New clause 8 - Income from capital

Part of State Pension Credit Bill [Lords] – in a Public Bill Committee at 3:15 pm on 25th April 2002.

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Photo of Tim Boswell Tim Boswell Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Work and Pensions) 3:15 pm, 25th April 2002

I am concerned that my Whip feels that I am unduly modest. I will move into attack mode—it might be safer.

I tend not to use extravagant language, except possibly in the confines of my home, so I shall have to use an agent. In this case, my agent is Mervyn Kohler, who is known to many of us as the public affairs director of Help the Aged. In commenting on the treatment of capital in clause 15, he lets drive, saying:

''The prescribed rate should be on the face of the Bill, and expressed as a number in relation to the rate set by the Monetary Policy Committee of the Bank of England, perhaps calculated as a six-month average. It is iniquitous to assume a 10 per cent. return on capital and to leave this as a matter for regulation (not even requiring the positive affirmation process described in 19(2)''.

Those familiar with the Bill will know clause 19 as the regulations clause. Mr. Kohler bitterly attacks the concept and operation of clause 15, which we have already discussed, and to which I shall not return. However, he is right to express concern about it. Of course, we are not beholden to anyone and we will make our own judgment about how to present our concerns.

I shall deal first with the assessment period. The assessment period is set at five years, and the suggestion is that there should be a review every five years. That is no accident. Every five years, the sort of period during which a normal case would not be varied in relation to pension credit, there should be a fresh look at how the capital formula is determined or transmuted into income. That builds on the idea of Help the Aged. The really meritorious part of the comments of Help the Aged, apart from its attack on the Government, was the suggestion that there should be some objective test or process by which the process of taking notional capital and converting it into income should be carried out. It suggested a link to the Monetary Policy Committee rate, so that one could read off an implied capital rate. In my proposal, I want to leave slightly more discretion for Ministers, but the principle touched on by Help the Aged is important. We need an independent body that we can run such issues past. We have an admirable example, in doctrine and in practice, in the Social Security Advisory Committee.

The new clause proposes that, every five years—that is consistent with the assessment period—the Secretary of State should invite that advisory committee to see whether the definition of income under the Act remains appropriate and to make recommendations for any change in the formula for implied income. That is a modest and reasonable proposal. We have already said that there are concerns about treating capital as income. However, Ministers have made the point that it is much easier if it is treated in that way, because capital is easier to capture than income flows, which may vary, and we certainly

do not want a situation in which persons who find that their income is diminishing cannot benefit from changes in their assessment. There may be cases in which capital increases and we have to ask whether income follows that, and whether their high notional assessment is actually fair. I pass over the matter that the working tax credit, as introduced in the Budget, will do away with the test of implied income altogether, so there is now inconsistency between the various tax credits.

I suppose that the biggest concern, which is clear from the comments of Help the Aged and other pensioner organisations, is that the Government will set a 10 per cent. notional rate of return on capital in excess of £6,000, as they have suggested. That is a bit steep to put it mildly, even in present circumstances.