FINANCE BILL

Public Bill Committee, 6 June 2013.

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

Sir David Amess (Conservative, Southend West)

I anticipate that the room will get warmer, so Members are free to take off whatever clothing they think reasonable.

Clause 43 - Financing costs and income: group treasury companies

Chris Leslie (Labour, Nottingham East)

Good morning, Mr Amess. It is not that warm in the Committee today; it might well get heated, but we can only hope for some excitement over the course of the day. Many Members will have been excited when they saw that clause 43 would be the first item to arise in Committee. If my hon. Friends could hold back their interventions for a short time while I get some of my points out, I will be grateful.

The clause changes the worldwide debt cap exemption for group treasury companies and tackles issues that have allowed companies that do not have a treasury function to make a group treasury company election. The debt cap rule, as it is known, imposed a limit on tax deductions for interests for UK members and branches of a worldwide group. The rules were introduced with effect from January 2010. Broadly, the rules restrict a group’s UK treasury deductions for finance costs to the worldwide group’s third-party finance expenses. The rules are complex in their application and require tests to be met, which involve looking at the financing income and financing expenses of UK group members and comparing that with the worldwide external borrowings of the group as a whole.

The Institute of Chartered Accountants in England and Wales says that the worldwide debt cap introduced back in 2009, when UK groups were exempted from tax on dividends received from their overseas subsidiaries, has, in broad terms, capped the amount of interest deductible in the UK, if the UK debt is greater than the particular group’s external worldwide debt level. The intention was to discourage upstream loans and excessive debt in the UK. Group treasury companies can elect to be exempt from the worldwide debt calculations, but in future, to be able to do so, all or substantially all, of the activities must be treasury activities. If they fail to meet that new “substantially all” condition, only the financing expenses and financing income that relate to the treasury activity will be included in the election. It appears that hitherto, treasury companies may have been distorting some of their income and expenses with non-treasury income and expenses.

I would like the Minister to help the Committee with some questions. They are difficult questions with which to grapple, but just because they are difficult, that does not mean that we should not try to clarify them so that matters are understandable. Can the Minister—and this is a very basic question—give examples of what group treasury companies are and what they do in the real economy, so that we are all speaking the same language, we know one when we spot it and we know what they are in layman’s terms? Are we talking about international finance houses; some sort of shadow banking hedge-fund institution; or the financing subsidiaries of larger corporate groups, where genuine real-world output is financed from intra-group lending? In the panoply of large multi-armed international and multinational organisations, a parent group or a subsidiary may sometimes have a treasury function and undertake various activities on behalf of the company that does the work. I am trying to paint in my mind’s eye a map of what exactly we are talking about, so I would be grateful if the Minister could help to explain that landscape, I would certainly be grateful.

In such circumstances, there is sense in restricting the tax deductibility of financing costs and expenses, including interest on loans, with a debt cap, especially if the group’s UK debt is bigger than the debt it holds elsewhere. Otherwise—I think that the clause is aiming at this—there would be a perverse incentive to locate corporate debt in the UK for reasons of tax efficiency. However, this carve-out or exception is made for treasury companies. Will the Minister explain the new distinction being made for group treasury companies?

The clause seems to change the definition of treasury companies so that only those that are wholly or mainly involved in certain activities can elect for exemption from the worldwide debt cap. That prompts me to ask what sort of businesses and how many of them will be affected. I would be grateful if the Minister could help to illuminate that matter by shedding a little light on this opaque area of tax law.

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure to welcome you back to the Chair, Mr Amess.

Clause 43 makes changes to the debt cap rules to close tax planning opportunities. The changes will revise how group treasury company election operates to ensure that tax planning is minimised, and they will take effect for periods of the accounts of a worldwide group that began on or after 11 December 2012.

It may help hon. Members if I provide some background. The debt cap rules were introduced in 2010 to limit the tax deduction that a UK company can claim for interest and other finance expenses at the level of the overall worldwide group. There are circumstances in which certain categories of companies can be partly or wholly removed from the debt cap rules, one of which is use of group treasury company election. A group treasury company’s finance income is usually almost matched by its financing expenses, so that the company has little impact on the overall position of the whole group for debt cap purposes.

The original intention of group treasury company election was to reduce the administrative burden on companies that have a treasury function in a group by allowing them to opt out of the debt cap rules. However, elections have been made by companies that do not have a treasury function, enabling them to shelter finance expenses that, without election, might be disallowed for UK tax purposes.

The clause has been designed to ensure that tax planning is minimised. It will make changes to chapter 7 of the Taxation (International and Other Provisions) Act 2010 to resolve the issue that has arisen about group treasury company election rules. In some cases, elections have been made by companies that do not have a treasury company function to circumvent the debt cap rules and avoid the payment of an additional tax charge.

For a company not to be subject to the debt cap rules, it must make a group treasury election and meet two criteria: first, most of its activities must be treasury ones; and secondly, most of its assets and liabilities must relate to those activities. If both conditions are met, all the company’s financing expenses and financing income fall outside the debt cap rules. However, if a company cannot meet the criteria, only financing expenses and financing income relating to its treasury activities will fall outside the debt cap, and an additional tax charge may apply. The measure is expected to increase receipts by approximately £40 million per annum. It will affect only the large groups of companies subject to the debt cap rules.

To answer the question of the hon. Member for Nottingham East, a group treasury company is one that arranges financing for the group from external borrowers and on-lends the external funds to fellow group companies. In effect, it is a conduit for finance for the group, and interest income received from the group companies to which it has lent funds is used to meet its own interest obligation to the external lender.

As I say, this change will affect only those large groups that have exploited this tax planning opportunity. Because of HMRC’s risk assessment and the time scales, we cannot say how many groups have exploited this opportunity, but none the less we believe that it is right to close it.

Nigel Mills (Conservative, Amber Valley)

I have no problem with the clause. However, as I think I wrote to the Minister before, these rules are particularly complicated and burdensome for most innocent groups to try to comply with, and there are bizarre concepts. A company can be 5% of the global group in terms of trade but still have 100% of the finance deduction, and I am not sure quite why that was done. I think that these rules have been around for a few years. Could he write to me to set out how many groups have had to make an adjustment under these rules and say roughly what the annual tax take is, just so we can check whether the burden is really worthwhile?

David Gauke (Conservative, South West Hertfordshire)

I will certainly provide my hon. Friend with as much information as I can. He is right to say that the worldwide debt cap is a complex area of law. From time to time since 2010, amendments have been made to the cap. In truth, the group treasury company election was not working as intended and the changes that we are making will ensure that only those financing expenses in income generated by group treasury activity will be excluded from the debt.

Where loopholes in the UK tax system are identified, obviously we seek to address and close them. None the less, there would be considerable risk if we were to abandon the worldwide debt cap. As my hon. Friend said, this is a complex area and we seek to eliminate complexity where we can. However, there would also be considerable Exchequer risk if we were not to have some rules in place in this particular area.

It is also worth pointing out that HMRC is undertaking a review this year, to establish the facts that my hon. Friend has particularly asked for. So, probably the answer to his question is that I am very happy to write to him on this matter but not just yet. When I have the information to provide greater clarity on this particular point, I will certainly let him know. I know that he follows these matters very closely.

Chris Leslie (Labour, Nottingham East)

I know that this is a slightly dry topic, but it is important that at some level we get a little more feedback—perhaps an interim note from the Minister on the progress of that particular review—because there are a number of questions that pop up every now and again about these intra-group financing arrangements. For example, there are issues to do with the quoted eurobond exemption arrangements and withholding tax in relation to other tax haven arrangements, which have come up regarding some of the utility companies and their intra-group financing arrangements.

Some serious questions are being asked about whether there are tax loopholes in this area that ought to be addressed from time to time, and it would be quite helpful just to get some information back from the Minister about what the Treasury’s strategy is when it comes to ensuring that we have a fair and a reasonably transparent process for operating some of these deductibility arrangements, but not one that unwittingly creates new loopholes or devices for companies to circumvent the rules.

David Gauke (Conservative, South West Hertfordshire)

I will perhaps repeat what I said a moment or so ago. HMRC is undertaking a review of the impact of this arrangement, the groups that have made use of it and so on. That review is under way. I will certainly add the hon. Gentleman’s name to the list of recipients of the letter I will send about this issue. I suspect that this Committee may no longer be in place by the time that we are in a position to provide the details asked for by my hon. Friend the Member for Amber Valley, but I will certainly ensure that he is aware of the progress that we make in this area.

In conclusion, the changes close a tax planning opportunity by making changes to the group treasury company election to ensure that only finance, income and expenses generated by genuine group treasury activity are excluded from the debt cap. I commend the clause to the Committee.

Clause 44 - Condition for company to be an “investment trust”

Chris Leslie (Labour, Nottingham East)

We now turn to clause 44. “Investment trust” is a term defined in the Corporation Tax Act 2010. The current approved investment trust arrangements allow immunity from corporation tax on capital gains. In order for investment trusts to be HMRC approved, certain conditions are set out in the Act. The clause, though, loosens the definition of “investment trust”. The previous requirement was that a company’s work must consist of investing its funds in shares, land or other assets, whereas the clause says that it is enough for “substantially all” a company’s business to consist of such investments.

While debating clause 43, we got the impression from the Government that they were tightening up a loophole, but I am slightly worried that clause 44 loosens and possibly relaxes the definitions. It is incumbent on the Minister to explain the rationale behind the move away from the tighter definition toward a looser one. What proportion of a company’s investments is sufficient to fulfil the new requirement that “substantially all” of its business consists of investing in shares, land or other assets? Does he feel that the measure might lead investment trusts to conduct their business beyond what they know to be part of their core activities, and to start taking on other aspects because they can now do so without losing their tax immunity? What sorts of activity do we expect to provide for by loosening the definition?

The practical effect of the clause is to expand the range of companies that can call themselves investment trusts and thereby take advantage of the immunity from corporation tax. It would be useful for the Minister to give us the calculation of what costs to the Exchequer will be involved in expanding the definition and consequently losing tax receipts. Will he shed some light on that?

David Gauke (Conservative, South West Hertfordshire)

Clause 44 removes an unintended consequence of changes to the tax rules for investment trusts introduced in the Finance Act 2011. The clause supports the Government’s objective of improving the UK tax system and ensuring that the UK remains a competitive location for investment companies.

Again, I will provide a bit of background to the clause. Investment trust companies are professionally managed, pooled risk-spreading investment vehicles. They are publicly listed and invest in a diversified portfolio of shares, securities or other assets with the aim of providing return to their investors. There are more than 200 investment trust companies in the UK, with total assets under management of about £60 billion.

Companies approved by HMRC as investment trusts are exempt from corporation tax on their chargeable gains, and companies that wish to be approved must meet and continue to meet certain conditions. One of those conditions is that the business of the company consists of investing its funds in shares, land or other assets with the aim of spreading investment risk and giving company members the benefit of the results of the management of those funds.

However, concerns have recently been expressed that the wording of the condition would prevent investment trust companies from engaging in ancillary activities, which was not the intended outcome. The clause addresses that unintended outcome. It amends the wording of condition A in section 1158 of the Corporation Tax 2010. It has effect in relation to accounting periods commencing on or after 1 January 2012. The change will make it clear that, provided that

“all, or substantially all, of the business of the company is”

investing its funds in shares, land or other assets, with the aim of spreading investment risk, other, ancillary activities will not prevent condition A from being satisfied.

It is worth pointing out that that definition is similar to the rules that existed pre-2011 and makes it clear that all, or substantially all, of an investment trust’s business must be investing its funds. However, providing that a company meets the relevant conditions for approval as an investment trust, receipt of some ancillary income—for example, from stock lending fees—that might be treated as trading income for tax purposes, will not prevent it from being approved as an investment trust by HMRC.

To deal with the specific question raised by the hon. Member for Nottingham East, it is also worth pointing out that this measure has been assessed as having nil cost, and that is set out in the tax impact information note.

In conclusion—

Chris Leslie (Labour, Nottingham East)

Will the Minister give way?

David Gauke (Conservative, South West Hertfordshire)

I appreciate that using the words “in conclusion” always runs the risk of provoking an intervention. I fear I have fallen into that trap on this occasion.

Chris Leslie (Labour, Nottingham East)

It is not that those words wake me out of my torpor; it is just that I was waiting for the relevant moment to quiz the Minister on a couple of points. He gave one example of what ancillary activities might be—companies receiving stock lending fees or, in other words, income related to hedging or derivatives trading activities. Given that the existing definition talks about a company trading in

“shares, land or other assets”,

I am slightly surprised that it would be necessary to deal with that, for a start. However, does the Minister have other examples of what ancillary activities might be? The statute does not specify or define any. As far as I can see, it could involve any number of activities; it could be agricultural or manufacturing—it is probably neither of those, but it could be.

David Gauke (Conservative, South West Hertfordshire)

I can give another example. If an investment trust has excess office space, and it decides to rent out a floor or some space, that would constitute an ancillary source of income. It is worth bearing in mind that all, or substantially all, of an investment trust’s business must be investing its funds. Some kind of conglomerate that engaged in all sorts of activities, but which included some investment trust-type activities, would not satisfy the conditions. However, where an entity has a business consisting of investing all, or substantially all, of its funds, but it has, for example, a small amount of rental income or a small amount of income relating to stock lending, that should not disqualify it from receiving the tax treatment that investment trusts receive and have received for some time.

Chris Leslie (Labour, Nottingham East)

The Minister makes a reasonable point, and I certainly understand the issue of letting out spare office space and so forth—a spare room subsidy would be one way of describing that arrangement. However, there is no schedule in the Bill describing what ancillary services are, so there is an anxiety about companies testing the boundary of the phrase “substantially all”. Again, that is not defined. Is “substantially all” 90%, 70% or 51% of a company’s activity? I know that is not defined in statute, but it would help the Committee if the Minister could give a flavour of what HMRC means when it says “substantially all”. That would give companies a clear guideline, so that they do not to try and test the meaning. I am worried about a loophole potentially being offered that a lot of companies will head towards.

David Gauke (Conservative, South West Hertfordshire)

I am sure that the hon. Gentleman would agree that were we to produce a list in legislation of what ancillary activities might consist of, we would run the risk of debating the issue on a regular basis, as we would need to amend it from time to time. Much though I am enjoying the debate, I am not sure that the rest of the Committee would necessarily appreciate that.

As for what “all, or substantially all” means, HMRC will consider the facts in any particular case, but providing that a company meets the relevant conditions for approval as an investment trust, we do not believe that receipt of some ancillary income—stock-lending fees, for example—should prevent it from being approved as an investment trust by HMRC. Essentially, that was the test that was applied pre-2011. I am not aware of significant concerns that were raised that investment trust status was being abused and that businesses were pursuing general activities beyond investing in order to benefit from the tax treatment for investment trust companies. I hope that provides some reassurance. Obviously, if there was evidence that the system was in any way being abused, HMRC would take that into account, and it would take measures to withdraw that status.

Chris Leslie (Labour, Nottingham East)

I do not disagree much with the Minister’s analysis, but I want to be clear how the clause has ended up in the Bill. It is not clear from his comments whether an enforcement problem had caused great anxiety among the investment trust community, or whether particular cases had provoked the need for it. It seems as though it is a generous response to a problem that I certainly had not heard much about before. What was the rationale for bringing it up in the first place?

