Clause 7 - Charge to income tax on lump sum

Finance Bill – in a Public Bill Committee am 11:30 am ar 21 Mehefin 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 11:30, 21 Mehefin 2005

I beg to move amendment No. 64, in clause 7, page 8, line 9, after '(5)', insert 'below'.

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

With this it will be convenient to take amendment No. 65, in clause 7, page 8, line 30, leave out from beginning to end of line 34.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

These two small amendments would clarify measures that we believe have been poorly drafted. Amendment No. 64 deals with line 9 of the clause, which states:

''For the purposes of the Tax Acts (including subsection (5)), a social security pension lump sum . . . is to be treated'', and so on. On first reading of the clause, I and others whom I have consulted were not clear to which subsection (5) reference was being made. Looking at it more closely, it is clear that the sentence is intended to mean that

''For the purposes of the Tax Acts . . . a social security pension lump sum'' will be defined in the way set out in subsection (2) for all purposes, including the purposes of subsection (5). So, the ''subsection (5)'' referred to is not a subsection (5) in the ''Tax Acts'', which is a plural concept, but subsection (5) of clause 7. The amendment would simply insert the word ''below'' to make it perfectly   clear—well, clearer—that the wording refers to subsection (5) below.

When I looked at the clause again this morning, it occurred to me that the wording would perhaps be even clearer if it read: ''For the purposes of the Tax Acts, including for the purposes of subsection (5) below, a social security pension lump sum'' and so on. The amendment is simply intended to clarify the not-very-clear drafting, and to make it plain that all subsection (2) does is refer the definition of

''social security pension lump sum'' to subsection (5).

Amendment No. 65 raises another small but important point. The inclusion of subsections (6) to (8) is, dare I say, revolutionary. Is the idea that at the end of every clause there will be a series of subsections telling us what future sections will do? That would be like watching a television serial in which, at the end of the week's episode, there is a series of clips showing what is coming in future. Subsections (6) to (8) do not seem remotely necessary. As far as I am aware, those provisions do not accord with precedent, and if we applied the principle consistently it would massively bulk out the volume of legislation with which we have to deal—which is already, frankly, too large—and bring yet more pages of tax statutes into force. I can see no reason for the subsections, and I am rather concerned about this architectural innovation.

Photo of Rob Marris Rob Marris Llafur, Wolverhampton South West

Does the hon. Gentleman not think that his amendments are somewhat contradictory? First he says that the Bill is too long and that he wants to take out subsections (6) to (8) under amendment No. 65, then he says that it is too short and so tables amendment No. 64.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Not at all; it is absolutely essential that legislation be clear. Where there are references to subsections, it needs to state clearly of what they are subsections. Much of the Bill amends other legislation and, particularly in the schedules, the references are often to clauses, subsections and paragraphs not in this Bill, but in existing Acts of Parliament.

If the principle apparently observed in subsections (6) to (8) were consistently applied, it would be burdensome. Logically, clause 1 would have subsections (1) to (71) setting out what every clause did, and so on. Only clause 72 would be spared the need to set out what future clauses did. I can see no reason for subsections (6) to (8). I have never seen such provisions in a Bill before, as far as I am aware, and I would like to understand why it is necessary to spell out what future clauses will do in an initiating clause.

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

Order. Because there is a problem with the sound, I have been asked to suspend the sitting.

Sitting suspended.

On resuming—

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield 11:53, 21 Mehefin 2005

The suspension is now at an end. We were let down by technology, but hopefully it has been   put right. I hope that none of the valuable words uttered in the debate have been missed. I think that the hon. Member for Runnymede and Weybridge had just resumed his seat and I was about to rise to my feet to propose the amendment.

I welcome to the Committee the Economic Secretary to the Treasury.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Thank you very much, Sir Nicholas.

I am delighted that the nation was not denied the opportunity to have the preceding hour of deliberations recorded—it would have been extremely disappointed.

