I beg to move amendment No. 38, in page 9, line 22, at end insert—
'(3A) In the case of income from earnings, the amount of qualifying income shall be increased by an amount to be prescribed in regulations, for the purpose of entitlement to savings credit.'.
We now come by means of amendment No. 38 to provoke and prompt discussion about the treatment of earnings which, for reasons that the Committee understands, we were not able to do at an earlier stage. The amendment is an attempt to think about how we might approach the issue of encouraging people, particularly those who have just passed the age of 60 or 65, to stay on in or do paid work for as long as possible. I will say a little more about the specifics of amendment No. 38 and what we were trying to do by it—it might have some eccentric consequences. The Select Committee on Work and Pensions raised the
issue of the treatment of earnings, and it would be helpful to hear the Government's thinking on it.
The Select Committee was concerned that the opportunity was being missed to encourage people to do paid work for longer. We are not talking about forcing people to work full-time until they drop but about flexible retirement and enabling people to work past the traditional fixed pension ages. The Government's policy is that that is a good thing. It is demonstrated by discussions on flexible retirement and the Cabinet Office report on winning the generation game. In general, the Government are encouraging people who are willing to work longer, and I support that goal.
The question is whether the Bill is doing enough or whether it is a missed opportunity. In a specific way, amendment No. 38 tries to help and encourage people to work, but let me explain the difficulty in trying to use the pension credit for that purpose. There are two components: the guarantee credit and the savings credit. To some extent, they work in opposite directions because, as in the case of income support, a pound is lost under the guarantee credit for every pound earned beyond the disregard. That remains the case in the Bill. Nothing has happened in the guarantee credit element to encourage earnings, unless there are plans for changes to disregards in regulations, but we are not aware of any.
Can we use the savings credit to reward earnings? The question is whether the Government have done so. Earnings are to be treated in the same way as private pensions, although the Select Committee report said that the disregard on earnings that applies to the guarantee credit will also apply to the savings credit. I hope that the Minister will correct me if I am wrong on that, but it is the way that the Select Committee wrote it up. If I earn £15, only £10 will be taken into account for the guarantee credit, and only £10 will be taken into account for the savings credit. That is my reading of what the Select Committee said. I do not know whether it is right.
Obviously, the problem is that the savings credit rewards pensions but rewards earnings up to a maximum amount. If the pension is £77 and the minimum income guarantee is £100, earnings up to £23—or £23 after a disregard—are rewarded in full up to the 60 per cent. maximum and then the reward starts to fall away down to zero at £135 of total income.
The amendment is trying to achieve for people with very small earnings an increased reward under the savings credit for slightly higher earnings. To give a simple example, someone with a basic pension of £77 and earnings of £10 will get a reward under the savings credit for the £10, leaving aside the disregard. The amendment would add an amount, set in regulations, to the £10 to increase the sort of thing that the savings credit rewards. That is what we were trying to do. I am not 100 per cent. convinced that we have achieved it, but that is where we were coming from. Very small amounts of earnings would be topped up through the savings credit. By regulation we would add, fake or deem some earnings to give more savings credit and thus reward very small amounts of earnings.
Obviously, that would only apply up to £23 a week, including whatever reward we gave to people. Beyond that point, giving them something under amendment No. 38 would actually reduce the savings credit, so I would be the first to admit that it simply probes the earnings issue and that it may have some peculiar consequences that we might not want.
The simplest way to reward earnings is to take them out of the savings credit altogether and just have a socking great disregard on the guarantee credit element. I am straying ever so slightly, but for reasons that I hope are apparent. One way of rewarding earnings is to use the mechanism of the savings credit but, arguably, the simpler way would be to forget counting earnings for savings credit and simply have a socking great disregard such as the Select Committee recommended, of, for example, £40 a week. People would receive up to £40 extra for working.
When the Secretary of State gave evidence to the Select Committee, he was asked about earnings and said that he did not foresee any changes. I do not wish to pursue the issue at length at this stage, but I wish to mention that this is an opportunity for the Government to deliver on their agenda of encouraging people to work a bit longer and to have a phased, not a cliff-edge, retirement by giving them a reward such as some pension from the Government. Amendment No. 38 is one way in which we can reward them; disregards are another, and those will achieve something through the Bill that fits in with a Government agenda that I, and I suspect the Conservatives, happen to share. If we do nothing, we may miss an opportunity. We have not heard enough from the Government on that.
