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Mr. Davies: Will the hon. Gentleman give way?
Mr. Woodward: No, I will not give way. I have given way to the hon. Gentleman twice.
The Government are robbing not the few, but the many. The only equitable aspect of this careless tax is that it will hit every fund and everyone. Sooner or later we shall all, like Mother Hubbard, find ourselves going to the cupboard only to find it bare--emptied by the Labour Government as they look for every opportunity to take money from success.
The accountancy firm Kidson Impey said of the Chancellor in The Independent on 3 July:
"What he's really done is to steal from every person and business who pays into a pension."
The chairman of the Association of Consulting Actuaries, which represents pension fund consultants, said that abolishing the ACT credit would lead some companies, especially small companies, to abandon sponsorship of occupational pension schemes. He said:
"Any employer considering introducing or extending occupational pensions may now be dissuaded from doing so."
He went on:
"This move is in direct opposition to the Government's stated aim of increasing private funded pensions to reduce reliance on the state."
Mr. Ivor Caplin (Hove):
Will the hon. Gentleman address the important issue of pension holidays? I have heard nothing so far in the hon. Gentleman's eight minutes--or from any of his Conservative colleagues--about the massive pension holidays that took place. That money could have been reinvested to benefit pensioners, but no, the companies had the right to pension holidays.
9.30 pm
Mr. Woodward: The hon. Gentleman is obviously excited about what I have said and what might be coming in my speech. He will indeed find that I shall refer to other matters concerning pensions.
Firm after firm report that this careless clause is damaging and vindictive. It is planned for short-term gain but will do long-term harm. Just at the time when Britain is emerging as Europe's most successful country in building up pension provision, along comes the Chancellor and whack--he raids the kitty.
To be charitable, the Government--or some Ministers--may not have not quite understood the impact. Obviously, the Financial Secretary to the Treasury does not quite understand. On 3 July, she told us:
ICI says that the cost of the shortfall to its company alone will be tens of millions of pounds. The Post Office fund reckons that the cost of abolition is some £130 million. To take an individual--Labour Members spend a great deal of time talking and thinking about individuals--a 35-year-old who has accumulated a fund of £20,000 on contributions of £1,000 a year will now pay an extra £315.10 a year to make up the shortfall. That is an extra £26.26 a month. Is that good or bad? The Financial Secretary says that the measure is good for pensioners, but to me that extra cost does not seem all that good.
Chantrey Vellacott has shown that, on average, the 19 million members of company or personal pension schemes--probably even more members than there are of the Prime Minister's fancy club in Sedgefield--will require an average increase in contributions of £190 a year. Is that good or bad? It is bad.
Sir Teddy Taylor (Rochford and Southend, East):
Is my hon. Friend aware of the huge problems and worries facing local councils such as Essex county council, which has found and announced only yesterday that it will have to spend several millions of pounds extra on cut services? Is it not rather silly to engage in politics when real problems are facing real councils in providing real services to people, including pensioners and poor people? Would it not be better to stop talking politics and realise that local councils are facing huge problems due to this silly scheme?
Mr. Woodward:
My hon. Friend is of course correct and makes a very important point. It is a great shame that Labour Members, in their precipitate haste to hit the ground running, have not considered the impact of the measure on local authorities.
I find the Financial Secretary's conclusion that the Budget will be good for pensioners extraordinary. It demonstrates a fundamental lack of understanding of the economics of the pensions industry and a careless disregard for pensioners themselves.
Mr. Woodward:
I am sorry that the hon. Gentleman thinks that that is rubbish. Pensioners will not think so in years to come when they find that the money that they thought was there is not there because the hon. Gentleman's party has raided the store.
Lorna Fitzsimons:
Will the hon. Gentleman give way?
As individuals up and down the country start to calculate just how much money Labour is robbing from their pockets for the future, they will seek out those responsible and those who patronisingly told them, as the Financial Secretary did:
Lorna Fitzsimons:
The hon. Gentleman mentioned certainty for pensioners, and we agree with the need for that, so would he care to comment on the lack of certainty that 18 years of Tory government gave to those people who relied on the constant value of the state earnings-related pension scheme? It was halved in those 18 years, when the Tory Government had responsibility for establishing the certainty that the hon. Gentleman thinks is so important for pensioners.
Mr. Woodward:
The hon. Lady knows full well that, after those 18 years, pensioners were considerably better off than they were when we took office. We should remember that when Labour was last in government it froze the state pension for two years in a row. This time, within eight weeks, it is taking more money from pensioners.