I must also apologise, Sir Nicholas, for inadvertently stripping you of your knighthood during the debate on the Floor of the House. To do that to a living national treasure would surely be unforgivable.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

That call normally comes from the Benches behind me.

The previous time I appeared in a Committee such as this was during the consideration of the Higher Education Bill. I sat there for three weeks alongside the then Minister for Lifelong Learning, Further and Higher Education, my right hon. Friend the Member for Kingston upon Hull, West and Hessle (Alan Johnson), and after three and a half weeks I got to speak on a clause. He subsequently became the Secretary of State for Work and Pensions and is now the Secretary of State for Trade and Industry. If my right hon. Friend the Paymaster General and my hon. Friend the Financial Secretary stick with me, I am sure that they will have a bright career ahead of them.

I shall quickly say something about the purpose of the clause, which provides for the taxation of a social security pension lump sum. It is also important to say that the rules in clauses 7 to 10 ensure that pensioners are not put into a higher tax bracket and do not lose any of their age-related income tax allowances as a direct result of taking the lump sum.

Turning to the amendments proposed by the Conservatives, I understand the concern of the hon. Member for Runnymede and Weybridge, but amendments Nos. 64 and 65 are genuinely unnecessary. The insertion of the word ''below'' by amendment No. 64 would add nothing to the clause. The reference to subsection (5) of the same clause is perfectly clear without the additional word proposed in the amendment. As my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out, amendment No. 64 contrasts with No. 65, which seeks to remove subsections written in a particular way—in the tax law rewrite style. There are already three Acts that demonstrate that approach and are designed specifically to signpost later clauses, thereby increasing understanding of how the four clauses sit together.

It would be a retrograde step to remove something that is designed to make legislation far more fit for purpose, understandable and clear, so that   stakeholders and others can understand how it is put together. I ask the hon. Member for Runnymede and Weybridge to withdraw the amendment.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Clearly, there are some things to die in a ditch for, but this is not on my list. I find the Minister's explanation somewhat baffling. The phraseology in subsection (2) is not at all clear, and as for the idea of signposting what is in subsequent clauses, that concept has not even been consistently applied throughout the Bill. We are all in favour of trying to get clarity in the Bill, but later I shall raise, for example, the definition of ''Tax Acts'', which is integral to an understanding of clause 7 but is not defined in the Bill.

Although I hear what the Minister says, I suspect that we shall have to agree to differ about the best approach to architecture and achieving clarity. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I beg to move amendment No. 66, in clause 7, page 8, line 34, at end add—

'(9) In this section ''total income'' shall mean total income after deduction of the relevant personal allowance mentioned in section 257 ICTA 1988'.

This is a more substantive issue, although it is a matter of clarification. The clause introduces the concept of total income, which is not defined in the Bill, unless I have missed the definition. It might seem obvious what a person's total income is, but for the purposes of this clause, and in order to give effect to what the Government have announced on several occasions and clearly intend to do, ''total income'' must mean total income after the deduction of all applicable personal allowances.

The intention is clearly to use an individual's top rate of tax as the rate that should be applied to the lump sum. Somebody aged 66 whose income is £7,500 would have a top rate of tax of 10 per cent., because their taxable income would be £410 after the personal allowance. The £410 is comfortably within the lower 10 per cent. tax bracket currently of £2,090. The question for the Minister is whether the Bill makes that clear. Total income, we understand, is defined in section 835(1) of the Income and Corporation Taxes Act 1988 as the income from ''all sources''. From that, under section 257 of that Act, the taxpayer is entitled to deduct his personal allowances. The Act goes on to present a mechanism for charging tax at the various rates.

The Minister will have seen the briefing by the Law Society on the issue. It thinks that the problem is that the clause has been based on the terminology used in the 1988 Act and because of the way sections 257 and 835 taken together work, it is possible that the definition of ''total income'' could be misconstrued to mean what it would mean to you or I, Sir Nicholas: the individual's total income. The Government's intention in this case is clearly that we must have a definition of ''total income'', which is to be income taken after the deduction of the appropriate personal allowances.  

