Clause 1
Finance Bill
12:15 pm
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
My hon. Friend makes a good point. Some of those who are most disadvantaged by the removal of the 10p income tax rate are families without children. Perhaps they are eligible for working tax credit, but we all know that the uptake of working tax credit among those without children is low. The Government have not come forward with any concrete proposals to address that problem. We will want to look in great detail, as will the right hon. Member for Birkenhead, at how the Government propose to address the issue for each of the identifiable groups negatively affected.
I said that I had one specific point that I wanted to address to the Minister. The hon. Member for Taunton quite rightly drew attention to the absurdity of saying that if we had a 99 per cent. tax rate, that would be a great incentive to save for pensions. Of course we recognise that part of the inevitable price of lowering tax rates is the reduction of the incentive effect of tax relief to encourage the kinds of behaviour that we generally accept as desirable. I speak with some authority about the Government’s position, having spent many happy months engaged in discussions with Ministers about the personal accounts proposals. The Government’s position is that a significant increase in pensions saving is essential, particularly among people on lower incomes. In practice, that means people who are paying basic rate income tax, because people on very low incomes find it very difficult to save. A significant increase in pensions saving is absolutely essential if we are to avert a pensions crisis in this country in 30 or 40 years’ time.
I know that lowering the basic rate will reduce the relief available—that is an inevitable consequence—but I asked the Financial Secretary earlier whether the Government had assessed what the resultant reduction in pension saving would be. I, and virtually everybody in the room, I am sure, have received letters from my pension provider telling me that I will have to increase my contribution—indeed, saying that it will increase the direct debit unless I intervene to prevent it from doing so—because of the reduction in tax relief. It is likely that most people on lower incomes will opt simply to allow the gross contribution to their pension fund to decline by the equivalent of 2 per cent. That might not sound an awful lot, but this is a serious issue at a time when the thrust of Government policy is rightly to encourage the take-up of pensions, and when the Government have legislation going through the House to deliver personal accounts, which would be made available to all those in the workplace.
I am not suggesting that that is a reason not to proceed with the basic rate cut, but the Committee would be greatly reassured if there were some evidence that the Government were aware of the issue and had quantified the likely effect. What discussions have the Government had with the shadow Personal Accounts Delivery Authority about the likely impact on personal accounts? I have doubts about the likely success of that vehicle. I would be grateful if the Financial Secretary were able to throw some light on that.