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8.15 pm
Yvette Cooper (Pontefract and Castleford): I have a strange sense of deja vu, rising in the House to speak about pensions and tax credits all over again, but I shall resist the temptation simply to read from Hansard my contribution to the previous debate on pensions.
Again I find it strange, in discussing the tax credits, to listen to Conservative Members talking about their concern for the plight of future pensioners, when they did so little for the future pensioners who suffered so badly from the misselling of pensions. In their objection to the clause, they seem to be trying to claim two things--first, that the tax credit is good for the economy and for investment, so that to abolish it would be terrible for both, and secondly, that to take it away would be bad for future pensioners.
Both those claims are wrong. Is the tax credit really as good for the economy as Conservative Members profess? Consider a company that has made profits. What should
it do with those profits? Where should it invest them? Should it give them back to the shareholders, probably including a few pension funds, who are breathing down its neck? Or should it put the profits into investment, into expanding jobs and the future value of the company for those with shares in it, including those very pension funds?
Mr. Gibb:
Does the hon. Lady not realise that it is not necessarily best for capital to remain within the company where the profits were earned? Surely it is better for the capital to go back into the capital market, and for independent assessors of the best use of it to decide where it would be best invested. That does not always mean that the profits should reside where they were made.
Yvette Cooper:
That is an interesting claim, which several Conservative Members have made. They seem to argue that capital is always best used by the pension funds. In some cases, it may be. There may be good pension fund managers who are good at investing capital wisely--but there may also, as today's Office of Fair Trading report points out, be some who are not quite so good at making such decisions.
Equally, there may also be managers of companies who are good at making investment decisions. Others will not be quite so good. The problem with the tax credit is that it distorts the decision. Instead of allowing managers, pension fund managers and shareholders to make the best decisions about whether the money should go into investment, into dividends, or elsewhere, the Government and the taxpayer intervene, giving one group a subsidy to shunt the money out as dividends. That does not allow the managers simply to make a balanced decision about what is best.
It may be best to keep the money in the existing company; it may be best to take it out. We should at least let the managers make the best decision, according to the full information that they have about the state of the market at the time, rather than distorting the decision and letting the Government intervene to say, "We know what is best. We shall subsidise a particular use of that money." That is not a sensible or effective procedure for a Government who want to encourage investment and sensible decisions.
The tax credit has been used as a subsidy, and Britain pays out a huge proportion of its national wealth--double the proportion paid out by the Americans--in dividends. That is no wonder, when we have a tax credit that distorts the system. The Americans reinvest an awful lot more into their companies, and that might account for our low rate of long-term sustainable growth.
We have now allowed companies to take their own decisions about where best to spend their money. To balance the removal of the tax credit, we have cuts in corporation tax to encourage companies to make the best use of their resources. Our corporate tax rate is now lower than that of most countries in the industrialised world. That is a positive boost for investment.
Conservative Members argue that the measure is a massive blow to future pensioners, who will suffer terribly. That is a bizarre argument. They say that pension funds should inform all their current members of the
potential impact, but how is that impact to be calculated? Surely it depends far more on what happens to the economy over the next five, 10 or 20 years than on anything that happens in this Budget. We should look to the long term rather than trying to pluck figures out of thin air.
The biggest blow to pension funds and the corporate sector in the past five years was the recession, which could have been avoided but was escalated by the Conservatives' mismanagement of the economy. If we really want to protect the future of pension funds, we must take into account the effect of the overall economy on their performance.
Conservative Members seem to have few qualms about triggering another recession. Their position in the run-up to the general election was that the Bank of England did not need to take operational control of interest rates and that no tax increases or cuts in Government borrowing were necessary. They are not quite prepared to commit themselves, but they now seem to be saying that no interest rate increases were necessary.
Given the escalation in consumption, Conservative Members' refusal to act on all those matters would probably have encouraged the economy into another boom, followed by another recession. That would have done far more damage to British pension funds than anything of which they are accusing the Government.
I always wondered why Conservative Governments never seemed all that concerned about escalating into a boom or going into a recession, or about the long-term future of the economy. They did not seem to want to get us out of the boom-bust cycle. It is clear from Conservative Members' speeches today that they do not recognise the impact of the business cycle on pension funds. Presumably they also think that it has no impact on companies or on all the people who lose their jobs. We believe that that is a huge issue.
Labour Members believe that the boom-bust cycle that Britain has been in for so long has had a massive impact on pension funds. That is why the measures in the Budget are based on the long term, and not on the short-term quibbles that we have heard from Conservative Members today. I support the clause.
Mr. Malcolm Bruce:
The hon. Member for Pontefract and Castleford (Yvette Cooper) has rehearsed arguments that we have heard before. If the issue is so massive, one wonders why it did not manage to get into the Labour party manifesto in advance of the general election. That is what causes so much concern about the proposals and the way in which they are being introduced.
The hon. Lady has advanced arguments that many of us would accept as having some plausibility. They are a matter of opinion, and time will tell whether she is right, but the real concern is that, although the measure was not a manifesto pledge and the issue has not been widely debated, it is being rushed through in a matter of days before people have had a real chance to calculate the impact.
The shadow Chief Secretary has asked questions and expressed concerns that the Economic Secretary refutes. In a sense, that is logical. The right hon. Gentleman says, "We think this might happen"--and the Economic Secretary says, "We don't think so"--and the reality is that we all make a judgment about a dynamic situation the
consequences of which we cannot entirely foresee. That justifies the case for fuller consideration of the matter in the context of a general review of corporate taxation, to ensure that we get the balance right.
If I have a criticism, it is not that the measure is fundamentally wrong--it may or may not be--but that the Government are implementing it in such a hurry that nobody has a chance to consider the impact and get the questions aired and explored.
I can testify to the fact that the outside interest groups that are affected have barely had time to digest the complex impact. I have in my hand some suggested amendments that arrived too late to be tabled for debate today. They were sent by some of the people affected who want some answers, but they will not get them unless we manage to bring the matter up on Report, when there is strict timetabling.
I suspect that many people will begin to realise the implications only after the Bill becomes the Finance Act 1997. As has happened so often before, a new Finance Act in 1998 or 1999 will amend the mistakes. That is what we spend most of our time on in Finance Bill Standing Committees, year in, year out, because of the way in which we go about things.
The argument that it is simply a matter of changing the corporate tax system to make it more efficient and to encourage companies to retain profits that would otherwise be paid out in dividends and to invest is not as yet proven or provable. It certainly is not the whole answer, and no Labour Member is suggesting that it is. The hon. Member for Pontefract and Castleford was clearly advancing it only as one of the building blocks of her argument.
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