The hon. Gentleman is right to draw attention to the importance of the clause. We must carefully consider whether it will make people more or less willing to work part-time after they have retired, and I hope that the Under-Secretary can allay the several concerns that I have.
I listened carefully to the hon. Gentleman and I have read the words of Baroness Hollis. It seems that the Government's intention is to treat earnings the same as savings, subject to a disregard of £5 for single people and £10 for couples.
''I specifically said that we propose to treat income from work in the same way as money from occupational pensions or savings.''—[Official Report, 25 March 2002; Vol. 382, c. 617.]
That is unequivocal as regards his intentions.
My hon. Friend is absolutely right about that. Earlier, Baroness Hollis had said much the same thing in the House of Lords by taking the example of Alfred, aged 68, who was married to Vera, aged 65. Vera's age seemed convenient for the Baroness' purposes because the incentives to work, the effect of the minimum income guarantee and the withdrawals from MIG—which would be the same for
earnings as for occupational pensions or savings—would have an interesting impact for any lady aged between 60 and 65 who wanted to take on part-time work having retired at 60.
The Veras of this world who wanted to work a morning or a day a week would keep the first £5 of their earnings, but if they were entitled only to the basic state pension, the remainder of their income would be withdrawn from their MIG at a 100 per cent. rate pound for pound. I believe that that is what will follow if the two systems are to work in the same way. One wonders what effect that would have on the incentive to go out to work. How would people feel about having their income withdrawn at a 100 per cent. rate for the first £5?
I have no intention of barracking throughout my hon. Friend's speech, or of delivering it for him, but does he agree that any work is likely to incur expenses that are not normally requited in the formula, and that that would be a further disincentive to employment when returns are so low, or even negative?
My hon. Friend makes a fair point. People always have small expenses, such as bus fares, and £5 is not much to cover them. The same applies to other people who have a 100 per cent. withdrawal rate and who are entitled to MIG—for example, someone with an incomplete pension record.
A lady aged 60 who took on part-time work could look forward to receiving savings credit when she reached 65, to having her income treated as though it were savings under savings credit, and to being entitled to a withdrawal rate of 60p in the pound. By the age of 65, she might feel a little less like going out to work than when she was 60. In any case, a substantial part of her earnings would have been already withdrawn from her. In effect, the difference that her work would make would be much less than it would otherwise be. In those circumstances, one wonders what the effect will be on incentives to go out and work. In a way, that is the same as incentives to save, with which we have identified a problem with the pension credit, although that takes place much earlier in life and there is a certain amount of uncertainty attached to it. It is difficult for people to see exactly what the position will be.
Someone in the position that I have described knows exactly what will happen if they go out to work and are in receipt of the pension credit—their money will be withdrawn pound for pound. I wonder whether that will create an incentive to save. If one looks very carefully at the figures, and even if one takes the lower rate, rather than the 100 per cent. rate, of withdrawal that applies to the savings credit, one finds that the returns from having worked will be fairly low compared with what they would have been when someone could simply stay at home and receive the £100 minimum income guarantee. Anyone considering whether to go out to work will compare what they would obtain from their work with their position if they did not work.
The rewards will be pretty meagre, especially for people who are doing work at or near the minimum
wage. They would be working for much less than the minimum wage once the withdrawal had been taken into account. We need to hear from the Under-Secretary on that because I, for one, will take a bit of convincing that someone who will be able to keep only £5 of what they earn, and who will see the remainder of their earnings withdrawn pound for pound or substantially taken away from them, will not have much of an incentive to go out to work.
I welcome the fact that the hon. Member for Northavon has brought up an important issue. It is worth emphasising that the Bill improves the situation for people who are earning in the sense that, as has just been said, they will be able to keep 60 per cent. of their earnings if they are entitled to the basic state pension. For those people, it is an improvement on the previous situation under both income support and the minimum income guarantee.
The agenda to raise the effective retirement age by encouraging people to work longer and to have an active retirement is important. The measures on anti-discrimination that the Government are planning to pursue are central to that. Unless I am mistaken, the Select Committee recommended looking into the cost of that. I have been told that if one took an extreme line, it would end up costing up to £500 million. If one disregards all earnings, that may be excessive, but it is an issue in which we should not jump too quickly. We need to work out how it fits into the overall pattern of raising activity in retirement, so I urge the Government to view it in that light.