Photo of Rob Marris Rob Marris Llafur, Wolverhampton South West 12:00, 21 Mehefin 2005

I am aware of the briefing by the Law Society, of which I am a member. The Chartered Institute of Taxation has also raised concerns. In the amendment, the hon. Gentleman suggests a definition of ''total income'' that seems to be contradictory to the definition of ''total income'' contained in section 835 of the 1988 Act. Therefore, were his amendment to be agreed to, there might be contradictory definitions in legislation. That would not be helpful.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The hon. Gentleman may well be right. I do not claim any great pride in authorship of the amendment. I also confide that I strongly suspect that it will not be agreed to. My purpose in tabling it was to obtain a clear, on the record, statement from the Economic Secretary to the effect that in calculating the total income of an individual for the purposes of the clause, all personal allowances will be deducted from total income from all sources before applying the formula in subsection (5) to determine the rate at which the lump sum is taxable.

Of course, we could seek greater clarity in the Bill, but I know that the words ''greater clarity'' and ''Finance Bill'' do not necessarily go together comfortably. It seems that a number of the definitions that are being used are to be found elsewhere in tax legislation. If we could get an unambiguous statement on the record from the Minister about how the measure will work, that would be satisfactory.

It is my understanding that the Revenue has privately made it clear that the intention was that the applicable rate of tax would be ascertained by examining the individual's total income after the deduction of personal allowances. That was clearly the intention. We now need someone of the Minister's exalted status—with the benefit of a working Hansard recording mechanism—to place that on the record for posterity.

Photo of Stephen Williams Stephen Williams Shadow Minister (Health)

If this amendment were to be pressed to a Division, we would be pleased to support it in the interests of clarity in the Bill. The hon. Gentleman just mentioned that Finance Bill clarity is important. That is particularly important when we are dealing with a group of people—pensioners, in this case—who might not be expected to be au fait with the intricacies of the Finance Bill. Moreover, we are dealing with the state pension rather than any other sources of income, and the sort of people whose only source of income is the state pension might not be expected to follow exactly what finance legislation says.

This provision was trailed in two pre-Budget reports—those of 2003 and 2004. The 2004 report states:

''Tax will be applied to the lump sum at the marginal rate and it will not affect any age related allowance due.''

That is a clear statement of intent as to what the legislation that is to follow should actually do; I think that that is the purpose of the annual statements that we get from the Chancellor in November of each year. It is a shame that the legislation, now that it has been brought forward, does not make that absolutely clear.  

I could cite several examples of the current legislation possibly leading to people being taxed at a higher marginal rate than their real marginal rate because the Bill's current definition of total income is insufficient to protect them. However, I will not discuss those examples, because they have been circulated to Committee members. Will the Economic Secretary make it clear that the intention is that the lump sum and the interest on it will be taxed at the individual's marginal rate after their personal allowance—and probably in this case after their age-related personal allowance?

I have a further point on that, which I am surprised that the Conservatives did not mention in the general election.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am surprised that the Liberal Democrats did not bother to table any amendments, if they are so concerned about these issues.

Photo of Stephen Williams Stephen Williams Shadow Minister (Health)

Well, we are pleased to speak to the hon. Gentleman's amendment, and we are thankful to him for tabling it.

The point in question was also made on the Floor of the House. Relevant professional institutes—and, perhaps, firms of accountants—have circulated briefing papers to all of us, and we are all in the same position: we are making statements and tabling amendments that others have put to us. I think that the hon. Gentleman has had an advantage in that they were probably put to him before they were put to us. Therefore, it is a bit ungracious to the three new members of this Committee, who have only recently received those briefings, to say what he just said.

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

Order. Is the intervention relevant to the debate?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Of course, Sir Nicholas, and I would expect you to terminate it, were it not. I just thought it would be helpful to the Committee, and that it would be of particular benefit to new members of it, if I were to place it on the record that organisations such as the Law Society that circulate their comments and proposed amendments to all Committee members, including Ministers, do so without fear or favour, and that thus using their amendments as the basis of what one does in Committee is sometimes not terribly helpful. I assure the hon. Gentleman that although I quoted from the Law Society brief, that was not the primary source of the amendments that we have tabled.

