Clause 154 - Authorised member payments

Finance Bill – in a Public Bill Committee at 2:45 pm on 8th June 2004.

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Photo of George Osborne George Osborne Conservative, Tatton 2:45 pm, 8th June 2004

I beg to move amendment No. 293, in

clause 154, page 138, line 39, leave out 'and'.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

With this it will be convenient to discuss the following:

Amendment No. 294, in

clause 154, page 138, line 39, at end insert—

'(ea) payments made to settle a dispute, other than payments made in bad faith; and'.

Photo of George Osborne George Osborne Conservative, Tatton

We are getting into the meat of the Bill. The issue of authorised member payments is just a foretaste of the debates that we will have on the forthcoming clauses. The amendments—I am talking more about No. 294 than No. 293, which is consequential—are to clause 154, which sets out the authorised payments that a scheme can make to a member. They are all sensible and people would not disagree with them. They include, for example, pensions, lump sums, recognised transfers, scheme administration payments—I may say something about that shortly—payments pursuing a pension sharing order such as divorce, and so on. The Inland Revenue provides itself with a general regulatory get-out provision in paragraph (f) under which

''payments of a description prescribed by regulations made by the Board of Inland Revenue.''

It would be interesting to know what the Revenue is cooking up for that.

My amendments would introduce a new category of payments to settle a bona fide dispute in good faith so that they would not be treated as unauthorised payments. That is a sensible let-out provision whereby an attempt to settle a dispute amicably and in good faith should be allowed to happen. The Financial Secretary may say that under the regulatory powers that the Inland Revenue is taking on itself regulations may be considered to allow bona fide payments to be made. If she says that, I will be happy to withdraw my amendment, although, in general and notwithstanding my earlier amendment, we prefer to see provisions in the Bill rather than in regulations. However, we do not want attempts to avoid costly litigation to fall foul of the restriction on authorised member payments.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I do not think that amendments Nos. 293 and 294 are appropriate or that pension schemes should use their money to pay amounts to members to settle disputes. There are no plans for the Inland Revenue to use its own regulations to enable it to do that.

The purpose of providing tax relief to registered pension schemes, employers and members is to encourage pension saving to provide individuals with an income for life after retirement or an income for dependants after the death of an individual. The new rules must ensure that payment schemes fit that purpose, and the clause provides a list of the payments that a registered pension scheme is authorised to make to or in respective of members. They include pensions, certain lump sums and transfers to other schemes. The various items on the list are defined in subsequent provisions.

The hon. Gentleman seeks to insert a new category of authorised payment to settle a dispute other than payments made in bad faith. However, his amendment does not describe what ''dispute'' means and would cover any dispute. In addition, the amendment imposes no limit on the amount of the payment; it must simply not have been made in bad faith. Our legal advice is that that would be a difficult hurdle and that the Revenue might have some difficulty in

demonstrating in particular cases that the test was satisfied. Quite large payments could be made for relatively minor disputes.

Schemes will have disputes with their members, and it is right that they should make payments to members if compensation is due to them. There is nothing in the Bill to prevent that. However, if members receive benefits from a pension scheme, it is right that they should be taxed on them, unless they are one of the specific tax-free lump sums that registered schemes offer as part of the general tax reliefs given. Amounts paid to settle disputes are also benefits being paid out of tax relief to funds and it is right that they should be taxed, as with other benefits. Similar treatment arises under the current regime when such payments are also taxed as unauthorised payments unless they fall within the types of benefit specifically allowed. The new regime merely continues the previous treatment.

It is completely fair to say that schemes are doing nothing wrong in making such payments, so the charge applies to schemes that are making unauthorised payments. The scheme sanction charge is not specifically applied to payments by clause 230. I therefore urge the Committee to reject the amendment, or perhaps the hon. Gentleman will considering withdrawing it.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. The hon. Member for Arundel and South Downs (Mr. Flight) is attempting to catch my eye. If the hon. Member for Tatton says the wrong words, the hon. Member for Arundel and South Downs will not be able to catch my eye. If the hon. Member for Tatton is going to give way to his hon. Friend, I will be delighted.

Photo of George Osborne George Osborne Conservative, Tatton

Before I withdraw my amendments, it would be interesting—

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. The hon. Gentleman nearly did it. Under Standing Orders, the utterance of the words ''withdraw the amendments'', with a clear indication that that is the intention, would force me to put the question immediately. I was raising a point of order with him, pointing out a pitfall that he was liable to fall into if he were not careful. However, I will give him the opportunity to let the hon. Member for Arundel and South Downs in.

Mr. Osborne rose—

Mr. Flight rose—

Photo of Steve Pound Steve Pound Labour, Ealing North

The hon. Member for Tatton showed such promise.

Photo of George Osborne George Osborne Conservative, Tatton

The hon. Gentleman should take off his jacket.

I think that it is important that other members of the Committee have the chance to make a point before we decide how to deal with the amendments.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I thank you for your assistance and welcome you this afternoon, Mr. McWilliam.

An example occurred to me. I seem to recollect a major legal argument between the Unilever pension fund and its fund managers that was eventually settled with a payment to the pension scheme, but such a dispute might have been settled with a payment by the pension scheme. My point is simple. There are obviously territories of payments to members and territories of dispute payments to non-members. It would clearly be nonsense if the trustees of a pension scheme ended up making a dispute payment to non-members in trying to do their best to manage the pension scheme assets, for which they were then disqualified. I am seeking comfort that such a situation could not give rise to a problem if nothing were done about the points that we have raised.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I suggest that the hon. Gentleman reads the title. It says, ''Authorised member payments''.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

The issue in my mind was that the transaction could be viewed as a payment on behalf of the members because it was on behalf of members' interests. I genuinely seek clarity about whether there is an issue that needs to be addressed.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I suggest that the hon. Gentleman reads the clause. It says payments

''in respect of a member'', not some group action to which the hon. Gentleman has referred.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury

I thank, as ever, the learned and hon. Gentleman for his assistance, and I think that he has put my mind at rest.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. It is not Wimbledon week, but that felt like 30-love to me.

Photo of George Osborne George Osborne Conservative, Tatton

I am happy to pack up and go home. I would much rather be sitting in the park or in my garden. It is clear that I am not required at all. However, there is one task that only I can perform, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 154 ordered to stand part of the Bill.