HC Deb 04 July 2002 vol 388 cc416-21

'(1) Section 257A of the Taxes Act 1988 shall be amended as follows—

(2) In subsection (2) the amount specified for the year 2002–03 shall be £5,535.

(3) Omit subsections (3) and (4).

(4) In subsection (6), after the words "entitled to relief under this section", leave out from "this section shall have effect" to the end of the subsection, and insert—

"he shall be entitled to the relief under this section as if he had been married throughout the year of assessment.".'.—[Mr. Edward Davey.]

Brought up, and read the First time.

Mr. Edward Davey (Kingston and Surbiton)

I beg to move, That the clause be read a Second time.

The hon. Member for Wolverhampton, South-West (Rob Marris) may be pleased to learn that the new clause results from another suggestion made by the Chartered Institute of Taxation. It was not suggested by the institute's Low Incomes Tax Reform Group, which was the genesis of the two new clauses that I moved last night, but by the institute's campaign for simpler taxation. This evolving campaign has a manifesto for tax simplification, and this new clause derives from the proposals for personal tax quick wins. It does not really distinguish between the wealthy and the not-so-wealthy, because both groups would potentially gain. One change in new clause 24 would lead to a gain of the princely sum of £7 per annum for pensioners aged between 65 and 74. That is not a huge amount, although £7 is arguably worth more to someone on a low income than to those on a higher income.

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The institute is keen on the changes in new clause 24 because it wants to simplify the tax system in simple ways—for example, by reducing the number of boxes on the self-assessment form that drops through so many letter boxes every year, by reducing the number of civil servants who have to wade through the forms and by saving time in the private sector. Every year, we need to consider how we can simplify the tax system, and new clause 24 contains two simple proposals for advancing that agenda.

Both proposals relate to the married couples allowance, which was recently restricted to 10 per cent. and has now been restricted to pensioners and those who were born before a certain year. That strengthens the case for reform, because the allowance is effectively withering on the vine. While it remains with us, it makes sense to make its administration as simple as possible. At the moment, different rates for the married couples allowance apply to different ages of pensioner. Someone aged between 64 and 75 in the fiscal year 2002–03 has a married couples allowance of £5,465, which is £70 lower than the rate for pensioners aged 75 or above, who receive an allowance of £5,535.

New clause 24 seeks to equalise the allowance at the higher rate. That is not a very generous change, because it would be worth only £7 a year, but it would mean that the coding that pensioners receive would not need to be changed. Savings would also be made in the production of the self-assessment form. The CIT suggested that it would remove at least one box from the form. Coupled with other simplifications that the institute suggests, 22 boxes and one whole page could be removed from the tax form and guide. This proposal is a small step towards meeting that objective.

The second proposal is perhaps more interesting. At the moment, if a pensioner who is eligible for married couples allowance marries, he or she can receive only a proportion of the allowance in the year of the marriage. That necessitates a complicated calculation that requires five boxes on the form and half a page in the tax guide to explain. That is a waste of time. It is an unnecessary calculation, because there cannot be that many pensioners who marry aged 66 or above.

The amount that the Exchequer would lose by the proposed change would be tiny. The new child's tax credit will not have an in-year restriction, so the change would bring the remaining age-related married couples allowance in line with the Government's legislation elsewhere and would be a slight bonus for pensioners getting married. It could not be described as giving a huge tax incentive to pensioners to rush out and wed, but it would remove complications and give them a little extra to spend on their honeymoon. I hope the Paymaster General will take the new clause in the spirit in which it is intended, so that we simplify the tax system for elderly people.

The Paymaster General (Dawn Primarolo)

I am afraid that I have to disappoint the hon. Gentleman on his plans to alter the married couples allowance. We have discussed the systematic approach to simplifying the system before on the Floor of the House. For example, yesterday we debated making it easier for pensioners and others to comply with their obligations in the self-assessment system. I am a little surprised at his piecemeal approach to a project that he expects the Government to approach systematically and thoroughly. His suggestions are out of context.

It is important to remind the House of the status of the married couples allowance. The hon. Gentleman said that it sits with the priorities of Government policy, but it is difficult to understand how that can be justified. The married couples allowance has been abolished for the vast majority of married couples for good reasons. He is confusing two things: the approach to simplifying the tax system where possible, and whether it is good policy to amend an allowance that has been abolished for everyone else.

The previous Government reduced the value of the married couples allowance for a number of years before it was phased out. In the end, the allowance did not merely support marriage; it could also be given to single parents and unmarried people who were living together. That reflected the piecemeal approach of altering and fine tuning a particular relief, which is what the hon. Gentleman wants to do.

The Government replaced the married couples allowance with the child's tax credit and other changes to the tax system to support families with children. They decided that it was correct to protect the position of elderly people who were in receipt of the higher age-related married couples allowance. It is not right in principle to go beyond the commitment to maintain the position of those pensioners in the name of simplification, and I do not think that the new clause would provide us with that in the long run.

A line has to be drawn and logic applied. I would hardly describe having two rates of the married couples allowance which are dependent on age as complex, although I listened carefully to what the hon. Gentleman said about the form and the boxes in the self-assessment requirement. However, that goes back to the principle, which we discussed again yesterday, that it is more important for the Revenue and the Government to approach the problem of the form's complexity by asking whether we are asking for information that we do not require and whether we can remove people completely from the tax system. It is not a matter of tinkering around with the tax relief itself.

The hon. Gentleman rightly said that it is a relatively low-cost proposal. It is. However, I remind him that most pensioners already do not pay tax. The Government's approach to the question of support for pensioners has been extremely clear, not only in the raising of allowances but in the introduction of pension credit and minimum income guarantee, and in the numerous other ways that the Government are supporting pensioners, especially the very poorest. We are now spending an extra £6 billion a year from April as a result of the tax and benefit changes that we have made.

