem is that clinicians who are willing and wanting to work are in a position where they would not be earning money for working. They are not prepared to sacrifice that family time to come in to do those extra hours that they have been doing for many, many years. This problem could be fixed very quickly if urgent action was taken by the Treasury. I am glad the Health Secretary is meeting representatives from the BMA, but will the Chief Secretary make a commitment that someone from the Treasury will meet the BMA? After all, this was a problem created in the Treasury.

I would be interested to hear precisely what the hon. Lady is suggesting the Treasury does. The Treasury has to look at the pension tax system for all professions and occupations, and it is right that the Health Secretary speaks specifically to those operating in the medical sphere and the Treasury looks at the broad overview.

For the first time, I find myself in agreement with the contributions from the Front Benchers from the Opposition and the Scottish National party. This problem has been coming down the track for at least three years and nothing has been done to stop it. The last thing the NHS needs is senior doctors refusing to work overtime at the weekends and our waiting lists getting worse, not better. The Chief Secretary has bravely come out to bat for the Treasury today, but we must avoid this silo mentality between the Treasury and the Department of Health and Social Care. This is a problem for the whole of the Government, and she and the Health Secretary need to get it sorted out urgently.

We are working closely with the Health Secretary on this issue, and that is the right way to do things; it is right for the Health Secretary to deal with organisations such as the BMA and it is right for the Treasury to look at the overview. The Chancellor has looked at this over the past three years, and I am sure the representations my hon. Friend has made today will be taken very seriously by him.

It is the responsibility of the Treasury to ensure that all public services are operating as efficiently as they can be, and that remit extends beyond NHS England; it extends across all parts of the NHS in the United Kingdom. Indeed, a friend who is a trainee surgeon in Glasgow was just telling me that the entire ear, nose and throat elective list was cancelled this weekend in Glasgow because of a shortage of anaesthetists. That arose because cover could not be found, owing to this perverse incentive we are discussing. Will the Chief Secretary therefore ensure that she writes not only to NHS England but to her counterpart in Scotland to ensure that this issue is effectively understood and the evidence is collated from all parts of the NHS in the UK?

The workforce are the No. 1 priority in the NHS, along with delivering the NHS plan, but we seem to be dealing here with a case of the right hand not knowing what the left hand is doing. When the right hand of the NHS is rightly commissioning Baroness Dido Harding to do a workforce plan, the left hand of Treasury policy is undermining that. Will the Chief Secretary make sure that Baroness Dido Harding’s work is fully integrated into the work she is doing on this.

Around six weeks ago, I raised this issue with the Prime Minister, who was sitting next to the Chancellor at the time, and I was told that they would come back to me. Since then, nothing has happened, and lots of my constituents—consultants and members of the public—are concerned about the deterioration in the situation at the hospitals. Surely the Chief Secretary or the Chancellor could sit down together with the Secretary of State for Health and Social Care and thrash this out.

I place on record the fact that I am married to a GP, although she is unlikely to be affected by the changes.

I recently attended a briefing for Fife’s elected representatives at which Fife Health and Social Care Partnership confirmed that an inability to recruit GPs means that the out-of-hours GP service in Glenrothes will remain closed almost permanently. We were given an update on the worrying number of GP practices—more than one in five—that are having difficulty recruiting and retaining GPs. The director of the partnership told us in terms that the pensions issue is a real one for medical staff, not just for GPs. In that context, it is not acceptable for the Treasury or, indeed, the Home Office, under reserved powers, to lob a hand grenade into our health service and expect the four devolved health services to fix the problem. Will the Chief Secretary tell us what assessment was made of the impact of the changes on the health service? Will she undertake to publish that assessment in full?

This is a matter that took place before I was a Minister in the Treasury, but I commit to find the relevant paperwork and send it to the hon. Gentleman.

Will the Chief Secretary accept that such changes to the pensions process make it seem not worth while for consultants to do overtime, as they are taxed at a high rate multiple times? Furthermore, this will have a detrimental effect on waiting lists and, more importantly, on people’s lives. Will she be prepared to rethink the changes to ensure that those whom we need to work overtime and go the extra mile are not horrifically penalised for doing so?

A number of issues have been raised in respect of the complexity of the tax system and the need for further tax reform. I am sure the Treasury will take that seriously.