Photo of Stephen Williams Stephen Williams Shadow Minister (Health)

I am happy to take that assertion. However, my earlier point remains valid: the three Liberal Democrat Committee members are entirely new to this process, whereas I understand that some Conservative Committee members were involved at an earlier stage of the Finance Bill's progress, when some of these amendments may have been suggested, so they have an advantage over us.

However, I want to conclude the point I was about to make. It was about the married couple's allowance as well as age-related allowances, and as the Conservative party has said that the tax system does not value marriage, I am surprised that its amendment   does not include this clarification. There will be some circumstances in which someone who is retiring has a spouse who is still able to receive the married couple's allowance. I should be grateful if the Economic Secretary would make it clear that this legislation will not disturb the married couple's allowance, as well as the age-related allowance.

Finally, what guidance will be given to pensioners to enable them to understand the tax implications of taking that lump sum, and how the interest that will accrue over the period for which they defer their pension will be calculated?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

As a Minister, I get some pleasure from seeing the Opposition parties fight like ferrets in a sack. It is extraordinary that at this stage of a Finance Bill the two Opposition parties should turn on each other, and we Labour Committee members are sad to see that.

On a serious note, I am pleased, in response to the shadow Chief Secretary's request, to clarify the issue on the record. Total income is a statutory expression that draws together all sources of income that are taxable and from which certain deductions, including personal allowances, are then available. That net amount of income is then charged to income tax at the appropriate rates. I am happy to confirm that the rate of tax applied to the lump sum, commonly known as the marginal rate, is the one that applies to total income less all statutory deductions and personal allowances that can be deducted.

The hon. Member for Bristol, West said that he would be pleased to support the shadow Chief Secretary if he decided to put the amendment to a vote; that would have caused a Division. Earlier, the hon. Member for Bristol, West was described as a tax expert. It is important, therefore, to place on the record not only a clarification of the position from the Government's point of view, but the consequences of the Opposition's amendments, particularly in relation to the advice that tax experts may give in such circumstances. The consequences of the amendment—tabled by the shadow Chief Secretary of the new, compassionate Conservative party and supported by the hon. Member for Bristol, West in his capacity as a tax expert—would be to exclude the blind person's tax allowance and disadvantage visually impaired taxpayers.

Photo of Brooks Newmark Brooks Newmark Ceidwadwyr, Braintree

Unless I am reading the amendment wrongly—if I am, I am sure that the Minister will correct me—the amendment mentions the ''relevant personal allowance''. If a person were hearing impaired or visually impaired, that would come under the relevant personal allowance.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

That is simply not the case. The amendment would exclude the blind person's tax allowance, which comes under section 265 of ICTA. Given that we have reassured the hon. Member for Runnymede and Weybridge on one point, and that no member of this Committee would want to exclude visually impaired people from the allowance, I urge the Opposition to withdraw the amendment.  

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

On the one hand, I am grateful to the Economic Secretary for reading that clarification into the record; that needed to be done, because the Government got their drafting wrong in the first place. On the other hand, I am disappointed that he should attempt to cover up the sloppy nature of the drafting of this provision by attacking the drafting of the amendment. We shall say regularly throughout these proceedings—the Paymaster General has already said so herself—that drafting amendments to Finance Bills is not easy. If we have got it wrong, we accept responsibility, but the point that we were clearly intending to raise was that clarity was required. The Economic Secretary has delivered that clarity.

As the Economic Secretary knows, there was never any intention to exclude blind or aurally impaired persons' allowances or any other such allowances. Having looked at the Law Society brief, which refers to sections 257 and 835 of ICTA, I suspect that the hon. Member for Wolverhampton, South-West made a rather more telling point against my amendment than the Minister did from his brief.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury 12:15, 21 Mehefin 2005

Those of us who know the hon. Gentleman and have enjoyed sparring with him in Standing Committees will know that he is an ambitious man; he will not thank me for that praise, but it is well deserved. The Committee will benefit from the application of his legal mind to our proceedings.

