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Mr. Geoffrey Clifton-Brown (Cotswold): Does my right hon. Friend not find it extraordinary that, in a parliamentary written answer to me on 21 July, the Department of the Environment announced that the next actuarial revaluation for local authority pension schemes would not be until March 1998? Here we have the Government implementing a Budget measure with no idea whatever of the implications for public expenditure on local authorities. Does not my right hon. Friend find that extraordinary?
Mr. Lilley: I entirely agree with my hon. Friend. I seem to remember that the answer says something such as, "Not until then will the truth be known." Those words make it clear that, up to now, the truth has not been told by Government Front Benchers, and the facts have not been given, even to local authorities, about the impact of the cost of the measure on the pension funds and council tax.
The other night, I was being driven by a taxi driver. I did not ask whether he came from Uxbridge, but he may well have done. He said to me, "You are something to do with politics, aren't you?" I said, being very well known, "That sort of thing." He said that he had just been trying to persuade his father to tear up his Labour party membership card. When I asked why, he said that it was because of what the Budget had done to pensions. I thought that he put the point very pithily when he asked, "What is the point of us putting money into our pension funds if the Government are promptly taking it out?"
That is precisely what is happening. The amount of money that they are taking out is not so very different from the amount in rebates that the Government were previously putting in. It is a fair indication of how the Government see pension funds just as a source of revenue rather than as prudent provision by the self-employed and those in mobile employment for their future.
About 7,000 people in Uxbridge will be thinking, "Do I need to put in a full 25 per cent. extra, as will be required just to raise the dividend revenues if everything is in equities, or is the 12 per cent. calculated by the Association of Consulting Actuaries more like what will be required if I have a mix of different investments?"
Probably about 16,000 people in Uxbridge have occupational pensions. Their position will depend in part on whether their employers are prepared to put extra money into the schemes--in which case that money will not be available for investment, to pay wages or to enhance the firm's position--whether they will have to pay in the money, or whether their future pension rights will be downgraded as a result of the measure. They will have to decide whether their schemes will opt back into the state scheme. The scheme could decide that it is no longer worth being an opted-out scheme, and that it should opt back into SERPS.
We must consider what impact there will be on the council tax payer in Uxbridge. We understand that, just to pay the extra contributions required by the borough employees' pension fund if it is to offset the effect of the ACT changes, everyone in a band D house in Uxbridge will pay an extra £2 a month.
There are big impacts on ordinary people in ordinary places--and in important places such as Uxbridge. It is important that that information should be made available. We have tabled new clauses and amendments to try to ensure that more information is made available. If those do not succeed, we want the amendments that will protect pension funds for the next few years to receive the House's support.
The tax rise concerning pensions is the biggest unexpected tax rise that the Government have inflicted on us. They have done so in direct rejection of assurances given in opposition by hon. Members who now sit on the Treasury Bench. A Government who can do that, and enable it to be done by ramming the Bill through a truncated Committee, are a Government who are ashamed
of their own actions--and they are right to be ashamed. We believe that they can partly ameliorate that by accepting our amendments.
Mr. Ross Cranston (Dudley, North):
I want to deal with the effect of the changes on investment, which was not covered at length in the Standing Committee, and which the House should deal with.
First, however, I congratulate the right hon. Member for Hitchin and Harpenden (Mr. Lilley) on his attitude to the mis-selling of private pensions. That mis-selling has been a tremendous scandal, and it is gratifying to hear the right hon. Gentleman admit it. I understood him to be congratulating my hon. Friend the Economic Secretary to the Treasury on the work that she is doing to try to remedy the situation.
We have heard little about pensioners in general, either in Standing Committee or on Second Reading. For example, we did not hear that the number of active members of occupational pensions schemes has fallen radically since 1979, so that 12 million people in work do not now have access to a company pension. We did not hear about the fact that private pensions can represent very poor value for those on low or modest incomes.
We heard a great deal, however, about the catastrophic effect that the changes would have on pensions, especially private pensions. In response, I quote to the House the words of Anne Young of Scottish Widows. She thought that one could not put a figure on the impact, and I agree with her:
Incidentally, the Chancellor has left the tax relief on private pensions entirely untouched. Eagle Star and other advisers on pensions have said that they doubt whether there will be any change in the extent to which people take out private pensions.
I intended to deal with the effect on investment. I mentioned the subject on Second Reading, so I will not go over the same ground again. However, I must make the point that, when the imputation system was introduced in 1973, most shareholders were basic-rate taxpayers. They did not receive tax credits, but they did not pay tax on the dividends that they received. That system was supposed to be neutral as between companies paying out in terms of distributions and companies retaining earnings to invest. However, a quarter of a century later, we are in a different world, in which most shares are held by institutions--pension funds, mainly.
The effect of the tax system on distributions, as opposed to retention, has ramifications for that change in the nature of shareholding. In theory, shareholders should be indifferent between dividends and capital gains. If dividends are not paid, the retention within the company should build up the company's strength, and the value of the shares will therefore be enhanced.
Of course, that is not now the case. Shareholders have different concerns. Some shareholders--those in venture capital enterprises, for example--want capital growth and
are not so interested in dividends. Conversely, some shareholders want dividends, for a variety of reasons. They may be unsure about what managers will do with the retained earnings, and therefore want to get dividends out quickly.
Another factor in the choice between paying dividends and the retention of earnings is the tax system. It can be argued that higher-rate taxpayers favour retention because they have to pay tax, despite the tax credit. Conversely, it can be argued that pension funds favour distribution because of the tax credit on dividends they receive. That puts pressure on companies to pay out money in dividends rather than taking the long-term view.
"There are three main imponderables. The first is the attitude of companies who currently pay large dividends. The second is the effect the Chancellor's move will have on the valuation of shares, and the third is the attitude of pension fund managers".
When I consulted my borough treasurer about the impact on the Dudley pension scheme, he could not give me a direct answer. He said, rightly, that a range of imponderables had to be taken into account before the impact of the changes could be estimated.
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