I echo the comments made by my hon. Friends about the importance of encouraging pensioners to pursue an active retirement. The hon. Member for Stalybridge and Hyde (James Purnell) is right to comment that the Select Committee report referred to the need to look into the cost of that, and it would be irresponsible not to investigate it. When the Under-Secretary responds, perhaps the Committee can be given some information on the likely cost of that particular course of action.
There is a great deal of discrimination against older people. For example, they do not benefit from unfair dismissal legislation when they work. We have heard that the Government intend to tackle that area, but I understand that that will not be for several years and may not come from this House. I urge the Ministers to investigate that route.
The £40 disregard proposed by the Select Committee was particularly recommended by Age Concern, which gave evidence to the Committee. It would mean that many pensioners could do a day's work without suffering a 40 per cent. tax rate, which many of them will find fairly steep. Significant numbers of them are not higher-rate taxpayers and have been used to a 22 per cent. tax rate. A 40 per cent. tax rate on all their earnings above £5 would act as a considerable disincentive. I hope that the Under-Secretary will give the Committee some encouragement on that issue.
Maria Eagle: This is obviously a good probing amendment as it has hon. Members leaping up on both sides of the Committee. I congratulate the hon. Member for Northavon on introducing it, and on having the candour to admit that he spotted a few of the somewhat perverse effects that it would have. He has had a stab at tackling the issue, and has decided that it is quite difficult to do.
The amendment would give pension credit recipients with earnings a higher savings credit than those without earnings, by increasing the amount of qualifying income for those with earnings. However, the savings credit is calculated by multiplying the amount of qualifying income by 60 per cent., with a maximum cap of £13.80 for single people and £18.60 for couples. The hon. Gentleman's amendment does not change the value of the maximum savings credit.
The hon. Gentleman is right to say that some of the amendment's effects would be perverse. For example, it would give a qualifying income to those with incomes below the savings credit threshold. They would therefore have the right to a savings credit, which is an added complication when he is calling for simplicity. However, he made the fair point that he tabled the amendment because he wanted to consider how earnings are treated. We know that the country depends on older workers. As the demography changes, that dependency is likely to grow. Currently, 50 per cent. of men and 25 per cent. of women aged 60 to 64 work, as do a further 800,000 people aged 65 and over. The way that we treat earnings is therefore important.
We value the work that older people put into not just their jobs but handing on skills and creating an intergenerational mix in the workplace. Those are the valuable social gains made through people who work later on in life. I certainly have no intention of packing up when I am 60 or 65, and I have said so before. I am sure that many hon. Members feel the same and do not want to retire.
Clearly, not everyone in the Committee feels as I do.
The Government are committed to promoting opportunities for older workers and are trying to reward them for their earnings. I have set out the case against amendment No. 38 in some detail, and I do not want to press those criticisms. However, I should say that it considers how earnings should be treated. The hon. Member for Hertsmere talked about women aged between 60 and 64 who work. He again made the point about the 100 per cent. marginal deduction rate that we encountered earlier. The amendment, too, would cause some people to have a 100 per cent. marginal deduction rate, because the hon. Member for Northavon has not suggested changing the maximum savings credit. The situation is unchanged, and we have come back to the subject of creating gender fairness in the general pension system.
The hon. Member for Daventry made a point about travelling to work. In considering earnings, we have chosen to carry forward income support disregards. The disregard will apply after deducting the cost of
travel to work. There are therefore some benefits to considering the matter in respect of disregards. The proposed system does not change the current system.
As my hon. Friend the Member for Daventry said, what the hon. Lady refers to as the present system is what has been created by the minimum income guarantee. The question is whether the proposal goes far enough in remedying the minimum income guarantee. Will not the situation become increasingly worse as the gap grows between the minimum income guarantee, or the pension credit, growing in line with earnings, and the basic state pension? Will not more people fall into the trap and have a reduced incentive to work or save?
As I have said before, the hon. Gentleman seems to believe that making provision for dealing with poverty among current pensioners is a massive disincentive to save for people of working age. Pension systems must be fair in how they treat today's and tomorrow's pensioners. There must be intergenerational fairness and regard. We cannot simply leave people in penury today in order to ensure that there is an incentive for people to save for tomorrow.