David Gauke (Conservative, South West Hertfordshire)

The rationale, as I alluded to in my earlier remarks, is that we want the UK to be a competitive location for investment trust companies to be located. The reality is that there was concern in the industry about a risk, inadvertently, of some investment trusts fearing that they might lose their status, because of a small amount of ancillary activity that could take them outside the conditions. That was never the intention behind the 2011 regime, but none the less, it was a concern. I am aware that HMRC has seen examples that could have led to investment trust companies losing their approval. Given that that was an inadvertent consequence of the changes that came into effect in 2011, we obviously wanted to address that point. HMRC monitors applications, and there are self-assessment returns. If there is a problem in that area, it would be addressed.

I am delighted that the hon. Gentleman is seeing the point that I am making, and that I am persuading him on the issue, just as I appear to have done on child benefit—[Interruption.] I am not sure that I heard the hon. Gentleman’s comment—I think he said that I have not persuaded him, but there we go.

Chris Leslie (Labour, Nottingham East)

You have not.

David Gauke (Conservative, South West Hertfordshire)

I am glad that we have that on the record; that is a further U-turn. Anyway, I should not be drawn into such areas, Mr Amess—I must go and report to the media monitoring people that we have another change of position.

In conclusion, the clause addresses the unintended consequence of the original legislation and it supports the Government’s objective of improving the UK tax system. I hope that it stands part of the Bill.

Clause 45 - Community amateur sports clubs

Sir David Amess (Conservative, Southend West)

With this it will be convenient to take that schedule 20 be the Twentieth schedule to the Bill.

Chris Leslie (Labour, Nottingham East)

As a sporting individual, Mr Amess, you will be particularly delighted that we are now turning to the question of community amateur sports clubs: I have a vision of jumpers for goalposts, as you relax with your Pimm’s while watching the sporting activity on the local recreational ground somewhere in your constituency. I know that many hon. Members have great regard for the sterling work that many volunteers in their constituencies do to keep sporting life going in neighbourhoods, towns and cities across the country.

The issue we are considering has therefore provoked significant interest in a number of quarters, not least in the form of a front-page story in the Daily Mail—a paper that I read religiously on a regular basis—on 29 May. The Mail was aghast at the Government’s attitude to village sports clubs, which, it claimed,

“face crippling tax bills after a major crackdown by the taxman.”

At a time when tax questions are under the spotlight, the Daily Mail said:

“The crackdown—described as ‘a tax on village life’—has left many cash-strapped clubs facing ruin after receiving bills dating back years for those who help out by doing the cleaning, making tea and mowing grass.”

Ben Gummer (Conservative, Ipswich)

The hon. Gentleman is one of the few shadow Ministers not to have come to campaign in my seat, but I look forward to him doing so. When he does, he might like to talk to Ipswich borough council, run by his party, which is forcibly ejecting the Ransomes sports and social club from its ground and doing everything it can to make sure that that voluntary organisation cannot continue to exist. In the comments he is about to address to the Minister, will the hon. Gentleman pay attention to the fact that Labour councils are doing their best to undermine voluntary sports associations in my constituency?

Chris Leslie (Labour, Nottingham East)

It would be wrong to suggest in any way that the hon. Gentleman was misrepresenting the realities of this issue, but I find it incredibly difficult to believe that Labour councillors and Labour authorities would behave in the way he describes. It does not ring true to me, so he must be mistaken in his understanding of that situation. I am sure we can find a way to clarify the matter for him at some later point; I do not know whether there are provisions for the Committee to adjourn to visit a particular location.

Sir David Amess (Conservative, Southend West)

Order. Tempting as it might be to discover its delights, it would not be in order to adjourn to Ipswich.

Chris Leslie (Labour, Nottingham East)

What a shame, Mr Amess; I am sorry we will not be able to do that. The Minister needs to address the issue of the attitude taken by HMRC to what some have described as “easy targets”. Some cricket clubs have been severely irritated by the treatment of their institutions in contrast with the treatment of larger institutions that pose bigger problems. Amateur sports clubs rely on the help and good will of volunteers who coach and umpire, yet HMRC is at risk of saying that the funds given to cover those volunteers’ expenses or as recompense for their time should be treated somehow as a form of tax avoidance. It would be untoward if HMRC was being unfair to sports clubs in that way.

Indeed, a cricket club in Hertfordshire was recently subjected to five hours of tax inspection with HMRC officials—no doubt sent personally by the Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire—who demanded tax on one-off payments made to volunteers who had been given cash in hand for helping out behind the bar or with the cleaning. The club concerned has been very exercised by what it sees as a David versus Goliath situation. Val Waring, the chairman of that club, has said that she does not get paid but does what she does out of her love for the club. The volunteers come back every week to hoover the floor and put the tea on. There has to be a bit of common sense, or some clubs will be shut down.

Ian Mearns (Labour, Gateshead)

Chairman, I regret that you are banning us from going to Ipswich for a sitting of the Committee. It is a long time since I have sat next to a cricket pitch on the outskirts of Ipswich drinking a pint of cool Tolly Cobbold—but I reminisce too much.

Would my hon. Friend regard this as taxing the big society? I understand that HMRC is conducting a tax investigation into individuals who have gone through the bother of getting coaching certificates for football so that they can help out in the local community. HMRC’s focus in that respect seems a little bizarre.

Chris Leslie (Labour, Nottingham East)

Clearly there have to be rules, and rules need to be enforced, and it is incumbent on us all to ensure that the tax code is in order and set out. There is obviously some motivation, however, somewhere in the Treasury, to put undue emphasis on enforcement, and the checking and double-checking of small sports clubs—perhaps it is in Bromsgrove. I am not sure from where the motivation comes for that drive within HMRC, but the issue is proportionality and ensuring that common sense is applied. I would be grateful, therefore, if the Minister could set out the Treasury’s approach to enforcement and put at rest the minds of volunteers in sports clubs, assuring them that they will not be picked on in that way in future.

John Cryer (Labour, Leyton and Wanstead)

Is there not a stark contrast between how small clubs and large companies are treated? Not all large companies, but some, such as Vodafone, are allowed to walk away having not paid tax bills, which in some cases amount to billions of pounds, because they have done a cosy deal with HMRC, while small sports clubs and associations are being hammered by the same organisation.

Chris Leslie (Labour, Nottingham East)

Indeed. It is a proportionality issue. I am sure that HMRC does not engage in individual negotiation with the sports clubs about how much tax should be paid. The rules will be the rules, and the clubs will have to abide by them, but that does not seem to extend to large organisations for which some people feel there has been too cosy and conversational a set of circumstances to settle a tax bill. Things should be done by the rules, and the rules should be clear and enforced fairly.

Stephen Williams (Liberal Democrat, Bristol West)

I thank the hon. Gentleman for giving way, because that intervention may have been something of an own goal. Would the Labour Front-Bench team like to comment on the tax avoidance done today by the Labour party, on Mr John Mills’s £1.65 million donation of shares in his shopping channel company? We understand—it was reported in T he Daily Telegraph—that he was advised by the Labour party to avoid tax. Would the hon. Gentleman like to comment on that?

Sir David Amess (Conservative, Southend West)

Order. Before the hon. Gentleman responds, I will say that I hope he will not be tempted to go too far down that line. He may make just some general remarks.

Chris Leslie (Labour, Nottingham East)

I would have loved to respond to the hon. Gentleman. I would dearly like to go into the issue at some length, but I have to abide by your strictures in all such matters, Mr Amess. I feel as though my latitude has been constrained. [ Interruption. ] I would be grateful if my hon. Friend the Member for Gateshead could find some way of working into the clause an ability for me to respond to the hon. Gentleman.

Ian Mearns (Labour, Gateshead)

I am sad to report that this is my third Finance Bill, but I have only been here three years. [Laughter.] In those three Finance Bills, Government Members seem to have made huge stock of the capacity of business to avoid tax. They seem to make it a virtuous matter: avoidance of tax is good for business. I have heard that time and again. I think that the right hon. Member for North Somerset (Dr Fox) made a particular virtue of avoiding tax. I am surprised at the attitude being shown now by Government Members.

Chris Leslie (Labour, Nottingham East)

This is a very important set of issues and in general I agree with the thrust of my hon. Friend’s comments. I know that in many subsequent Finance Bill Committees on which he will serve he will look to introduce new clauses and amendments on some of these issues. However, I think that it would be stretching your tolerance, Mr Amess, if we went too far beyond the issue of community amateur sports clubs.

Paul Uppal (Conservative, Wolverhampton South West)

May I help and bring some sunlight to the issue? If you will forgive me, Mr Amess, I would like briefly to indulge the Committee on this issue. I could not help but google the subject, and I just thought I could bring in what Mr Mills said, which may help to progress the argument. He said that the Labour party was very professional and incredibly understanding on this matter, and actually provided good guidance. Because I am intervening and so supposed to ask a question, do you think that this is an issue for the hon. Member for Nottingham East of falling off an incredibly high horse, or is this people in glass houses throwing boulders?

Chris Leslie (Labour, Nottingham East)

The hon. Gentleman asked you a question, Mr Amess—I do not know whether you wish to answer his inquiry of you. I would be delighted to get into some of these issues, were you able to allow me to do so. However, I suspect—

James Duddridge (Rochford and Southend East) (Con) rose—

Chris Leslie (Labour, Nottingham East)

I am answering the intervention of the hon. Member for Wolverhampton South West. I notice that he was quoting from an electronic device that he had in his hand—I wonder whether it was the web of the Whips’ notices.

Paul Uppal (Conservative, Wolverhampton South West)

No, it was The Telegraph website.

Chris Leslie (Labour, Nottingham East)

If the hon. Gentleman were able to send me the link to that particular article, I would find it incredibly useful.

Sir David Amess (Conservative, Southend West)

Order. Before we continue with these exchanges, I remind the Committee to address remarks very carefully to the clause and the schedule that we are debating.

James Duddridge (Conservative, Rochford and Southend East)

I hope that I can navigate an orderly way to discuss both the amendment and the donation from John Mills. Setting aside the issue of whether giving to the Labour party is a charitable or worthy cause—let us just assume that some people think that it might be—what would be the comparative tax advantages of giving directly to a charity or political party? Perhaps the hon. Gentleman can compare and contrast the two for someone wanting to donate to a worthy cause.

Chris Leslie (Labour, Nottingham East)

I suspect that it would be stretching things a little, Mr Amess, to jimmy issues to do with political parties into our discussion of clause 45. However, I will try to find a way of doing so.

I have a second point to raise with the Minister about community amateur sports clubs—jesting aside, Mr Amess, I know that you will want me to focus on some of the issues. The provisions in schedule 20 make changes to the definition of what is known as the “open to the whole community” rule in respect of the tax treatment of some companies. The Minister is making changes to the definitions and descriptions of persons who may be affected. The Corporation Tax Act 2010 set out a definition of the “open to the whole community” rule, and there were a number of quite reasonable suggestions within that. A club is deemed open to the whole community for the purposes of this particular tax arrangement if

“its membership is open to all without discrimination…its facilities are available to members without discrimination, and…its fees…do not represent a significant obstacle to membership or use of its facilities.”

There are some ways in which the clause and schedule are seeking to finesse that arrangement, but the Minister’s substantial change is to delete a whole section on the meaning of the “open to the whole community” provision. Currently, the statute states that

“A club is not prevented from being ‘open to the whole community’ for the purposes”

of the Act merely because it has different classes of memberships, depending on age, whether a member is a student, whether they are waged, or whether they live far from the club and so forth. In a sense, the legislation at present sets out how it is acceptable to delineate fees, for example, for different types of participants within a particular club. It essentially specifies where it is okay and not okay to distinguish between membership fees.

The new schedule—on page 116 of volume II, if hon. Members are interested in finding it—makes membership an open-ended question and leaves it entirely to the discretion of the club. It would now be able to discriminate in a wider array of areas. I am not sure of the genesis of that provision, because there must have been some complaint from sports clubs or others that the existing list of exemptions in legislation was not sufficient.

I am scratching my head and wondering why on earth the Government are making such a change. The only thing I can think of is that a club might want to charge different fees to different types of profession—perhaps a Member of Parliament. Perhaps they would get a discount or, more likely, be charged more for joining a community sports club. Other than things such as freemasonry membership, I cannot understand the rationale for the provision. I do not think the Government intend to allow sports clubs to give discounts just because someone went to Eton or Oxbridge. It is odd that the Minister has decided to sweep away the prescribed areas in legislation and allow greater latitude. That is my second point. Will the Minister explain exactly what is going on with that provision?

My third point is to do with the Treasury giving itself the power to alter the figure that allows clubs to remain exempt from UK trading income corporation tax. It is currently set at £30,000, and clubs need to be reassured that that threshold will not decrease. The property income corporation tax threshold is £20,000, and clubs need to feel safe and reassured that that threshold will not change either. I mention that because the Sport and Recreation Alliance has recommended that the trading income corporation tax and property corporation tax thresholds for which clubs can claim exemption should reflect the cost of living and should be increased by the retail prices index. I do not know whether that would be a good or a bad thing. Obviously there would be an impact on the Exchequer, so I could not commit to doing that, but it would help if the Minister could shed some light on that. Would there be a significant cost, and can he reassure organisations such as the Sport and Recreation Alliance, which are concerned about such points? Those are the issues that I have with the clause and the schedule, and I would be grateful if the Minister helped us with them.

Stephen Doughty (Labour, Cardiff South and Penarth)

I wish to make some brief remarks. I am particularly interested in community and amateur sports clubs, particularly in my own constituency. I had the pleasure of visiting the Llanrumney Phoenix boxing club in my constituency some months ago. I was pleased to go there to join in a bout of boxing and take part in the training session. It was a fantastic experience, apart from getting punched in the face by one of the young champions who was told, “No holds barred. Go for him.” However, it was a great experience.

I learned about the fantastic work that the volunteers were doing and the amount of work that goes into a small club. It relies heavily on voluntary support and has done for many years. It supports many hundreds of children across the constituency. One of the young members told me that he had lost two stone by taking part. He had stopped eating junk food and had done an amazing amount of work. I should follow his example.

More seriously, when I read the schedule brought about by clause 45 I was struck by the complexity of the detail, including provisions about what constitutes full participation in a club’s activities and provisions for different costs. There is incredible complexity that will increase the additional burdens on many voluntary organisations. I am not suggesting that anybody should not be paying the taxes that they ought to.

Steven Baker (Conservative, Wycombe)

May I draw the hon. Gentleman’s attention to the potential complexity in the statutory instruments that the schedule will require?

Stephen Doughty (Labour, Cardiff South and Penarth)

Indeed, there is incredible complexity there. What support do Ministers propose to give to small voluntary organisations, such as the Llanrumney Phoenix boxing club, to help them comply, particularly in the context of the Government cutting HMRC advice centres and face-to-face advice? That will cause enough problems for individuals filing their tax returns. What support is being given, particularly given that such organisations rely so much on that voluntary support? Will Ministers provide some help and reassurance to clubs such as Llanrumney Phoenix boxing club and the many other amateur sports organisations that I am sure are in all Committee members’ constituencies?

Steven Baker (Conservative, Wycombe)

On looking at clause 45, I was lulled into a false sense of security. Committee members might ask, what could be better on a 42nd birthday than to enjoy a clause of such brevity?

Chris Leslie (Labour, Nottingham East)

Happy birthday!

