Finance Bill

The hon. Member for Fareham (Mr. Hoban) spent three quarters of an hour teasing out the issues, as he put it. I shall be very much briefer. The hon. Gentleman started well in explaining the origins of pension term assurance, and making the point that it was an entirely innocent and reasonable way in which the industry should evolve. All individuals are faced with the question of how to hedge the risks when they look forward to their old age. There is the risk of death, and in that regard we provide for our dependants either in the form of a widow’s pension or a lump sum. We must also hedge against the risk of living, and therefore provide an income for ourselves. It is entirely sensible and natural that the two sets of risks should be considered together, as many pensions providers do, and many of us are beneficiaries of such an arrangement. It was therefore natural that the industry should evolve a product that sought to provide those two activities together: pension term assurance. As the hon. Member for Fareham pointed out, in 2004, the Government saw no problem with that, and extended tax relief. With regard to the Government’s answer, about which the Economic Secretary has intervened several times, there are two issues. He has laboured the point about the need to maintain the integrity of the distinction—which he calls the principle, although it is probably more an established practice than a principle—between tax relief for pensions and tax relief for life insurance. Clearly, that is established practice, and must be maintained. The practical issue, however, is not so much the restatement of that principle as tax avoidance. There are clearly individuals who have seen, and would see in this new product, an opportunity to maximise tax relief on life insurance products, particularly if they have high incomes and are able to take advantage of higher rates of relief. What I would like to know—and the Economic Secretary might strengthen his case if he could tell us—is how much of the £150 million or so that the Government hope to retrieve originates in the higher tax relief. If it is true that, as the hon. Member for Fareham suggested, this product was designed principally for people on low incomes, we can see that it may have evolved in a fairly innocent way; but if it is designed for high earners—we are talking about 40 per cent. tax relief—I am more sympathetic to the Government’s view that there is a potential for avoidance. It would be helpful if the Economic Secretary could give us an idea of the relative proportions. The Liberal Democrats approach the matter differently from the Conservatives: from the opposite direction, in a sense. We are not trying to maximise the scope for tax relief. Generally, we have gone rather further than the Government in arguing that there is no justification for giving people on high incomes not just more tax relief, but higher rates of tax relief, on pensions, let alone life insurance. However, we agree with the Conservatives that the distinction between what happened in 2004 and what happens now has created confusion, and has not been terribly well handled. I should like to hear from the Economic Secretary how the Government responded to proposals from the industry. The hon. Member for Fareham summarised ways of meeting the Government’s requirements that had been suggested by the Association of British Insurers and others, some of which seemed perfectly sensible at first sight. If the Government’s primary concern was to maintain the link between life insurance and pensions, organisations in the industry were willing to propose ways of checking that it was being maintained. They suggested, for instance, that if someone died and life insurance was claimed, it should be checked that there was a parallel pension product to maintain the integrity of the connection. Perhaps the Economic Secretary will tell us whether that proposal was explored, and whether it was deemed feasible. Organisations also suggested a limit on the tax relief that could be available, and a mechanism for fraud-checking. I have a sense that the industry has gone out of its way to try to meet the Government halfway, addressing their central concern that there must be a link between the life insurance and pension elements. As for how far the Government have gone to meet the industry’s concerns, I have an open mind. Our stance on whether the clause should stand part will be determined partly by how they respond.