Schedule 1
Finance Bill
4:30 pm
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
The schedule deals with the detailed implementation of clause 3, which we already discussed in the Committee of the whole House. I shall speak to the amendments separately, and to amendment No. 12 first, because it is the simpler of the two.
By tabling amendment No. 12, I seek clarification from the Government and ask them to make explicit what is implicit in the arrangements, namely, that the starting rate for savings will be available only on the basis of claim. In other words, savers will see tax deducted at source at 20 per cent., and will then have to claim back to recover the difference between the starting rate for savings and the basic rate that has been deducted.
Proposed new section 7 of the Income Tax Act 2007, titled, “The starting rate for savings”, will mainly benefit low income savers. I do not believe that anybody has a problem with the principle of the measure, but the concern is that many people who are intended to benefit from it will not routinely make income tax returns or be familiar with the process of making a claim for recovery of overpaid tax on form R40. Many people, even when they become aware of the process, may feel that it involves a lot of bureaucracy for what might be a relatively small amount. What assessment have the Government made of the situation with regard to the likely take-up of the starting rate for savings on the basis that a claim will have to be made? The amendment would include in the Bill a reference to the fact that the relief is available only on the basis of a claim, for the sake of clarification. What steps do the Government intend to take in order to increase awareness of the starting rate for savings and the process by which it has to be claimed? There will be some quite complex calculations to be done.
I have a note here from one of the major accountancy firms—an internal training note setting out examples of how the starting rate for savings will work for different groups of individuals. I will just give the Committee a flavour of some of the complexity. Example 6 is:
“Taxpayer aged 74, married, earned income £12,000, savings income £3,000. Earned income exceeds personal allowance by £2,970, so according to rules, no 10% band on savings income allowed. Therefore all taxed at 20%. So tax on pension income equals £594. Add tax on savings at 20% of £600. Total tax due: £1,194. But married couples’ allowance reduces tax bill by £653, so tax bill only £541. Therefore, this is likely to be a repayment case at year end as taxpayer would fail the R85 registration test for gross interest.”
Now we are not talking here about a multinational corporation. We are talking about a 74-year-old taxpayer, with an earned income of £12,000 and a savings income of £3,000—someone with quite modest affairs, unlikely to be professionally advised and likely to do his own tax return. I am sure the Minister will agree with me that, in the case of that particular taxpayer, it is quite likely that he would either fail to recognise that he is entitled to the relief, or at some point in that calculation, would simply give up and decide that life is too short and it is not worth bothering to pursue the claim.