Steven Baker (Conservative, Wycombe)

Thank you. However, turning to schedule 20, I was astonished to discover that it took a page to describe the meaning of

“open to the whole community”,

a page and a half to describe the meaning of

“organised on an amateur basis”

and so on. I am delighted that the hon. Member for Cardiff South and Penarth and I agree that there is a great deal of complexity here and, no doubt, in statutory instruments in due course. If I am annoying the Whip, perhaps he might ensure that I am on the Committee considering the statutory instruments. I would quite like to see this regulation through from one end to the other.

If the clause and schedule stand for anything, it is for a clarion call for tax simplification. It is clear that, contrary to what the hon. Gentleman said, we cannot afford to set up offices to support sports clubs’ compliance with regulations that are supposed to help them by lowering taxes. The cycle of complexity has gone far enough. The schedule shows that, next time round, the Government might have to consider how to simplify the whole business.

Sajid Javid (Conservative, Bromsgrove)

Mr Amess, it is a pleasure to welcome you back to the Chair and to serve under your chairmanship. I thank all Members for their comments, including the hon. Member for Nottingham East, speaking for the Opposition. I hope that I can answer some of the good points that have been raised.

Clause 45 introduces schedule 20, which amends the conditions that a sports club must meet to be registered as a community amateur sports club, usually referred to as a CASC. The schedule contains a number of powers to make regulations. The detailed conditions will be specified in regulations, after the public consultation that started on Monday 3 June. The powers in the schedule are fairly wide-ranging, but I shall expand on the good reasons for the schedule’s drafting.

By way of background, the CASC scheme was introduced in 2002 to provide a number of charity-type tax reliefs to support local amateur sports clubs. To access those tax reliefs, clubs must meet certain eligibility requirements. They must also register with HMRC. HMRC recently reviewed the legislation and found it unclear. I announced on 4 March that the Government would introduce legislation in Finance Bill to clarify the intent of the scheme. Schedule 20 amends the eligibility requirements for CASCs and includes powers to make further detailed changes through regulations.

We are not making the changes lightly. If we did nothing, HMRC would be required to apply the law, meaning that in many cases many CASCs would no longer qualify for the scheme. I do not want that to happen and I am sure that Committee members agree.

The hon. Member for Nottingham East mentioned a story that he read in the Daily Mail. I am pleased that he reads the Daily Mail; I read it and I like it, particularly when it highlights the damage done to our country by the previous Labour Government—[Interruption.] It is in there every day.

The hon. Gentleman referred to a recent story on an HMRC project investigating amateur cricket clubs. I should make it clear that I have talked to HMRC about that, and that investigation is unconnected to CASCs; it is on risk-based compliance activity, to ensure that employers are correctly operating a payroll system so that everyone pays the right amount of tax. Therefore, if he was referring to the same story that I read, I reassure him that that is not to do with the CASC regulations.

Schedule 20 contains new powers to make regulations. Although the draft regulations are not yet available, there are very good reasons for that. We needed to bring in detailed rules as quickly as possible to give certainty to clubs, but the sports sector is diverse and a set of rules for one sport may not work for another. HMRC is working closely with the Sport and Recreation Alliance to understand the implications of the CASC rules. I am grateful to the SRA for all the work it has done, and continues to do, with HMRC.

The SRA agrees that a proper consultation for the whole sector is essential before detailed rules are brought in. Normally, HMRC would consult before draft legislation is published, and that legislation would be brought forward in next year’s Finance Bill, but clubs cannot wait that long for certainty. The schedule therefore brings in powers to amend and clarify the eligibility conditions through regulations.

HMRC published a consultation document on Monday, which contains detailed proposals for the new conditions. The consultation will end on 12 August and the draft regulations will be published in the autumn. The new rules, therefore, should be in force by early next year. The draft regulations will be subject to the usual parliamentary process under the draft affirmative procedure; that is the most effective way to bring in the rules as quickly as possible.

The schedule makes changes to the eligibility conditions and provides for more detailed rules to be made through regulations. The hon. Gentleman rightly raised the issue that, to benefit from the CASC rules, clubs must be open to the whole community. We are looking at that carefully in the consultation. To join the CASC scheme, a club must be open to the whole community and the cost to an individual to join that club must not represent a significant obstacle either to membership or to participation in the relevant sport.

The schedule allows a limit to be set on the total amount that a club can charge a member to participate in a sport, but clubs with high costs will still be able to qualify for the CASC scheme. In such cases, all that those clubs need to do is to make suitable arrangements for everyone in the community to participate to the maximum amount if they cannot afford the club’s high costs; for example, a sliding scale of costs could be introduced based on an individual’s ability to pay.

The schedule introduces powers to make regulations specifying in more detail when a club is organised on an amateur basis. It also allows clubs to make limited payments to people to play for them. That is to recognise that, while it is important to maintain the amateur nature of the scheme, having a famous player can inspire others within a club. The consultation sets out proposals that explore that issue further. The schedule also allows clubs to pay subsistence payments to members as well as their travelling expenses, which is currently not allowed.

I now turn to the main purpose of the provisions on sporting facilities and encouraging participation in sport. The generous tax reliefs available to CASCs are to support sports clubs. They are not there to support social clubs with some kind of sporting activity as an annexe. Schedule 20 introduces powers to define what is sporting and non-sporting income. It also introduces powers to limit certain types of non-sporting income, for example, significant income from social events not involving sporting activity.

The Government accept that CASCs should be able to generate income from members. We want to encourage clubs to raise more funds so that they can reduce their membership costs. Some CASCs raise income from offering services to members of the public, for example through bars and restaurants. It would not be fair to support CASCs at the expense of other local businesses that do not get favourable tax treatment. The consultation is seeking views on how to achieve a balance, enabling CASCs to raise funds without affecting the local business community.

Schedule 20 also introduces powers to set limits on the proportion of non-sporting members a CASC may have. CASCs are generally exempt from corporation tax, but there are limits on the amount of trading income and property income that they can receive. Schedule 20 contains powers to change those limits. The consultation puts forward proposals to increase those amounts.

HMRC is consulting on the details of the powers that I have mentioned. I hope that as many people as possible contribute to the consultation, which has a closing date of 12 August. As I said, I expect the draft regulations to be laid in the autumn under the draft affirmative procedure. That will give the House an opportunity to scrutinise the detailed rules that emerge from the consultation.

It is possible that, as a result of the detailed procedural rule changes, a small number of existing CASCs may need to make changes to the way they currently operate if they want to stay as a CASC and benefit from the reliefs that they get. CASCs would not need to make any changes until the regulations are made, but affected clubs might want to start putting changes in place when the draft regulations are laid in the autumn.

HMRC stockpiled some applications for registration while it was carrying out its review of the CASC rules. Those applications were from clubs that would not meet the strict interpretation of the current law. I know that several hon. Members have been contacted by local clubs in their constituencies whose applications are currently stockpiled. I am sorry for the delay that the clubs have experienced but I hope that hon. Members will agree with me that it is important to get the rules right first. HMRC is contacting clubs whose applications have been put on hold to explain how the new rules will affect each one. HMRC aims to register as many CASCs as possible during the consultation period. Some clubs with high levels of non-sporting income may need to reorganise their affairs in order to remain a CASC.

One way to do that might be to set up a separate trading subsidiary, as many charities currently do. The subsidiary then donates its profits to the charity under company gift aid but, unlike company gifts to charities, there is no tax relief on company gifts to CASCs. We are therefore consulting on whether subsidiary companies that are wholly owned by the CASC should be able to donate their profits to a CASC under company gift aid. If that measure is taken forward it will be legislated for in next year’s Finance Bill.

Before I conclude, Mr Amess, I would like to turn a similar point that was raised by the hon. Member for Cardiff South and Penarth and by my hon. Friend the Member for Wycombe—I wish him happy birthday, by the way. [Hon. Members: “Hear, hear!”] They both rightly and understandably raised the issue of potential complexity.

I would point out what I think is key. The reason we are in this position in the first place is that the exiting rules were well intended but not clear. That caused confusion that led to the current situation. The Government have decided to amend the rules, which unfortunately requires legislation, though in a way that will hopefully be supported by the sporting community. The co-operation we have received so far has certainly been very welcome. Since my ministerial statement on 4 March, the feedback from the sporting community and local sporting associations in particular has been very positive and supportive of the Government’s approach, which in many cases should lead to a more flexible outcome for local sporting charities.

The Government are committed to delivering and maintaining a real sporting legacy after the London 2012 Olympic and Paralympic success. An important part of securing that legacy is encouraging greater participation in sport at amateur level. The Government recognise the importance and value of CASCs. I hope that, as well as providing certainty for existing CASCs, the changes will encourage more clubs to apply and qualify for CASC status. I therefore recommend that the clause and schedule stand part of the Bill.

Sir David Amess (Conservative, Southend West)

I join everyone else in wishing Mr Baker a happy birthday, but we must refrain from singing “Happy Birthday”.

Clause 46 - Lifetime allowance charge: power to amend the transitional provision in Part 2 of Schedule 18 to FA 2011 etc

Chris Leslie (Labour, Nottingham East)

As if we could not get any more excitement in this Committee, we now turn to pensions, in which I know many hon. Members are very interested. Clause 46, which deals with the question of the lifetime allowance charge and the power to amend the transitional provision in part 2 of schedule 18 to the Finance Act 2011, is now with us. The clause relates to the lifetime allowance and the changes that have been made. This provision is only one facet of that.

As all hon. Members will know, the lifetime allowance is the amount that a person can claim for their pension throughout their lifetime without incurring a tax charge. It was introduced in April 2006, at the level of £1.5 million. Those with pension pots exceeding that amount before 2006 could apply for primary protection or enhanced protection. The aim behind protection was to ensure that those whose pots already exceeded the lifetime allowance, otherwise known as the LTA—not the Lawn Tennis Association, but something quite different—before its introduction would not incur unnecessary charges.

The LTA gradually increased in subsequent years and then it was decreased in 2012 from £1.8 million to £1.5 million. To protect those with an LTA worth £1.8 million and over, Her Majesty’s Revenue and Customs allowed a limited period for them to apply for protection for their pension pots to avoid a tax charge on the excess amount.

Clause 46 allows HMRC to alter provisions that were intended for the transitional period for when the lifetime allowance was last decreased. Fixed protection was introduced as a result of that decrease in the LTA. That fixed protection had to be applied for before April 2012 and it allowed a fixed LTA of £1.8 million. There are tighter restrictions on having fixed protection. The main points are that it cannot be dropped and it cannot be replaced with the previous protection on a pension pot.

This clause gives HMRC additional powers to make specific regulations in relation to transitional protection notices. However, expanding HMRC’s power will also expand the need for accountability of the regulations that it is implementing. Obviously, there will be, at first glance, very little sympathy from many of our constituents for those fortunate enough to have what appears to be a large pension pot—£1.5 million or above—but there are legitimate questions that need to be asked for those affected and how they will make choices about whether they would like to apply for the fixed protection 2014 if the alternative option is going to continue through the consultation period.

I therefore have a number of specific questions to ask the Minister. How will the fixed protection arrangement be assessed, and how will an individual know whether they have the right to that higher lifetime allowance? When will the final provisions of the individual protection 2014 be announced? In other words, what are the consultation arrangements around that? I would be grateful if the Minister set those out.

How many people will be allowed the higher lifetime allowance arrangement under individual protection? If everyone is in with a good chance of increasing their lifetime allowance, what is the point of reducing the standard of lifetime allowance? What is the deadline for applying for fixed protection 2014? Should not the deadline be introduced once provisions for individual protection have been decided?

As a result of the new powers to make regulations, if any future regulation does not go according to plan, will the Government take responsibility? Is the Treasury opening up a liability in some respects on this issue? Finally, will the new provisions be subject to the negative or affirmative procedure for statutory instruments? It seems to be the negative procedure, but could he explain why?

Sajid Javid (Conservative, Bromsgrove)

Clause 46 is intended to ensure that the fixed protection regime introduced in 2012 works as intended.

I welcome the comments of the Opposition spokesman, although I note that some of his questions, in particular to do with individual protection and how that regime will work, are more connected with the next clause, which I will be discussing. Perhaps he will bear with me if I do not answer certain points directly. I will, however, ensure that they get answered when we discuss clause 47, which is more directly linked to that line of questioning.

In the Finance Act 2012, we reduced the lifetime allowance for pension savers from £1.8 million to £1.5 million from April 2012. At the same time, we introduced the fixed protection regime to protect those individuals who had already built up pension savings in the expectation that the lifetime allowance would remain at its 2011-12 level of £1.8 million. Following the introduction of those changes, in discussions with the pensions industry we were made aware of a number of areas where improvements could be made to the fixed protection rules. We therefore announced in the 2012 Budget that a regulation-making power would be introduced in the 2013 Finance Bill to allow the changes to be made.

The clause allows a new power to make regulations that can amend the tax rules for the existing fixed protection regime. Draft regulations were published for consultation alongside the draft clause in December 2012. The regulations are intended to help ensure that fixed protection is not lost through circumstances outside the control of the member.

For example, the regulations will ensure that where the member opts for an active membership of their pension scheme, any statutory increases applied to deferred pension benefits will not lead to the loss of fixed protection. The regulations also apply where someone has UK tax relief pension savings in a non-UK pension scheme that are tested against the lifetime allowance. The regulations ensure that, for the purposes of fixed protection, those savings are subject to the same conditions as if savings had been in a UK-registered pension scheme.

The changes in the draft regulations are reflected in a new fixed protection regime under clause 47, which I will come on to shortly. That will ensure that both fixed protection regimes—the one with the changes to lifetime and output made previously, and the one with the changes we announced in the Budget, which I will come to under clause 47—match each other as closely as possible.

In conclusion, the changes to the fixed protection regime will ensure that the rules work as intended and are applied fairly across everyone with UK tax relief pension savings.

Chris Leslie (Labour, Nottingham East)

Might some inspiration be about to strike the Minister on some of the specific issues? Some questions bleed across from this clause to the next one, but it might be useful for him to dispatch some now. I can see on his face, however, that information is flowing through his veins and is about to be uttered to the Committee and placed on the record—perhaps.

Sajid Javid (Conservative, Bromsgrove)

Some inspiration has just come my way, which I am happy to share with the hon. Gentleman. He asked whether the regulations are made under the negative or the positive procedure. They are to be made under the negative procedure, which I understand to be usual for changes of this type. He asked when the changes will be consulted on. That will be in the next couple of weeks—shortly.

The hon. Gentleman also asked when the changes would apply. They will apply from 17 April. The set of changes we have discussed here will apply from 5 April 2014. The changes that we announced in the Budget to the lifetime allowance will apply from April 2017.

Chris Leslie (Labour, Nottingham East)

I apologise to the Minister. I just wanted to double check the date. I thought he said 17 April at one point, but he meant April 2017.

Sajid Javid (Conservative, Bromsgrove)

I meant 17 April.

Chris Leslie (Labour, Nottingham East)

Oh. What is the rationale for that date? It does not align with a tax year. It is a strange midway point through the month.

Sajid Javid (Conservative, Bromsgrove)

If the hon. Gentleman would allow me, when I come to the next clause I will clarify that point for him.

Chris Leslie (Labour, Nottingham East)

Of course I am happy to allow the Minister that latitude.

Clause 47 - Lifetime allowance charge: new standard lifetime allowance for the tax year 2014-15 and subsequent tax years

Sir David Amess (Conservative, Southend West)

With this we will discuss the following:

That schedule 21 be the Twenty-first schedule to the Bill.

