(Except Clauses 7, 8, 9, 11, 14, 16, 20 and 92) - Schedule 35

Part of Finance Bill – in a Public Bill Committee at 1:15 pm on 18th June 2009.

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Photo of John Howell John Howell Conservative, Henley 1:15 pm, 18th June 2009

Welcome to the Chair this afternoon, Mr. Atkinson.

In keeping with my perennial diet, I shall eat only one of the dishes that my hon. Friend the Member for Fareham has set out so temptingly before us and that is the dish relating to the self-employed. The Select Committee on Work and Pensions has recently finished taking public evidence on pensioner poverty. The questions naturally ranged much more widely than that subject, although there is quite a strong link between pensioner poverty and self-employment, which I will come on to in a minute. I recommend that the Minister visits the website of the Committee and looks at the evidence that was collected.

The self-employed are a major pensions headache because of how they approach pensions. The provisions in the clause and in the schedule do not recognise that behaviour. There is no equivalent now, and none is proposed, for automatic enrolment in pensions for the self-employed. We are unusual in that compared with countries such as Canada, for example, with the result that the self-employed have a strong tendency to procrastinate in dealing with their pensions. That builds up a problem for later, when they tend to rely on selling their business or their house, in a time of recession. It also leads to considerable irregularity of payment, which has already been mentioned. Even for people who regularly earn more than £50,000, for many self-employed people that amount comes in in a very irregular fashion and the main reason for not saving is that they cannot afford to do so. One of the big factors in deciding whether they can afford to do so is directly relevant to the schedule: how much they get back. Getting back what is put in is not enough. In the words of the Pensions Policy Institute, they need to

“see the advantage of the tax relief” in order to make that calculation. We touched on that this morning when my hon. Friend went through some of the calculations involved.

Perversely, the recent reduction of values as a result of the economic crisis may have shocked some out of that procrastination and we may actually see some becoming more regular in their pattern. However, I find it difficult to understand why there should be discrimination between somebody who contributes £2,500 monthly and someone who contributes £30,000 annually. There seems to be no logic in that sort of discrimination.

As my hon. Friend mentioned, I have been in that situation myself. In the years that I was a partner at Ernst and Young, we never made a pension payment until we had seen what the annual profits were going to be. It was a very prudent approach. The amounts certainly differed from year to year, as did the profit and the profit shares that came out. My hon. Friend’s description was quite correct. Each year we made an assessment—on our own back—of which pension providers we would invest that money with. That flexibility was not haphazard, as the hon. Member for Taunton described it, although I appreciate that some have a haphazard way of going about it; it was part of the normal business life and the normal practice of going about dealing with one’s financial affairs.

I cannot believe that the Treasury is not aware of those behaviours—after all, there has been enough flow between the Treasury and firms of accountants in exchanges of personnel and, I hope, the other way. Is the provision an afterthought—a way of dealing with an oversight of the knock-on effect of increasing the 50 per cent. rate of tax in the first place and then realising that it was too expensive to give pension relief at that rate; or was it deliberate, and are we really attacking the self-employed? If so, it would have been much more open to make it clear as a policy objective, rather than going about it somewhat by stealth, as the Bill approaches it.