HC Deb 09 June 2000 vol 351 cc611-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pope.]

2.33 pm
Mr. Edward Davey (Kingston and Surbiton)

I am grateful to the Chair for granting me this important debate. I am also grateful to those of my constituents who provided me with a great deal of information from their experiences with the Inland Revenue to assist me in preparing for the debate. Finally, I am grateful to the low income tax reform group of the Chartered Institute of Taxation, which has done much work on the subject, in particular the study published in December 1998 and entitled "Older people on low incomes: the case for a friendlier tax system." That study represents a manifesto for change which I hope the Government will make their own.

Why should we debate the issue today? I am sure that, in the constituencies of all right hon. and hon. Members, even the right hon. Member for Bromley and Chislehurst (Mr. Forth), pensioners on low incomes will be concerned about their state. There are 1.8 million pensioners on net incomes of below 50 per cent. of average household income. In other words, they are very poor. Fifty-seven per cent. of pensioners have incomes in the lowest four deciles. A significantly high percentage of people on low incomes are retired. When we consider the problems of those on low incomes, we must bear in mind that pensioners are greatly affected by them.

Should we worry about pensioners in the tax system? Ministers may say that more than two thirds of those aged 65 or more are not liable for income tax. However, a third of pensioners are liable for income tax. That amounts to nearly 3 million people. Even those pensioners who are not liable for income tax may have many dealings with the tax authorities under the current system. One reason why the debate is important, therefore, is that many pensioners are affected by the income tax system.

Why should tax administration issues that affect pensioners be a priority for the Inland Revenue? When one considers the system's impact, it becomes apparent that many pensioners experience practical difficulties in dealing with their tax affairs. That is not surprising. Pensioners are no longer in the workplace, so there is no administration department to help them through the pay-as-you-earn system. Many cannot afford professional advice, and many cannot access the free advice that the Inland Revenue provides. Disabled pensioners may not be able to get to a tax office; if they are deaf, they may not be able to use the telephone service. Many do not know about the free services that are available, as they may not have seen the existing literature.

The practical difficulties that pensioners face are compounded by the fact that they may deal with multiple agencies, including the Department of Social Security and local authorities. Pensioners may be hit especially hard by life events. Let us imagine the plight of a widow whose husband had looked after their tax affairs in the past. Suddenly, at a late stage in her life, she is expected to fill in tax forms of which she has no previous experience. One can think of many examples of life events that make pensioners vulnerable.

Pensioners face extra complexities in the tax regime. Many arise from facets of the regime that have been introduced to help pensioners and give them better incomes. For example, the age-related allowances and higher personal allowances that pensioners receive are tapered and clawed back on higher incomes. That causes significant complexities. The way in which the married couples allowance works is more complicated for pensioners.

Post-retirement income sources are also more complicated. Many are outside the PAYE system. Pensioners may have a variety of income sources from a variety of savings. The current system does not gather the data from those different sources especially effectively. More mistakes are made and the codings are more complicated.

The age group that we are considering is growing. One in five people are over 60; by 2010, that number will have increased to one in four; and, by 2025, it will have increased to one in three. The problems caused by the complexities that I outlined will therefore increase.

Why has not the problem been tackled until now? First, we might cynically say that the sums involved are relatively small. The Inland Revenue and previous Governments have paid little attention to the amounts involved and the overall issue. The Inland Revenue has established customer groups for people and companies that owe the tax man a lot of money, but not for those who owe little or nothing. Perhaps that is understandable, but in an age when more customer-focused methods are, I hope, being considered, that ideology must change.

Another practical reason why this issue has not be considered is the staffing cuts that the Inland Revenue has faced, especially under the previous Government. There are reasons why the matter has not been addressed, but it is time to do so, as is made clear in the Chartered Institute of Taxation report.

I could illustrate with a litany of examples, many of which are very emotive, the problems that many pensioners face with current Inland Revenue practices for administering the tax system. Pensioners have written to the institute to tell it about their disabilities, the fact that they have been widowed, the many problems involved in their lives as pensioners and how dealing with tax forms has been made difficult. However, I shall not do so, on condition that the Paymaster General gives me a nod of assurance. I should like her to assure me that she will re-read the report. For the record, she has shown that she has a copy of the report with her. I should like her to assure me that she will study it a second time so that I need not cite the examples.