Chris Leslie (Labour, Nottingham East)

We are continuing our conversation about lifetime allowance charges. In the autumn statement, the Chancellor announced that by 2016-17—perhaps that is where the number comes from—the Treasury would accrue a number of savings because of the reduction in the standard lifetime allowance from £1.5 million to £1.25 million.

The tax charge on the lifetime allowance over the standard amount only occurs on the excess and, if the excess is paid as a lump sum, the charge is 55%. If it is paid as a pension payment the charge is 25%. Pensioners who already have savings with more than the new lifetime allowance can apply for the protections that we debated on the previous clause.

As the measure is being implemented from the tax year beginning 2014, it would be useful to get some clarity from the Minister about how much the Treasury will save in financial years 2014-15 and 2015-16. I will double check in the Red Book in a moment, but I wonder whether he could share with the Committee the revenue implications of that. While he is at it, could he explain why a lifetime allowance reduction was not taken from April 2013?

Obviously, there is a delay in this provision; I wonder what the rationale is for that delay. If there were revenue issues and a particular sum of money involved then there could have been potential revenue for the Exchequer if the change had been made in 2013 as opposed to 2014. Could the Minister set out what the sum of money would have been in terms of yield to the Exchequer had that lifetime allowance decreased to £1.25 million from April 2013?

It is important that the Government should have a clear strategy that avoids confusion, unintended consequences and unexpected arrangements for people to make. I should be grateful if the Minister set out the Government’s strategy on this issue so that everyone is confident that they can plan effectively over the long term. Obviously, the Government have not budged much of the deficit, which has stuck pretty much at the same level over a three-year period. Deficit reduction is a thing of the past. They will be looking at revenue generation in a number of different ways and tweaking a number of pension arrangements.

It would be helpful for all concerned to get a sense of whether the Treasury is just making judgments on a month-by-month, year-by-year basis or whether it has an overall settled view about what the lifetime and annual allowance arrangements ought to be. One of the facets of pensions policy is the need for some level of permanence, stability and predictability, so that everyone is clear about the rules. There is a sense that some of them are changing.

I am not against settling at a level that is fairer for the taxpayer, and we would not necessarily object to some of the arrangements. A tighter lifetime allowance is perfectly reasonable. In fact, under clause 48, we will discuss the annual amounts involved. Again, however, it is strange that the Government decided to end the 20% limit on tax relief on pension contributions for people earning over £150,000 and put it back up to 45%, in particular when some of that revenue could have been used for more beneficial purposes.

Will the Minister set out how much the Treasury will save over those tax years and how much would have been saved in 2013-14? Will he give us an insight into the strategy and whether there is any prospect of stability in this field or are further reviews likely in future Budgets?

Sajid Javid (Conservative, Bromsgrove)

Clause 47 and schedule 21, together with clause 48, make changes to ensure that the cost of pensions tax relief is fair, affordable and sustainable. The reduction in the lifetime and annual allowances is an integral part of the Government’s deficit reduction plan and protects the public finances from the growing cost of relief by limiting the amount of pension relief going to the highest earners.

I will clarify the dates that the hon. Gentleman asked me about earlier. As he correctly mentioned, the change in lifetime allowance announced in the Budget takes effect from April 2014 onwards. If I understood him correctly, he also asked, “Why not April 2013?” The delay is deliberate to allow the protection regime to be clarified and also to give individuals affected some time to reorganise their tax affairs.

The hon. Gentleman also asked about the two protection regimes—the fixed and individual protection regimes—about which I will talk further, and about how much time the individuals have to apply for such protection. For fixed protection, they must apply by April 2014. For individual protection, the deadline is April 2017.

In 2011-12, tax relief for pension savings cost the Government some £35 billion in total, with two thirds of the relief going to higher-rate taxpayers. At the 2012 autumn statement, the Government announced that we would therefore reduce the lifetime allowance from £1.5 million to £1.25 million from the 2014-15 tax year. That reduction in the lifetime allowance, together with the annual allowance reduction, is expected to raise over £1 billion per annum in a steady state. The hon. Gentleman asked whether I had some numbers to provide more granular detail on the expected savings in the early years. I do not have those figures to hand, but I am happy to see what I can provide later in writing.

The Government also announced in the autumn statement that a fixed protection regime will be offered to individuals who think they may be affected by the change. The new fixed protection regime allows individuals to retain a lifetime allowance of £1.5 million when the allowance is reduced to £1.25 million. To keep fixed protection, however, individuals cannot actively accrue new pension benefits after 5 April 2014. The protection will prevent individuals from being subject to retrospective tax changes because of the reduction in lifetime allowance.

Following discussions with the pensions industry and other interested parties at Budget 2013, we announced that, in addition to fixed protection, an individual protection regime will also be offered. Individual protection will give people a lifetime allowance based on the value of their pension savings on 5 April 2014, up to an overall maximum of £1.5 million. Individual protection will allow individuals to continue to make pension savings after 5 April 2014. A consultation on the detail of the individual protection regime will be undertaken shortly.

The changes made by clause 47 will reduce the standard lifetime allowance for tax-privileged pension saving from £1.5 million to £1.25 million from 2014-15 onwards. The reduction in the lifetime allowance will affect only individuals with the largest pension pots. Currently, 98% of individuals approaching retirement have a pension pot worth less than £1.25 million. We estimate that about 30,000 individuals will have pension pots of between £1.25 million and £1.5 million in 2014-15, when the lifetime allowance is reduced.

As I mentioned, two types of transitional protection will be available: fixed protection and individual protection. The detail of the fixed protection regime is in schedule 21 to the Bill, which also includes a number of consequential amendments to the current pensions tax rules. They are intended to ensure that the reduction to the lifetime allowance does not inadvertently disadvantage or provide an unintended advantage to certain individuals.

When the lifetime allowance was reduced to £1.5 million from April 2012, we offered a fixed protection regime. About 28,000 individuals applied for that, so fixed protection is familiar to the pensions industry and pensions advisers. The new fixed protection regime will therefore follow as closely as possible the existing fixed protection regime, minimising the burdens on industry.

Individuals with fixed protection will continue to benefit from a personalised lifetime allowance of £1.5 million, but there are restrictions on future savings. All estimated 30,000 individuals who have pension pots of between £1.25 million and £1.5 million will be able to benefit from fixed protection. Fixed protection will also be available for individuals who currently have pension savings of less than £1.25 million, but who think that their pension pot will grow to more than £1.25 million if they do not make any further savings to their pension scheme.

Chris Leslie (Labour, Nottingham East)

Will the Minister set out how many individuals will be affected by the change? He talked earlier about percentages of those who have pensions above a certain amount, but I want a specific idea of the number of people who will be affected by the change in the lifetime allowance.

Sajid Javid (Conservative, Bromsgrove)

The best estimate that we have at this point is that about 30,000 individuals will have pension pots of between £1.25 million and £1.5 million in 2014-15 and will therefore see their lifetime allowance reduced. I do not believe that we have any more information. It is an estimate at this point, but I believe it to be the best estimate we can make, given the circumstances.

The detail of how to apply for fixed protection will be set out in regulations, which were published in draft for comment in December 2012. The regulations will give individuals until 5 April 2014 to apply to HMRC for fixed protection. We will shortly be consulting on the detail of the individual protection regime. The consultation will include draft legislation to give a clear indication of how we plan the protection to work.

In conclusion, restricting the level of lifetime allowance to £1.25 million will ensure that pensions tax relief is more affordable and sustainable. The new protection regimes offered will ensure that existing savers are protected from retrospective tax charges, in a way that is fair and that is understood by the pensions industry.

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

Clause 48 - Annual allowance: new annual allowance for the tax year 2014-15 and subsequent tax years

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 14, in clause 48, page 22, line 33, at end add—

‘(3) The Treasury shall publish a review within six months of Royal Assent of the impact of restricting or reducing exemptions from income tax of employee contributions to pension schemes at the additional rate. The review shall assess the impact that alternative uses for revenues currently committed to pensions tax reliefs and exemptions for the additional rate of income tax could have on job creation for the long-term unemployed.’.

Sir David Amess (Conservative, Southend West)

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

Chris Leslie (Labour, Nottingham East)

I hope that you had a good lunch break, Mr Amess. I know that members of the Committee feel that it went quickly, but here we are again—as though we had never left.

The amendment would change the provisions with regard to the Government’s approach to tax relief and pensions allowances. It focuses in particular on an issue with which many hon. Members will be familiar—namely, the Government’s bizarre decision to allow a more generous relief arrangement for those who earn more than £150,000 a year. Under our amendment, the Treasury would undertake a review, fairly soon after the legislation received Royal Assent, of the impact of restricting or reducing exemptions from income tax of employee contributions to pension schemes at the additional rate—now at 45p not 50p, but that is a debate for another time. We are discussing the additional rate today, and we think that a review should assess the impact that alternative uses for revenues that might be generated by reducing the tax relief available to the wealthiest 1% in society might have on other vital purposes of social benefit. In particular, that £1 billion of revenue should be used to pay for a compulsory jobs guarantee for the long-term unemployed, which is the subject of our amendment.

The Government have a lamentable record on employment and unemployment, especially with respect to the long-term employed. I gather that about 130,000 adults over the age of 25 have been out of work for two years or more, which is a significant rise of going on for 150% in the past two years. Those individuals are struggling to find work and, having a gap in their employment service of 24 months or more, are finding it increasingly difficult to get back into work because future employers are naturally asking, “Well, are you out of the habit of employment? What are your skill sets? How will you contribute to the organisation that you want to work for?” Those individuals are often capable of making contributions to organisations; it is just that they have not been able to find work for a long time.

We therefore have to do something about that problem, which is a matter of national significance as well as an important part of tackling the social security costs facing the country. The welfare bill has risen significantly under this Government, as the costs of economic failure have mounted higher and higher, so it is time that we took a proper rigorous approach towards enabling people to get off benefit and back into work—not by means of the ineffective, worse-than-useless Work programme that the Government have put together. That scheme underperforms the norm that might have existed had there been no job enhancement schemes whatever. Barely more than 2% of those going through the Work programme have found sustained employment as a result of their encounter with it. That is just not good enough. The Government clearly should have retained the future jobs fund: the previous Administration pursued a scheme that brought £7,000 of net benefit to the Exchequer for every job it created.

Sheila Gilmore (Labour, Edinburgh East)

The future jobs fund was abolished on the basis of statements that it was not working and therefore should be abolished. Was it not disgraceful that that was done before the outcome of the evaluation, which told a different story?

Chris Leslie (Labour, Nottingham East)

It was the Government’s haste on coming to office, without looking at the evidence, that got them into much of the trouble they find themselves in today. The amendment focuses on the long-term unemployed because £1 billion could be generated by returning to a 20% basic rate tax relief for those on the additional rate who have high earnings of £150,000 or more. With that money, we could provide a jobs guarantee for all those who have been unemployed for two years or more. If that significant achievement was recorded, the net costs could, over time, be reduced considerably. Indeed, there may be net benefits to the Exchequer, because individuals who are unemployed and in receipt of benefits are a great cost to the Exchequer. If those people were in work, not only would savings be made in welfare costs, but revenue would be generated through the income tax paid to the Exchequer. Obvious social benefits flow from putting an emphasis on employment and employability. I know that my hon. Friends are keenly in favour of that proposal.

I do not understand—the Minister needs to explain this—why he chose to show such generosity to the top-rate taxpayers who earn more than £150,000. What a perverse decision and strange choice to look at that tax relief and say, “Let’s reverse that and move it back up from 20p to 45p.” The Government’s decision was not even to move it to 40p, but to go to 45p.

The Minister first needs to justify that decision, but he also needs to explain why on earth he would not agree to the amendment. We have not even gone so far as to suggest that he go for a particular scheme. We would merely like him to review properly what revenues could be generated and what help provided.

After 12 months of claiming jobseeker’s allowance under the current welfare to work system, most claimants over the age of 25 are referred by Jobcentre Plus to the Work programme, which lasts two years. In spite of that, there are more than 130,000 people over the age of 25 still looking for work two years into their JSA claim, after a year of Jobcentre Plus and a year on the Work programme.

Youth unemployment is a big issue and a scar on society more generally, and we should use other sources of revenue, such as the bankers’ bonus tax, to support a youth jobs programme, but today I want the Committee to focus on this aspect of tax relief. The Government are choosing to lavish that tax relief on the wealthiest 1%, but our choice would be to use that revenue to focus support on the long-term unemployed.

The numbers speak for themselves. It is time to end the scourge of unemployment and, under our scheme, no one would be able to spend a life on the dole, because after two years of unemployment they would have to take up a job, which would be provided to them. There would have to be some benefit sanctions if they did not do that.

Andy McDonald (Labour, Middlesbrough)

Does my hon. Friend share my concern? In my constituency, there have been some small improvements from a high rate of 14.3% unemployment, but the 50-plus rates are starting to emerge as the rising trend in unemployment. Surely that cohort of workers will need a great deal more attention in the years ahead, and the programmes we are talking about should come to their aid and benefit them very largely.

Chris Leslie (Labour, Nottingham East)

It should not be the case that the older someone gets, the harder it is to find employment, but many employers look for younger individuals to take on, so long-term unemployment in that older age range can present a significant impediment to those individuals finding a means to support themselves and their families, particularly pre-retirement. That is a real problem in society.

We would design a scheme where we could support job creation in the private sector. Anyone left without a job because the private sector did not have the capacity to take them on could be supported in a voluntary sector or public sector role with some of the support from that source of revenue. Such a scheme could work successfully.

Under our scheme, the Government could support wages to cover the individual’s employment for at least six months. That support could go to the business directly. It would cover employer’s national insurance costs and support 25 hours of work a week at the minimum wage for at least six months. That would be around £4,000 per job. If an employer were to bid for that money, they would have to create the new job. They could not use the subsidy—that support—to sack another worker in that individual’s place or replace them with a person from another scheme.

The scheme, as we have costed it, could also cover the cost of 10 hours of training per week. We would want to work with the Work programme providers or Jobcentre Plus to agree how that training could be most effective to ensure that the person secured a permanent job at the end of the six-month temporary-job period.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Will my hon. Friend say something further about training? One concern that is sometimes expressed is that temporary jobs are all very well, but they have to lead to something. Training is important, but so is the future job search and the support to enable someone to move from a temporary job to a permanent post.

Chris Leslie (Labour, Nottingham East)

That is why we need a scheme that does not simply get people back into the virtuous habit of being in employment and turning up for work, but provides training and support and those ancillary activities to help to encourage and support individuals into long-term permanent employment. Ultimately, in the Labour party, we believe in labour. We believe in getting people back into work. That is the only way to support economic recovery, which is something Government Members would not know if it hit them in the face. We are here to educate them and, I hope, convert them to the right way forward. We do not have a monopoly on good ideas on this side of the Committee.

Ben Gummer (Conservative, Ipswich)

Will the hon. Gentleman give way?

Chris Leslie (Labour, Nottingham East)

Some hon. Members might have good ideas. Perhaps I have managed to convert the hon. Gentleman to the right path.

Ben Gummer (Conservative, Ipswich)

I know that the hon. Gentleman means well, but will he reflect on the fact that every single Labour Government—ever—has left office with unemployment higher than when they came in?

Chris Leslie (Labour, Nottingham East)

We have already had a conversation this morning about the mistakes that the hon. Gentleman may make and I am not convinced about his understanding of the factoid that he wishes to peddle. However, I am happy to look into the matter further.