We believe that the working tax credit, together with the abolition of some of the rules relating to work and pension credit, such as the 16-hour rule, and bringing forward existing disregards for income-related benefits, is the best way to promote active ageing and reward earnings. The hon. Member for Northavon is right. For the guarantee credit, the first £5 of a single pensioner's earnings will be disregarded; for couples, the first £10; for carers and disabled pensioners, the first £20. In addition, working pensioners could receive a savings credit of a further £13.80 if single, or £18.60 if a couple, because earnings count as qualifying income.
I apologise. The Under-Secretary may have been about to make this point. Does the same disregard rule apply to the savings credit, or are all earnings counted for the savings credit?
I am asking whether, if I earn £15, I am treated for assessment for both the guarantee credit and the savings credit as having earnings of £10, or as having £10 for the MIG and £15 for the savings credit.
There is only one earnings disregard. My officials will pass me a note. They are nodding. That is taken into account at the appropriate stage of the overall calculation. I hope that that is clear. I shall be happy to speak to the hon. Gentleman further if he is not happy with what I have said.
I shall give a couple of examples of how the provision will work in practice in order to show that the earnings disregards will result in real gains to working pensioners. Let us take the example of a man aged 66 who works a day a week at a local supermarket and receives a minimum wage of £35. He has a full basic retirement pension of £77 and no other income. That is a typical example. Taking into
account the £5 disregard, his relevant earnings are £30. His combined income of £77 retirement pension and £30 earnings takes him above the level of the guarantee credit of £100. However, he is entitled to savings credit, as his earnings count as qualifying income. Therefore his savings credit is £11. That will give him a total weekly income of £123—£77 retirement pension, £35 earnings plus £11 pension credit. A man in such circumstances would receive nothing from the present MIG scheme, but with pension credit he is £11 better off—because of his earnings, despite the fact that we are dealing with only a £5 disregard.
To give another example, involving a couple, one partner works for two days a week and earns £65. The gentleman is aged 68 and is married to a lady aged 65. She works as a cleaner two days a week on the minimum wage and earns £65. They receive a full couple rate retirement pension of £123 and have no other income. They are entitled to a £10 disregard on Mary's earnings, making £55 relevant to the pension credit assessment. Their combined income, of £123 retirement pension and £55 earnings, takes them above the guarantee credit level of £154, but they are entitled to a savings credit as the lady's earnings count as qualifying income, and their savings credit is £9. They therefore have a total weekly income of £197—£123 retirement pension, plus £65 earnings plus £9 pension credit. Again, the couple would receive nothing under the present MIG, but they will be £9 a week better off because of pension credit. Therefore it is not true to say that in such circumstances it does not pay to continue to work.
Those are fairly typical instances of the types of job that people will consider. We want to reward earnings, which is why they are included as qualifying income for the savings credit, but we believe that that is best done through disregards. We will obviously review them annually. The hon. Member for Northavon has already said of his amendment that it was probing rather than being something to which he was wedded, and I hope that he will consider withdrawing it.
The Under-Secretary's reply was helpful in clarifying the disregard, which clearly applies throughout. The earnings figure is net of the disregard and is applied throughout the calculation.
The hon. Member for Hertsmere made a good point, but it is the root of our debate about incentives to save or to work. The Government's line is that they have helped the poor, and thereby created a situation whereas, if they had done nothing, there would be nothing to save or to earn. The Bill partially remedies that problem by giving people some reward for earning and some reward for saving.
The counter strategy would have been to have put people clear of means-testing—I use that term in a non-pejorative way, in a technical sense—and everything that they earn would then have been theirs to keep instead of a tapered amount as in this system; likewise anything that they had saved would have been theirs to keep. I prefer that strategy, but it is beyond the amendment.
Will the hon. Gentleman give way?
Mr. Webb: I shall give way in a moment. If someone is making a marginal decision about whether to do small amounts of work, costs other than travel-to-work costs might be involved. If the margins on whether to work are fairly borderline, keeping only 60 per cent. of the net benefit of working might lead them to wonder whether it was worth working. The question before the Committee is whether the Government have gone far enough in rewarding work. In my view, the simpler system would have been to have left earnings out of the savings credit and had a nice, neat, clean disregard. People would then have much better off.
