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Mr. Flynn: The hon. Gentleman is tempting me to go over what happened under the previous Government with the Treasury supplement. I do not know whether he is familiar with the supplement, which was paid for a long time and removed by the former Leader of the House when he was at the Department of Social Security. That was the chief loss to the national insurance scheme in that period.
The previous Government played fast and loose with the national insurance scheme by raiding it. That is why we all agree that we need reforms and new schemes. Instead of the complications, waste, huge commissions and inefficiencies of the private pension industry, we would be better of with one national scheme that was run very efficiently.
I shall conclude by speaking about my party's approach to pensions. My hon. Friend the Minister listed in awritten answer on 30 June ways in which all pensioners could share fairly in the increasing prosperity of the nation. He said that it would be
Mr. David Prior (North Norfolk):
I represent a constituency to which many people retire. Pensions are a key consideration, as they were throughout the general election campaign. The withdrawal of the advance corporation tax credit has come as a complete bombshell to my constituents, and to all those other thousands of people who are saving now to be self-reliant when they retire. I want to know whether the Labour party planned the abolition of the ACT credit before the election, and, if so, why it was not in the Labour manifesto. I hope that that question will be addressed in the Minister's winding-up speech.
Hon. Members on both sides of the House accept that, over the next 40 years, the proportion of the population aged over 60 or 65 will grow significantly, and that the elderly will be supported by a static or declining working population. The support ratio, referred to by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill), which measures those of working age as a proportion of those of pensionable age, is predicted to worsen from 3.3:1 in 1990 to just over 2:1 in 2030.
As medicine continues to advance, that position will deteriorate further. It is anticipated that the number of over-75s will increase from 3.9 million in 1990 to 6.3 million in 2030. The consequences, not only for pensions but for community care, health provision and long-term nursing, are enormous.
How is that to be financed? There is a limit to tax-financed public spending, which even the Government seem to recognise. Today, public spending on old people amounts to half the total social security budget, or some £40 billion per annum. The current pay-as-you-go unfunded state pension will become increasingly expensive for future working generations as the population ages. The Government Actuary has calculated that, at current prices, spending on retirement pensions will be £55 billion in 2030, compared with £29 billion in 1994-95. That increase will have to be funded by fewer working people.
Like all Conservative Members, I had hoped that there was a growing cross-party consensus that private pension provision, as a supplement to state provision, was a crucial part of the answer to the problem. The problem will not go away: just as one cannot buck the markets, one cannot buck the demographics. Even the European Commission has cottoned on to that, as can be seen in a Green Paper published on 10 June this year, called "Supplementary Pensions in the Single Market".
Those in continental Europe are in a far worse position that we are and I shall quote some statistics to illustrate that. Pension fund assets as a percentage of gross domestic product were 3.4 per cent. in France, 5.8 per cent. in Germany, 1.2 per cent. in Italy, 2.2 per cent. in Spain and 80 per cent. in the United Kingdom. UK pensions investment is some £650 billion--more than the rest of Europe put together. Our pensions industry has been one of the great success stories of the last Conservative Government, and it would seem that the Commission has started to see the light just as the Labour Government begin to close their eyes.
The Commission's Green Paper concludes:
There can be few worse examples of short-termism than raiding people's long-term retirement savings to finance today's Government spending. If this is, to use the Prime Minister's elegant phrase, "long-termism in action," Lord help us.
The long-term funding of pensions is one of the great issues confronting all developed countries. Self-provision for long-term savings must play an important role. Surely the Minister for Welfare Reform, at least, will agree with that.
Liz Blackman (Erewash):
If I had not come to the House as a result of the general election of 1 May, and had stayed in my job, give or take a few days I would have taught young people for 25 years. I invested a great deal of time and energy in those young people, but for many years I knew that their prospects of equipping themselves properly with skills that the country needs and
Our manifesto commitment to the electorate was to reverse that position, and undeniably it was overwhelmingly endorsed. Often, on doorsteps in my constituency, I found that older people were worried that we were not giving those young people a future.
The Government will definitely be judged on our ability to sustain and increase economic growth, which means taking tough decisions--no one is denying that--and building an infrastructure on firm ground, not on shifting sands as in the past.
Labour Members have rehearsed reasons why forecasts of the impact of advance corporation tax on pension schemes have been skewed by the way in which actuaries value those funds. We have been presented with evidence that dividend growth in the United Kingdom is high compared with that in the United States of America, where a much more conducive investment climate has been created. The distortion of the tax credit and its short-term impact have been highlighted, as has the inability of management to take unfettered decisions about pension funds.
I have been extremely interested in some of the historical evidence with which we were presented at the start of the debate, showing that Conservative Members, past and present, have justified their approach to removing money from pension funds a few years ago, but have somehow now developed selective amnesia.
Mr. John Bercow (Buckingham):
I listened with interest to the hon. Member for Erewash (Liz Blackman) because I wondered, when she was talking about the mandate and the basis on which the British public had decided to opt for a change, whether she would have the audacity, and possibly also the intellectual power, to be able to demonstrate that in the course of making that judgment the British public had the ability to detect--weeks in advance of the general election--that the Labour party, if elected, and despite the absence in the manifesto of any such commitment, would abolish the ACT credit on dividends. Of course the hon. Lady could not demonstrate that, for the simple reason that there was not the slightest indication for several months before the election campaign, during the campaign or even in the period immediately after it, that that was the Government's intention.
