Relief for Premiums Under Retirement Annuity Contracts

New Clause 8 – in the House of Commons at 12:00 am on 18th July 1979.

Alert me about debates like this

'(1) Sections 227 and 228 of the Taxes Act (which prescribe limits subject to which relief is available for premiums paid under approved retirement annuity contracts etc.) shall be amended as follows:—

  1. (a) in subsections (1A) and (1C) of section 227 and subsections (1) and (4) of section 228 for "£3,000", wherever it occurs, there shall be substituted " £4,500";
  2. (b) in subsections (1B) and (1C) of section 227 for "£1,000" wherever it occurs, there shall be substituted "£1,500" and
  3. (c) in the Table in subsection (4) of section 228 for the first and second columns there shall be substituted
"Year of BirthSum
1937 or 1938£5,400
1935 or 1936£6,300
1933 or 1934£7,200
1931 or 1932£8,100
1930 or any earlier£9,000 "

(2) This section does not affect relief for any year of assessment before the year 1979–80.'.—[Mr. Richard Wainwright.]

Brought up, and read the First time.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

I beg to move, That the clause be read a Second time.

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

With this it will be conventient to take new clause 9—Approval of contract for dependants or for life assurance.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

The new clauses relate to a significant limitation on the amount of provision that self-employed people, as distinct from those working for or directing companies, can make for approved retirement annuity contracts to provide pensions for their retirement.

I am sure that the Government will welcome proposals that tie in so closely with those that their spokesmen pressed hard, eloquently and reasonably upon the previous Government affecting the self-employed, who received such a generous share of attention in the Conservative Party election manifesto. The self-employed will otherwise suffer this year from the absence from the Finance Bill of alterations and adjustments to various maxima expressed in terms of money.

I can well understand the Government wanting to keep this year's Finance Bill short, but that involves the rather unfair advantage to the Government of overlooking the enormous change in the value of money, which has put completely out of date maximum limits, such as the ones I am now discussing and wish to amend, in respect of self-employed people. It would be very unfair, simply because of the brevity of the Finance Bill this year, if these crippling limits were to remain unchanged.

I should in fairness add that the previous Administration—at any rate in their later years, when they had some additional political assistance—had a rather good record in uplifting these maxima in a fair manner to correspond with the rate of inflation. The figures that we seek to amend in new clause 8 were adjusted in the Finance Act 1976 and also in the Finance Act 1977, so that the Revenue was not unfairly taking advantage of inflation to depress people's provision for their old age. It would be a great shame and a very backward step if, the previous Administration having attended to this matter in 1976 and 1977, the new Administration were to start their career on the bad note of neglecting these adjustments for 1979.

The main proposal is that the upper limit on the amount that a self-employed person is allowed to contribute per year for his pension, with tax relief, should be uplifted from a maximum of £3,000 to a maximum of £4,500 a year. This ties in reasonably with the history of this matter since 1971, for example, when the maximum earning level for this purpose was £10,000 a year, at a time when the average earnings in the country were approximately £30 a week. Average earnings are now approaching £90 a week, and therefore an increase of the size suggested in the new clause seems to be in line with the accumulated rate of inflation since then.

By the same token, it is also necessary to have an upgrading of the figures for those who can start contributing to their retirement pension as self-employed people only at a relatively late age. This is a historic provision which is obviously fully justified and ought to be kept up to date. The original provision, when the system was introduced in 1956, referred to people born before 1916, and the whole procedure has been kept up to date on the basis that people who start contributing to their pension at the late age of 40 are entitled to higher maxima. The new clause simply uplifts these maxima in accordance, roughly speaking, with the rate of inflation since the last adjustment in 1977.

It is important for the House to be good enough to note that it is only the self-employed nowadays who are subject to maxima of this kind. Even controlling directors of companies, who are the nearest species alive to a self-employed person, and who are very often at liberty to fix their own pensions, are no longer subject to any maxima, so that we are dealing here with the only significant group for pension purposes who are subject to a maximum that they can put away in order to provide for their old age. Since they are the only people in this category, it would seem to me to be very unfair and unreasonable to penalise them—I am sure it is not the wish of any section of this House—by maintaining these maxima at unrealistically low levels.