I am grateful to the Economic Secretary for clarifying the matter and removing any scintilla of doubt, and so, too, will be many groups outside the House dealing with pensioners and pensioner issues. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I should like to speak briefly, because while others—certainly the Minister and the hon. Member for Bristol, West—have spoken on the overall purpose of the clause, I deliberately did not touch on it.

Of course, we entirely accept the logic and purpose of clause 7. If we are to have a regime that encourages people to defer a part of their pension so that they can work a little longer, it is important that they should not be disadvantaged through the tax system when they do so. The Government have proposed a perfectly sensible way of ensuring that.

Whether we like it or not, many people assume that the state pension is not taxable; I am sure that the Ministers are aware of that. We all know that it is taxable, but a great number of people believe that it is not, because they do not pay tax on it. Thus it may come as a bit of a shock to some people to realise that the lump sum will—quite properly—be taxable. There is an education issue here, and the Economic Secretary might want to say something to the Committee about what the Government intend to do to make sure that potential deferees of pensions have all the necessary   information to understand the net-of-tax ramifications of the various options open to them.

It is unfortunate but inevitable that some people hearing about the lump-sum proposal will be confused about the interaction with the tax-free lump sums available to people with funded personal pensions; the term ''tax-free lump sum'' has a certain currency in everyday usage. There will inevitably be some who are confused about the notion of the lump sum, and who will believe that it is a tax-free lump sum in their hand. That is something else that Ministers need to make sure is quite clear.

My next point is perhaps slightly beyond the Economic Secretary's remit, but I am sure that he has background briefings on the subject. We are talking not just about marginal tax bands and the rate of tax that will be applied to the lump sum in the period of receipt. As a result of the means-tested regime of support for pensioners that the Government introduced, many pensioners are in receipt of means-tested benefits. This is slightly wide of the Minister's remit, but can he confirm whether the same principles will apply to withdrawal of means-tested benefits, so that no one will suffer a loss of means-tested benefits in a year simply because their income spikes in that year through the receipt of a deferred pension lump sum?

Photo of Rob Marris Rob Marris Llafur, Wolverhampton South West

I think that that very point is dealt with in note 12 to clause 7 in the explanatory notes.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

That is very helpful—and, I have to say, that might be the first time that the explanatory notes to the Bill have been helpful. If the answer is in the explanatory notes, the Minister will not have to wait for advice before he answers. Since he will probably be getting to his feet rather more quickly than I can look up the relevant part of the explanatory notes, I will leave the question to him if the hon. Member for Wolverhampton, South-West does not mind.

The regime that the Government have announced for allowing deferment of pension into a lump sum is an all-or-nothing regime. It is a question of deciding to continue to work for a number of years and to defer the pension until one stops working, or a point in the future. It does not seem to me that the legislation before us envisages or encompasses the possibility of allowing partial deferment of a pension. This is not something that the Government have announced any intention of doing.

In keeping with the general thrust of Government policy, which is that retirement should be seen as a flexible option, not an all-or-nothing approach that cuts in at a fixed point in time, I wonder whether the Minister can tell us whether there is sufficient flexibility built into this legislation to cope with future changes to the lump sum regime, allowing a pensioner to defer part of their pension into a lump sum. For example, that could facilitate a pensioner's decision to continue in part-time work for three or four years beyond the age of 65, receiving a partial pension while deferring the balance of the pension into a lesser lump sum.  

Would the legislation before us be an adequate framework for dealing with a partial deferment? Probably not, because the trigger point for assessment on the lump sum, which comes in clause 8, is specified as the day on which the first benefit payment date falls. Clearly, if a person was receiving half a pension and deferring the other half into a lump sum, the trigger for the assessment on the lump sum—which is not to be paid for some years—would currently be the day on which the first benefit payment day falls, by virtue of clause 8(2). What discussions have been held between the Treasury and the Department for Work and Pensions about the possibility of this regime becoming more flexible, and has thought been given to how this part of the Bill might accommodate that?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Other hon. Members have made this point. It is important that we communicate and promote these changes clearly, and that people understand both the implications and the benefits. That is something that we will be looking at with our colleagues in the Department for Work and Pensions.