The Paymaster General (Dawn Primarolo)

indicated assent.

Mr. Davey

The Paymaster General nods. I want to focus on what we can do to tackle the many problems.

The solution that I propose is that the Inland Revenue should establish a pensioner unit and make pensioners a priority customer group in the way that the Department of Social Security has set up the pensioners directorate. It should ensure that a senior Revenue official, either at board level or just below it, is appointed as an older taxpayer customer service director. That proposal comes directly from the study to which I referred.

Why am I worried about the bureaucratic reform of those systems? I advocate not a policy proposal, but what some might call a rebadging of an Inland Revenue unit. That is important because if we are to tackle the root cause we must change the culture in the Inland Revenue. We must ensure that people are responsible for thinking about the issue on a daily basis. We must also ensure not only that the existing problems, which are cited in the report, faced by today's pensioners are tackled, but that we change the whole system so that there are people in the Inland Revenue who can deal with difficulties that may occur in five years, which we may not have encountered before. We need a champion in the Inland Revenue to create a dynamic for change and ensure that it treats older people better.

The Government should do that not only for the reasons in the report, but because they have introduced their better government for older people programme. To promote that programme, the Prime Minister said: For too long the interests of older people have not been a high enough priority for government. I want that to change. People are living longer, and enjoying many years of active life after retirement. We need to plan for this. But we must also make sure that excellent services are there for those who need them, especially the very old or frail. He was right; the problem is that his lead has not been taken up properly by the Inland Revenue.

In a letter to John Andrews, who has led the group, the director of the personal tax division, who has been terribly helpful to the Chartered Institute of Taxation in many other ways, wrote that a key aim is to raise our customer service standards across the board rather than to focus available resources on any particular group. Older people should see the benefit of general improvements which we are able to make. Given that the Government have a programme called better government for older people, that statement from the Inland Revenue is not good enough. It should consider older people as a particular group and focus available resources on them. They should be a priority.

The other reason why the Government should create such a group is that it will not cost them very much money. The group could carry out research for, and give advice to, Ministers on how to improve the system, provide advice, support and training to local tax offices and link in with other Departments.

My second proposal is that the Government should promote volunteering. People could volunteer to help elderly taxpayers with their tax returns. The state will never be able to tackle that problem alone. Tax systems are inevitably complex. The costs involved in providing better customer service are high. The Inland Revenue should think about how the private and voluntary sectors could do more.

I am advocating a publicly supported national tax volunteer scheme. The idea has been developed by TaxAid and supported by the Chartered Institute of Taxation and other professional and charitable bodies. It has been borrowed from the USA, Canada and Australia. Canada has a community volunteer income tax programme, and the United States has a volunteer income tax assistance scheme. The idea has already been supported by the Government: the Inland Revenue and the Home Office's active community unit have discussed how they can help.

In the first instance, what is needed is cash—about £100,000—to help support the pilots proposed by the Chartered Institute of Taxation. Then the idea needs commitment and political endorsement. I hope that the Minister will give that. The head office of the Inland Revenue needs to support it, to ensure that local offices help. It needs to help to train the volunteers that will come forward, and to provide materials.

I believe that the benefits of such a volunteer scheme would be huge. The elderly would be helped, tax compliance would increase, people's perception of the tax authorities would improve, and the Government's administration costs would be reduced. Furthermore, international experience has shown that the take-up of welfare benefits when provided through tax credits has been much greater when volunteer help has been available to pensioners and to low-income groups. The Government have gone down that route with the working families tax credit, and they propose to introduce a pensioner tax credit. If they want to make those important changes work and ensure that the pensioner tax credit has the take-up that they hope, they should introduce a volunteer scheme now so that it would be available when the pensioner tax credit is introduced and take-up would be that much greater. It is therefore in the Government's interests to support such a scheme.