I am sure that the House would wish to bear in mind the obvious fact that many self-employed people—either building up a business of their own or building up a professional practice—have some very hard early years in which it is so important to plough back every penny into the business that they often have no opportunity to put money by for annuity contracts. It is often relatively late in life that self-employed people, compared with employees, sometimes have the chance to start building up a pension fund for themselves. It is all the more important that the maxima to which they are restricted should not be allowed to fall behind unfairly simply due to the silent progress of inflation. New clause 8 is proposed in order to seek to update those figures.

New clause 9 is designed simply to try to introduce some equity for the self-employed as compared with employees or even directors or controlling directors of companies. Those in a company scheme can have a very generous amount of lump-sum death benefit made available in a form which will entirely avoid capital transfer tax at the time at which it is paid. But self-employed people—in what I think must be simply a neglected hangover from the old days of estate duty, now gone—are subject in their annuity contracts to the requirement that the lump sum on death shall be payable to the personal representatives. This very often means that the benefit, before it passes into the hands of those for whom it is intended, may suffer capital gains tax. This is an inequity—no doubt unintended—which is unfair on the self-employed. It is something which I am sure no section of the House would wish to inflict.

Photo of Mr Robert McCrindle Mr Robert McCrindle , Brentwood and Ongar

My interest in matters relating to insurance and pensions is well known to the House, Mr. Deputy Speaker, but to keep in order perhaps I should start by declaring an interest as the parliamentary adviser to the British Insurance Brokers' Association.

I want to make a very short speech broadly in favour of the proposition which has just been made by the hon. Member for Colne Valley (Mr. Wainwright). It is not more than a few weeks since, irrespective of party, we were all making speeches in our constituencies in the interests of the self-employed, pointing to ways in which they are disadvantaged in comparison with those who have a growing range of fringe benefits from their employers. I cannot but echo the sentiments of the hon. Gentleman that in many ways the self-employed continue to be dealt with in a very unequal fashion in regard to pensions.

Put quite simply, the new clause calls for a better deal for the self-employed. It is in that spirit that I should like to endorse it and to call upon my hon. and learned Friend the Minister of State in his reply to give serious consideration to accepting it.

I accept straight away that any reference to a person who is able to invest £4,500 a year in a pension scheme is liable to lead to rather less sympathy perhaps than in many ways is justified. But many of the people to whom the clause would particularly refer have a very short period of high earnings. In those circumstances, every encouragement should be given to them to provide—sometimes over a very short period—for the pension for which the rest of us usually have a working lifetime to provide.

Because of the variable earnings and the short period over which these high earnings take place, there is a case for introducing a figure of the sort proposed in the new clause. But, because it is such a high percentage increase that is proposed, I would not be unprepared to listen to an alternative proposition from the Minister, indicating that he is with us in spirit and in principle, even though the Government do not feel able to go the whole way to the figure of £4,500.

I believe that there is a strong argument for indexing the amount that the self-employed can invest in pensions. I agree that the self-employed have been treated rather differently and, on the face of it, less fairly in the matter of making provision for their pensions. While I doubt whether I would go to the stake in the interests of the new clause, I hope that the Minister will be able to reassure me sufficiently that at least he is with us in spirit. If he cannot accept the new clause as such, I hope he will be prepared to consider accepting something broadly similar, albeit with a lower figure than the one proposed in new clause 8.

5.30 p.m.

Photo of Mr Peter Rees Mr Peter Rees , Dover and Deal

The hon. Member for Colne Valley (Mr. Wainwright) has certainly identified two problems which deserve the closest and most sympathetic consideration. I give him that most unreservedly. I find his role as a champion of the self-employed a little odd. However, we are all entitled to assume roles in the course of our debates. I know that the hon. Gentleman is a very distinguished member of a liberal profession, and while his approach is not novel it is perhaps a little new-found.