The hon. Gentleman has actually come to the point on which I intended to intervene. I may not have the details right, but the Under-Secretary gave an example of a single person earning £35 for part-time work, the credit raising it to £123. In taking marginal decisions about whether to work, that person would be looking at the difference between what they earn and what they would receive if they did not bother to work, which would have been £100. The difference is £23 rather than £35, which is the full value of the work; if they were being paid the minimum wage, the difference would be substantially less than the minimum wage itself. That person would be wondering whether it was worth going out to work.
There is a certain amount of truth in that. Those who are earning £35 receive £23 benefit for it, so they are effectively facing a marginal tax rate of about a third. That is above the typical basic rate of tax; at that level of income, they would not expect to pay tax at all. The Minister might say that that is better than nothing, but it may still represent a missed opportunity for people who are looking at £35 jobs who would still not be inclined to take them. In a sense we should be considering those people who are not working who have been put off by the 100 per cent. marginal rate and who have not been sufficiently induced back to work by the 60 per cent. marginal rate.
I shall not labour the point unduly. To use a technical drafting term, my amendment is a complete botch. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The clause contains a lot of meat, not all of which has been amended. I sense that the Committee would like to make progress tonight and I am relaxed about that. Today, I have put forward some alternative suggestions and concepts. I hope that they will commend themselves to those who select our amendments in due course, and that we shall have an opportunity to return to them before the end of the Bill. The rather dry terms of the clause make it difficult to amend but easy to comment on.
I should like to take up a point that was initiated by the Minister of State who is, I happen to know, a touch younger than I am. I must defer to the hon. Member for Hamilton, South (Mr. Tynan), whose birth date I recently checked in ''Dod's Parliamentary Companion''. He is already, by definition, in the household of a person aged over 60. I congratulate
him on that and declare to the Committee, if I have not already done so, my interest in reaching that age later this year. [Interruption.]
I note that the Under-Secretary is worried about how long I intend to go on. I can assure her that, in the words of Baroness Thatcher, I might go on and on—but not tonight. However, I hope that I can provide a contemporary reference, because some of us do not spend all Sunday night thinking about the Bill. It is probably fair to say that this Committee would divide itself into two: a minority of those who can, and a majority who possibly cannot, or choose to claim not to, remember ''The Forsyte Saga'' the first time around. I should make it clear that I am in the former category, but I am doing my best to watch it this time around. Probably it is not as good, because ''they don't make 'em like that any more'', but that is another debate for another occasion.
The reference to the Forsytes is germane to subsection (6). I have gone through the Bill and applied what I might loosely call the Soames test. By that I do not refer to my hon. Friend the Member for Mid-Sussex (Mr. Soames); I mean the Soames Forsyte test. I can perfectly imagine him assenting to the propositions that circumstances might be prescribed in which a person is treated as possessing capital or income that he does not possess, although he would be a bit sceptical about it. In particular, clause 15(6)(b) talks about circumstances in which
''Capital or income which a person does possess is to be disregarded''.
That might suit him. I find it difficult to see how either Soames or any of our Victorian forebears would have felt easy with the assertion in clause 15(6)(c):
''Income is to be treated as capital'',
or that in 15(6)(d):
''Capital is to be treated as income''.
That way, Soames would have seen ruin. I comment on that briefly because it is about the extreme liberality of the drafting of the clause, which allows Ministers to do more or less whatever they want. They will be, if not constrained, at least influenced by debates that have taken place here and in another place.
However, I must say to Ministers in all seriousness that the comments of Help the Aged are nothing if not terse. Equally, they are nothing if not dismissive. They read:
''Capital is shabbily treated and equity released has no locus.''
Help the Aged is concerned about some of the detail of the clause. I do not want to rehearse earlier debates and I am aware, although I did not participate in them, that there was some exchange this morning—going back to subsection (1)—about the interaction of earnings and the working tax credit. Ministers may want to comment on that in relation to subsection (1).
We have had an interesting debate on earnings, but I would like to reserve my fire for one or two other matters to which we may return—for example, the concern expressed by Help the Aged about the clause. The organisation asks which of the prescribed social security benefits mentioned in clause 15(1)(e) will count as income and whether winter fuel payments or
the schemes covering transport concessions or television licences are included.
