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The Chief Secretary to the Treasury (Mr. Alistair Darling): The right hon. Gentleman is trying to pose as a friend of pensioners. Does he not recall that, when he was a Minister at the Department of Social Security, he presided over the regime under which the mis-selling of pensions took place? Does he not remember that he proposed the abolition of tax relief on employee pension contributions, and was it not the Conservative party that was going to abolish the state pension? No wonder no one believes anything that the right hon. Gentleman has to say about pensions. His arguments simply do not stand up.
Mr. Lilley: If the right hon. Gentleman can only stand at the Dispatch Box and make a statement that he knows to be untrue, while refusing to answer the question that is posed to him, he discredits his office. I have a number of questions to put to him, and we would rather have more
sensible and constructive answers. Not just Conservative Members, but all who are involved with pensions and companies, want to hear answers to those questions.
The present national insurance rebate is calculated by the Government so that, assuming a certain after-tax return, it will generate a private pension that is roughly equivalent to the pension that people would have if they stayed in the state earnings-related pensions scheme. If the level of rebate is not revised to reflect the change in taxation, many people with pensions would be best advised to contract back into SERPS. Is that the Government's intention? Will they advise people to opt back into state earnings-related pensions?
If the Government do not do that, will they not be guilty of the very mis-selling that the Chief Secretary just accused the last Government of having allowed to happen? Trying to make it suitable, or rather advisable, for people to opt back into SERPS and then not advising them to do so is certainly mis-selling of a kind; moreover, it is the very opposite of what the Government have been saying they intended to do ever since the election. We must ask whether Social Security Ministers who have been saying that they want to enable everyone to opt out of SERPS were aware of the impending change in the tax regime.
If the Government do not advise people to opt back into the state scheme, the alternative is that they increase the value of the national insurance rebate to offset the tax change. Do they intend to do that? How much will it cost? Have they asked the Government Actuary to assess that cost? Has that extra cost been factored into the Budget arithmetic?
I shall give way to the Chancellor, who will surely want the House to know whether his calculations took that into account. It seems that not only do Social Security Ministers not know, but the Chancellor does not know what is in the Budget, and he does not know its implications for social security. The pensions industry, those who are in pension schemes, particularly those with private pension funds, and those in companies which run occupational pension schemes, want answers to those questions. I hope that we shall have answers before the end of the debate.
There is another perverse consequence of the change to ACT which the Chancellor failed to mention yesterday. He constantly laments the lack of investment, and claims to want more investment in Britain. He often laments that many British companies invest more overseas. However, his proposed change will make it significantly more advantageous to invest abroad relative to domestic investment than was previously the case. How many Labour Members realised when they cheered yesterday that the first act of the new Chancellor would be to encourage British companies to switch investment from Britain to abroad?
To the extent that companies continue to invest in this country, they are discouraged from paying out the fruits of productive investment in mature companies which have few good productive investment opportunities left. They are encouraged instead to retain those funds and invest them in their own companies. That means that less money will be recycled through the capital markets to the new, small, expanding companies which need investment, and will no longer find it so easy or so cheap to get.
The other major tax is the windfall tax. It is the only new tax burden that Labour admitted to planning before the election. To make it acceptable, Labour had to pretend that it would not be paid by ordinary people. Last year, the Chancellor said that it would not be paid by ordinary families. The impression was created that it would all fall on the fat cats in the privatised utilities.
Now we know. Virtually none of it will be paid by the fat cats. Instead, we are led to believe that it will be paid by an abstract entity called the firm, but as John Kay, the adviser to the Prime Minister and Chancellor has said:
As there are nearly 20 million households, that £5 billion tax would, on average, cost each household more than £250, but the extent that regulators prevent the tax from being passed on in higher prices, it will instead fall on the value of shares. Of course, its impact will be the more concentrated on pensioners, who pay a disproportionate amount of household bills out of lower incomes, than if it had ultimately gone through in higher charges. That is because more than half of all shares are held by or on behalf of today's and tomorrow's pensioners.
If several billion pounds are siphoned from pension funds by the tax on top of the ACT changes, companies and individuals will have to put in an equal extra amount or suffer lower incomes in retirement. Even if the tax did not fall primarily on pensioners, it is still objectionable in principle. It is not merely retrospective: it is being imposed long after the alleged windfall profits arose. It goes back 15 years, to when BT was originally privatised, much to the chagrin of Iain Vallance. It does not go back to the first privatisation under the influence of the International Monetary Fund--the sale of the Government's stake in BP. It appears that a company's chairman has to become a Minister; voting Labour is not enough, as Iain Vallance found out.
Of course, this tax will not be paid primarily by the people who benefited from the original speculative profits. People whom the left vilify as speculators--those who sold the shares fairly soon after they were issued--will not pay a penny of the tax, but pensioners whose schemes invested later for the longer term will bear the full burden.
Labour's windfall tax will damage Britain's standing as a country whose Government can be trusted not to behave arbitrarily. It will drive up the cost of capital and, perversely, reduce the revenue that may be obtained from any future privatisation, if the Chancellor eventually finds something to privatise; but the real absurdity is that it is a one-off levy to fund an on-going make-work scheme. The Government cannot fund a permanent programme from a temporary tax.
We support the objective of getting young people off welfare and into work. We believe in that passionately. It has been one of the keys to our reforms of social security, employment and education. We have aimed to give people the skills, the incentives and the jobs to get them off welfare and into work, and we have been succeeding.
Over the past four years, the number of young people unemployed has come down by 100,000 a year. When the Chancellor first mooted his plan to get 250,000 young people who had been unemployed for six months or more off the dole, 280,000 young people were in that position; there are now fewer than 180,000. We have done a lot of his job for him, and we did it by sensible measures to create real jobs, not by make-work schemes and the skivvy jobs that he proposes.
The Secretary of State for Education and Employment (Mr. David Blunkett):
Will the right hon. Gentleman give way on that pathetic note? Perhaps he would tell us, therefore, why his party, over the period of its recent office, introduced 30 separate schemes, which he now describes as makeweight?
Mr. Lilley:
I have no objection in principle to taking measures over and above those that I have described to get people off welfare and into work. I have no objection in principle to the sort of measures that the Chancellor is proposing.
Mr. Campbell-Savours
The right hon. Gentleman referred to "skivvy jobs".
Mr. Lilley:
I was quoting the term used by Labour Members to describe the regime that we established for 16 to 18-year-olds, which is precisely what they want to extend to 18 to 25-year-olds. We established a scheme under which people had the option of education, of training or of work, but not of benefit. He proposes to establish that benefit regime and to extend it to those people. We have no objection to that in principle, and no objection in principle to the proposal to introduce job subsidies. It is just that we think that it will not work, and we know that it will not save money.
We set up a study to examine similar schemes throughout the world, and it discovered that not a single scheme saved more in benefit than it cost in subsidies and in employing people on make-work schemes.
Mr. Blunkett:
Will the right hon. Gentleman tell us, therefore, why his Government introduced three schemes, including workstart, that involved a job subsidy of the sort that he is now attacking?
"There is no such thing as a tax on firms. The effective incidence of all taxes is ultimately on individuals."
Normally, the £5 billion cost of this tax would show up in due course in household bills and there would be higher gas, water, electricity and phone bills.
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