I think that I am entitled to remind the House that during the course of our Second Reading debate the hon. Member for Colne Valley was diffident about bringing down the higher rates of tax, which must have some bearing on this problem. He said that although the Liberal Party was in favour of bringing down the rates in principle, 70 per cent. was low enough at this time and that the Gothic nightmare—to recall the graphic phrase, which I remember with pleasure, of Mr. John Pardoe—should be altered brick by brick rather timorously over the years. The hon. Gentleman has now cast his timidity aside and evidently we are to have something bold and decisive for the self-employed.

I must declare a former interest, because I ceased to be self-employed only on 8 May. Indeed, I say quite candidly to the House that I have contributed to retirement benefit schemes. Therefore, I am certainly with my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) in spirit and I recognise the long, consistent and honourable contribution that he has made to these debates—much longer, dare I say, than the hon. Member for Colne Valley. The hon. Member for Colne Valley may have been with my hon Friend in spirit but he was not quite so evident about it. I am deeply conscious that I have contributed to debates on this subject over the years when in Opposition.

I come back to the general principle. I am not here to score partisan points, as I am sure the hon. Member for Colne Valley will recognise. I hope that we shall find a broad measure of agreement. Indeed, I am waiting for a contribution from the Opposition Front Bench on this subject.

There are two problems here. I take the smaller and more technical problem first, the one exhibited by new clause 9. If the new clause tabled by the hon. Member for Colne Valley were accepted, it would enable a person who had embarked upon this course to designate that the sum should be paid not to his personal representatives but to some other nominated person. We could debate whether that might enlarge the limits too far. It might be that the hon. Gentleman could be rather capricious, but that is his right.

However, it does not automatically follow that because someone else is nominated the sum will necessarily escape capital transfer tax, although it is very likely because it will probably be within the normal reliefs of which a person can take advantage. It is also very likely, but not inevitable, that if the sum is paid to a personal representative and forms part of the estate it will be subject to capital transfer tax. Therefore, this is a problem to which we must return.

The original restriction was introduced—I must confess I cannot now recall whether it was introduced by the previous Administration or an earlier Conservative Administration—and the underlying concept in those happy far-off days was that retirement annuity schemes for the self-employed, or for others, should not be more advantageous than top hat or general pension arrangements for the employed. The balance has now swung the other way.

The reason why the walls of Jericho do not collapse at the first clap of the trumpet of the hon. Member for Colne Valley is that there are one or two technical defects. I never like to make that particular point, because it is much better that we should debate on the question of principle. But there would certainly need to be consequential amendments to, for example, section 226(2)(c) and 226(6) of the Income and Corporation Taxes Act 1970. I am sure that, as an accountant, the hon. Member for Colne Valley will recognise that it would be necessary to tidy up those points.

Therefore, even if we were disposed to accept his arguments in toto—as I say, I find myself very much in sympathy with them—I do not think that we could accept the new clause. This is certainly an area to which we shall return in future Finance Bills and I hope that the hon. Gentleman will understand the reasons that lead me to ask him not to press that proposal to a Division.

I turn now to new clause 8, which raises a point of wider principle. I accept the arguments of the hon. Member for Colne Valley but may I correct him on one point? I hope that I shall not be thought to be too pernickety on this. In fact, the retirement annuity provisions are not limited to the self-employed, although the self-employed, on the whole, are more able to take advantage of them. There are those for whom there are no pension arrangements, and I am sure that my hon. Friend the Member for Brentwood and Ongar will know of such cases. This is not entirely what I would call a charter for the self-employed.

We recognise, and I hope that Opposition Members recognise, that the self-employed have not been protected to the same degree as those who have had the advantage of pension schemes, particularly inflation-proof schemes, over the last few years when the ravages of inflation have made intolerable inroads into the provision made for retirement. We recognise that the limits imposed—even the increases that were permitted—did not adequately offset inflation. We certainly recognise that something needs to be done. I doubt whether this new clause is comprehensively satisfactory.