More serious is the issue of deemed income from capital and the principle basis on which that is to be determined. That is set out tersely in subsection (2) and referred to again in subsection (3), which states:
''Income and capital shall be calculated or estimated in such manner as may be prescribed.''
I am a connoisseur of generalised or permissive legislation, but I do not remember seeing anything as permissive as that before. The measure bears on the overall number of areas or heads of income that may be included. We should feel easier if we could be sure that Ministers had completed their list and knew whether they might want to add to it in the light of events. That is not an inherently unreasonable request.
At least two areas will require elucidation. The issue of tax privilege schemes such as tax-exempt special savings accounts was discussed in another place, but I do not know whether Ministers have got any further in their thoughts on it. As pensioners have been put outwith the tax system by legislation, it is a pity to reinsert them into the withdrawal of benefits represented by the savings credit and not to treat their income as being entirely outwith. Furthermore, who will be able to produce a 10 per cent. return on capital from any asset at the moment? No doubt Ministers will tell us that benefits derive from the possession of capital, but the implicit rate is very high, may well be inappropriate and may remain inappropriate for several years.
We should discuss those matters because the provision is amazingly general. It displays an ability to turn income into capital or capital into income and represents a remarkably constructive use of legislation, even from a new Labour Government. It is not far from a general enabling Act, but we shall not go into that. Other concepts and interactions remain unclear, such as those between earnings and working tax credit. There is much to do before we can feel comfortable that the system will work at least half-sensibly and is reasonably fair in its treatment of the interests of the various parties.
I shall make a few comments on the issue of capital. I listened with interest to the hon. Member for Daventry, to whose 60th birthday celebrations I trust we midlands Members shall be invited. I look forward to the invitation.
The hon. Gentleman said that his accountant dealt with his own capital, and referred to how he spent his Sunday evenings. I spend my Sunday evenings not reading this or any other Bill but in the company of pensioners at Manton miners welfare organisation. [Interruption.] I suspect that there are no polygamous retired miners, and there are very few lottery winners. That matter has been mentioned in relation to capital, but the lottery winners are easily identified and not secret, whether they want to be or not. There are several people there with shares, and I note that those with shares are acutely aware of every change in circumstance that the Government bring to bear on them, every proposed change, to the penny, and the
daily changes in share values. I am regaled every Sunday evening with the latest long faces over British Telecom shares, which were especially popular among some. Those who failed to sell at an appropriate time are waiting, optimistically, for the share value to rise.
That group of retired miners will be perfectly capable of working through any entitlement with great gusto, but they are the minority. I want to raise the major, significant change that is affecting many retired people in my constituency, and will affect others across the country. By the Department of Trade and Industry's projections, there will be a net influx to pensioners of £200 million, during the next 18 months to two years, in compensation for retired miners. That is a significant amount of money for one constituency. It is unquestionably the single biggest redistribution of wealth that there has ever been in that community. In my constituency, 8,500 claims have already been put in. As some of those are dual claims, that equates to approximately 7,000 households, more than 90 per cent. of the claims being from living retired miners. That will be a significant increase in capital.
On my reading of the Bill, there is no particular issue for the ministerial team to apply their minds to in relation to that. However, I urge one point. There should be deliberations with the Department for Trade and Industry over the giving of advice, at the appropriate time, on the change in legislation. Those who are to benefit—those who suffered from what is in essence a historic legacy of bad employment practices that damaged people's health chronically, often through no fault of their own, and who are now rightly being compensated—should be given accurate information on exactly how the change in legislation will affect them. About 18 months ago, the DTI wrote to every one of the applicants across the country, so it has full records. As such a database and mailing list exist, there must be some discussion, at departmental or ministerial level, between the two Departments to ensure that those people—the large numbers in my constituency and the many across the rest of the coalfields—get accurate information on changes in circumstance.
I am encouraging the Government, with some success, to let that money flow immediately. The problem might well be rectified in advance. My call to my constituents is to spend, spend, spend: spend for Bassetlaw and spend for Britain. They are doing so, with some gusto: the number of travel agents in the high streets demonstrates that, although I am not sure if my constituents are going abroad for more than four weeks. There might be particular advice to be given to them on that. Many of them are spending the money, boosting the local and national economy in advance of the changes. Nevertheless, I suspect that some will not do that. I hope that some specific advice can be given to that large, important group of pensioners, who will be receiving a rightful boost to their capital during the period in which the Bill is becoming law.
