(Except clauses 1, 4, 8, 189 and 209, schedules 1, 23 and 33 and certain new clauses and new schedules) - Clause 18 - Qualifying time deposits

Finance Bill – in a Public Bill Committee at 10:30 am on 12th June 2012.

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Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education) 10:30 am, 12th June 2012

I beg to move amendment 23, in clause 18, page 11, line 30, at end add—

‘(3) HM Revenue and Customs shall draw up plans to ensure that investors who are eligible to receive interest payments gross are made aware of the need to register with their account provider, to ensure that they do not overpay income tax.’.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

With this it will be convenient to discuss clause stand part.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

It is a pleasure to serve under your chairmanship today, Mr Bone.

Clause 18 relates to qualifying time deposits and will take effect from this financial year. Prior to the Bill, individuals who invested in qualifying time deposits were paid interest gross and they—or their accountants acting on their behalf—made the appropriate arrangements for paying the tax due to Her Majesty’s Revenue and Customs. The clause means that account providers—banks and building societies—will instead deduct sums representing income tax at source from anyone investing in a new qualifying time deposit on or after 6 April 2012, and those deductions will be paid directly to HMRC.

The provision will align tax collection arrangements for qualifying time deposits with those already in operation for many comparable savings or investment products. It will also reduce the burden on individual taxpayers, which is a worthy aim that we support. It also means that more of the tax due on savings income will be collected by the Revenue. As the impact note states, that could bring in as much as £40 million a year in additional Exchequer revenues, which is again something that we support.

Fewer investors will be eligible to receive interest payments gross than would have been if the qualifying time deposits exemption had remained. Those who are eligible to receive interest payments gross will need to complete form R85. Will the Minister clarify what estimate has been made of the number of individuals likely to invest in a qualifying time deposit in the  financial year 2012, and how much that estimate may have been reduced by the removal of the qualifying time deposits exemption?

It is important that those investing in qualifying time deposits and other investors who are eligible to receive interest payments gross are made aware of the need to register with their account provider, so that they do not overpay income tax. It is obviously in everybody’s interests that people do not overpay income tax. I am sure that the Minister has seen the result of the freedom of information request—it was widely reported in the media yesterday—which showed some of the frustrations that can occur when tax calculation mistakes are made. That is why our amendment calls on HMRC to draw up plans to raise awareness of the change. Is a basic communication plan in place for basic rate taxpayers who will be affected by the change in their tax code?

The Low Incomes Tax Reform Group has looked at the problem and has noted that it is especially an issue for pensioners. I know that the Exchequer Secretary is aware of the scale of the problem of the overtaxing of pensioners’ savings. In a previous Finance Bill debate, he referred to the pensioner “Taxback” project, which repaid 50,000 pensioners some £20 million in 2005. The bereavement helpline has recently been introduced and has been warmly welcomed. It is already assisting people, and we hope that it will do so much more in future. The £3 billion tax bill for pensioners that will result from the unfair granny tax, on which a U-turn is not as yet proposed, will make it even more important that they do not overpay on their savings tax. Is HMRC doing enough to ensure that those people do not overpay?

The Low Incomes Tax Reform Group makes recommendations that would go some way to improving the situation, and I would be grateful for the Minister’s comments on them. First, it suggests that HMRC should encourage banks and building societies to provide information to taxpayers more proactively about the possibility of registering R85s. It also suggests that all deposit-takers stock up-to-date copies of the form and help sheet to give to customers on request. Secondly, it believes that it would be helpful if deposit-takers automatically issued certificates of tax deducted to taxpayers, without having to be asked. Thirdly, it suggests that HMRC’s “Taxback” campaigns do not go far enough. Instead, it makes the case for HMRC to engage further with stakeholders in looking at the information that people get from deposit-takers about interest and tax deductions at source, and how that can be matched to individual taxpayer records, so that refunds can be automated.

There is already a proposal in the Budget to issue new personal tax statements, which will detail income tax and national insurance contributions paid, average tax rates and how that contributes to public spending. It is thought that if savings income and tax deducted at source is not included, the statements would be incomplete and misleading. I shall be interested to hear from the Minister on what proposals there are to match all those tax sources together within that proposed statement.

We support HMRC’s customer commitment to ensure that taxpayers pay the right amount of tax. I am sure that the Minister will agree that taking action to strengthen that commitment would be welcome. For that reason, I ask hon. Members to support our amendment.

