Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss the following:

Government amendments 14 to 21.

That schedule 4 be the Fourth schedule to the Bill.

Clause 23 and schedule 4 ensure that the cost of pensions tax relief is fair, manageable and affordable. These changes will restrict the benefits of pensions tax relief for the highest earners by tapering away the annual allowance for those with an income, including pension contributions, of more than £150,000. Amendments 14 to 21 were drafted in response to industry feedback on the legislation for this schedule, which was published before the recess. They will ensure that an aspect of the transitional legislation providing an administrative easement for defined benefit schemes works as intended.

Pensions tax is one of the Government’s most expensive reliefs. In 2013-14, the cost to the Exchequer of income tax relief for pensions was more than £34 billion. This has increased from £17.6 billion in 2001. About two-thirds  of pensions tax relief currently goes to higher and additional rate taxpayers, and around 15% of the tax relief in 2013-14 went to those with an income of more than £100,000. In the last Parliament we took steps to control that cost and ensure that pensions tax relief is appropriately targeted. These provisions take further steps to achieve that. They are focused on the wealthiest pension savers, to ensure that the benefit they receive is not disproportionate to that of other pension savers.

The annual allowance is the limit placed on the amount of tax-relieved pension saving that can be made by an individual each year. It is currently set at £40,000. The clause introduces a tapered reduction in the amount of the annual allowance for individuals with an income, including the value of any pension contributions, of more than £150,000. The taper, which will have effect from 6 April 2016, will be at the rate of £1 for every £2 of income that exceeds the £150,000 threshold, down to a minimum of a £10,000 annual allowance. To provide further certainty about who is affected by the change, the clause also provides that those who have incomes excluding pension contributions of £110,000 and below are not affected by the reduced annual allowance.

Finally, schedule 4 introduces changes to ensure that individuals and the industry can adjust easily to the tapered reduction. Part 1 aligns pension input periods—the periods over which pension savings are measured for the purposes of the annual allowance—with the tax year. Parts 2, 3 and 5 contain transitional rules to protect savers who might otherwise be adversely affected by the alignment of their pension input periods. That will also simplify the process for scheme administrators to calculate pension savings for the transitional year.

In response to industry feedback on the legislation, the Government have tabled amendments 14 to 21. These are minor amendments to ensure that the transitional easement works as intended for deferred members. The changes made by the clause will potentially affect just 1% of taxpayers who save into a pension and even fewer will have to change their pension-saving behaviour or face an allowance charge. We expect only about 150,000 individuals in total to be directly affected by the clause.

The clause will ensure that the cost of pension tax relief is controlled. It introduces a tapered reduction in the annual allowance and implements that change in as fair a way as possible. It will save about £1.3 billion a year by 2020 and more than £4 billion over the next five years.

I regard the amendments as technical changes that smooth the transition periods for the input year and tax year. I have to say that I am delighted by the clause. Many years ago, I was a lone voice in Parliament calling for a restriction of tax relief on pension contributions. As the Minister quite rightly said, it cost almost £18 billion a year in 2001 and that figure has shot up.

When I asked the Department for Work and Pensions—in 2003 or 2004—what evidence there was that tax relief on pension contributions encouraged people to save for a pension, the DWP had no such evidence. To me, that was shocking for a tax relief that  then cost £18 billion a year. In a sense, the Government were spending, through forgone income, to encourage a pattern of behaviour when there was no evidence that they were encouraging such behaviour. I salute this Government for grasping that nettle.

The other reason I oppose pension tax relief—the Minister generously adverted to this today and clarified for the Committee—is that it has hitherto been incredibly regressive. When I raised this matter 10 or 12 years ago, it was even more regressive. The proportion being claimed by higher and additional rate taxpayers is now down to two thirds; it used to be about 90%. It was astounding to me that a Labour Government—a socialist Government in name—would continue with a tax measure that did not do what it was designed to do and which favoured the very well-to-do. We then had my hon. Friend Ruth Kelly, then Member for Bolton and, I think, Financial Secretary to the Treasury, introducing the nonsense of the annual allowance. It was completely bodged, as the Finance Bill Committee at the time, on which I sat, pointed out to her.

I still think there is a question mark over the whole concept of pension tax relief system for pension contributions, but this measure is progressive and, I have to say, it is somewhat to my surprise that the Government and their predecessor have now grasped the nettle twice. I urge my hon. Friends enthusiastically to support the clause.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.