Finance Bill

The amendment seeks to delay the making of any order under clause 5 until the Treasury has published a report that outlines the proposed replacement for the provisions in section 23 of, and schedule 2 to, the Finance Act 2010, a distributional analysis of the impact of the proposed arrangement and the revenue implications of the replacement provisions themselves. Clause 5 creates a power to remove the paving legislation that would have enabled the so-called high income excess relief charge to be levied in time to be collected in April 2011. That was legislated for in section 23 of, and schedule 2 to, what I suppose we must now call the first Finance Act of 2010, given that we look to be on course to pass three of them this year. I never thought that I would be comparing Finance Acts to buses—none come along for ages and then three come along at once—but it looks like 2010 is going to demonstrate the similarity. We are only in the middle of discussing Finance Bill issues in this Session, and obviously we will resume with part two later in the year. However, back to the provisions before us. The original legislation, which was passed by the previous, Labour Government, was announced in the 2009 Budget and slightly extended in scope in the 2009 pre-Budget report. The idea was to have restricted tax relief on pension contributions for those earning £150,000 or over, who are the top 2% of earners in the country. The policy would have tapered that relief as earnings rose, so that by the time earnings were at £180,000, the relief on pension savings would be the same as that for a basic rate taxpayer, which is currently 20%. The measure was scored in the 2009 pre-Budget report as creating a total yield of £3.6 billion in 2012-13. It was calculated that it would affect 300,000 people at the very top of the income scale, leaving 98% of taxpayers unaffected. In order to understand the effect of changes to pension tax relief, we need to understand how it has developed and how it is distributed. I propose to spend a little time outlining that, so that we can explore the precise effect of clause 5 as drafted, which completely takes away the previous policy. The tax relief available on pension saving in the UK is generous. As many hon. Members will know, it was originally introduced to support people seeking to produce an income for their retirement, in the recognition that these people are locking away resources in an inflexible way, which is obviously what pensions do. People cannot easily access those resources earlier than the retirement age, which is usually not for many years. The tax treatment allows tax-free saving and tax-free investment growth, as well as the taking of a tax-free lump sum on retirement of up to 25% of the fund. There are also valuable tax incentives for employer contributions to pension saving, which is a recognition—long supported by Members in all parts of the House—that it is more efficient for pensions to be provided on a collective rather than an individual basis. The favourable tax treatment is also a recognition in wider society that pension saving involves a deferral of current income, which is always difficult to maintain in what is a consumer-oriented society, where all the temptations tend towards instant rather than delayed gratification.