Various points have been pressed on the House on different occasions—indeed, on this Administration since we took office. For instance, there is the question whether unused relief should be carried forward and whether retirement annuity contracts could be topped up by some considerable payment in the last year before retirement. So there are other problems that will need to be tackled.

I say to the hon. Member for Colne Valley, indeed to the whole House, if it is necessary to do so, that I hope that I have demonstrated clearly that we are with them in spirit. I do not think that my hon. Friend the Member for Brentwood and Ongar will need to go to the stake on this issue. Whether the hon. Member for Colne Valley has a martyr complex, I do not know. He and his hon. Friends must be forgiven for their consciences. I hope that, at the end of the day, and in the light of what I have said, they do not have to go to the stake either.

I am certainly prepared to give the assurance that the Government will review this matter sympathetically. I am sure that the House will recognise the constraints that were imposed on the present Administration when putting together a Finance Bill in such a very short space of time. I am also sure that the House would not have been sympathetic if the Bill had run to 64 clauses and seven schedules. Even the Liberal Party would not have wished to stay to debate those measures into August.

The Government will certainly come back to this matter with a sympathetic approach, and I hope that on that basis none of us need feel obliged to go to the stake or demonstrate our sympathy or commitment. I am sure that this debate has demonstrated that there is a broad measure of agreement and that the Government will look again at these problems.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

If the House will tolerate it, I should like to take a moment or two to reply to the speech of the Minister, which I thought was a very strange mixture.

After I had been at pains to introduce a clause which I felt had no particular party label and would receive sympathy from all quarters, the Minister felt constrained to cast extraordinary doubts on my qualifications and those of my party as defenders of the self-employed. I am surprised that the Minister was not immediately corrected by the hon. Member for Maldon (Mr. Wakeham), who shared with me the hardships of a Sunday morning in Blackpool addressing the National Federation of Self-Employed Limited, submitting ourselves to the whips and scorpions that that body administers with such robust impartiality.

I shall not detain the House by listing further my qualifications as a spokesman for the self-employed, except to remind hon. Members—I am sure they are all conscious of it—that Liberal Members represent those parts of the country with the highest proportion of self-employed persons—headed by my hon. Friend the Member for Cardigan (Mr. Howells) and followed not far behind by myself and my colleagues. So much for that quite unprovoked and unjustified attack on our status in relation to the self-employed. As to the cheap taunts about alleged timidity, simply because I am not gifted with the contentious and robust style of my distinguished predecessor, Mr. Pardoe, I shall not waste any time on those attacks.

Although I am not given to pressing points when I have had some degree of assurance from the Government, nevertheless, in this case, it is not good enough to let another year pass. The famous statement that in the long run we are all dead applies particularly to those who are approaching retirement and for whom every year of unjust restraint on their maximum pension contribution is a severe and crippling factor in their old age.

I remind the House that we are not talking in this instance about people with comfortable inflation-proof pensions. On the contrary, we are talking about self-employed people whom the Conservative Party professes to join in championing—although I sometimes wonder—who must take up pensions expressed precariously and dangerously in fixed terms of money, which for all I know may be worth only bus tickets in three or four years. It is, therefore, intolerable that these people should have to wait another year under the yoke of maxima which the Minister himself admitted are far behind the adjustment that is required to compensate for inflation since 1971.

I am bound to recommend my right hon. and hon. Friends to press this new clause to a Division, and I hope that we shall have support from all quarters of the House.

Question put, That the clause be read a Second time:—

The House divided: Ayes 15, Noes 265.