I entirely appreciate and accept the principle behind the hon. Gentleman's point, which is to continue to keep the pressure on the Government to simplify the system wherever we can, but I think that he falls into the very trap into which he argues that the Government should not fall: that is, to tinker for the short term without taking a strategic approach to wider questions.

With regret, I have to say to the hon. Gentleman—I know that he sincerely advocates this line—that I am not prepared to recommend to my right hon. and hon. Friends that they should accept the clause. If there were a vote, I would ask them to vote against. I believe that what I said last night is a much better way to approach the matter, namely, the work that the Inland Revenue has undertaken with TaxAid, with the Low Incomes Tax Reform Group and the Working Together Group. That is the best way forward, and the new clause is not.

Mr. Flight

The point that others have raised before becomes all the more important given the pension crisis and the fact that many people will not get the pensions that they expected. There are many who are already drawing pensions who will not get the increases that they expect.

Certainly people older than 50 or 55 have saved for their old age, to the extent that they have made such savings, on the assumption that the married couples allowance would be there when they retired. When it was taken away rather arbitrarily and cut at the age of those born in 1935, that recognised that principle but a great raft of people were excluded who had still been making their retirement plans and their saving plans on the reasonable assumption that the allowance was a main part of the income tax system.

When the Government think about their fundamental reforms, perhaps they would have to give a different—

Dawn Primarolo

Perhaps the hon. Gentleman would explain why the Conservative Government reduced significantly the value of the married couples allowance. If the principle that he is now advocating applied, why did it not apply when the Conservatives were reducing the allowance from 40 per cent. to 10 per cent?

Mr. Flight

That to which I think the Minister refers essentially did not affect the great majority of retired people. In relation to the tax credit, it affected those who were younger and earning more money. Secondly, for better or worse, the changes were phased.

For those who have retired and for whom the married couples allowance was higher, that allowance was a material factor in terms of their disposable incomes. When the Minister finally got rid of the allowance, that significance was acknowledged in terms of increasing support for children, although people had to wait a year. The argument was that the moneys were better paid to children than to parents. For those who were retired, and particularly for the great bulk of people in the middle, I am not aware that there was any substitute for the loss of the married couples allowance.

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Perhaps the reform which the Minister plans to look at would need a different name to save face. Given the great fears and concerns of huge numbers of people over 50 about the value of their pension on retirement, the Minister should look at the problem urgently to alleviate it and honour the basis on which people saved for their retirement. It may be worth while incorporating the new clause in such reform, as there is little logic in having an allowance which changes slightly according to age, as the hon. Member for Kingston and Surbiton (Mr. Davey) pointed out. However, the more important aspect of the proposal is the restoration of something analogous to the older persons' marriage allowance.

Mr. Edward Davey

I welcome the fact that the Paymaster General repeated her assurance of last night that the Government will undertake a wide-ranging review to try to see whether the elderly person's experience of filling in tax returns and dealing with the Inland Revenue and other tax authorities could be improved by making the forms simpler and fairer. I am sure that her comments will be welcomed by people outside the House who read them.

I obviously disagree with the Paymaster General's description of the new clause 24 as "tinkering" with the allowance. She graciously pointed out last night that I have pursued these issues for a number of years, so I hope she accepts that I am a little impatient for the overall review and a full examination of the problem. I do not apologise for a proposal of modest chunks, which would not be costly for the Exchequer. I am trying to get the Government to move a bit further as we wait for the review.

It is a good idea to conduct a review with a wide-ranging remit, as tax simplification at all levels is about a process, not an event. We therefore need to come back to it every year and find out whether we could dispense with things that would help us to get rid of a box on the form, a page in the guidance notes or pages in the tax statute books.

Dawn Primarolo

I concur with the hon. Gentleman, who has a long track record of pursuing the issue. As I said at 12.15 am today, we should ask first whether everyone in the self-assessment system should be part of it. If not, we should remove them from the system. Secondly, we should consider whether the form is too complex and asks for too much information or information that is not required. Consequently, we may find that changes may need to be made to the relief itself. The process is continuous—I have no qualms at all about admitting that, and have no complaints about the hon. Gentleman continuing to press me on the matter.

I hope that I have clarified the Government's approach and explained why the new clause would make an unacceptable change to the principle of the married couples allowance. However, I agree entirely that there is not a big bang solution to the issue.

Mr. Davey

The Minister and I agree about a lot. I accept her assurance from last night that the approach is to remove as many people as possible from the self-assessment system. However, we can envisage a different way of assessing tax for people on lower incomes. We can imagine two types of self-assessment forms, such as many other countries have. However, I do not disagree with the thrust of the Minister's remarks, given our present tax and pay-as-you-earn systems. The process underlying her thinking is correct.

I still do not accept the Paymaster General's argument that new clause 24 is inconsistent with the Government's chosen path. It is consistent with that. I do not seek to change the Government's stated policy on married couples allowances, for which we voted. It was an overdue reform and while one can quibble about the way in which the Government went about it, particularly the delay, it was certainly needed and got money to children, which was an aim that we shared. I do not seek to go back over that ground.

The Government said stay on the statute book and that it will wither away over the years, but while it is there—it will be with us for two or three decades—it should be made as simple to operate as possible, and that was the intention behind the new clause.

I know that the Paymaster General will not accept it today, but I have raised the issue. I have also raised the more strategic issue that the Chartered Institute of Taxation, like other tax professional bodies, is considering this area of simplification and coming up with a series of quick win, simple measures which the Government could embrace, thereby gaining political advantage. If the Government take up the institute's ideas, it will do not just the tax system but the Government good.

As the Paymaster General has been generous in explaining how she sees Government policy unfolding, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn

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