Clause 5 — Power to repeal high income excess relief charge

Part of Bill Presented — Superannuation Bill – in the House of Commons at 3:15 pm on 15th July 2010.

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Photo of Angela Eagle Angela Eagle Shadow Minister (Treasury) 3:15 pm, 15th July 2010

Again, my hon. Friend makes an important point in his characteristically acerbic way. I was going to ask the Minister, in a slightly more polite way, how much of the income that the very richest would have paid will now be paid, under the new plans, by those on lower incomes. I hope she can give us that figure.

The key issue with annual investment allowances is that they drag people into paying the extra tax regardless of income. For example, a modest earner might receive a bequest from a deceased relative and make a big payment into a pension, and under our system they would have been able to pay in up to £225,000 without incurring tax. Alternatively, a modest earner might receive a redundancy payment and wish to put it away, and we clearly want to encourage that if they do not have a pension. If the hon. Lady's system is to be of the sort hinted at in the Red Book, that person would be much more affected, regardless of their ordinary income; they would be deterred from putting anything other than the annual investment allowance into a pension fund because of the nature of the tax. I hope she will at least admit that that is an implication. Has she any numbers that relate to this issue?

It is important that we should be able to compare the two systems. That is why the amendment calls for a distributional analysis to be laid before the House before the paving legislation is repealed by order. It calls for the Government to give the House more than a few vague hints about the shape of the new regime that they are planning to introduce.

Reading between the lines, it appears that the Government have chosen to pay a price for increased simplicity. That price appears to be that to reduce the tax burden on the very richest, those on lower-but still good-incomes will be hit. Once more, we see a Government choice that protects the very richest at the expense of those who are not as well off. The Liberal Democrat manifesto identified this regressive tax relief and pledged to restrict it completely to the basic rate. Somehow, through the mysterious and convenient process involved in the so-called coalition agreement, that manifesto pledge has been translated into saving the very richest-perhaps even bankers, as has been said-from large tax burdens and paying for that by clobbering those below them in the income distribution. That definition of "progressive" is even more peculiar than that applied to the VAT rise.

Will the Minister deal with a couple of other questions? There is only a short time before the new financial year. She has said that it is now anticipated that the measure will not be introduced until the Finance Act 2011. How will she protect the £3.6 billion yield, given that that will come in a year earlier? How will we avoid a situation in which the order has to be made before December this year? The new system will not be legislated for and might not even be designed. Surely there will be a space in which the £3.6 billion yield will be at risk, and there will be no approach to ensuring that we can maintain it.

Will the Minister also assure the House that the new regime will be put before us properly and in detail? Will there be consultations, especially with those lower down the income scale, who, it would appear, will now be affected by the changes? Will she also tell us what is happening to the anti-forestalling legislation, which is not repealed by the clause? Will the new regime put the burden of compliance on HMRC rather than on pension providers, which bore the brunt of the approach that we took on this issue? At a time when the Chancellor is boasting of very large cuts in departmental budgets, does the hon. Lady feel that HMRC can cope with the extra burdens that this very sudden, very late, policy change will impose on it?

Finally, what will happen if it all goes wrong? The Minister has hinted that if the Government feel that they cannot intellectually work something out between now and December this year to replace the yield, they will maintain the current system. My experience is that one can have an intellectually coherent approach to a tax change that looks fantastic on paper until one tries to turn it into actual approaches. That stage might well come after the stage that her new policy is able to reach by December this year.

What is the plan B if it all goes wrong? We spent nearly two years ensuring that we could turn our approach into a reality that worked, even though it was not popular among those who were going to have to pay it. The hon. Lady does not have that amount of time. Will she reassure us that the whole thing will not collapse in a heap? I look forward to her response on that point.

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