I am not sure that I can follow the local colour of the hon. Member for Bassetlaw (John Mann). It is back to nitpicking mode, I am afraid. Will the Minister clarify two aspects of the clause when she responds? If I read clause 15(1)(b) correctly, it
implies that income from the working tax credit will be treated—I am picking up on what the hon. Member for Daventry said—as income for the pension tax credit. Even saying that makes one slightly twitchy.
There is no upper age limit on the working tax credit as I understand it. Therefore, someone in a household with low earnings topped up by one means-tested tax credit could find that another part of the system means-tests that means-tested tax credit, and takes a sum away, presumably at 100 per cent. in the case of the MIG. It will reward that person for 60 per cent. of their earnings, but it has already rewarded them through the working tax credit. One starts to descend into a complete fog in such circumstances. If it is foggy for us, how must the claimant feel to be told that they will be rewarded for earnings through working tax credit, when the partner who presumably is over pension age says, ''Sorry dear, your reward for working is coming off my reward for saving''? I wonder whether there is a case for a clean break whereby a household is either a working tax credit or pension credit case, but not both simultaneously. That sounds awful.
My second question returns to my intervention concerning annuities. Whoever drafted the Bill has clearly gone to enormous trouble to differentiate between several different types. In clause 15, we have income from annuity contracts under subsection (1)(d), but under subsection (1)(c) we have retirement pension income, which refers to the definition in clause 16 that identifies several different types of annuity separately. Why have the draftsmen gone to this trouble? Will any type of annuity be treated differently for the purposes of the pension credit? The Minister of State, responding this morning, said that there are different types of annuity, one of which is covered under the definition of retirement pension income and another of which is covered under the definition of income from annuity contracts.
I apologise for intervening in the Under-Secretary's debate. Given that I raised the question earlier and asked the hon. Gentleman to think about my words, I will write to him through the Committee Chair, so that everyone will get a copy. We are not going to resolve the matter in the way that the hon. Gentleman wants. I have been honest about what it concerns. If he wants more information, I will do that by letter.
I am grateful to the Minister. I have no intention of making life difficult. I hope that I have just clarified what I am unclear about. There are all those different types of annuities throughout the Bill. Some come under one heading, some come under the other, and I do not understand whether the distinctions are significant. One assumes that if they were not significant, they would not be in the Bill, but I cannot quite see under what circumstances the differences might apply.
I seek only to assist the debate. The hon. Gentleman is right to raise his concern about the different categories, but I suspect that one of reasons for them might be the fact that, as the Government's
consultation paper on annuities makes clear, about 5 per cent. of the total volume of annuities are purchased as a matter of discretion, and where the retirement is contingent rather than essential to the category in question.
I am grateful for that intervention. I would not dream of second-guessing the Minister's reply, but I am sure that it will be to our benefit. I will not seek any response from the Under-Secretary to that point. I would be grateful for some clarification on my point about whether people with modest earnings will receive a top-up from the working tax credit, and find it taken away by another system. That seems such a nightmare; why could we not have a clean break between the two systems?
I want to touch on the question of equity release from pensioners' houses. Most pensioners do not have substantial savings, but increasingly, many own the houses that they live in. We need further clarification of the Bill's treatment of pensioners who either sell their houses or manage to release some equity from them through several schemes that are increasingly publicised among pensioner groups.
It is particularly unjust that the 10 per cent. return on capital is deemed to apply to equity release. Pensioners who have saved all their lives to buy their home will find it unjust when they discover that their income is deemed to be based on a 10 per cent. rate. Mervyn Kohler, head of public affairs at Help the Aged, highlighted that point to the Select Committee. Will the Minister clarify the position?
Clause 15, in setting out what counts as income for the purpose of the legislation, is an important part of the Bill. That sounds easy, but as one would expect, our debate has shown that there are many issues of concern. I shall attempt to deal with some of the points that have been raised in the debate.