James Duddridge (Conservative, Rochford and Southend East)

I was curious about whether that factoid was indeed a fact, so I checked with the House of Commons Library. The hon. Gentleman might like to do likewise.

Chris Leslie (Labour, Nottingham East)

I think it is important to focus on getting people back into work. I am more than happy to give way to the hon. Gentleman if he thinks that there is a better use for the revenues that would be available to the Exchequer from reducing that tax relief for those earning more than £150,000 to the basic rate. If he thinks it better to give that money to those earning £150,000 and above, I would like to hear what he has to say about it. The Opposition think it is time to focus on getting young people and the long-term unemployed—those who have been out of work for 24 months or more—back into work.

I know that there will be many difficulties with long-term unemployment in the hon. Gentleman’s constituency, and I am sure he cares very deeply about the issue. If he does not agree with our scheme, I want to hear his proposals for helping the long-term unemployed back into work.

James Duddridge rose—

Chris Leslie (Labour, Nottingham East)

I will give way to the hon. Gentleman if he can tell me whether he believes that it is right for people earning £150,000 to be receiving that 45p tax relief on their pensions.

James Duddridge (Conservative, Rochford and Southend East)

In my constituency, Rochford and Southend East, employment levels have gone up and unemployment levels have gone down over the year. Only a few weeks ago, I visited the Work programme on Victoria avenue, which has really good success rates. I cannot speak for other places, but from talking to individuals there it seems that both the jobcentre and the private sector are providing a fabulous service; we should encourage that. There is actually quite good news—in fact, yesterday, Southend airport announced 300 more jobs.

Chris Leslie (Labour, Nottingham East)

We are debating a particular issue, which is long-term unemployment; my interest is in what has been happening with long-term unemployment in the hon. Gentleman’s constituency. I will certainly look at the figures from the House of Commons Library—we can trade those statistics another time. From time to time, businesses open and, from time to time, others close down, but ultimately we have to focus on the significant number of individuals—there are about 130,000 spread across the country—whose lives are blighted by the scourge of long-term unemployment. It is time we had some action from the Government on that issue.

Sheila Gilmore (Labour, Edinburgh East)

Does my hon. Friend share my concern that we are in grave danger of replicating the north-south divide that blighted the 1930s, or possibly making an even worse one? The fact that unemployment is lower in some places than in others does not take away from the fact that we have severe long-term unemployment in some areas and there is little sign that any of the schemes that have been put in place are making any actual difference.

Chris Leslie (Labour, Nottingham East)

It is not just a question of the cost to the Exchequer; there is a massive human cost as well. Speaking of costs, will the Minister update us on what has been happening with long-term unemployment and, in particular, on the cost of long-term unemployment to the Exchequer? What is the welfare bill that results from long-term unemployment? How much does he estimate that the Exchequer has lost in income tax forgone from those currently deemed as long-term unemployed—in our view, those who have been unemployed for 24 months or longer? We need some information from the Minister so that we can make a proper judgment of his choice to say, “Well, those poor individuals earning £150,000 or more need the tax relief on their pensions to go up to 45p;” the Opposition would cut the relief and use the £1 billion revenue to fund a job creation scheme for those most in need. Indeed, many basic rate taxpayers getting the lower level of tax relief will be astonished by the Minister’s choice; they will be wondering why on earth those getting the higher levels are receiving that benefit. These are very significant matters.

Amendment 14 would be a helpful stepping stone on the way to addressing those questions. I would be grateful if the Committee were to give it a fair hearing and support our proposal.

Ian Mearns (Labour, Gateshead)

My hon. Friend is making a compelling case for taking the sort of action he has outlined. There are significant regional variations in how long-term unemployment is impacting on communities. Of course, on coming to office the coalition Government abolished the concept of regions and, in doing away with regional development agencies, they took away the means by which we could target particular resources.

While the regional growth fund is welcome, it has been slow to impact on economies such as the north-east. A stimulus for employers to take on long-term unemployed people is the very sort of thing that would help to reduce unemployment figures in constituencies such as mine and in regions such as the north-east where the overall level—not just long-term unemployment—stands at more than 10%.

Chris Leslie (Labour, Nottingham East)

Yes. It is perhaps the Government’s lethargy that is most frustrating of all. We hear plenty of talk from Ministers but little by way of action and the whole country faces dire consequences as a result.

In a few weeks’ time, the Chancellor will be playing games with his spending review, thinking that he can make projections about what tax revenues might come in two years subsequently when, of course, two years ago they thought that they would have balanced the books by 2015. They thought that the economy would have been motoring ahead by now, yet they still make predictions so far ahead with such confidence. I ask myself, “Will they ever learn from their mistakes?” and the answer I provide to myself is, “Most probably not”.

Ian Mearns (Labour, Gateshead)

In the way in which the Government discuss unemployment and the creation of new jobs, I find it frustrating that they constantly trumpet numbers of new jobs created, but never flesh out those numbers in terms of full-time equivalents. I would be interested to hear from the Government the figures for full-time equivalent jobs created in the last three years.

Chris Leslie (Labour, Nottingham East)

That is a good point. There are various theories about what has happened with employment levels across the country, with part time, short hours, zero-hours contracts and so forth, and the pressures that people are under. There is a deeper story about productivity in the economy; the fact that it takes more hours of labour and endeavour to produce the same output is slightly worrying over the longer term. We seem to need to work much harder and yet we seem to stand still, or sometimes even go backwards. As the Minister said, that is not a reflection of the Finance Bill, but it is a reflection of their stewardship of the economy as a whole.

I have a number of other points to make on the clause. I see that, in your wisdom, Mr Amess, you have grouped the amendment with the clause stand part debate, so I will make those points now. The clause amends the annual allowance provisions to reduce the annual amount payable into a pension from £50,000 to £40,000 from April 2014 onwards.

The changes that the Government will make by reducing that annual allowance are said to impact about 140,000 individuals. Will the Minister take a moment to explain the variable impact on defined benefit pension schemes, versus defined contribution schemes? In another piece of legislation, we had debates on different types of pension schemes and, as defined benefit schemes are eroded and fall back, defined contribution schemes are increasing in their place. There are arguments to be had on whether that is a good or bad thing.

I am anxious that not enough time is spent thinking through the incomes that individuals will need in their retirement. I want clarity on whether the Government have properly thought about the impact of their tax framework arrangements on defined benefit schemes, which are already under a great deal of pressure.

The arrangements for defined benefit schemes are accounted differently than those for defined contribution schemes. Some concerns have been voiced about what appear to be generous annual allowances, and indeed they are—a payment of £40,000 into a pension is pretty considerable for an individual in any given year. The way in which defined benefit schemes are calculated does not necessarily reflect a particular deduction from an individual’s pay packet in that year as it would for a defined contribution scheme; there is a separate accounting arrangement. Various organisations—Towers Watson, KPMG and others—have calculated that lower annual allowances will now catch those who have defined benefit schemes and who earn five-figure salaries; the issue is not just about six-figure salaries.

Now, those five figures could be high—£66,000 or above, just to pluck a number from the air—but those with defined benefit schemes might want to think about the issue. It would be helpful if the Minister could walk us through the question, because those individuals may find themselves unwittingly caught by a tax charge as a result of the change. That may be perfectly legitimate—I do not say that it is wrong—but we need some clarity on who will be affected and at what level of salary, on average, a defined benefit pension might be drawn into those arrangements.

James Duddridge (Conservative, Rochford and Southend East)

The hon. Gentleman makes a valid point. As people move from job to job, there may be more than one relevant defined benefit scheme, which makes decision making complex. Will he also ask the Minister to look not just at the difference between defined contribution and defined benefit but at the different tax treatment of state defined benefit and private sector defined benefit? I do not fully understand the reasons for the differential, but I understand that the treatment is different.

Chris Leslie (Labour, Nottingham East)

I was not aware of that. I certainly would be interested in hearing what the Minister has to say about that. Obviously, there are more defined benefit schemes in the public sector, given the history of some of them, particularly those for teachers, doctors and civil servants—our constituents have such schemes.

As the annual allowance for defined benefit schemes is calculated by valuing the pension at the start and end of the accounting period, with the differences being annual accrual, I am told that, under the Government’s new approach, those earning the most will receive quite a significant tax break compared with those on average earnings. As we can see here, there are differences between the 45p and the 20p levels.

People who are on defined benefit schemes may find themselves exceeding the annual allowance without realising it and becoming liable for tax. According to some tax advisers, anyone in a defined benefit scheme who accrues more than £2,500 per annum to their pension may now find that they have to pay tax on those savings. I am not sure whether that is the case. Will the Minister confirm how many public service workers, for example, will be affected by that measure? What mechanisms will be put in place to explain it to those affected? Will there be any offsetting arrangements in those tax provisions? How many extra people will be pushed into paying tax on their pension savings as a consequence of the reduction to the annual allowance? We need some clarity on those issues.

Returning to amendment 14, I reiterate that our focus today needs to be on the Government’s strange choice to give the 45p tax relief to the richest 1% of society—those earning more than £150,000. We believe that the £1 billion should be used for job creation schemes to help the long-term unemployed. This is an opportunity that the Committee should not pass up lightly. It is a clear choice that could be started by adopting the amendment. Let us get that review under way and help the 130,000 individuals who have been out of work for two years or more. It is our responsibility to our constituents.

Sheila Gilmore (Labour, Edinburgh East)

Thank you, Mr Amess, for giving me the opportunity to speak to amendment 14. Very often when the Opposition propose policies that we think are desirable, the call that comes out is, “How would you pay for it? Where would you find the money? Until you tell us where you would find the money, we are going to tell you that that is not good enough.” In this instance, we have accompanied the proposal with a suggestion of where the funding could be found. Clearly, we need to investigate carefully what the yield would be, but that revenue could be put to better use than giving an additional advantage to people who already have substantial pension provision through their employment or asset wealth by boosting their pensions. That sum of money—the amendment would let us know exactly what it is—would be of considerable assistance.

I will address some of the issues that were raised in interventions. This factoid, or fact—whatever we call it—is very interesting, but it depends on what point in the snapshot we go from. In 1979, the big election cry was, “Labour isn’t working,” and we were told how dreadful it was that over 1 million people were unemployed. But within a couple of years 3 million people were unemployed.

In 1951, the UK national average unemployment was 1.8%. Perhaps that was higher than in 1945, but that was because in 1945 most of the adult working-age population were either working in things such as munitions or other reserved occupations, or were in the armed forces. That, of course, included many women who had been conscripted. Unemployment lower than 1.8% was actually pretty good, but 1.8% in 1951 must be seen as a considerable achievement compared with the levels of unemployment in the 1930s. Clearly, somebody has gone away and dug out those beginning and end figures, but that is not where the economic cycle actually is.

Andy McDonald (Labour, Middlesbrough)

I, too, heard the comments made by members of the party in power about the level of unemployment. My experience in my town and in my constituency is that every time the Conservative party has been in power unemployment rates have been colossally high. We heard about that wonderful rate of 1.8%, but in my constituency today the unemployment rate is 13.8%. I beg the Committee to think about the people in constituencies such as mine, which has the fourth highest rate of unemployment in this country. We must think about where our priorities lie. Should we be giving benefits to people who are doing very nicely, thank you very much? Do the people in my constituency not count at all?

Sheila Gilmore (Labour, Edinburgh East)

I thank my hon. Friend for his comments, which amplify my point. Labour’s proposed compulsory jobs guarantee would kick in when people had been unemployed for two years. It is interesting that this month large numbers of people are going to be coming out of the back end of the Government’s current scheme, the Work programme. People who have been through two years of the Work programme will start returning to jobcentres. They only get on to the Work programme if they have been unemployed for years, so those people will have been three years unemployed.

What is the Government’s solution? According to the press release that the DWP issued earlier this week, people will simply be given more of the same. They will be given more help with their CV and job search, and they will be matched up to universal jobs match so that they can use it better. That prompts me to ask what those people have been doing on the Work programme for two years, because as we understood it, the Work programme was supposed to help people to brush up their CVs and their interview skills; give them training and skills that they did not have; and help them learn how to use universal jobs match, which is apparently the panacea for all ills.

When I checked universal jobs match in my area only yesterday, however, a search for shop assistant vacancies, which I have been checking carefully, resulted in 78 separate entries, 55 of which applied, yet again, to catalogue sales and opportunities as a self-employed person. To take part in most such schemes, an individual must pay up front and provide their own transport, which many people will find difficult. I am not quite old enough to recall this, but the situation reminds me of what I have seen in films and read in books about many long-term unemployed men in the 1930s who had to go around selling brushes. Sadly, not much has changed.

Paul Uppal (Conservative, Wolverhampton South West)

In reference to the previous intervention from the hon. Member for Middlesbrough, if we are going to have a genuine conversation about long-term unemployment, it would be useful to look at the root causes rather than being partisan about the matter. In my constituency, a traditional low-skills environment is a driver of long-term unemployment. Jaguar Land Rover is bringing private sector investment into my constituency for the first time; between 1997 and 2010, the west midlands, uniquely in the region, experienced a decrease in the number of private sector jobs. Whether that was wilful, I do not know; that is entirely for the Opposition to say. I do not know what their thinking was on the matter. If we are to tackle the problem, rather than being partisan about it we must tackle the underlying issue, which is the lack of skills—

Sir David Amess (Conservative, Southend West)

Order. Interventions need to be much briefer.

Sheila Gilmore (Labour, Edinburgh East)

Lack of skills is an issue for some people. I come from a city in which unemployment was reduced—during, I have to say, a Labour Government—after 1997 to a pretty low level of between 2% and 2.5%. Much of the residual unemployment had a lot to do with low levels of skills, and we put in place important job schemes to help people get skills and training.

Over the past two years, however, the Government’s answer to the problem has been: “The Work programme, the Work programme, the Work programme,” but my concern is that, sadly, the Work programme does not seem to be addressing low skills at all. What my constituents —and the witnesses who gave evidence to the Work and Pensions Committee, which recently issued a report on the subject—describe is not skills training at all. Indeed, constituents of mine have been told that the Work programme cannot afford to send them on courses because it is not funded to do so. It is funded, it appears, endlessly to try to improve CVs, when I entirely agree that what some people need is an opportunity to increase their skills.

Learning and training while working in a real job is one way of getting such skills, which brings us back to the jobs guarantee. Our proposal would kick in much earlier, and I hope that in the fullness of time that it will be possible to start it even earlier, because it is important for people to have such opportunities before they become long-term unemployed. A great deal of evidence, research and history demonstrates that if people are out of work for a long time, they become increasingly deskilled and demotivated, and their health suffers. Even if they started out without health problems, they often end up with them. That is all hugely important. We must be much more active and realise that proper jobs must be created.

Ian Mearns (Labour, Gateshead)

My hon. Friend is making a very powerful point. Government Members may bandy about statistics about increases in unemployment, but let us not forget that in the past year, the number of people out of work for 24 months or more has risen by 88%—that is in one 12-month period. In the past two years, that number has risen by 146%. Those are real statistics. One statistic that no one should ever forget is that one of those unfortunate individuals who has been unemployed for 24 months or more is 100% unemployed. That is the real impact on the individual.

Sheila Gilmore (Labour, Edinburgh East)

I thank my hon. Friend for his intervention. In an intervention I made earlier, I touched on the serious issue of the imbalance of the country and the economy. The UK was in exactly the same position in the 1930s. Although some revisionist historians try to say that there never was a great depression, I do not think that that forms the majority view. There was a huge difference between then and now. In some parts of the country—the south-east, Essex and other places—new light industries were developing. We had the beginnings of the car industry, which has already been mentioned in this debate. There was a lot of house building going on, hence the urban sprawl and the ribbon developments that came out of it.

