| Previous Section | Index | Home Page |
Mr. Duncan Smith: It was right for some people.
Mr. Greenway: It certainly was, but it was not right for everyone.
My hon. Friend makes the very point that I was about to make: the fact that there was a climate in which personal pensions were regarded as attractive exonerates no one from giving bad advice on whether to opt out or not to join an occupational pension scheme. The pensions industry has agreed to take all this firmly on the chin, because it knows in its heart of hearts that people were put into those schemes, and that policies were put on to the books and accepted, when they should not have been.
The Chancellor's decision to remove ACT tax credits from pension funds is a monumental misjudgment. For the background to this matter, one need only look at The House Magazine of 30 June--published on the eve of the Budget--in which the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) had an article about pensions.
In another article, Allan Evans of Pearl Assurance made two telling remarks about the scale of the under- investment in pensions. In spite of the record that my right hon. Friend the Shadow Chancellor outlined at the start of this debate in comparing our record with that of other countries, the potential for more to be done could not be clearer from Mr. Evans's two comments. The first is:
Mr. Evans's second point, which is even more telling and even more important in terms of the removal of the ACT tax credit, is:
One of the reforms on which I hope for some cross-party consensus is that, if people decide not to join an occupational scheme, any employer's contribution that would have been made to an employer's scheme should be available for them to invest, as of right, in a scheme of their own. We should have done that in the late 1980s. The fact that we failed to do so is one reason why we have this problem today.
Yvette Cooper (Pontefract and Castleford):
The House will welcome the sudden apparent interest shown by Conservative Members in the plight of pensioners. However, I fear that the 15,000 pensioners in Pontefract and Castleford will be a little cynical about the former Government's new-found concern for their plight. After all, it was the Conservatives who put VAT on fuel bills up to 17.5 per cent. whereas the Labour Government have cut it to 5 per cent. and abolished the gas levy, which means that pensioners in my constituency will be considerably better off this winter than they would have been had Conservative Members had their way.
The Conservative party did little to ensure that the poorest pensioners get their full entitlement to the money that they are owed after working hard all their lives. An estimated 1,500 pensioners in my constituency do not get the income support top-up to which they are entitled, having worked so hard, which means that they lose on average £14 per week. That sum goes a long way when one does not have much money to play with in the first place. Nevertheless, the Opposition now say that they are concerned for the plight of pensioners in the future; it is worth considering their arguments in detail, if only to show that they do not add up.
The Shadow Chancellor raised the subject of a 30-year-old now saving for her pension. She has most of her working life before her and hopes to be in work during that time to save for her retirement. What questions does she face when considering the security of her retirement? Her security depends first and foremost on her pension fund's long-term performance, which means the performance of the companies in which the pension fund invests. She will be pleased to see how well the stock market has done since the Budget--an 11 per cent. increase has done wonders for the capital value of pension funds--but she will be more interested in the long-term
performance of pension funds and companies, which depends most of all on the economy's long-term performance.
The 30-year-old is also interested in whether she can stay in employment for the next 30 years, which means that she has a strong interest in not being pushed out of her job by another recession--by more of the same boom-bust cycle with which the economy has been plagued for decades, and certainly severely for the past 20 years. Her security in retirement thus depends on her ability to stay in employment and on the long-term prospects for growth in the economy.
What would that 30-year-old have had to expect from the Conservatives for her retirement? Not very much. The former Chancellor was preparing to make exactly the same mistake in economic management as his predecessor, Nigel Lawson, made in the 1980s, fuelling another boom. No, he would not have raised taxes. No, he would not have cut borrowing. No, he would not have given the Bank of England control over interest rates. And no, as we know, he would not have been half so keen to raise those interest rates himself.
Had the Conservatives been re-elected, we would have been on the verge of another round of disastrous economic mistakes, taking the risk that we were fuelling inflation, triggering recession once more and weakening the very companies on which that 30-year-old's pension depends. We can assume from what the shadow Chancellor has said that he would agree that he, too, would not want to cut borrowing at this stage, would not want to raise interest rates and would certainly not have given control of interest rates to the Bank of England.
In contrast, my right hon. Friend the Chancellor has done more to promote stability in economic management than any Government since the war. He has also done more to promote the long-term rate of economic growth in the past few months than the Opposition did in their time in government.
Let us consider the real problems for the long-term rate of economic growth, which matters for the pension funds and for long-term company performance. Low investment and skills shortages are huge capacity constraints on the economy, stopping our economy growing and preventing businesses from expanding as much as they could otherwise do. The United Kingdom's investment record is pitiful compared to that of our competitors. In 1995 we invested only 15 per cent. of our national income, leaving us 13th in the European Union league. We know that we also face persistent skills shortages, which the previous Government did little to tackle when they were in power.
The new Government, however, have introduced new measures for investment, not just by cutting corporation tax, but by increasing capital allowances. Such measures will promote the prospects of pension funds which are so important.
That brings me to the tax credit about which Conservative Members are so exercised. Would they have introduced that credit if they were starting all over again? Will they reintroduce it, once it is abolished? Would they really want to introduce a distortion in the tax system that encourages pension funds to demand a short-term dividend from the companies in which they hold shares, rather than encouraging those companies to
put their profits into investment? The tax credit directly encourages that. It is a distortion that is short-termist in its impact and probably does much to explain why we have such an abysmal investment record in the UK.
For example, in the late 1970s dividends as a share of gross domestic product were about 2 per cent. in the UK and about the same in the United States. Over the past 20 years, dividends have risen to about 3 per cent. in the US. In the UK, dividends have soared to an almighty 6 per cent. of GDP. No wonder we have capacity constraints, if so much money is being poured out in dividends rather than being invested in the long-term future of our companies. It is madness to allow such a distortion to remain when we have the chance to do something about it.
Mr. Letwin:
The hon. Lady describes a gap of 4 per cent. of GDP. Can she tell the House where she imagines it to go? Does she accept that it may be redistributed into the industries that most require it for investment?
"Only 1 in 100 occupational scheme members will receive their maximum entitlement of two-thirds of final salary."
It is no good saying that pension funds are awash with money and that everyone is on some great gravy train once they retire. That is simply not true, because only one person in 100 will get the maximum. One has only to look at the insecurity of being a Member of Parliament and at how many hon. Members, when they eventually retire, will get the maximum pension entitlement under our scheme. In the fleeting moments during the count, when even I wondered whether I had survived, the pension that I would lose was one factor for my wanting to return to the House--but it certainly was not the only one.
"the majority of people with a personal pension are making wholly inadequate levels of contribution."
That is why the misselling scandal arose. It was not wrong to encourage people to make provision for their own future; the problem was that they merely invested their national insurance rebate, which should have been just the first building block.
| Next Section
| Index | Home Page |