Division No. 65]AYES[5.41 p.m.
Bradley, TomPenhaligon, DavidWainwright, Richard (Colne Valley)
Carter-Jones, LewisRoberts, Gwilym (Cannock)Wilson, Gordon (Dundee East)
Grimond, Rt Hon J.Ross, Stephen (Isle of Wight)
Howells, GeraintSkinner, DennisTELLERS FOR THE AYES
Janner, Hon GrevilleSteel, Rt Hon DavidMr. A. J. Beith and
Kilfedder, James A.Stewart, Rt Hon Donald (W Isles)Mr. David Alton.
Lamble, David
NOES
Adley, RobertBrinton, TimothyCrouch, David
Aitken, JonathanBrooke, Hon PeterDean, Paul (North Somerset)
Alexander, RichardBrotherton, MichaelDickens, Geoffrey
Alison, MichaelBrown, Michael (Brigg & Sc'thorpe)Dodsworth, Geoffrey
Ancram, MichaelBrowne, John (Winchester)Dorrell, Stephen
Arnold, TomBruce-Gardyne, JohnDouglas-Hamilton, Lord James
Aspinwall, JackBryan, Sir PaulDover, Denshore
Atkins, Robert (Preston North)Buchanan-Smith, Hon AlickDunn, Robert (Dartford)
Atkinson, David (B'mouth, East)Buck, AntonyDurant, Tony
Baker, Kenneth (St. Marylebone)Budgen, NickDykes, Hugh
Baker, Nicholas (North Dorset)Bulmer, EsmondEden, Rt Hon Sir John
Banks, RobertBurden, F. A.Edwards, Rt Hon N. (Pembroke)
Beaumont-Dark, AnthonyButcher, JohnEggar, Timothy
Bell, RonaldCadbury, JocelynElliott, Sir William
Bendall, VivianCarlisle, Kenneth (Lincoln)Emery, Peter
Bennett, Sir Frederic (Torbay)Carlisle, Rt Hon Mark (Runcorn)Fairgrieve, Russell
Benyon, Thomas (Abingdon)Channon, PaulFaith, Mrs Sheila
Benyon, W. (Buckingham)Chapman, SydneyFarr, John
Berry, Hon AnthonyChurchill, W.S.Fell, Anthony
Best, KeithClark, Hon Alan (Plymouth, Sutton)Fenner, Mrs Peggy
Bevan, David GilroyClark, William (Croydon South)Finsberg, Geoffrey
Biffen, Rt Hon JohnClarke, Kenneth (Rushcliffe)Fisher, Sir Nigel
Biggs-Davison, JohnCockeram, EricFletcher, Alexander (Edinburgh N)
Blackburn, JohnColvin, MichaelFletcher-Cooke, Charles
Bonsor, Sir NicholasCope, JohnFookes, Miss Janet
Boscawen, Hon RobertCormack, PatrickForman, Nigel
Bowden, AndrewCorrie, JohnFowler, Rt Hon Norman
Boyson, Dr RhodesCostain, A. P.Fox, Marcus
Braine, Sir BernardCranborne, ViscountFraser, Peter (South Angus)
Bright, GrahamCritchley, JulianFry, Peter
Gardiner, George (Reigate)Madel, DavidShaw, Michael (Scarborough)
Gardner, Edward (South Fylde)Major, JohnShelton, William (Streatham)
Garel-Jones, TristanMarland, PaulShepherd, Colin (Hereford)
Glyn, Dr AlanMarlow, AntonyShepherd, Richard (Aldridge-Br'hills)
Goodhew, VictorMarten, Neil (Banbury)Shersby, Michael
Goodlad, AlastairMates, MichaelSilvester, Fred
Gorst, JohnMather, CarolSims, Roger
Gow, IanMaude, Rt Hon AngusSkeet, T. H. H.
Gower, Sir RaymondMawby, RaySmith, Dudley (War. and Leam'ton)
Greenway, HarryMawhinney, Dr BrianSpeed, Keith
Griffiths, Peter (Portsmouth N)Maxwell-Hyslop, RobinSpeller, Tony
Grist, IanMellor, DavidSproat, Iain
