Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

Personal allowances provide for a portion of income on which no tax is due. Older individuals—those aged 65 to 74, and those aged 75 and over—are entitled to higher personal allowances; as the Committee will be aware, they are known as age-related allowances. Clause 2 sets the personal allowances for 2008-09 for individuals aged 65 to 74 at £9,030 and for those aged 75 and over at £9,180.

The tax Acts provide that all personal allowances are increased by indexation each year. The clause overrides the statutory indexation of the age-related allowances, increasing the allowances by £1,180 over indexation. That will give more support to older people, and it will take 600,000 pensioners out of income tax—a point that was celebrated by the pensioners aged over 65 that I met in my constituency, where I have spent a considerable time over recent weeks.

Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede & Weybridge, Conservative)

The Minister has made her points on the clause, but lest anyone has missed the point or was inadvertently misled by the focus that, not surprisingly, the Government put on the increased rates of personal allowance for those over the ages of 65 and 75, will she confirm that the clawback remains in place and that anyone earning more than £20,100 will have the benefit of the additional age allowance clawed back? Will she confirm at what income the beneficial effect of the higher allowance is completely removed? I believe that it is about £24,000. Will she clarify that?

Will the Minister also confirm that the £20,100 threshold provided under the Income Tax Act 2007 has not been increased by an indexation allowance to reflect inflation? The clawback is becoming more aggressive, because the amount has not been increased and there is no provision in existing statute or in the Bill to index that threshold. Will she give the Committee an indication about the Government’s policy on indexing that threshold? If it is not indexed, its value will erode and the effect of the clawback will become more aggressive.

Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)

I shall be brief.

Nicholas Winterton (Macclesfield, Conservative)

You have only 90 seconds.

Jeremy Browne (Shadow Chief Secretary To the Treasury, Treasury; Taunton, Liberal Democrat)

I support the Government’s proposals, but pensioners in my constituency and elsewhere would not thank me if I did not mention that the overall package incorporating the proposals for those aged over 60 is not as advantageous as one might believe from reading the clause. That is particularly so for those aged between 60 and 64 who have retired and regard themselves as pensioners. They do not benefit from the  changes, but they also lose under other proposals, including the freezing of the winter fuel payment and the failure to index the basic state pension with earnings, as the Government promised. Therefore, many pensioners will find themselves in hard circumstances, even though those changes are to their immediate advantage.

Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

It would be for the benefit of the Committee, Sir Nicholas, if we were to check the clock.

Nicholas Winterton (Macclesfield, Conservative)

The clock on the wall is fast; I am going by the digital clock, which gives the Minister 50 seconds.

Jane Kennedy (Financial Secretary, HM Treasury; Liverpool, Wavertree, Labour)

I shall reply to the questions asked by the hon. Member for Runnymede and Weybridge. Yes, the clawback remains in place. The level set is £21,800. It is indexed every year. Those were his specific questions.

Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede & Weybridge, Conservative)

Will the right hon. Lady kindly draw my attention and that of the Committee to the provision that allows for the indexation of those sums? As far as I can see, section 57(3)(a) of the Income Taxes Act 2007 indexes the amounts of the allowance but not the threshold.

Nicholas Winterton (Macclesfield, Conservative)

I am afraid that I cannot allow the right hon. Lady to reply. However, she will now have time to prepare a full answer.