This may not be the most prominent Treasury matter gripping the nation today, but as Cathy Jamieson said, it is none the less an important Bill and I am grateful for the opportunity to make further progress and respond to this debate.
New clauses 1 and 2, tabled by the hon. Member for Kilmarnock and Loudoun, require the Treasury to publish two reviews of the impact of the Bill. The first review would focus on Exchequer revenues, including the use of salary sacrifice arrangements, income tax receipts and national insurance contributions. The second review would include the distributional impacts by income decile of the population of the pensions flexibility measures; the impact on Exchequer revenue of measures contained within schedule 2, which makes various changes to the taxation of pensions at death; a behavioural analysis; an analysis of the cumulative impact on Exchequer revenues; and an analysis of the impact on the purchase of annuities. An amendment has been tabled by Hywel Williams, which would, as we have heard, require the Government to undertake an analysis of the impact of the changes introduced in the Bill on the housing market.
I would like to explain—I suspect this will not come as a huge shock to hon. Members—why the new clauses are unnecessary. There are a number of reasons. First, on considering new clause 1 and the parts of new clause 2 that relate to Exchequer revenues, it is important to note that the Government have today published estimates of the Exchequer impacts of the policy as a whole. These costings, which have been certified by the independent Office for Budget Responsibility, cover all the changes we have made to the policy since Budget as a result of consultation. I know hon. Members have been concerned about the potential consequences for the Exchequer of the new freedoms. The Government published costings at Budget. I have been clear that we would update the costings to reflect the policy decisions that have been taken since then. A great deal of the debate has rightly focused on that issue.
The Government have taken a number of policy decisions since pension flexibility was announced in March. Those decisions are: introducing a £10,000 annual allowance for those who have flexibly accessed a pension pot of more than £10,000; changing the rules on the taxation of pensions at death; and continuing to allow transfers out of funded defined benefit schemes. Today, as part of the autumn statement, the Government have also confirmed that the notional income rules for assessing eligibility for means-tested benefits will be more generous by assuming that unspent pension savings generate the same income as an annuity, rather than 150% of an annuity as at present. Of course, not all of these measures are contained within the Bill, but I believe that they are relevant to any debate on the fiscal impacts of flexibility. To ensure the Government are being sufficiently transparent, I have today taken the step of writing to members of the former Public Bill Committee to set out further details of the costings. I will now outline those costings to the House.
At Budget 2014, the Government published costings that stated that freedom of choice would cost the Exchequer minus £5 million in 2014-15, and from then on would raise money: £320 million in 2015-16, £600 million in 2016-17, £910 million in 2017-18, £1.22 billion in 2018-19, and £810 million in 2019-20. The overall impact of decisions taken since the policy was announced in March does not significantly alter the numbers published at Budget. As set out in my letter to the Committee and in table 2.1 of the autumn statement document, the decisions I have just described will have the following Exchequer impacts: they will raise £60 million in 2015-16, cost £25 million in both 2016-17 and 2017-18, raise £30 million in 2018-19, and cost £10 million in 2019-20. Further detail on how those costs have been calculated is set out in the policy costings document, which has been published today alongside the autumn statement.
In my letter to Committee members, I explained that the costings published today as part of the autumn statement were based on the same central assumptions that underpinned the costings published at the Budget. Since the Budget, the Government have explored in more detail two aspects of the policy affecting the costing: the increased costs of salary sacrifice and welfare as a result of the reforms—two points that the hon. Member for Kilmarnock and Loudoun dwelt on. The Government have produced these costings and they have been scrutinised by the OBR.
In line with standard practice, these are accounted for as changes to the forecast and so are not outlined in table 2.1 of the autumn statement document. In recognition of the concern raised by Members about the likely impact on the Exchequer, I included the Government’s estimate of the costs in my letter to the Committee, but I will set them out again to the House. The revisions to the forecast to account for salary sacrifice are: minus £5 million in 2014-15; minus £35 million in 2015-16; minus £30 million in 2016-17; and minus £25 million in 2017-18, 2018-19 and 2019-20. The revisions to the forecast to account for the increased cost of welfare are: minus £10 million in 2015-16; minus £15 million in 2016-17; minus £20 million in 2017-18; and minus £25 million in 2018-19 and 2019-20.
The Government have, therefore, already published the information the two new clauses seek on the Exchequer impacts of the various aspects of flexibility, and all that information has been certified by the independent OBR. In addition, the Government have already committed to keeping the policy under review, through the monitoring of information collected on tax returns and tax records, and HMRC regularly publishes data on tax receipts reflecting any impact on the Exchequer. Any such impacts will be reflected in forecasts at fiscal events.
The Government keep tax policy under continual review. There is no need for further reviews of the Exchequer impacts of the policy, because the Government have already committed to keeping them under review through usual processes, and I hope that this will reassure hon. Members regarding the fiscal impacts of measures in the Bill and related policies. At the very least, I hope hon. Members will appreciate that, given this debate has occurred after the autumn statement, I have been able to provide some of the answers the hon. Member for Kilmarnock and Loudoun was seeking in Committee.
New clause 2 would also require the Government to review the distributional impact of the measures in the Bill no less than 18 months after the Bill takes effect. As I set out in Committee, the measures in the Bill do not have a direct consequential impact on household incomes. Distributional effects will be driven by the choices individuals make about how and when to take their pension. In addition, household income is not necessarily a reliable measure of pension wealth, particularly in the years immediately prior to retirement. The impacts of the policy could be misrepresented were we to review them only against the distribution of household income. I appreciate I made that argument in Committee, but it was a good argument then, and it is a good argument now.
In addition, new clause 2 would require the Government to publish behavioural analysis. As discussed in Committee, the costing of tax policies often involves an assessment of the behavioural impacts of the measure and, in some cases, the capacity for additional tax planning and avoidance behaviour. These assumptions and methodologies are certified by the independent OBR, but the Treasury considers that making these detailed behavioural assumptions public might affect the behaviour they relate to and so could be detrimental to policy making.
As I mentioned in relation to the Exchequer impact of the changes to the taxation of pensions at death, a policy costing note published alongside the autumn statement explains how the costings have been calculated. This is in line with the principles outlined in the Government document, “Tax policy making: a new approach”, published alongside the June 2010 Budget.
New clause 2 would require the Government to review any impact the measures in the Bill might have on the volume of annuity purchases. Considering the policy intent of the changes, this would be unnecessary and inappropriate. These measures are not intended to encourage savers towards or away from any particular product over another. They are intended to offer savers greater choice and flexibility about how they use their hard-earned savings to fund their retirement.
The Government have always said that they believe annuities will continue to be the right choice for many people at some point in their retirement, as many people will value the security of the guaranteed income. However, the Government do not believe it appropriate to mandate that individuals should use their lifetime savings to purchase any one specific financial product. As I set out in Committee, data on the sale of annuities will continue to be available through other channels—the data published by trade bodies and publications by individual firms, for example—and there is no need for the Government to duplicate this.
A further amendment has been tabled by the hon. Member for Arfon, which would require the Government to undertake
“an analysis of the impact of the changes introduced by this Act on the housing market”.
This appears to stem from a concern that the Government’s changes will have an adverse impact on the housing market. With greater choice and flexibility at the point of retirement, people will be allowed to make a decision about their finances that is right for them. This Government are committed to making the aspiration of home ownership a reality for as many people as possible. That is why they have introduced policies such as Help to Buy and further measures announced in the Budget to support the supply of housing. As part of the new regulatory framework for financial services, the Government have introduced the Financial Policy Committee to ensure that risks stemming from the housing market are identified and early mitigating action taken, if required.