That was a very different world from the one that a lot of people, certainly in Scotland and the north-east and north-west of England, were experiencing. We do not say because of that, “Well, actually, there isn’t really such a big problem. The jobs are out there if people would just go out and get them.” Of course, a lot of people did move south at that time. They moved to where the jobs were, hence the large number of Scots who live in places such as Corby, where you hear some real Scots accents when you talk to people. People had to move south because they had little choice, but it did create an imbalance, and we are in grave danger of doing that again.

Sometimes I think that we are talking at cross purposes. I suspect that the constituencies of some Government Members are not having that great a problem, and perhaps they genuinely think that we are making mountains out of molehills, but we are not. Even in a city such as Edinburgh, where I do not have the unemployment levels that some of my colleagues have, we still have considerably higher unemployment than we had for most of the 2000s. We also have issues about people who are sort of in work, but find their work very unsatisfactory.

One gentleman I met recently talked about his experience on the Work programme. He had been found a job as a security guard. It was 24 hours a week—he had hoped for full-time, but the hours were not available. He went to the job for three days and was not called back by the employer. That will count as a job start, although admittedly not in the final figures that the Department produces. However, when the previous official Work programme figures were issued, showing that the programme was not meeting even its minimum performance standard, the Government were very quick to endorse a report from the trade body that there had been a lot of job starts.

Well, the gentleman I met would be a job start—a job start for three days that did not go any further. That was in March. He e-mailed his job adviser at the Work programme provider to tell him what had happened, and when I saw him two weeks ago, he had still not heard back. His adviser had not called him in to give him any of the personalised help that he was meant to receive. If he counts as a job start, that is not really what most of us would call a decent job.

People need a decent opportunity and they need it sooner than they are getting it at the moment. Over the next few months, large numbers of people are going to come off the Work programme and back into jobcentres. They do not need to be told yet again that it is their fault, that they have not tried hard enough, that they have not made the effort over that period, and that now they are going to be further cajoled and potentially sanctioned if they do not want to take part in mandatory work experience, the evaluation of which showed that it had no effect.

A lot of those people need a lot of help to get back to skilled employment. We think the compulsory jobs guarantee is one way to do that. If we can find that funding, it is more fair and equitable to use that money not to enable people to have an even more prosperous retirement than they might otherwise have had, but to help some of their fellow citizens get back into employment, and then they can begin to save for their retirement and take advantage of auto-enrolment for pensions. That sort of thing is no use if someone has no job to go to.

Pamela Nash (Labour, Airdrie and Shotts)

My hon. Friend makes a powerful argument for what a Labour Government would do in bringing in a jobs guarantee. I want to highlight that that does not go without proof. Labour local government is already putting in place some policies to push that strategy. The Secretary of State for Scotland was in Airdrie not long ago at a Teleperformance call centre and saw what North Lanarkshire council is doing to get young people back into work. Those who were not helped by that programme but were on the Work programme were crying out for the Government to do something earlier rather than later.

Sheila Gilmore (Labour, Edinburgh East)

To sum up, we have a clear policy and want to be responsible about how we fund it, which is why we suggested it could be done in this way. Although the amendment does not necessarily say to implement it now, though I might like to see that, I hope—

Ian Mearns (Labour, Gateshead)

My hon. Friend is generous with her time. One thing struck me. On an earlier intervention I mentioned regional differentiation. Earlier this week we were told that the Government were introducing new fines for people who were hogging the middle lane of the motorway. I think that exemplifies that there are significant regional variations in the economy, because chance would be a fine thing for someone to hog the middle lane of any major road in the north-east given that there are about only three miles of crawler lane in County Durham on the A1. Everything else is maximum dual carriageway. I look forward to the day, Mr Amess.

Sir David Amess (Conservative, Southend West)

Order. I think that is getting slightly wide of the amendment we are discussing. I gave the hon. Gentleman time to see where it was leading.

Sheila Gilmore (Labour, Edinburgh East)

I thank my hon. Friend for his intervention, although we would probably disagree about whether to build road or rail.

Ian Mearns (Labour, Gateshead)

Infrastructure.

Sheila Gilmore (Labour, Edinburgh East)

Whatever it is, we need to give people a chance to do a proper job. It is extremely galling for us that the previous programme of the Future Jobs Fund was so hastily swept out of the way when it was a very good scheme for the young people it covered. We want to build on that and help people get the kind of real paid work experience that will enable them to get out from the shadow of unemployment.

Ben Gummer (Conservative, Ipswich)

Some very important issues have been raised by Opposition Members. I know that we have been joshing, but this is a very serious matter. They are right to bring into the debate the important issue of long-term unemployment, which we do not discuss enough generally in this House.

My experience of this in Ipswich is interesting. Contrary to what the hon. Member for Edinburgh East might think, many of us on the Government Benches represent towns with significant problems of unemployment. My hon. Friends the Member for Wolverhampton South West and for Warrington South and I share representation for ex-industrial depressed towns that have struggled, not just in the past four or five years but the past 20, 30 or 50 years since the gradual deindustrialisation of the country began after the war. The picture is complex and, unless we understand the complexity of the issues, we are not going to be able to deal with the root causes.

In my town, unemployment has been rising since 2004; very gradually by 10 basis points every few months. Then there was a spike during the crisis. In the last six or seven months it has been coming down again. The unemployment rate is now roughly where it was when I inherited representation of the seat in May 2010. Youth unemployment has been going up quite considerably in my town since the middle of the last decade, but in the last few months it has been going down again to the point where it is just beneath the level it was in May 2010.

Both of those figures show what has happened to long-term unemployment in that period, because long-term unemployment is considerably higher than it was in May 2010 but that is as a consequence—the clue is in the name—of a general accrual of unemployment and youth unemployment over a long period from the middle of the last decade. The Opposition were well intentioned in what they tried to do, especially in breaking the back of long-term unemployment, and they had some success in some areas. But we did not see the kind of revolution we should have seen when the economy was operating at full capacity, when we had one of the longest booms in British history and when they inherited some of the best fiscal circumstances that any Government have inherited since the 19th century.

For the shadow Minister to say that he is giving us a lesson on how to deal with unemployment is something I object to in a small way. The people in my constituency are suffering as a result of the poor policies and the failure to take those opportunities when the country had more wealth than it has now.

Marcus Jones (Conservative, Nuneaton)

My hon. Friend sets out an extremely good point. Does he agree that one of the other things that the Labour party did that contributed to the situation he describes was to allow immigration to go unchecked and uncontrolled? It reduced the opportunities for people in constituencies like his.

Sir David Amess (Conservative, Southend West)

Order. I have been lax in ensuring that hon. Members restrict their remarks to the amendment. I hope that the hon. Gentleman will not respond to that point. I hope he will keep his remarks more closely to the amendment.

Ben Gummer (Conservative, Ipswich)

The Opposition’s amendment states:

“The review shall assess the impact that alternative uses for revenues currently committed to pensions tax reliefs and exemptions for the additional rate of income tax could have on job creation for the long-term unemployed.”

The Opposition do themselves a disservice at a time when they should be examining what they are about as a Labour party, by trying once again to find a little political hook on which to have a quick row with the Government rather than trying to understand precisely why we have the problem of long-term unemployment in this country. Were they to propose an amendment about a review of long-term debasement of skills, or on helping school leavers without decent qualifications, or on the impact of immigration, or on the changes in the labour market over the last 30 years, many Government Members would be happy to support them.

Pamela Nash (Labour, Airdrie and Shotts)

It is above my pay grade to table such an amendment, but I invite all members of the Committee to join my new all-party group on youth unemployment where we hope to consider some of these issues. Does the hon. Gentleman understand that the abandoning of the £150,000 cap gives out the wrong message to people who are really struggling at the moment? We are using this to highlight the fact that young, long-term unemployed people are struggling, but they see the very richest in our society benefiting yet again from the Government’s policies.

Ben Gummer (Conservative, Ipswich)

I completely sympathise with what the hon. Lady says, and there is emotional merit in it, but we are trying to get people into jobs. Here is where the Government have made a hard and difficult decision to try to stimulate the economy. Many of us represent towns and communities that have had a lack of private sector investment for many decades. That is the fault of several Governments. The way to get private sector investment is not to penalise entrepreneurs and people who might want to invest, but to try to free them up and free up the cash that they might wish to invest in my and others’ constituencies.

Before the hon. Member for Nottingham East rises, I want to cite the example of one entrepreneur in my constituency who runs a company employing several hundred people and who made specific representations to me about the 50p rate. It is a wholly owned company. She is not one of those mega-rich people who can get round the 50p rate and the higher rate of taxation. She is one of those people who is hit right in the middle of the 50p rate and therefore has less money at the end of the year to reinvest in her business and to grow it and employ more people. Her argument was: “You can take 50p from me out of every pound that I make”—of course, the marginal rate is far higher—“but, at the end of the day, that means I have less to be able to build up the business and employ more people.”

Chris Leslie (Labour, Nottingham East)

If the hon. Gentleman were advocating a strategy that was working, he would perhaps have a case. However, in his constituency, the number of people who have been unemployed for more than a year grew by 7% from April 2012 to April 2013. There are now 1,115 people in Ipswich who are in the long-term unemployed bracket, which, incidentally, is more than half of his majority of 2,079. His neck is on the line. I would be very sad in some respects to see him lost from Parliament, although, obviously, I want a Labour MP in Ipswich. We would wish him well, but he has to realise that more than half of the people represented in his majority are long-term unemployed in Ipswich.

Ben Gummer (Conservative, Ipswich)

I began my comments by saying I am very conscious of that. The clue is in the name: it is long-term unemployment, largely as a result—a tale—of many years of slowly growing general unemployment and a significant increase in youth unemployment, which has turned into long-term unemployment. The Labour party is always keen—rightly so—to stress that youth unemployment quickly translates into long-term unemployment. I am glad—apart from the fact that he is not a Conservative Member of Parliament—that the hon. Gentleman represents his seat. I am sure that in doing so he will be pleased that, whereas youth unemployment went up between 2005 and 2010 in his seat by 76%, under the coalition it has reduced by 8%, so when he asks whether the policies of the coalition Government are working, the answer can be found in his own seat.

James Duddridge (Conservative, Rochford and Southend East)

My hon. Friend is being grossly unfair on the shadow Minister, because there was a period of time when he was not in Government. He was working out there in the private sector as a lobbyist.

Ben Gummer (Conservative, Ipswich)

Perhaps that is one of the reasons why, during the time the hon. Gentleman was not representing his seat, youth unemployment went up by 76% under the last period of the Labour Government, and now, with the magic that has come with his new representation, it has reduced by 8%.

The hon. Gentleman has asked, in all seriousness, whether the policies are working, and there is proof that they are. However, it will take a while to stimulate entrepreneurship, to encourage investment, and to get the kind of aspiration economy that we need in this country.

Paul Uppal (Conservative, Wolverhampton South West)

My hon. Friend is making a powerful and pertinent speech. My constituency has a rich industrial heritage, but many young constituents come to me and say that at so many points in the history of the constituency they have been dependent on the public purse and whatever quango or mechanism. I think people are looking forward to some aspect of private sector entrepreneurship to provide a route out of the poverty that exists in so many of these industrial constituencies.

Ben Gummer (Conservative, Ipswich)

I, too, share an ex-industrial seat, which has one of the proudest industrial heritages in the country. Unfortunately, a large part of the industry was purchased by the Labour MP, Robert Maxwell, who quickly asset-stripped it, including the trophy cabinet for the football team. We are now in a position where we do not have that, for various reasons—not just his poor management. All the reasons that we can adduce for the decline of British industry since the second world war were seen in part in Ipswich. It is through private sector investment, however, that we see long-term sustainable jobs, because, even if we were to wish it otherwise, even if the Labour party were to win the next election—I very much hope that it does not—it will not have the money to create public sector jobs in the way that it did from 2002 onwards. That money will not be there, so it could not just grow public offices, especially in the seats represented—I am sure very well—by Labour Members.

We heard about Middlesbrough, which has suffered for so long from the lack of private sector investment. That is true, but to get jobs back there, we need to do more of what the Government are doing by encouraging private sector investment, incentivising prosperity and share ownership.

Andy McDonald (Labour, Middlesbrough)

The hon. Gentleman is making some interesting points about skills, as did his colleague, the hon. Member for Wolverhampton South West. However, to have an honest discussion about how we can make progress, we need to say that times have changed enormously over several decades. In my constituency, assistance could come from the public sector with investment in our infrastructure.

We are crying out for investment in our local rail system. If we had a Tees valley metro, that would provide greater connectivity across that conurbation of half a million people. There are skills issues and we are addressing those, but the process would be assisted enormously by public investment in our infrastructure to serve industry and our communities.

Ben Gummer (Conservative, Ipswich)

I could not agree more with the hon. Gentleman; we need to invest more in infrastructure. It is a pity that infrastructure spending reduced at a time when Government coffers were growing after 2002-03 and it is to this Government’s credit that that has been prioritised.

In my maiden speech, and since, I have made the point that we should go even further, cut current expenditure as far as possible and invest that in capital budgets—the Chancellor has done that in every single autumn statement since taking office. It is a pity that Labour has consistently voted against the Budgets put forward by my right hon. Friend the Chancellor, where he has proposed just that.

We are now in a position where we can put a little more into infrastructure, and I hope that we can do far more, but the turnaround in skills and education will take many decades to complete. That must start now.

If we are to get jobs back into Middlesbrough, where we want to see a revival of the kind of brave, pioneering, industrial spirit that made that town out of a small fishing hamlet into the industrial marvel that it was in the 19th century and after, that will come not from Government coffers, because the money is not there, but from entrepreneurs in Middlesbrough and around the world investing in that town and feeling that they will get a return out of it. Frankly, they can go anywhere else in the world to get a bang for their buck and they will do so in Middlesbrough only if the incentive is there in terms of pensions, income tax, dividends, capital gains and everything else.

Labour Members may find that talk uncomfortable, but, in the end, the money will come only if the incentive is there. That is why I praise the Government for what they are doing to help high earners to invest more in this country. When the shadow Minister comes back with more amendments to the Bill, I hope that he does not see that as an opportunity to do what his boss so often does: to take the quick political turn rather than consider the long-term, detailed, sensible understanding of the problems that face us, whether they be skills, mass immigration or the education base. I hope that, rather than trying to attack the Government, he understands what we are trying to do.

Sajid Javid (Conservative, Bromsgrove)

I thank all hon. Members for their contributions in discussing clause 48 and, in particular, the excellent, incisive speech by my hon. Friend the Member for Ipswich.

Clause 48, together with clause 47 and schedule 21, makes changes to ensure that the cost of pension tax relief is fair, affordable and sustainable. Before I turn to the amendment tabled by the Opposition, it would perhaps be helpful to provide some background to the clause.

For the same reasons discussed under the previous clause for the lifetime allowance, the Government announced, in the 2012 autumn statement, that we would reduce the annual allowance from £50,000 to £40,000 for 2014-15 and subsequent tax years.

The restriction to both annual and lifetime allowances protects the public finances by limiting the amount of pensions tax relief going to the earners, and that is in line with the Government’s deficit reduction plans.

