Contribution
My Lords, I support a number of the amendments within this group. Obviously, the one that catches my eye the most is the one in the name of the noble Baroness, Lady Altmann, which proposes the highest increase to £10,000. But I am very reluctant that we put into legislation more figures that become fixed and then become fiscal drag in future.
I write a regular column in the Money section of the Daily Telegraph—I am not sure it is declarable for this particularly, but it is on issues of tax. I wrote an article just a couple of weeks ago on inheritance tax. The threshold has been fixed at £325,000 since 2009, and I say with no great enthusiasm that we had 14 years of government, from 2010 to 2024, where we did not increase that. The Government with the blue flavour have not been good at increasing and uprating thresholds in line with inflation.
As has been said quite widely, it becomes the quiet hand that just increases more money to the Treasury in a fairly underhand way, you could say, because the Government have done nothing new: they have simply sat with the legislation that they have and, lo and behold, the magic of inflation cuts in and more money is raised from the same tax. If the 2009 threshold of £325,000 for IHT had been uprated to today, it would now represent £569,000, reflecting that in parts of the country, a house at £325,000 in 2009, which was intentionally free of inheritance tax, is not free of inheritance tax today. With this legislation, we are potentially implementing a fixed £2,000, which, with fiscal drag and inflated or inflating wages over time, will drag more and more people into the net.
The Financial Secretary to the Treasury has said in glowing terms during the course of this debate how good pensions are. I have no doubt that everyone in the Room thinks that pensions are a good thing. Unfortunately, it seems that that good thing is being whittled away. It does not take much for people to change their behaviour. I am concerned that the £2,000 threshold will mean those on the edge will only ever make a £2,000 salary sacrifice. They will not, under any circumstances, particularly if they are a basic rate taxpayer, ever go to £2,001—with an additional pound —or beyond. They will simply have smaller pension pots, as was very adequately described by the noble Lord, Lord Londesborough, in his good contribution.
There is the magic of compounding—I believe that Einstein even called it the eighth wonder of the world. It is the magic by which, just with plain inflation, £1 is put away in a very dull, FTSE-based equity plan—or even, should one wish, into government gilts over a very long period—and it goes up. By receiving just 4% or 5% of interest per year, those small pounds from years ago become very big pounds by the time one comes to retirement. As the noble Lord, Lord Londesborough, very ably said, people have small pots. Even with the great success of auto-enrolment, those pots still remain pretty small; they are not quite enough to supplement a long retirement as people live longer.
I support the good things that the Minister said about pensions. There always seems to be a bit of a cover from a Government who say “Well, only 26% of people will be caught”—I think the Minister said 74% of basic rate taxpayers will not be caught—as if that 74% is more than half and so we need not worry. I am afraid that I do worry about the 26% who will be caught and may do different things—namely, they will not put money away for their savings. For administrative ease, I think the higher the better, so that we do not implement into our tax and national insurance legislation yet another fiscal drag that gets worse and worse over time.
The plea repeated by many in Committee today is to pause and wait, because this will not come in until 2029. Our wide-ranging debate has highlighted a lot of flaws and problems. One of the big flaws seems to be that the Minister who has drafted this legislation remains a little unclear, dare I say it, whether this applies per person or per employment. That seems to go somewhat to the heart of what we are debating. I would almost suggest that we draw stumps and come back another day when the Minister is clear on that, after having asked somebody—I suppose someone in HM Treasury—what is intended. Is it £2,000 per person or per employment?
On the basis of that ambiguity, however, I recommend that we have an uprating to £10,000 at the highest level. Given all the uprating measures that noble Lords have described today—whether an inflationary index is applied or a flat £5,000 becomes the new base level, as the noble Baroness, Lady Kramer, proposed—I am afraid that the £2,000 threshold is looking very threadbare. It drags far too many basic rate taxpayers—the normal end of taxpayers—into its potential net. The danger is that they will not save and will not grow their own pots into the future. People on low pension income in the future will become reliant on the state.
What we are doing here is trying to get a bit of sugar today into the Treasury coffers. A sugar rush, where the future will have to be paid for as more people fall into pension credit and other forms of retirement benefit payments, could so easily be avoided by introducing every measure we possibly can, here and now, to get people saving for their own future.