This is a complex area. We know that people sometimes find these issues very difficult and therefore our capacity to explain them, and promote the benefit of people making the choice that we are giving them under this legislation, will be a very important issue. If we simply create the legislation and seek to incentivise such choices without explaining the potential benefits to people, we will undoubtedly underperform in terms of our intentions. We will look at an innovative and imaginative approach to the way that we get messages across in this area.

The hon. Member for Runnymede and Weybridge asked whether the principles would apply in the same way to people on means-tested benefits. I can reassure him that those principles will apply in a consistent way, and that people on those benefits will not end up being disadvantaged; in fact, quite the contrary. That is very important.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The Minister has said something important. I was seeking an assurance of neutrality, and he has said that they will not be disadvantaged—

''in fact, quite the contrary.''

Can he explain that?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Essentially, the contention was that people on means-tested benefits might be disadvantaged by this legislation. I am saying that they will not be disadvantaged. I am giving a neutral response to the hon. Gentleman's worries. He asked whether the principles would apply. I have reassured him that they will.

The hon. Gentleman referred to partial deferment. The Bill is introducing a choice for people in the form of a lump sum, and that is a step forward. At this stage, however, we do not want to rule out for ever the possibility of looking at partial deferment, but it is more appropriate to consider the impact of the Bill and how it influences people's behaviour. Having evaluated such matters over a reasonable time, we can then reach an informed judgment about whether partial deferment would be a good idea and whether   it would be consistent with our ambitions and objectives.

The hon. Gentleman has made a fair point. We have already discussed trying to communicate to people the consequences of the policy. In many ways, that could cause further confusion and it could be ambiguous. It is important that we establish the principle and make sure that as many people as possible are clear about the option being available to them before we make further changes. However, we shall keep the question of partial deferral under review.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am grateful to the Economic Secretary for what he said. One of the ways in which to reduce the burden of Bills passing through the House would be to futureproof legislation. If it were contemplated that there might be a desire in the future to extend the scheme to allow partial deferment, would it not have been sensible to draft the Bill's provisions in such a way that they could accommodate without further amendment a partial deferment regime? It would not have been that difficult; it would have just needed a different trigger for the taxable charge to apply. I am a little disappointed that the hon. Gentleman clearly recognises that the matter may come up for discussion in future, yet the draftsmen have not seen fit to provide for it in the body of the Bill now under discussion.

I have a further question for the Economic Secretary. We tabled an amendment that has been grouped with clause 71, which will be debated some time later, or perhaps not at all, about the definition of the term ''Tax Acts'' in line 9 of this clause. The term has a well-established definition under the Income and Corporation Taxes Act 1988 but, unless I have slipped up somewhere—the hon. Member for Wolverhampton, South-West will be on his feet in a microsecond, if I have—it is not defined under the Bill. Is there a mystical mechanism by which definitions from ICTA are automatically imported into the Bill? Are we to read ICTA definitions that apply to the Bill without making specific reference to them, especially under clause 71 on ''Interpretation'' where we would have expected them to be? It is important that we understand to which Acts the term ''Tax Acts'' refers in line 9 of the clause. I understand that ICTA—

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

Order. I hope that the hon. Gentleman is not seeking to include in his remarks matters relating to amendment No. 67, which we shall reach later, because I should be loth to call it a day.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

Depending on the Economic Secretary's response, that may indeed be appropriate. However, since we have discussed clarity of legislation, wording and whether the architecture of ''referring forward'' under subsections (6), (7) and (8) was appropriate, it would be good if he could explain how the definition is imported into the Bill. I think that the issue will arise throughout the Bill. Depending on his response, you might well decide that we have had that discussion, Sir Nicholas.  