Lorna Fitzsimons:
Will the hon. Gentleman give way again?
The Financial Secretary believes that there is a lot of surplus about. There may be a lot about, but why? It is because the Conservative Government created financial conditions under which companies in Britain could do well, and British pension funds have done well.
What do we see now that the Labour party is in government? We see old Labour. Its attitude is, "If it's successful, tax it." Its motto, amply demonstrated in the Budget, is, "If it is a company that should succeed, tax, tax and tax again." As a result, millions of pensioners will be markedly damaged by the tax on savings and investment.
Much has been made by Labour Members, including the hon. Members for Manchester, Blackley (Mr. Stringer) and for Croydon, Central (Mr. Davies), about investment in research and development, but this is not a Budget for investment. The National Association of Pension Funds has said:
The measure will take an extra £50 billion of pension contributions in the next 10 years--money that would otherwise have gone into research and development, investment and creating real jobs, not subsidised employment schemes that will end when the subsidy goes. Far from allowing more money for investment, the measure will hit companies hard. Companies with final salary pension funds will increasingly be required to find additional contributions from businesses, further diverting funds from investment. That will be the case for funds that are not now in surplus and, in the longer term, in most cases as fund surpluses are used up.
The clause is short-termism run amok. Labour has seen a pot of gold to fund its new culture--as Labour Members called it earlier--its new Jerusalem. With all the feather-like delicacy of a sledgehammer, Labour has smashed the pot and grabbed the gold in the hope of playing Robin Hood. However, the only Robin in this story is the robbin' of the savings of every pension fund in the land by Labour.
We have seen the twinkle in Labour Members' eyes and their excitement as they spot the potential to raid the money from pension funds, but the tax has all the properties of a Paul Daniels magic show. Like the magic candle on a child's cake, no sooner have they robbed the funds of £5 billion one year than they will rob them of £5 billion the next. The Labour Government are clearly exposed as serial raiders, but they will discover themselves to be false raiders.
The money is set aside for real long-term investment, a subject about which Labour Members do not care, understand or worry about much. In words and rhetoric, in manifestos, prospectuses and little handouts for the Budget, they care--but as we have seen so ably demonstrated in the Budget and in this specific clause, they do not understand the substance.
When the Labour Government came to power, they said that they would hit the ground running. The only thing that the Government have proved that they will hit running are the elderly. The brutal raid on the pension funds will cause lasting damage to our economy.
Is it not ironic that, wherever they turn, the Government say, "Let's have a review"? Wherever they move, they say, "Let's have a working party." But on this one issue, was there a working party? Was there a review? Was it in their manifesto? No. Why not? Why no consultation? Why no mention in the manifesto? The Association of British Insurers has sensibly called on the Chancellor to put the proposal into abeyance pending consultation. The association has rightly pointed out that it is a major change to taxation policy in the corporate sector. It is a significant change in taxation in our country. What is to be lost by proper consultation? The Government believe in reviews and in working parties, so why is there no working party on the proposed change? Why is there no review?
"The measure is good for pensions and pensioners, not bad for them. Furthermore, the existence of pension fund contribution holidays demonstrates that there is scope to absorb the measure."
Hon. Members may be forgiven for being a trifle nervous about the hon. Lady having such responsibility, given her failure to comprehend not how good the measure is for pensions but just how bad it is for them. I will give some examples of how bad it is.
"The measure is good for pensions and pensioners, not bad for them."
The Financial Secretary of course has a defence. She said:
"the existence of pension fund contribution holidays demonstrates that there is scope to absorb the measure."--[Official Report, 3 July 1997; Vol. 297, c. 507.]
If we look at the figures, however, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) did earlier in the debate, we see that three quarters of UK pension schemes are money purchase schemes. They have no surplus. Unfunded, final salary schemes such as the civil service and health pension schemes also have no surplus. Just like the smash and grab raid on the utilities, with the tax on water, gas and electricity, Labour now turns to rob the pensioners. The Chancellor called the Budget a people's Budget. Does he not realise that pension fund money is the people's money?
"companies which pay dividends are more likely to invest in research and development. The research and development of dividend-paying companies is also significantly higher than that of non-dividend paying companies."
The idea that UK companies sacrifice research investment in favour of excessive dividend payments should be set aside in the face of that research, unless Labour Members wish to dismiss the work of the National Association of Pension Funds.
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