The Government could make some small changes almost immediately, either in this year's Finance Bill or by administrative decree. They could uprate the pensioner age-related tax allowances automatically before the start of the year, so that they could go out in the coding notices. That would reduce the current confusion when those notices are not automatically uprated, and it would reduce administration costs.

I ask the Minister to consider changing the law by a tiny amendment to this year's Finance Bill, so that life assurance companies have to administer retirement annuities through the PAYE system, and the income element of the return from purchased life annuities also has to be administered through PAYE. That would ensure that hundreds of thousands of pensioners would get the correct amount of tax deducted at source, rather than having to overpay, as often happens. It would also reduce the Inland Revenue's administration costs. Many firms administer these saving plans through PAYE, and the cost for the rest to do so would be minimal. The Government could take that small measure very soon.

I should like the Minister to develop her excellent initiative from last July to ensure that even fewer low-income pensioners receive self-assessment forms. It is a matter of reprogramming the Inland Revenue's computers. We could ensure that fewer pensioners have fewer forms to fill in.

2.49 pm
The Paymaster General (Dawn Primarolo)

I thank the hon. Member for Kingston and Surbiton (Mr. Davey) for the way in which he introduced tie Adjournment debate on the important question of fairness in the tax system not only for pensioners but, I hope he would agree, for all who come into contact with it. I appreciate that he wants to concentrate on pensioners, and I shall do my best to answer all the points that he raised.

The hon. Gentleman knows how the tax system works. It treats income from different sources in different ways, according to whether it is investment, savings or capital gain. The treatment of income does not relate to age; it relates to the nature of the income.

The hon. Gentleman's questions have related to complexities in the system. I agree with the director of personnel in the tax division that these are issues not just for pensioners, but for all taxpayers. If we can get it right for all taxpayers, pensioners will benefit.

I agree with the hon. Gentleman that many retired people have to deal with the Inland Revenue for the first time, at what can be a traumatic time. Retirement may coincide with widowhood, and with income problems. However, the hon. Gentleman suggested that all pensioners were struggling with the tax system. Let me put the situation into perspective before dealing specifically with his points.

Six out of 10 pensioners do not pay any tax at all, and therefore have virtually no contact with the tax system. The tax of most who do pay it is collected entirely by the pension payer, through the pay-as-you-earn scheme. However, I do not for a moment dispute the point that, at traumatic times in their lives, pensioners do not always receive the service that we would hope from the Inland Revenue, and the Government are trying to deal with the problem.

The hon. Gentleman asked why nothing had yet been done. In fact, quite a lot has been done to bring people into contact with the Revenue, and to make that contact as painless as possible, in particular for pensioners. For instance, we offer face-to-face interviews to help people to complete their forms.

The hon. Gentleman mentioned the problems of deaf people. The same would apply to blind or infirm people. We offer home visits to those who cannot get to one of our offices, but most are equipped with magnifying lenses and induction loops, and all will be so equipped in the next few months. We have also ensured that all our leaflets are printed in large type, and they are available in both audio and braille. Leaflets that are not available to those visiting our offices are available on request.

Research shows that pensioners are the group most satisfied with their contact with the Inland Revenue—indeed, highly satisfied. The hon. Gentleman is right to suggest that we should not be complacent, but I urge him to see the position in perspective.

There is, of course, more that we should do. As the hon. Gentleman suggested, we want to minimise the number of people who have to complete self-assessment tax returns. That is why last July I announced changes in the criteria determining who received such returns. As a result, some 200,000 older people were taken out of the system. We are considering whether there are other changes that we can make.

This year, the Inland Revenue is running a taxback campaign to encourage those on low incomes, who do not receive the tax rebates that they should receive on their bank and building society interest, to claim. The hon. Gentleman mentioned that as well. We have worked closely with pensioner organisations. We started the campaign in March, but we will have a high-profile week in October to try to get that message across.

We have looked at rewriting our forms and leaflets, particularly those that are aimed at pensioners. In doing that, we have consulted the low income tax reform group, Help the Aged and Age Concern. We already second to the group—I think that it is a half-time secondment—someone from the Inland Revenue to help to develop its campaigns. I understand that there is a part-time secondment to TaxAid, Obviously, it is in our interests to ensure that people are enabled. They have the information, they know their responsibilities, but they know their rights, too: they do not pay tax when they should not.