The clause sets out the income to be taken into account in the calculation. Without that, subsections (2) and (3) could not operate. It also sets out the basis of how we intend to treat certain types of income and capital in the assessment. I hope that members of the Committee will recognise some of its good aspects. For example, the provisions abolish the rules that exclude pensioners with £12,000 or more of savings from any help at all. Savings below £6,000 will also be disregarded. In assessing the imputed 10 per cent. return, hon. Members should not forget the disregard, which can affect the final amount. It takes out the first £6,000 of any savings, and we reckon that about 85 per cent. of pensioners will not have to report any capital at all. The income that they receive from savings will be ignored entirely.
The assumed rate of return of £1 for every £500 of savings above £6,000 will halve the current rate, and the Committee should acknowledge that improvement. As hon. Members will know, we initially considered examining actual income, but decided after consultations and representations that it would be simpler, easier and fairer to do it in this alternative way. We are improving the current position
by halving the current rate of return, and as I said, the disregards mean that many people will not have to worry about assumed income at all. In addition, we should not forget that such income will be rewarded through the savings credit—another offsetting consideration. Overall, savings will be treated five times more generously than under the minimum income guarantee.
Clause 15 also protects the position of payments made to people in exceptional circumstances. For example, we intend to ignore attendance allowance and disability living allowance, which are designed to meet the extra costs of disability. We also intend to recognise the special nature of certain payments, such as war pensions, by not taking account of the first £10 in the assessment. I hope that members of the Committee will be pleased with such aspects of the clause. It allows for flexibility, which is I how I would choose to put it, though the hon. Member for Daventry probably believes that it takes liberties.
I would like a precise answer to a question that I posed obliquely about winter fuel payments—and what about free television licences for the over–75s; do they score?
They do not count as income. Under the old MIG rules there was an onus on the claimant to report all kinds of little streams of income. We are setting out on the face of the Bill what counts as income: things that are not mentioned there are not included. That is probably a clearer way of doing things, and is consistent with the fact that we do not expect people to report minuscule changes on a weekly basis.
The hon. Gentleman raised some points about subsection (6) and capital being treated as income and income being treated as capital. He made some comments about parliamentary counsel with which I have some sympathy. With a lawyer in the family he will understand why lawyers do that kind of thing, but perhaps I can give him an example. First, the flexibility is carried over from income support. There is nothing new. We are not suddenly stating in legislation that we might sometimes treat income as capital and capital as income. The practice is carried over from income support, to make sense of some of the more obscure forms of both and to put the treatment beyond doubt and thus avoid tangles over how things should be dealt with.
''would be used in circumstances when a payment that is regularly received, or is made in relation to a particular period, should not be treated as income; for example, a pensioner may have loaned a relative some money which he or she is repaying monthly by instalments. Although it would be regular monthly income, it clearly would be in respect of capital and, therefore, we would want it to be treated as such.''—[Official Report, House of Lords, 29 January 2002; Vol. 631, c. 192.]
By making that clear in the Bill, we can deal sensibly with issues that are by their nature small and unusual.
I hope that that deals with what the hon. Gentleman said about subsection (6). He made some
points about personal equity plans, TESSAs and other tax-advantaged savings. There is a notional income from capital and there is the disregard, but we would not want to ignore capital savings. We do not want to put incentives in the system by completely ignoring things such as tax-free savings, which would allow one type of capital to be treated differently from any other kind for the purposes of the calculation.
My hon. Friend the Member for Bassetlaw, apart from urging his constituents to spend all their money, referred to information for those who might come into some money in due course as a result of a personal or industrial injury. That is an important point. We considering how such matters should be treated but we have not made final decisions yet. Those will come through in the regulations, but it is important that when people who are not used to having a lot of money come into money they receive good advice about the implications of dealing with the money in certain ways. We take on board what my hon. Friend said.
My hon. Friend the Member for Bassetlaw will no doubt have to answer to his constituents for making such comments.
I hope that I have dealt with the points that have been raised.
I did not address that point specifically. Working tax credit is in the Bill, so it is to be included as income. I can say that clearly. One of the main reasons for including it is that that will prevent pensioners who are already receiving the working tax credit from being paid by the state again to meet the same needs. We are back to the point about double provision. We might not agree with it, but we all realise that the rule against double provision has always been a cornerstone of the welfare state. Now I am starting to repeat myself from our debates on earlier clauses, so I shall stop there. I hope that I have dealt with all the points that have been made.
Question put and agreed to.
Clause 15 ordered to stand part of the Bill.