This debate is an excellent opportunity to compare and contrast the records of the former Government, whom I was proud to support from outside the House, and the present Government. We may compare the records of a Government who served this country for 18 years and of an Administration who, to date, have served--or perhaps I should say mis-served--the nation for 69 days. By any
yardstick--even if I were not a partisan contributor to the debate--it would not be difficult to arrive at the conclusion that our rhetoric was matched by reality and that Labour's rhetoric to date has been contradicted by reality.
I am sure that the Minister will not deny that the Conservatives set out over a period a three-pronged strategy. We said that we would uphold the value of the state pension as the foundation of pensioners' incomes in retirement--that was the first prong. The second prong was to encourage individuals, not just by exhortation but by practical incentives, to provide for themselves in their retirement. Thirdly, as a party that believes it is a responsibility of Government to look after those who are unable to look after themselves, we said that we would provide through the taxpayer additional assistance for the poorest pensioners. On all three counts we manifestly succeeded.
The effect of that success is plain for all with eyes to observe. It is plain by virtue of the fact that pensioners today are, on average, 60 per cent. better off than in 1979. It is obvious by virtue of the fact that 90 per cent. of pensioners have recourse to funds other than the state pension. It is plainly obvious by virtue of the fact that 62 per cent. of pensioners have occupational pensions; and by virtue of the fact--this should be the subject of cross-party pride--that the proportion of pensioners who are in the bottom 10 per cent. of income earners has fallen from 35 to 18 per cent. Finally, it is plain by virtue of the fact that by all agreed measures of reasonable living and basic decency, the number of pensioners enjoying the basic elements of a decent standard of living--consumer durables, reasonable incomes, and so on--is far greater than it ever has been. By all those yardsticks the Conservative Government were successful.
The plan of my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the former Secretary of State for Social Security, to build on that success in pension provision was widely applauded. It received support from the Association of British Insurers and from Legal and General; it also received support from an enormous variety of people with professional expertise and competence in pension provision, because they recognised in the plan the seed corn of a far greater provision for the multiplicity of pensioners today--and, more particularly, tomorrow--than the efforts of any previous Government had been able to devise. So we came up with something that received support not only from the Conservative Benches but from people outside who knew that a time bomb was ticking and that a solution was required.
In the past 69 days, all that the Government have contributed are two policies, the effect of which has been to damage the prospects for tomorrow's pensioners. The first is the abolition of the tax credit on dividends. In simple terms, stripped of jargon and technicalities, what matters and is, I presume, indisputable, is that, as a result of that policy, the amount of tax that pension funds can reclaim will be cut, as sure as night follows day. The consequence of that must be clear for all to see. It means that companies will be obliged to top up contributions to company schemes, which will necessarily impact on the sums that they can devote to other purposes. It seems reasonable to conclude that investment in the company's future will therefore suffer.
I found it extraordinary that, although the hon. Member for Pontefract and Castleford (Yvette Cooper), whom I am delighted to see back in her place, paid close attention to Conservative Members' arguments, which was much appreciated, she seemed determined to deny to herself even the possibility of a reduction in the short term, let alone the long term, of industrial investment by companies as a result of the tax change introduced by the Chancellor. It must logically follow that, if companies must busily top up funds depleted as a result of that policy, something else will have to give. In a sense, there is a cake, and however it is divided its total size does not change. It is therefore not credible to argue that there are no consequences. An opportunity cost is involved in all those decisions and judgments.
Similarly, the damage in respect of the imposition of the windfall tax is clear. One must reflect on the number of shares held in those utility companies by or on behalf of pension funds. It is flippant and unworthy of serious political debate for the Government, with a smugness that ill befits them only 69 days after their return to office, simply to prate in response to our objections that the stock market is doing thoroughly well. If they are so drunk on the temporary enjoyment of their newly acquired power to believe that that state of affairs will obtain for any length of time, they deserve to suffer. Those utilities will be hit and their investment plans threatened. They will be obliged to borrow, which will have implications for the infrastructure. In each and every case, damage will be inflicted.
I challenge the more fiery intellectual powers in the Labour party, of whom some of us have been informed that the hon. Member for Pontefract and Castleford is a prominent example, to dispute and repudiate the arguments that Conservative Members have advanced against what they have done.
"through contributory pension entitlements, through other benefits, or through the income derived from savings."--[Official Report, 30 June 1997; Vol. 297, c. 65.]
However, the only means that anyone has so far suggested by which all pensioners could share in increasing prosperity is to restore the earnings link for the basic pension.
"Improved returns on pension fund investments are in the interests not only of workers, who have to contribute out of earned income to their pension schemes, but also of employers who also contribute. Reducing the costs of supplementary pensions for employers cuts the cost of employing a person and so directly contributes to creating jobs and to economic growth".
To most people, that is a statement of the blindingly obvious, but not to the Government, who have just increased the cost of pensions by abolishing the ACT credit. It is bad for investment, for jobs, for competitiveness, for the public finances, for pensioners and for future pensioners. The National Association of Pension Funds said that the Budget had been
"the biggest attack on funded pension provision since the war. It will affect not only companies, but millions of ordinary people."
The Chancellor believed that he had found the perfect way to raise money without anyone noticing. This was to be the perfect crime, because there was no apparent victim. Attack personal pension funds and companies with defined benefit schemes, and, it might be thought, no voter will notice--but of course they will. The 28,000 employers with final salary schemes, with 11 million members and 7 million existing pensioners, will notice, as will the 7 million individuals who have taken out their own personal pension plans.
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