Finance Bill

In my opening remarks, I set out the background to the Government’s decision taken at the time of the PBR and then the Budget. We have had an interesting debate, and I want to respond to a number of points that have arisen. I shall begin by putting the proposals in context, in terms of both principle and history. Much of the discussion has been about the process through which we reached the A-day reforms, and about their consequences, so some contextualisation is appropriate. The hon. Member for Fareham (Mr. Hoban) talked about the Government’s principles, and almost got to the point of agreeing with them. I fear that the speeches of some other Opposition Members contradicted that approach, but that is by the by. In a speech to the National Association of Pension Funds in March, I set out the principles that have guided, and continue to guide, the Government’s approach to pensions tax relief. I shall set them out again for the Committee. First, we believe that generous tax relief is provided to support pension saving where that produces an income in retirement. Pensions tax relief is not there to support pre-retirement income, nor to support accumulation or inheritance. Secondly, we believe that pensions should be provided with more favourable tax treatment compared to other forms of saving, in recognition of the fact that they are less flexible than other savings and that they are locked away until retirement. Thirdly, we believe that incentives for employer contributions should be provided, as it is more efficient for pensions to be provided on a collective basis through the employer, Finally, we consider that pensions tax incentives must be affordable and fall within current fiscal projections. It is important to set out those principles again, as they have guided the Government’s decisions over recent months and years. They have also guided our approach to term assurance and pension term assurance, and I shall refer back to them during the course of my speech. I also want to set out some history. In an intervention on the hon. Member for Fareham, I said that the Conservative Government of the day withdrew tax relief on life assurance premiums in the 1984 Finance Bill. The policy issues debated at the time were slightly different from those that pertain today, but I have read the debates and remain struck by the similarities and echoes between then and now. In particular, it is clear that the Government of the day were concerned that the relief was being used for circumstances that were not intended. That meant that most of the relief was of no real benefit to the general body of taxpayers, and that any attempt to target the life assurance premium relief more precisely would be both potentially expensive and difficult. That was why the then Government decided that the only solution was to withdraw the tax relief altogether—a pragmatic solution that took account all the different factors. The system left in place following the 1984 changes allowed relief, restricted to 5 per cent. of earnings, for contributions to a personal pension scheme for life insurance products. However, the term assurance market that was linked to pensions accounted for only a very small percentage of the overall term assurance market.