Grylls, MichaelMeyer, Sir AnthonySquire, Robin
Gummer, John SelwynMills, Iain (Meriden)Stanbrook, Ivor
Hamilton, Michael (Salisbury)Mills, Peter (West Devon)Steen, Anthony
Hampson, Dr KeithMoate, RogerStevens, Martin
Hannam, JohnMontgomery, FergusStewart, Ian (Hitchin)
Haselhurst, AlanMoore, JohnStewart, John (East Renfrewshire)
Hastings, StephenMorgan, GeraintStokes, John
Hawksley, WarrenMorris, Michael (Northampton, Sth)Stradling Thomas, J.
Heath, Rt Hon EdwardMorrison, Hon Charles (Devizes)Tapsell, Peter
Heddle, JohnMorrison, Hon Peter (City of Chester)Tebbit, Norman
Henderson, BarryMudd, DavidTemple-Morris, Peter
Hicks, RobertMurphy, ChristopherThatcher, Rt Hon Mrs Margaret
Higgins, Terence L.Myles, DavidThomas, Rt Hon Peter (Hendon S)
Hill, JamesNeale, GerrardThompson, Donald
Hogg, Hon Douglas (Grantham)Nelson, AnthonyThorne, Neil (Ilford South)
Holland, Philip (Carlton)Neubert, MichaelThornton, George
Hooson, TomNott, Rt Hon JohnTownend, John (Bridlington)
Hordern PeterOnslow, CranleyTownsend, Cyril D. (Bexleyheath)
Howell, Rt Hon David (Guildford)Oppenheim, Rt Hon Mrs SallyTrippier, David
Howell, Ralph (North Norfolk)Osborn, JohnTrotter, Neville
Hunt, David (Wirral)Page, John (Harrow, West)van Straubenzee, W. R.
Hunt, John (Ravensbourne)Page, Rt Hon R. Graham (Crosby)Viggers, Peter
Irving, Charles (Cheltenham)Parkinson, CecilWaddington, David
Jessel, TobyParris, MatthewWakeham, John
Jopling, Rt Hon MichaelPatten, Christopher (Bath)Waldegrave, Hon William
Kaberry, Sir DonaldPawsey, JamesWalker, Rt Hon Peter (Worcester)
Kershaw, AnthonyPink, R. BonnerWalker-Smith, Rt Hon Sir Derek
King, Rt Hon TomPollock, AlexanderWall, Patrick
Knight, Mrs JillPorter, GeorgeWaller, Gary
Knox, DavidPrice, David (Eastleigh)Walters, Dennis
Lang, IanPrior, Rt Hon JamesWard, John
Langford-Holt, Sir JohnProctor, K. HarveyWarren, Kenneth
Latham, MichaelRaison, TimothyWatson, John
Lawrence, IvanRathbone, TimWells, John (Maidstone)
Lawson, NigelRees, Peter (Dover and Deal)Wells, P. Bowen (Hert'rd& Stev'nage)
Le Marchant, SpencerRees-Davies, W. R.Wheeler, John
Lennox-Boyd, Hon MarkRenton, TimWhitelaw, Rt Hon William
Lester, Jim (Beeston)Rhodes James, RobertWhitney, Raymond
Lewis, Kenneth (Rutland)Ridsdale, JulianWickenden, Keith
Lloyd, Ian (Havant & Waterloo)Rifkind, MalcolmWiggin, Jerry
Lloyd, Peter (Fareham)Roberts, Michael (Cardiff NW)Wilkinson, John
Loveridge, JohnRoberts, Wyn (Conway)Williams, Delwyn (Montgomery)
Luce, RichardRossi, HughYoung, Sir George (Acton)
Lyell, NicholasRost, PeterYounger, Rt Hon George
Macfarlane, NeilRoyle, Sir Anthony
Mackay, John (Argyll)Sainsbury, Hon TimothyTELLERS FOR THE NOES:
McKelvey, WilliamSt. John Stevas, Rt Hon NormanMr. John MacGregor and
McQuarrie, AlbertScott, NicholasMr. Tony Newton.

Question accordingly negatived.