Finance Bill

It is not something I am anticipating but if, unfortunately, I died while I was a Member my wife would receive a lump sum, which she could use to pay off our mortgage, thus freeing up income. Alternatively, she could invest the lump sum to provide an income. A substitution effect arises from the death-in-service benefit. The lump sum can be invested either to generate an income or to pay off a mortgage to increase disposable income. The importance of that point will be apparent when I discuss the evolution of the Government’s thought process a little later in my remarks. I am very fortunate as a Member to have that benefit, but others are not so fortunate. People who are self-employed, for example, will not have the same benefit and will have to pay for it themselves. Prior to A-day, this type of cover could have been subject to tax relief as part of a pension policy. Now, however, as we shall see later, even that is not available to the self-employed. Anyone not covered by an employer’s scheme will have to bear the full cost of cover—something that we do not have to do. In fact, we are doubly lucky because in a sense the cost of benefit is split between us and our employer. Someone who is self-employed will not only have to pay the full cost of a stand-alone policy, but will not receive any tax relief either. That raises real questions about the affordability of protection cover for many people on low or moderate incomes. The change that the Government have introduced creates some ironies. We will recollect that yesterday we discussed the incentives for incorporation in respect of small traders. As Taxation recently noted, if the policy is paid for by the employer, it is acceptable. That leads to the ridiculous situation whereby someone operating through a personal service company can get tax relief, but a sole trader or partner cannot. Yesterday, the Government tried to reduce the incentive for incorporation, but this afternoon we are discussing changes that have encouraged it. When pension term insurance was introduced, the perspective from the industry was that it would lead to the closure of the protection gap. People out there on low and moderate incomes feel, as I said earlier, that they cannot afford life cover to provide for their dependants in the event of their death. It is worth reflecting on a recent article in Money Marketing by Vanessa Owen of Liverpool Victoria. I am afraid that I am going to refer back to it regularly throughout my remarks, because it provides an insightful view of the development of opinion in the industry about the introduction and development of this product and its subsequent abolition. She said:"““Everyone, including consumer bodies and the Government, understand that most people do not have enough life protection to cover sudden death of the main breadwinner or family carer. It is in all our interests to encourage more people to provide for their dependants and reduce dependency on the state. Despite all ""the talk about the size of protection gaps, since Swiss Re published its data, the problem has got bigger, with everyone scratching our heads over how to solve it. Then came pension term assurance.””"