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Mr. Shaun Woodward (Witney): Will the hon. Gentleman be kind enough to comment on a survey carried out by Merrill Lynch between 7 July and 9 July this year, after the Budget? The company questioned 56 UK institutions managing £775 billion and discovered that, in the wake of the Budget, sellers outnumbered buyers of UK equities by 18 points, the highest figure in a year. Can the hon. Gentleman explain why, if the scheme is so spectacularly successful, this rush selling has taken place?
Mr. Cranston: The hon. Gentleman anticipates me. In Standing Committee, the hon. Gentleman did not answer one question put to him by my hon. Friends. Yesterday, the hon. Gentleman could not answer one question.
On Second Reading, I said that there were distortions as a result of the system that the Finance Bill will change. There are distortions in terms of the investment decisions made by pension funds. I pointed out that the existing regime favoured pension funds purchasing UK equities rather than foreign equities. I also said that there is an argument that there is a distortion in terms of buying debt instruments. I acknowledge that one might say that it would be better if pension funds continued to buy UK equities. The point is, however, that there is a distortion, and, as a result of the change, that distortion will be removed.
Mr. Nick Gibb (Bognor Regis and Littlehampton):
Will not the result of the measure be that pension funds will switch to overseas equities? Will that benefit the UK economy?
Mr. Cranston:
I made the point just now that pension fund managers might decide to buy foreign equities.
Mr. Cranston:
I am not commenting one way or the other. [Laughter.] Hon. Members may laugh. I thought that they believed in free market economics. The existing system has a distortion in it.
As I said at the outset, the other effect of the change is that earnings will be retained to a greater extent. In that sense, managers of UK companies can take a long-term view which will benefit the economy.
Mr. John Swinney (North Tayside):
It may be a naive opinion for a new Member to express, but I hope that during the debate some minds may be changed and some opinions altered. I listened to the right hon. Member for Hitchin and Harpenden (Mr. Lilley) complaining about the lack of debating time. I suspect that, the more debating time we had, the more intransigent Members would become in their positions.
The amendment covers some serious issues. I did not serve on the Finance Bill Committee, but I have tried to intervene on this point before, and I am grateful for the opportunity to do so today. I have an interest in this debate, as, before my election, I was employed by Scottish Amicable, which is one of the principal financial institutions in Scotland and was recently taken over by the Prudential. My only continuing interest in that company is the welfare of the colleagues I left behind, as they face the challenges that that takeover will bring.
I also have an interest in that both the local authorities in my constituency area will be affected by the implications of additional contributions to pension funds that may be required as a result of these changes. As some hon. Members have said, that is unquantifiable at this stage, which is why I think that the Government have moved with such haste in introducing these changes and the proposals in the Finance Bill.
When I went to work at Scottish Amicable, I had experience in business development, but I had no experience of the life insurance and pension fund sector. I was struck by the fact that such companies never make decisions on the quality and strength of funds on a short-term basis: it is always on a long-term basis. Any factor that is away from the predictions--out of the ordinary or different--causes disruption to the long-term development of funds. It has an impact on actuarial calculations and on the position taken by officers on reserves for long-term distribution. Those are not day-to-day factors, but factors on which long-term
judgments must be made. The scale of the change that the Government have undertaken disrupts the process of long-term financial management in the interests of those funds.
I was also struck by the importance that those companies give to the gearing of finance. The ability to transform small amounts of money into much more substantial sums is the art of actuarial science, and the art of investment management. Unless companies are given appropriate opportunities to pursue that essential part of their work without massively changing circumstances--which the proposals on tax credits constitute--many will face difficulties.
It would be easy for us to get caught up in an exchange of City anecdotes, but there are some simple truths about the proposed changes. Some people's--not everyone's--pension contributions will have to go up, and it is a myth to suggest that the tax will be easy or painless to raise.
The changes come on the back of the pensions mis-selling scandal. The right hon. Member for Hitchin and Harpenden was right to compliment the Economic Secretary on the energy that has been applied to the problem since the change of Government. I say that partly to encourage her to deal with my constituents' cases that I have forwarded to her.
It is welcome that the Government are taking such a strong line, and pursuing the industry to guarantee that the wrongs are righted, but it is unfortunate that they have created an element of uncertainty about pensions as a result of the frenetic debate on the Finance Bill--some of which, I concede, has been fuelled by the Conservatives. Anything that creates uncertainty is unwelcome in the pensions industry and the community at large.
One of my constituents, a trustee of a pension fund of which the principal contributor went out of business, wrote to ask who will pay if additional contributions are required. Some pension funds will be in extremely difficult situations.
Last week, Standard Life, the largest mutual insurer in the United Kingdom, suspended offering transfer values for occupational pension schemes until it could calculate the full impact of the measures, and various other life insurance and pension companies have said similar things. In pensions, there can be no quick initiatives of which the outcome can confidently be predicted, as the Government seem to think; all changes cause some uncertainty and unease in the industry.
Let us consider the message that our debate will convey to the country. The debate has been rather impoverished of substance, and fuelled by a great deal of party political rhetoric that will not allay public unease. Anything that undermines the confidence that people are beginning to have to make appropriate contributions to their pension funds, whether primary or secondary, is damaging.
Pension contributions and funds in this country are more substantial per capita than elsewhere, but they are not perfect. Under the current regime, some people will still have to live on extremely low incomes in their retirement; anything that detracts from people's confidence to contribute to pension schemes is bad news indeed.
The last thing that the sector requires is more uncertainty. The previous Government presided over many notes of uncertainty, but for the new Government to compound those mistakes in the very first weeks of their term of office would be extremely regrettable.
Mr. Quentin Davies (Grantham and Stamford):
Let me begin by taking issue with the hon. Member for Dudley, North (Mr. Cranston), whose interesting speech displayed the real confusion and misunderstanding on the Labour Benches.
The hon. Gentleman said that the present advance corporation tax regime--the arrangement that exists now, before the Bill is enacted, which I hope it will not be--represented a distortion in the market. The opposite is the case. The aim of the imputation tax--I genuinely fear that many Labour Members, including Ministers, do not understand this properly--was to prevent a very serious distortion that would have been inequitable, and would also have had serious and damaging economic consequences. I refer to double taxation. The whole purpose of ACT is to avoid that, but the removal of the dividend tax credit reintroduces the notion.
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