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury 12:30, 21 Mehefin 2005

Sir Nicholas, it may be helpful to you and to the Committee to respond directly to the hon. Gentleman's point; it might defer some of the agony that we would face later if we did not make things clear at this stage. ''Tax Acts'' covers all tax Acts, which is covered by the definitions. I hope that makes it clearer. These issues are covered by the definitions. That deals with the hon. Gentleman's point.

The hon. Gentleman expressed disappointment that this legislation did not create a vehicle whereby at a later stage we could adopt his suggestion of deferred partial payment. Conservative Members frequently say that one problem is that there is not sufficient opportunity to scrutinise changes that the Government seek to make. By doing things this way, and not jumping to create a vehicle that would allow us to go for deferral, in a future Finance Bill, if we were minded to adopt his proposed reform, we would be able to have full and proper scrutiny of that change of policy. It would not be appropriate in this Bill to jump from where we are to where he suggests we ought to be in the future.

Photo of Mark Field Mark Field Shadow Financial Secretary

Although I understand the Minister's comments, and that the watchwords are innovation and imagination, equally there is a need for flexibility. That is what we are getting at. We cannot foresee everything and there is no doubt that this area will be fast-moving. There are ideas of deferred payments and the interlinking, as my hon. Friend the Member for Runnymede and Weybridge rightly said, between the Treasury and the Department for Work and Pensions. We will see that debated in the next couple of weeks in the Bill relating to land registration, which again covers issues that are in a state of flux. Does the Minister not understand our concern that flexibility is needed as well as innovation and imagination?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

I am always up for flexibility as well as innovation and imagination, but I am not prepared to endorse an approach that might lead to unintended consequences before we test this policy out and ensure that it influences people to make decisions in a way that we believe is consistent with their best interests.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The Economic Secretary's point is a good one. We certainly would not want the primary legislation dealing with deferment of pensions to allow the Government scope to make endless changes to it. It is quite proper that if a partial deferment regime is to be introduced, it should be considered properly in the House.

This Finance Bill simply deals with consequential changes to the way the tax system works, to accommodate a policy announcement that has been made by another Department and dealt with in different legislation. All I am suggesting to the Minister is that it might have been a good idea—if the consequential legislation was drafted widely enough—to use wording to such effect that any changes made to the principal legislation at a later date would not make it necessary to revise the consequential legislation as well.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Before we consider the consequences, let us remember that if we were to adopt deferment of   pensions as a policy, it would first have to be in a pensions Bill. Things could be the wrong way round. To give even an indication in this Bill that that was somehow a decision that the Government have made, when it is not, would send out signals to individuals, financial advisers and others that could turn out to be exceptionally misleading.

I have said to the hon. Gentleman that we are not ruling out for ever the option of partial deferment. It is worth considering, but we must ensure that the changes we make are introduced in an integrated and sensible way, allowing people to make the right choices. We believe that a modern pensions policy would enable them to do so.

Photo of Rob Marris Rob Marris Llafur, Wolverhampton South West

Does the Minister agree that the premise put forward by the hon. Member for Runnymede and Weybridge—namely, that there has been a policy announcement by Government to allow partial deferral—was wrong? He referred to it as a policy, but I am not aware that any such policy has been announced.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

As ever, I thank my hon. Friend for spotting that; the Opposition are not in a position to announce Government policy, and will not be for many years to come.

To stick to the point, I acknowledge and recognise that the hon. Member for Runnymede and Weybridge made a perfectly reasonable point about partial deferment, but I made it absolutely clear that that is not Government policy at this stage, as we believe that it may—only may—lead to confusion, ambiguity and unintended consequences. I feel strongly that it would be inappropriate at this stage to suggest that that is Government policy by putting it in this Finance Bill. The provision has not even yet formed part of any pensions Bill, which, in the circumstances, would be the place where we would ordinarily start with such a measure. On that basis, I ask the hon. Gentleman to allow the Committee to make progress.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.