The changes made by the clause will reduce the annual allowance for tax privileged pension savings from £50,000 to £40,000, effective from 2014-15 onwards. The restriction to the annual allowance is expected to raise about half a billion pounds a year, impacting those individuals with the largest pension savings. At present, 99% of pension savers have annual pension savings of less than the reduced annual allowance of £40,000, which still far exceeds average annual pension savings of about £6,000 each year.

Let me turn now to the amendment. The Government keep all areas of the tax system, including the annual allowance and the associated lifetime allowance, under regular review. That is why we have decided to restrict the total amount of tax relief for individuals with the highest pension savings each year. When combined with the reduction in the lifetime allowance under clause 47, the changes introduced under clause 48 are expected to raise about £1 billion a year.

In 2009, the previous Government proposed restricting tax relief on pension contributions to 20% for individuals liable to the additional rate. That would have introduced significant complexity into the tax system and damaged UK business competitiveness. This Government’s approach of reducing the annual allowance and the lifetime allowance as a means of restricting tax relief on pension contributions has been consulted on widely and is recognised by industry as a fairer and simpler tax policy that is better for business and better for the UK economy than the alternative put forward by the previous Government.

The amendment would provide for a review of the impact of restricting relief at the additional rate, but I have explained why industry preferred the Government’s approach of restricting the annual and lifetime allowances. As we will continue to monitor the policy, as is the case for all other areas of the tax system, I do not believe that the proposed review is necessary.

Pamela Nash (Labour, Airdrie and Shotts)

Is the Minister in a position to tell the Committee how many people have already benefited from the cap being abolished? What has been the monetary cost of that to the Exchequer?

Sajid Javid (Conservative, Bromsgrove)

Which cap that has been abolished is the hon. Lady referring to?

Pamela Nash (Labour, Airdrie and Shotts)

The tax relief—[ Interruption. ] I was referring to the restriction on tax relief for those earning more than £150,000, not that of £150,000—the previous tax relief that was abandoned in 2010.

Sajid Javid (Conservative, Bromsgrove)

I am not entirely sure what the hon. Lady means. Perhaps she was referring to the policy that was suggested by the previous Government and that was why she used the word “cap”. I assume that she was referring to the proposal to cap the tax relief at 20%.

I am pleased that the hon. Lady raises that issue, because I wish to highlight the accusation made by the hon. Member for Nottingham East that what the Government are proposing is more generous than what the previous Government had proposed, although they did not have the time to implement it. I remind the Committee that the annual allowance was set by the previous Government in 2006 at £255,000.

David Mowat (Conservative, Warrington South)

Was that £255,000?

Sajid Javid (Conservative, Bromsgrove)

Yes, £255,000 a year. That figure was set in 2006. I am sure that the hon. Member for Nottingham East is aware that, prior to 2006, there were various caps for allowances that were determined through a complex formula, but it is fair to say that the system prior to 2006 was less generous. The introduction of the £255,000 cap in 2006 led to a landscape that was more generous for most pension savers. The impact of introducing the allowance in the first place in 2006 was therefore actually to provide more generous tax relief to the highest earners in society. That is probably not especially well known; it is probably not very well known among Labour Members.

The outgoing Labour Government’s proposal was a cap of 20% of relief, but the hon. Gentleman will know that 20% of £255,000 is £51,000 of relief per individual. Under this Government, the relief on £40,000 at the current top tax rate is £18,000, so Labour would have given away £33,000 more in tax relief to each of the wealthiest individuals in society. I find the hon. Gentleman’s proposal completely bizarre. Like most things that come from the Opposition, it does not add up.

Pamela Nash (Labour, Airdrie and Shotts)

I thank the Minister for giving way so that I can clarify my earlier interventions. My understanding was that those earning more than £150,000 were not eligible for full tax relief, but that the current Government removed that provision in 2011. If that is the case, how many people have benefited from the change?

Sajid Javid (Conservative, Bromsgrove)

I think that the hon. Lady is referring to a proposal by a dying Government that was never implemented, so it is incorrect to say that we abolished or changed it. I hope that she will also appreciate that this Government are implementing an annual allowance of £40,000 rather than £255,000. Even if the £255,000 allowance put in place by the previous Government had been restricted at 20% tax relief—which it was not, by the way, but even if that had happened and we had carried out the previous Government’s proposals—individuals would receive £33,000 more in tax relief each year than they will under the scheme that this Government are putting into practice.

Chris Leslie (Labour, Nottingham East)

As usual, the Minister is throwing a bit of dust in the air by—if I may mix my metaphors—comparing apples with pears. He is quoting figures from an era before the global financial crisis, as though nobody would have looked at the revenue arrangements from 2008 onwards. It is a completely crazy comparison.

I want the Minister to listen to the question that I am asking. As my hon. Friend the Member for Airdrie and Shotts asked, how many people are benefiting from the 45p rate? [Interruption.] Shall I repeat the question? How many individuals are benefiting from the 45p rate of tax relief under the proposal—not the 40p tax relief rate, but those who will gain 45p tax relief under the current arrangements?

Sajid Javid (Conservative, Bromsgrove)

First, I remind the hon. Gentleman that the financial crisis began in 2007, and that the annual allowance was a lot higher in 2007 than it is today, and than what the Government are proposing—[ Interruption. ] If he has forgotten when the financial crisis actually started, I worry about some of the amendments that he is putting forward.

On the question about the higher tax rate, the Government have already been very transparent—far more transparent than the previous Government—and published our analysis of the reduction of the higher tax rate from 50p to 45p. The important thing is that we believe in a tax system that taxes the wealthiest the most, but involves taxes that they actually end up paying.

Paul Uppal (Conservative, Wolverhampton South West)

My hon. Friend has cited some truly shocking figures. We referred earlier to our friend John Mills, who has given out £1.5 million of shopping channel shares. Perhaps his motive was the allowance that we are discussing, and perhaps he wanted a return to the previous allowances that the Minister mentioned.

Sajid Javid (Conservative, Bromsgrove)

My hon. Friend makes a good point. Under Labour’s regime, individuals such as the one he mentioned would have been able, if their income was high enough—I have no doubt that that individual’s income was—to save more than £100,000 in tax by utilising Labour’s annual tax allowance. Most bankers in the City were no doubt using the allowance that Labour had generously given them, but the Opposition now turn round and pretend that that was somehow wrong.

Chris Leslie (Labour, Nottingham East)

I wonder whether the Minister has personal experience of using those generous tax allowances. Did he use them before coming into Parliament?

Sajid Javid (Conservative, Bromsgrove)

It is always good practice not to bring our personal affairs into discussions of such important matters of state.

The amendment mentions action on tackling unemployment, which was discussed at length, particularly by the hon. Member for Edinburgh East and my hon. Friend the Member for Ipswich. In an intervention before he made his speech, my hon. Friend made the good point that, under every Labour Government, unemployment has been higher on their leaving office than on their entering it. That is absolutely correct. I can confirm that unemployment was 1.65 million when the previous Labour Government entered office in 1997, yet it had risen to 2.48 million—an increase of more than 700,000 people—by 2010.

Chris Leslie (Labour, Nottingham East)

Will the Minister illuminate us about whether there has been an increase or a decrease in long-term unemployment in the constituency of Bromsgrove in the past 12 months?

Sajid Javid (Conservative, Bromsgrove)

I can illuminate the hon. Gentleman of the fact that the constituency of Bromsgrove has one of the lowest levels of unemployment in the country; it has been going down for months. I can also illuminate him of the fact that my hon. Friend the Member for Ipswich was right to point out that youth unemployment in the hon. Gentleman’s constituency during the last term of the previous Government rocketed by 76%, but it is down by 8% since this Government came to office. That equally applies to the constituency of his fellow Opposition spokesperson, the hon. Member for Kilmarnock and Loudoun, where the figure went up by 60% under the previous Government, but has come down by 7% under this one.

The hon. Member for Edinburgh East, who talked so much about the importance of tackling unemployment and north-south issues—she is right to look at regional variations—did not highlight that during her party’s last term in office, youth unemployment in her constituency went up by 70%, but is down 8% under this Government. That equally applies to the constituency of the hon. Member for Middlesbrough, who also intervened on the importance of unemployment, where the figure went up by 58% during the Labour Government’s last term in office, but is down under this Government.

Sheila Gilmore (Labour, Edinburgh East)

The problem with the Minister picking out those dates is that we have had an economic recession. During the vast bulk of the Labour Government, unemployment in Edinburgh was on a downward trajectory—it fell—which was a very good news story.

Sajid Javid (Conservative, Bromsgrove)

The hon. Lady talks about the recession. As we are learning, there has been only one recent recession in this country, and that was when her party’s Government were in office. Importantly, if she analyses the figures carefully, as I am sure she does for her constituency, she will find that youth unemployment began to rise significantly, and not just in her constituency, before the last recession—the largest peacetime recession in British history—which began under Labour. It rose by more than 70% throughout the country between 2005 and 2010, and that is why this Government will take no lectures from the Opposition on how to tackle unemployment.

Pamela Nash (Labour, Airdrie and Shotts)

I am sure that the Minister remembers, like the rest of us, that the recession was global. Is he blaming the Labour party and the Labour Government for a recession throughout the world?

Sajid Javid (Conservative, Bromsgrove)

Clearly there are global elements to what happens in the British economy, but I do not hear much from the Opposition about the impact of the eurozone and other global elements on the British economy over the past three years. They choose to make things global when talking about their time in office, but when they talk of this Government, they think that everything is domestic. It is relevant that during the last term of the previous Government, youth unemployment in the hon. Lady’s constituency went up by 139%—it is hard to believe that figure as I look at it; I thought it must be a mistake, although I believe it is not—but under this Government it is down.

Paul Uppal (Conservative, Wolverhampton South West)

It often suits Opposition Members to use the global argument. However, to recall that period between 1997 and 2010, the Chancellor talked about golden economic rules and his love affair with prudence. When he kicked prudence out of the door, started bending those golden economic rules and steered away from Conservative spending plans, we saw the inheritance they bequeathed us.

Sajid Javid (Conservative, Bromsgrove)

As always, my hon. Friend makes an excellent point with which I agree wholeheartedly.

I can bring together two elements regarding the amendment and the discussions we have had on unemployment. I have highlighted—and, I hope, made clear to the Committee—that while the previous Government were making annual allowances more generous in 2006, unemployment was soaring in this country. We must look at the actions of the previous Government when we analyse their policy recommendations now. Youth unemployment was rising significantly from 2005 to 2010 onwards, up more than 70%.

While youth unemployment was soaring the previous Government were busy seeing how to increase and make more generous annual pension allowances. It is shameful. If the hon. Gentleman wants to rise to apologise, I will gladly accept the apology.

Chris Leslie (Labour, Nottingham East)

I want to put the Minister on notice that I will write to the chairman of the UK Statistics Authority. We have already seen a series of Ministers who have unwittingly misled Parliament or the public on these matters. I am sure that is not the Minister’s intention, but I suspect he is mistaken in his use of statistics and I will let him have a copy of the reply that I receive.

Sajid Javid (Conservative, Bromsgrove)

I welcome scrutiny, which was very unwelcome to the previous Government. I look forward to receiving a copy of the reply received by the hon. Gentleman. Perhaps if it corroborates the numbers that I have used, the hon. Gentleman will stand and issue an apology in this Committee for even questioning the numbers that are coming from the Treasury.

The Government are determined to help those seeking employment. We have already heard references to the Government’s Work programme, a £3 billion to £5 billion payment-by-results support programme for the long-term unemployed. We have introduced a £1 billion youth contract to support 50,000 young people in employment and education, and we have introduced a more flexible JSA regime to support jobseekers in their search for employment.

Under this Government, since the first quarter of 2010, more than 1.25 million new jobs have been created by the private sector.

Sheila Gilmore (Labour, Edinburgh East)

The Minister consistently gives us these figures. One of the many interesting things about the figures is that as early as January 2011, the Government were telling us that 500,000 new private sector jobs had been created, which, even if the 1.25 million figure is correct, suggests that the rate of creation has in fact slowed down. Many economists have argued that the 500,000 jobs created by January of 2011 were a result of the economic stimulus applied by the previous Government. On top of that, the Minister fails to take into account the jobs that have been transferred from the public sector into the private sector, the 100,000 people on unpaid work experience or the fact that many of the jobs have very low hours.

Sajid Javid (Conservative, Bromsgrove)

If I understand the hon. Lady correctly, she is suggesting that 1.25 million new private sector jobs since the first quarter of 2010 is not enough and she wants more. I would like to see more, but I thought that she would welcome the fact that it is a near-record rate of job creation—one of the fastest rates of job creation that Britain has ever seen in the private sector—a faster rate of job creation than any other G7 country last year and almost the highest number of people that this country has ever seen employed in the private sector.

Ian Mearns (Labour, Gateshead)

The Minister has reiterated the oft-quoted figure of 1.25 million new jobs. Every job is welcome, but I would like clarification on the full-time equivalence of those 1.25 million jobs.

Sajid Javid (Conservative, Bromsgrove)

I noted that point when the hon. Gentleman raised it earlier. I respect the fact that it is something he cares about and I was about to respond. I do not have the breakdown between full-time and part-time, but the ONS publishes the numbers, so if he looks at its website, I am sure that he will find the information easily. If he has any trouble doing that, I will be happy to provide him with the numbers. I am confident that the vast majority of the jobs in the figure I quoted are full-time, but it is important to point out that there is nothing wrong with part-time jobs. Many people up and down the country prefer part-time work to full-time work. I know that he is making a legitimate inquiry about the breakdown. I am sure that he respects the fact that many people prefer the flexibility that comes with part-time work, and many women in particular prefer part-time employment.

Ben Gummer (Conservative, Ipswich)

I cannot recall the precise figure either, but I remember from the most recent ONS survey that part-time jobs are converting to full-time jobs at the fastest rate since figures began.

Sajid Javid (Conservative, Bromsgrove)

I thank my hon. Friend. I was not aware of that information, but I welcome that news and shall use it in debate in future.

Sheryll Murray (Conservative, South East Cornwall)

Does my hon. Friend agree that a lot of people are in part-time employment, as I was before I came to this place? It gave me the opportunity to serve my community as a local councillor, which was a good thing. A lot of people benefit in that way from part-time work.

Sajid Javid (Conservative, Bromsgrove)

My hon. Friend makes a good point. Part-time work and the flexibility it offers allows many people the opportunity not only to enter public service, as she did, but to dedicate their other time to good causes, such as charities, in their locality, as I have seen in my constituency, and I am sure that happens in all constituencies.

Ian Mearns (Labour, Gateshead)

I accept entirely that many people in the general population who are lucky enough to be in work relish the chance to have a part-time job. I hope that the Minister will accept that significant numbers of employed people are, regrettably, underemployed. Part-time work is not in tune with their wishes, because they would prefer to work more hours.

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman makes a good point. There are clearly people who are underemployed. That is a tragedy wherever it occurs, and the Government have put in place their various work programmes and other assistance to do everything they can to help the rate of job creation and to create full-time employment, where that is required by individuals.

Before I conclude, I want to touch on the point about the impact of the annual allowance on individuals with defined-benefit pensions. As we know, the vast majority of people with defined-benefit pensions are in the public sector, but we estimate that about 1.9 million people in the private sector also have such pensions. Some 99% of public sector workers have pension savings of less than £40,000 a year, so it is fair to say that the vast majority will not be affected by the change in the annual allowance. The Government recognise, however, that the restriction of relief may create challenges for members of final salary schemes because of how promised benefits are valued in some of the schemes. Individuals may, therefore, carry forward unused annual allowances from up to three previous years, which limits the impact of unusually large accruals—from bonuses or promotions for example—and provides protection for most people on moderate incomes.

