---

Finance Bill

My Lords, as we have heard, each year since 2003 the finance sub-committee of the Economic Affairs Committee has inquired into selected aspects of that year’s Finance Bill. The resulting reports are always of a very high standard and do much to increase understanding of the rather arcane nature of the Finance Bill. I suspect that the sub-committee is not greatly loved by the Government. In passing, I make the observation that, if the sub-committee’s work were to be extended to inquire into more than three aspects of the Bill, there would be a commensurate increase in understanding and almost certainly a similar increase in government irritation. The chairman and members of the sub-committee are to be congratulated on giving great service to this House and contributing to the general awareness of issues that are normally put into the "too difficult to understand" box. In my few words this evening, I intend to concentrate, like several previous speakers, on pensions. I declare an interest as a pensioner, although I say in my defence that I have been concerned about pensions long before I became a pensioner. Pensions have always—at least until recently—been a most successful way of saving. Savings are one way in which an individual who is capable of working hard and who has been blessed with talents, education, opportunities and health should be responsible and not rely on the state to support them in their old age. My noble friend Lord Lang of Monkton was strongly critical of the likely effect on the attitude of people to savings of the taxation of pensions suggested in the Finance Bill. The 17 pages in the sub-committee’s report, in chapter 3, on the taxation of pensions should be required reading for those who have a suspicion that the Government rate pensions as an easy target—a gold mine that yields untold riches for the Government without too much digging and mining. Why? Because each raid on pension schemes and each change of the rules is couched in massively opaque terms and is virtually incomprehensible to all but the ever mushrooming group of pension consultants. The pension section of the Finance Bill 2009 is no exception. It truly is par for the course and the sub-committee has done a great service in throwing some light on it. We have been reminded several times this evening that, when the overhauled regime of the taxation of pensions came into effect in 2006, the Government maintained that the reform would, ""bring simplification and increased flexibility that will ensure a transparent, consistent and flexible system that is readily understood, making it easier for people to concentrate on deciding when and how much to save for retirement"." Three years later, the new system that was designed, I repeat, to "bring simplification", be "readily understood" and make it, ""easier for people to concentrate on deciding when and how much to save for retirement"," was shunted aside and a punitive disincentive that threw people into confusion was introduced. The greatest casualty in the recent financial meltdown has been trust. The latest pension proposals—this action by this Government—further erodes trust, or is there any trust left? The witnesses from the private sector who appeared before the sub-committee expressed concern that the measures introduced would have a significant impact on the scheme introduced just three years earlier; my noble friend Lord Forsyth clearly and cogently made that point. The 2006 changes were made after much consultation, which was acknowledged by all as a very good thing. What consultation was undertaken on this change, or is consultation another casualty of the financial meltdown? I heard what the noble Lord, Lord Vallance, said in acknowledging that it would have been difficult. I am sure that that is correct, but should that absolve the Government from undertaking a thorough analysis of the likely impact of the changes, or are they just dismissive of the essential contribution of those most likely to be affected? The Government will state that the changes apply to only 2 per cent of the workforce, so is that all right? No, it is not. Do the Government not realise that in any organisation the introduction of different levels of incentive—or disincentive in this case—will have a destabilising effect? Those down the line will look at what is now being seen as a target group ripe for government penalty. How will that encourage others—the younger, ambitious staff who willingly contribute to pension schemes—to act in a responsible manner and hope not to have to rely on the state during their old age? I am not so sure that, along with the effect on trust and on the concept of consultation, this action will not have a deleterious effect on the savings inclination of further generations. Much has been made of the effect of this move on people who can and may move overseas. But gone are the days when graduates entering the workforce joined a company and stayed there for life. Mobility is an ever present reality and many young, ambitious professionals have almost complete flexibility to move overseas. The sub-committee’s comment, repeated by the noble Lord, Lord Vallance, that the, ""precedent may be seen as the thin end of the wedge"," and could risk, ""a reduction in pensions savings"," is surely a valid one. I wonder what the Minister feels about that. There is hardly anyone better placed to have firm views on it. The sub-committee’s report highlights the risk that the highly paid may look for other means of saving instead. Some of those means have been mentioned here this evening, but it could also take the form of payment in kind rather than an increase in salary. Do we want to return to the days when the higher-paid executive spent an inordinate amount of time devising ways of circumventing pay restrictions? The most farcical one that I encountered was the collection on a weekly basis of suits—yes, suits, but gentlemen’s suits—for dry-cleaning. The most politically incorrect one was the payment of public school fees, but that was in the days before political correctness. What is sure is that there is an army of compensation consultants ready to give advice on how compensation should be fixed to avoid being penalised by reaching the point at which taxation on pensions kicks in. Will that help the country pull itself out of the deepest recession for decades? I think not.