The hon. Gentleman mentioned volunteering. I have read the report by the low income tax reform group. I am happy to read it again because it has some interesting points. I welcome the idea that people with the necessary skills and time should volunteer to help in that area. Essentially, it is a good goal because it will help to create the inclusive, cohesive, mutually supportive society that at least he, his party and my party want to be developed.

We are having discussions with the low-income tax reform group. We are keen to participate in the pilot in particular, because that will show us a lot about the types of services that we might need. I understand that the group is making an application to the Home Office for funding under social exclusion—I think that that is the category, although do not hold me to it. We will continue to work closely on that because it will show us what needs to be done.

There are, of course, questions: for example, in what capacity would those people operate? How would we be sure that they had the authority to talk to the Revenue? Would they need to talk to the Revenue, or would they simply be volunteer advice workers? However, those are technical issues that can be sorted out in discussions. The concept is positive. I want to take it forward.

The hon. Gentleman raised the question of a special directorate centrally in the Inland Revenue to focus completely on pensioner requirements. Again, to keep it in perspective, we are talking about quite a small group of taxpayers. I cannot say today that we will go away and set that up. What I can say is that we have an overall customer service champion in the Inland Revenue at board level: the deputy chairman of a department that is looking seriously at developing customer services, and how we can ensure that all groups, particularly pensioners, get the service that they need. I have discussed before with that official what we can do for pensioners. I will certainly raise the matter again as a result of today's debate, discussing what is appropriate.

The hon. Gentleman asked me two other specific points. One was with regard to allowances and the coding notices, and pre-announcing those; he is talking about pre-announcing them in November. I will not delay the House on that, because I know that he is knowledgeable about how the coding notices are issued in relation to the Budget and when things are announced, but, again, I recognise that there is an issue there. It is something that I should like to address.

Equally, I recognise—as I am sure that the hon. Gentleman will—that the Chancellor of the Exchequer makes announcements in March. It would be a bit odd to send out coding notices that made all sorts of announcements in advance of a March Budget. There are some problems with how that works, but, again, I am looking at that matter.

The hon. Gentleman's last point was on annuities, which concern the financial institutions themselves—the insurance companies—as changes may impose administrative costs on them. We are, however, investigating ways of making progress on that matter. We are also in discussions with the industry on how to simplify the system and make it much more responsive to pensioners.

The hon. Gentleman has raised some important issues. I again assure him that we are very interested in examining the specific issue of volunteering—although we must also, of course, address issues such as who would fund it. I understand that the low income tax reform group is making an application on that matter. We are particularly interested in the group's pilot schemes, which will help us all better to appreciate necessary changes.

We also have a champion who is responsible for customer services, including pensioner care and pensioners' interaction with the tax system.

We also have a continuing review on self-assessment, which will help to ensure that the system's impact on pensioners is minimised. I should tell the hon. Gentleman that changing the self-assessment system is not quite as easy as reprogramming the computer. It is a very large computer, with a very complex programme, and it is not that easy to intervene in its operation. None the less, I accept his general point about trying to remove responsibility for complying with self-assessment from those people.

The hon. Gentleman made a point about coding notices. We are aware of that matter and are examining it. We have not yet found a solution to it, but we are still looking for one.

I hope that I have been able to reassure the hon. Gentleman and the House on those points, and that hon. Members will feel safe in the knowledge that the Government recognise the real issues that pensioners, in particular, face in dealing with the tax system. We realise that we have a duty to minimise the difficulties that they face, to maximise the benefits that they receive—through, for example, taxback campaigns—and to provide decent literature and a friendly service.

I also hope that the House will be reassured that we are making progress as quickly as we can on all those issues, and that we shall continue to have a very positive and strong working relationship with all hon. Members and with the low income tax reform group—which has made such an important contribution to the debate.

Question put and agreed to.

Adjourned accordingly at two minutes past Three o'clock.