Photo of John Mann John Mann Labour, Bassetlaw

It is a pleasure, Mr Bone, to be back here after the recess, under your exuberant chairmanship. It is good to see the Government Whip here on time for the new mini-Session, together with a full team of Ministers—I spotted all three a minute or two ago. It is good to see that they remain busy, U-turns, of course, taking up a considerable amount of their time. [ Interruption. ] We do indeed now have the full team of three Treasury Ministers.

There will be plenty of opportunities this morning for more U-turns. Here we have another one. I know that U-turns are in fashion—[Interruption.] In vogue, as my hon. Friend the Member for Newcastle upon Tyne North says. The next U-turn will concern pensioners, the Government having dealt with caravans, charities and pasties. This proposal is a modest start to a series of U-turns that we expect the Government to make, because, more than anyone else, the Budget hits pensioners. Here is a modest opportunity. I look again at the ranks of the Government Back Benchers: does any of those sincere hon. Members wish not to vote for this amendment, which would encourage, indeed allow, fewer people to overpay income tax unnecessarily? The majority of those people are pensioners. Can there be any reasonable person in this room who would say to a pensioner, “We are not prepared to assist you; we will allow you to overpay income tax, and then taxpayers will pay officials to correct those mistakes”? That is not logical.

My hon. Friend the Member for Newcastle upon Tyne North aptly and eloquently outlined a modest little suggestion that would aid the taxpayer, Government and pensioners. Can it be possible that the Government are so nervous about the suggestion of a further U-turn, when we all know that there will have to be further U-turns on pensions, not least draw-down pensions? Those are not the subject of the amendment, so I will not go into them, but they are part of the Budget’s victimisation of pensioners above all others. Looking at the faces of Opposition Members and even Liberals who have made it here today—

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

Government Members; you are the Opposition.

Photo of John Mann John Mann Labour, Bassetlaw

Are we? I am jumping two years ahead of myself. The Opposition are getting more confident these days. When I look into the eyes of Government Back Benchers, I can see that they want to support the amendment. They know it is right and sensible. I suspect that Ministers will accept the proposal, knowing that it will cut bureaucracy and red tape, minimise public expenditure and help British pensioners not to overpay tax.

Photo of Seema Malhotra Seema Malhotra Labour, Feltham and Heston

It is a pleasure to serve under your chairmanship, Mr Bone. Does my hon. Friend agree that making tax processes as simple as possible is about not only providing good service to the citizen, but ensuring that people do not incur unnecessary cost? The average time that people wait for HMRC to answer a call has risen from one minute and 53 seconds in 2009 to five minutes and 45 seconds. People have to pay for those calls, so pensioners will have to pay to get advice when the system could have been made simpler for them.

Photo of John Mann John Mann Labour, Bassetlaw

My hon. Friend makes an excellent point, which I had not considered. Today’s weather must have fuzzied my brain when I was thinking through the matter. She rightly points out that in addition to the problems I have outlined, people will have to pay to hang on the phone. We live in a complex, intricate world and we all agree that making it simpler for the British citizen, and particularly for the British pensioner, is a good thing. Here is the opportunity to do that.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman is being a bit mealy-mouthed. Should we not go a good deal further and get rid of tax on savings below the inflation rate, and get rid of tax deduction at source? That is an area where the Government’s convenience is better served than Her Majesty’s subjects.

Photo of John Mann John Mann Labour, Bassetlaw

I would not say that you are giving me the evil eye, Mr Bone, but I can see from the glint in your eye that I should not stray too far into that territory. I will simply say that I have put forward proposals during the past six or seven years relating to pensioners and taxation. I look at how, in my constituency, hard-working former coal miners and textile workers with pensions are taxed, and see how unfair that is. The hon. Member for North East Somerset and I should get our heads together and come forward with a cross-party proposal to persuade the decision makers in Government. I will have to persuade my Front Bench—I will leave the Liberals to him—of the common sense of what he is suggesting.

We are beginning to reach consensus on the U-turns that are required, which is good news. I look forward to this overly modest proposal being adopted. The Government’s plans will, as my hon. Friend the Member for Feltham and Heston said, cost pensioners money, waste their time and cause them the inconvenience and distress of waiting on the phone at their expense. Here is an opportunity to do things sensibly; can the Government resist?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 10:45 am, 12th June 2012

Yes is the answer, Mr Bone. It is a pleasure to serve under your chairmanship. I am glad that the recess has re-invigorated the hon. Member for Bassetlaw and that he has come back full of vim and vigour.