My hon. Friend the Member for Rochford and Southend East asked the related question about whether there was a difference in tax treatment between public and private defined-benefit schemes, and I can confirm that there is no such difference.

At a time when the public finances are under pressure, it is right that we take action to ensure that pensions tax relief is fair, sustainable and affordable. By restricting the level of the annual allowance to £40,000, the Government are creating what they believe is a more appropriate level of tax-privileged saving for retirement. That approach is far less burdensome for industry to deliver than that of the previous Government, and it leaves the vast majority of pension savers unaffected. I therefore ask that the amendment be withdrawn and that the clause stand part of the Bill.

Chris Leslie (Labour, Nottingham East)

That was an interesting speech from the Minister. I do not disagree with the proposal to reduce the annual allowance to £40,000, and I am glad that he accommodated in his response some of the issues that relate to defined-benefit schemes. I disagree very strongly, however, with the Government’s decision to opt for tax relief of 45% on pension contributions for people earning £150,000, at a time when such money could help the many people who are suffering from acute long-term unemployment. Given that every single Member on the Government’s Front Bench has seen an increase in long-term unemployment in the past 12 months, I would have thought that they would, at the very least, have taken the more reflective attitude, perhaps, of the hon. Member for Ipswich. I think he recognises that there is an issue to address, but he is clearly struggling under the burden of ideology that shackles his party in so many ways. One of these days, he will break free from that, and take a more moderate mainstream perspective.

The need to tackle long-term unemployment is clear, and we know that there is resource that would be better committed to doing that. My hon. Friends have spoken eloquently of the fact that action is available to be taken if only the Government would listen, not just to the advice of the Opposition but to that of the International Monetary Fund and other institutions that have recommended a focus on tackling long-term unemployment.

Stephen Doughty (Labour, Cardiff South and Penarth)

Did my hon. Friend not find it strange, as I did, that, given its failures, the Minister was lauding the Work programme as part of the package? In Wales, the Jobs Growth Wales scheme has been up to eight times more successful than the Work programme, and it was welcomed by the Chief Secretary to the Treasury himself.

Chris Leslie (Labour, Nottingham East)

For it is he, the Chief Secretary, who sometimes takes a different view on these matters from other Treasury Ministers, even if he is one of the most conservative Liberal Democrats I have come across in my time. Maybe he is on a journey of his own, although long-term unemployment possibly beckons after the general election. But I digress. He may well benefit from the support that we think can be put in place by changing the priority from a tax relief for the highest earners in society. It would be perfectly feasible for this review to focus on those sums of money and look at job creation for the long-term unemployed. Although I do not oppose the clause as it stands, we do support amendment 14, and I would like to test the view of the Committee on it.

Clause 49 - Drawndown Pensions and Dependants’ Drawndon Pensions

Chris Leslie (Labour, Nottingham East)

We now come to the question of draw-down pensions, one of the lesser spotted U-turns that the Government have made since their omnishambles Budget. It is a welcome U-turn, but a U-turn nevertheless. It comes on top of a number of changes of mind that the Government have had. We welcome the change, but it has caused significant stress, anxiety and problems for those who have had to grapple with or consider the mess that the Government have made of pensions planning, in particular for individuals thinking about how to make ends meet in their remaining years of retirement. Although this issue is relatively complicated, the Treasury ought to have got it right in the first place when it decided in April 2011 to decrease the draw-down limit to 100%. It has now reversed that decision.

Savers with defined-contribution pensions have two main options when they want to use their pension pot to generate an income and a lump sum: they can either buy an annuity that provides an income for the rest of their lives, or they can opt for income draw-down, where they withdraw from their pension pot but leave the bulk of the money invested. The Government estimate that 200,000 people have draw-down arrangements and 7.9 million people have defined-contribution pension funds.

The amount of money that can be withdrawn by an individual who is not eligible for draw-down is set by the pension scheme administrator, based on figures produced by the Government Actuary’s Department and based on the yields for 15-year UK gilts as reported by the FTSE UK gilts indices. The fall in gilts, combined with the reduction from 120% to 100% of comparable annuity incomes, has resulted in some maximum draw-down amounts falling by 40%. Many campaigners have therefore been calling on the Government to increase the withdrawal limit back to 120% of comparable annuity levels—that is what we are talking about in percentage terms—and remove the link between gilt yields and maximum income draw-down calculations. The Government eventually relented, which is why clause 49 exists.

As many hon. Members will be aware, concern has existed for a long time about annuity levels. The requirement for compulsory annuitisation by the age of 75 was removed, and temporary measures in the Finance Act 2010 allowed those who turned 75 after 22 June 2010 to defer a decision on their annuity until new rules were finalised. In July 2010 the Government launched a consultation about annuitisation, in which they stated that they wanted to increase flexibility while ensuring that people did not exhaust savings prematurely in retirement and fall back on the state, or use pension savings as a tax-privileged means of passing on wealth. We do not disagree with that goal, because it is important to ensure that individuals cannot deplete their pension savings and fall back on the state.

However, the Government’s proposals, unwittingly, would have severely reduced the amount of income that pensioners who were affected would have been able to claim. In response to the consultation, the Government proposed to reduce the maximum withdrawal through the draw-down from 120% to 100% of comparable annuity levels, and to review the situation occasionally. A great deal of concern was voiced by those who would have been affected by the proposal, which resulted in the Chancellor’s U-turn in the 2012 autumn statement. Clause 49 returns the capped draw-down limit level to 120%. Clearly, the proposal has caused many people a lot of frustration, and the change would have had a considerable impact on the annual income levels of some pensioners. The Government’s change of heart is therefore welcome.

I want to ask the Minister some questions about the clause. Why has HMRC historically focused the comparable annuity amount at 120%? What is the logic for picking that figure? I understand that the Government needed to change their mind because the 100% figure caused great anxiety, but can he explain why 120% was chosen? Is the settlement long term? Where are we on the review cycle? We know that the Government plan to review the situation every so often. It would be quite useful if he could reiterate where we are. Are we back to this situation now for at least three years? Is HMRC intending to look at the matter again in three years’ time? Does the Minister now admit that the Government made an error with that decrease to the 100% level? Can he at least explain to the public what went wrong and why the Government made that particular choice? Will he at least take the opportunity to apologise to those who have been affected by this particular change and recognise that it was the wrong thing to do?

A smaller but none the less significant set of questions relate to draw-down and pensions. May I ask the Minister—this might be something he will want to write to me about, as I have not given him notice of the question—about individuals who suffer from serious illnesses and who are in need of particular pension provision because they might have a life expectancy of 12 months or less? A number of representations have been made to me and to other members of the Committee on the matter. If life expectancy is less than a year, and a recognised medical practitioner confirms the medical details, pension benefits can be paid out as a serious illness lump sum payment, so it is a draw-down of sorts. Those lump sums are often needed to provide for people in their last years of life, or to ensure that they do not leave their families with debt.

However, if a person is projected to have more than 12 months but less than five years to live, the annuities are usually bought and therefore there are fewer options. Lump sum payments may be just as crucial for people in those horrendous situations. As we know with employment and support allowance, there are medical circumstances in which, sadly, some people know about their low life expectancy, but they may have more than that 12-month period left. In those horrendous circumstances, lump sum payments can be just as crucial, so does the Treasury have any plans to look at that particular boundary level timing? Will the Government consider extending the provision of serious illness lump sum payments to people who have terminal illnesses but a life expectancy of, say, three years? It would be possible to limit the availability of those lump sums to those with modest pension funds. They will obviously be in desperate need. I do not have information of the costings involved, but obviously I do not wish to incur any cost to the Exchequer. Some insight from the Minister’s officials on such matters would be extremely useful, because they are, sadly, of concern to a large number of people. I will be more than happy for the Minister to write to me on that matter.

Sajid Javid (Conservative, Bromsgrove)

Clause 49 raises the annual withdrawal limit on the income individuals can take from their draw-down pension fund. It increases the limit to 120% of the value of an equivalent annuity. In the Finance Act 2011, the Government reformed the rules surrounding draw-down policy to improve flexibility for individuals while ensuring that pension savings provide a sustainable income over their lifetime.

Before April 2011, those aged under 75 could withdraw 120% of the value of an equivalent annuity, and those aged over 75 could withdraw only 90%. Individuals also face an effective requirement to purchase an annuity by the age of 75. The Government removed the restrictions by making income draw-down available throughout the whole of an individual’s retirement with a single annual withdrawal limit. That single limit was set at 100% of an equivalent annuity to ensure that people did not prematurely exhaust their draw-down funds, and for simplicity.

However, in the short term other factors have affected draw-down and annuity rates, such as gilt yields and other investment returns. Those factors have combined with the change in the annual withdrawal limit to reduce significantly flexibility and individuals’ pensions in a way that was not intended under the Finance Act 2011.

Clause 49 raises the annual limit of capped draw-down pension arrangements to 120% of the value of an equivalent annuity. That will benefit around 500,000 individuals in draw-down arrangements. The higher annual limit applies to all new draw-down pension years starting on or after 26 March 2013 and applies to both existing and new draw-down pensioners. In general, the Government’s decision has been welcomed by pension providers and pensioners.

Before I conclude, I will turn to a couple of the specific issues the hon. Gentleman raised.

Chris Leslie (Labour, Nottingham East)

It is the words “before I conclude” that bring me to my feet. I cannot let the discussion of the decision on draw-down pass without asking the Minister a straightforward question: do the Government regret deciding to go to 100%? They are having to change their mind. Does he regret that?

Sajid Javid (Conservative, Bromsgrove)

I was turning to the hon. Gentleman’s specific questions. He used the term “U-turn”, but the only recent U-turns I recognise are those performed by the Opposition. The clause and the changes we are talking about are not a U-turn, because the cap has increased to 120% for all ages, whereas the age-related restrictions imposed by the previous Labour Government set different caps for different ages. This policy is not the same as the one in existence before, so it is not a U-turn. To further answer his question, the policy reflects changes that have taken place in the gilt market and in other investment returns. It is appropriate for the Government to keep tax policy under review and make changes where it is considered appropriate.

Chris Leslie (Labour, Nottingham East)

Let me get this absolutely clear: is the Minister saying that this was always part of the plan?

Sajid Javid (Conservative, Bromsgrove)

What the Minister is saying is that we always keep tax policy under review to ensure that it is appropriate for the circumstances. When the circumstances change, especially those in the markets—the hon. Gentleman will know that the Government do not set gilt yields and investment returns in general—we look at the policy and ensure that it is appropriate and consistent with its original intentions. This change reflects that.

Chris Leslie (Labour, Nottingham East)

What market factor was so significant between 2011 and 2013 that it justified this change of heart?

Sajid Javid (Conservative, Bromsgrove)

Since 2011, a range of factors have affected draw-down rates, such as the gilt yields. I am sure that the hon. Gentleman can see for himself the changes in gilt yields and investment returns since we introduced the last change. Those factors have combined with the change in the annual withdrawal limit to reduce an individual’s total draw-down income. The changes in the clause will help mitigate that impact.

The hon. Gentleman also raised the issue of individuals suffering from serious illness. He talked not just about individuals who may be in the last 12 months of their life, but those in the last two to three years—still serious conditions for individuals that have them. So far, I have not received many representations on that, but it is a good point. Any Government should have an open mind and ensure that the rules are sensible and practical enough to help individuals in such situations. He kindly invited me to write to him, furnishing him with more information on some of the representations and on our current approach, and I will take him up on that.

In conclusion, the Government recognise that exceptional factors have reduced the amount of income available to pensioners in draw-down arrangements in recent years. Raising the draw-down limit to 120% will increase the amount of income available each year to individuals with draw-down arrangements and provide greater flexibility.

Clause 50 - Bridging pensions

Chris Leslie (Labour, Nottingham East)

Clause 50 enables a registered pension scheme to continue to pay a bridging pension until a member reaches state pension age. That is where the issue becomes quite interesting, because it relates to the choices made about the state pension age by the current and previous Administrations. Previously, a bridging pension had to be reduced by the age of 65.

A bridging pension is a supplementary pension paid by an occupational pension scheme to a member who retires and starts drawing a pension before reaching state pension age. Bridging pensions are designed to ensure that members receive a regular income from the date they retire. When the member reaches state pension age, their pension is reduced by the amount of the state pension. I think that clause 50 is designed to try to align the tax rules on the payment of bridging pensions with the DWP changes to the state pension age. Will the Minister confirm that that is indeed the intention?

The clause means that schemes that continue to pay bridging pensions will not face an additional tax charge as a result. However, it does not force schemes to continue to pay bridging pensions. It will have effect in relation to bridging pension payments made on or after 6 April 2013. Although it is a relatively uncontroversial proposition, will the Minister say what representations he has received on it? What were the views expressed in the consultation, which I think was a while back now, in 2011?

Will the Minister also set out the estimated cost to businesses of the policy change and its administration? Clearly there is a changing picture in relation to the state pension age—it is not fixed, and a number of changes have been set out by not just the previous Administration, but the current Government. I would be grateful if the Minister could help on those administration issues and on the costs to businesses that have to host such pensions.

Sajid Javid (Conservative, Bromsgrove)

Clause 50 makes changes to align the tax rules on the payment of bridging pensions with the changes to the state pension age. Bridging pensions may be paid by some pension schemes when an individual starts receiving a pension before they reach state pension age. The idea is that where an individual retires at, say, the age of 60, their pension is higher at the outset to compensate for the absence of a state pension. When the individual reaches state pension age, their scheme pension is reduced by approximately the level of the state pension, providing a level income throughout their retirement.

The tax rules require that a scheme pension must be payable for life and must not reduce, apart from in specific circumstances; this is one of those circumstances. Currently, legislation allows the pension to be reduced if the individual is aged between 60 and 65, 65 being the existing state pension age. However, the state pension age is increasing, and if no changes were made bridging pensions for individuals whose state pension age is 66 or older would have to reduce before the individual’s state pension age in order to comply with the tax rules. That would mean that the pensioner would face either an unintended gap in their level of retirement income or an unintended tax charge on their pension.

The hon. Gentleman asked whether the measures were related to the change in the state pension age; that is correct. He also asked about proposed changes by the Department for Work and Pensions to the state pension age; they would necessitate a further review of this legislation to make sure that it achieves the purpose that I have set out. The changes made by clause 50 will enable schemes to pay bridging pensions to members until the state pension age where that is later than the age of 65. The change is supported by industry as well as by individuals who would be affected.

Before I conclude, the hon. Gentleman also asked about consultation. I can confirm that the clause was subject to a two-month consultation period, during which we received two responses from the pensions industry. The responses raised concerns about the technical interaction of the new legislation with the existing pensions tax rules. Those concerns were found to be without basis.

The measures ensure that the rules for bridging pensions keep up with changes in the state pension age and allow pension schemes to continue to provide their members with a bridging pension from retirement to state pension age without a gap in the level of income for pensioners.

Steven Baker (Conservative, Wycombe)

On a point of order, Mr Amess. I have learnt this afternoon that one member of the Committee will tonight be celebrating 30 years as a Member of Parliament. Would it be in order for the Committee to give you, Mr Amess, our very best wishes for your celebration tonight?

Sir David Amess (Conservative, Southend West)

Although that is not a point of order, it is an extremely nice thing to say and I thank the Committee.