I beg to move amendment No. 187, in page 60, line 35, at end insert—
'(1A) Section 539 (introductory) is amended as follows.
(1B) In subsection (1) (scope of Chapter II of Part XIII of the Taxes Act 1988) after ''policies of life insurance, contracts for life annuities and capital redemption policies'', insert ''but any gain falling to be treated as taxable income by virtue of this Chapter shall be disregarded from total income in applying section 257(5) (reduction in personal allowance for elderly taxpayers by reference to total income).''.'.
The amendment is designed to address a problem that I raised on the Floor of the House in relation to the allowances of individuals, particularly retired people, and the operation of the law on insurance policies.
When a United Kingdom insurance policy is issued, the saver gets a credit equal to the basic rate of tax. Only higher-rate taxpayers have to pay tax, and then at a rate equal to the excess of the higher over the basic rate of tax. As the Minister is aware and has confirmed,
the gain arising on the policy is included in individuals' total income for the tax year for the purposes of allowances, even though they may have no tax to pay when the policy matures. That can have the effect in the year in question of removing completely age-related personal allowances, which are becoming of greater relevance to those who are in retirement in the latter part of their lives. That seems very unfair, as it simply penalises the older saver.
The amendment is designed to separate the two: it would keep the provisions that impose a tax charge on life assurance gains, but ignores the deemed income in determining whether there should be a clawback of the elderly person's higher allowances. There will still be the tax liability as it stands, if any, on the insurance policy, but people will not be punished further for having virtuously saved for their old age.
I support the amendment, because I have had reason to write to the Paymaster General on two separate occasions, urging the Government to go down the very route that the hon. Member for Arundel and South Downs has so ably put forward.
It is important that all Committee members realise what is at stake here. Many pensioners on very modest incomes have chosen to save for their retirement using the devices mentioned in the clause, through insurance policies and so on. It just so happens that when their bonds or policies come to be cashed in, although they
have fairly modest incomes the rest of the time, the gain added to their income in that year takes them well above the age allowances and can result in them paying significant amounts of income tax for that year. Those pensioners are often on modest incomes and have scrimped and saved to buy those policies.
I am grateful for the intervention by the hon. Member for Arundel and South Downs clarifying the position. I thought that I was talking about qualifying policies. The right hon. Member for Fylde has great technical knowledge, and he may wish to intervene further if he thinks that they are non-qualifying. I had understood that they were qualifying because that would be in the general framework of the law in this area.
The political point that I want to make, which the Government should take on board, concerns the group of people we are talking about. They are not extremely wealthy pensioners who would suddenly receive an extra relief if the amendment were passed; they are people who are often on very modest incomes. Although hundreds of thousands of people may not be affected by that unfairness, a number of people are.
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at half-past Two o'clock.
Gale, Mr. Roger (
Cunningham, Mr. Jim
Davey, Mr. Edward
Field, Mr. Mark
Harris, Mr. Tom