The measure is relatively straightforward, as the hon. Member for Newcastle upon Tyne North pointed out. Qualifying time deposits are savings and investment products in which, among other criteria, a single deposit of at least £50,000 is invested for up to five years. The latest estimate is that up to 30,000 individuals hold such deposits, and the hon. Lady was right to say that the clause applies to new deposits. It is not clear yet what the clause’s behavioural impact will be, but clearly, for some taxpayers, having interest paid gross will be beneficial, and the fact that tax will now be deducted at source, at the basic rate, may mean that some people look to other forms of savings. The clause will ensure that income earned on qualifying time deposits is subject to tax in the normal way, so it does not create a new tax burden; it merely simplifies arrangements for tax collection on qualifying time deposits.

We have made the change by removing qualifying time deposits opened or made by individuals after 6 April 2012 from the list of exemptions to the general principle that banks, building societies and other financial institutions should deduct tax at source from the interest that they pay to customers. As a result, tax will be deducted from the deposits at the basic rate under the tax deduction scheme for interest.

The clause brings qualifying time deposits in line with other comparable products, removing any requirement for basic rate taxpayers to notify HMRC separately of tax that is due on their interest. Investors in qualifying time deposits who are not eligible to pay tax on their savings income—for example, because their total income is below the personal tax-free allowance—can register with their provider to continue to receive interest without tax being deducted.

Amendment 23 would commit HMRC to ensuring that eligible investors are made aware of the need to register with their account provider in order to receive interest without tax being deducted, but such a change is unnecessary. HRMC already takes a range of steps to make eligible savers aware of how they can register to receive interest tax-free. Specific help and guidance on that point can be accessed from HMRC’s website or through contact centres, and HMRC produces a help sheet on how to register for gross interest, as well as a tax checker that allows savers to calculate whether they are eligible to register. Additional help is also available through the Money Advice Service.

The hon. Lady also referred to the Low Incomes Tax Reform Group’s suggestion that banks and account providers should play a more proactive role, and she is right. They have regular contact with savers and make account information available to their customers. I know that many account providers make considerable efforts to inform eligible customers of how to register to receive interest gross, and I encourage them to continue to do so.

A project under the previous Government attempted to raise the profile of the issue. In 2009, the “Taxback” campaign had mixed results. There was a risk that a letter telling a person that they might be eligible to receive interest gross could create further confusion. In fact, many calls received in response to the “Taxback” campaign, which was targeted at recipients of pension credit, were from people telling HMRC that they already received their interest gross, or people asking not to be contacted again. Although I am keen to ensure that HRMC helps savers to understand whether they are eligible for gross interest and how they might register, it is right that the interventions should be more targeted and cost-effective.

The hon. Lady asked about the personal tax statements that we will introduce. The intention is to capture all sources of income; again, that will help to raise the issue’s profile and ensure that as many people as possible register to receive their interest income gross. I hope that the hon. Lady is reassured that work is being done to encourage the people who are not eligible to pay income tax to register to receive their interest income gross. HMRC and the Money Advice Service can help with that. Account providers, as the hon. Lady said, have an important role to play in this.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education)

I imagine that Labour Members are not particularly reassured by the Minister’s comments. My hon. Friend the Member for Bassetlaw set out, in a rational argument, why the amendment is reasonable. It asks the Government to

“draw up plans to ensure that investors who are eligible to receive interest payments gross are aware of the need to register with their account provider”.

The message that we are getting loud and clear from the public is that they want to see proactivity from HMRC. They expect a decent service from the organisation, and they want to avoid a situation in which they have to contact HMRC to try to rectify mistakes after they have occurred, because the time it is taking members of the public to do that is getting longer, not shorter. On that basis, it seems sensible to suggest that the Government “ensure”—that is the key word in the amendment—that they engage with providers to make sure that mistakes and overpayments do not occur, and that steps are taken before the change to make sure that savers are aware of the implications for their tax position, so that they do not have to reclaim overpayments, but instead can pay the correct amount from the start. For that reason, I urge members of the Committee to support our amendment.

Question put, That the amendment be made.

The Committee divided: Ayes 12, Noes 17.

Division number 9 Decision Time — (Except clauses 1, 4, 8, 189 and 209, schedules 1, 23 and 33 and certain new clauses and new schedules) - Clause 18 - Qualifying time deposits

Aye: 12 MPs

No: 17 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Clause 18 ordered to stand part of the Bill.