| Previous Section | Index | Home Page |
Mr. Clifton-Brown: I am grateful to my hon. Friend for making that important point. It is all very well to stick to an expenditure programme in nominal terms, but in real terms--after inflation has been taken into account--the situation is in fact far worse. I suspect that that is why the format of the Red Book was changed this year so that it does not include departmental spending totals, as that makes it easier to work out what the shortfall is next year and, indeed, the year after. The effect will be the same in other Departments that have to make up shortfalls in pension contributions to pension schemes within their remit. Those Departments include, for example, the Department of Health.
While I am on the subject, it is worth pointing out that there is a local authority pension time bomb. There are many completely unfunded local government pension schemes. For example, firemen have no funded scheme at all--not that the change which we are discussing will affect them--but in view of the demographic changes and the fact that people are living longer, each departmental budget is being increasingly stretched to make up anever greater shortfall in pension funds each year. The Government will have to take that into account.
We shall have to wait and see, but this measure may well depress by up to 20 per cent. the value of the equities held by pension funds. I hope that that does not happen, because it would be very serious for many pension funds. Should it happen, it has been calculated that the capital value of pension funds would fall by about 11 per cent. which, I believe, pension fund trustees would be required to make up in the first year. Some employer and employee contributions will therefore have to increase steeply this coming year.
My hon. Friend the Member for Grantham and Stamford (Mr. Davies) mentioned the effect on different types of pension scheme. The objective of a defined pension scheme is to ensure that the pensioner receives a defined benefit when he retires. If he suddenly finds that the performance of his fund is 20 per cent. less than expected, he has two options: he can either accept a 20 per cent. diminution in the value of his fund at the time of retirement or, over a period, make up the shortfall in his contributions.
Of course, the effects depend on the balance of the individual fund. I must make it clear that what happens depends on how the individual fund is structured--the proportion of its investments in equities and the proportion in other fixed or variable interest-bearing stocks. I suspect that one of the effects of the proposal will be to force pension fund trustees to consider other interest-bearing fund stocks--for example, gilt-edged stocks--and increase the proportion of such stocks in their funds. Over time, I suspect that that will mean that the performance of such funds will not be as good as it would have been had they continued to invest the norm of 55 per cent. of their funds in equities.
Whether institutional investors require companies to pay out their increased dividends to make up the 20 per cent. shortfall or retain the money in their company retained profits, the effect will be distorting. A simple switch out of the equity market of a proportion ofthe pension funds sounds fairly innocuous, but the Government should bear in mind the combined value of the pension funds--a switch of that nature over a relatively short period could cause a dramatic downturn on the equity market.
I deal finally with a matter that has not yet been mentioned--the combined effect of the ACT credit withdrawals and the changes to foreign income dividends proposed for 1999. In 1993, Norman Lamont, the then Chancellor of the Exchequer, introduced the foreign dividend scheme to enable companies with large earnings on their foreign trading activities to mop up the surplus ACT on those dividends. To the extent that they were able to pay out foreign income dividends, they could mop up the surplus, but, should they not be able to pay out FIDs in future as a result of a measure that we shall debate later this evening, companies would find that they could not reclaim the surplus ACT that they had paid to the Treasury. That is monstrous.
As I explained at the outset, ACT is paid because the individual taxpayer is getting tax credit on his income. To the extent that the Exchequer is gaining from surplus ACT--more ACT than the income tax credit paid--it is monstrous that companies are not able to reclaim the surplus. I hope that, when we debate foreign income dividends, that point will be highlighted.
I believe that the Government are seriously rethinking how they will operate the foreign income dividend scheme. I hope that, when further amendments are tabled, perhaps in the other place, the Government will consider the serious effect on some companies that we wish to encourage to make a profit and to repatriate that profit. It would be bizarre if companies were discouraged from repatriating their profits or, indeed, even encouraged to demerge their foreign subsidiaries or if the foreign subsidiaries were taken over by a foreign concern which could then remit the money into this country but not suffer
tax damage as a consequence. That would indeed be a bizarre and perverse consequence of the proposed changes.
The ACT proposal is the most far-reaching measure in the Budget. To take some £5.5 billion from the pensions and hard-earned savings of the poorest people in this country is a cruel deception. Most people are not able to understand this highly complex tax, but they will understand when they suddenly find their standard of living and their income reduced. I hope that, when they realise that, they will protest loudly against the changes that the Government have introduced. I have no doubt that that will hasten the demise of the Government and the return of a Conservative Government at the next election.
Mrs. Liddell:
I must confess that, during the two hours or so that we have spent discussing the amendments, an irritating refrain has been going through my head. It is an old song and I hope that the Library will be able to remind me of its words. It goes something like, "I think I may have heard this song before."
In the past couple of hours, we have heard the same speeches to which we listened in Committee, not once, not twice, but on a number of occasions. However, we missed the presence of the hon. Member for Daventry (Mr. Boswell). We send our good wishes to his mother, about whom we heard a great deal in Committee. The hon. Member for East Worthing and Shoreham (Mr. Loughton) told us at great length about the pleasures of English wine. His constituents may find that extremely interesting, but mine are more concerned about a secure future for the economy.
I found it interesting that the shadow Chancellor opened the debate today. He made much of the fact that, by convention, the Chancellor and the shadow Chancellor do not sit on Committees considering the Finance Bill. He is correct in that. I wonder how much of a precedent it is to field the shadow Chancellor against a junior Treasury Minister. That shows that the right hon. Gentleman has a lack of confidence in his own troops. He still has not answered the point that was made repeatedly in Committee: why, if ACT is so important, did the previous Conservative Government change it?
Mr. Clifton-Brown:
The hon. Lady makes a political point as to why my right hon. Friend did not address the Committee. He gave her a perfectly cogent answer. However, he has appeared here today: are we entitled to ask when the Chancellor of the Exchequer might take part in our proceedings?
Mrs. Liddell:
My right hon. Friend the Chancellor of the Exchequer is currently engaged in other Government business. I take it as a great compliment to his team that he did not consider it necessary to address the House today. The fact that we have such a substantial majority means that we have sufficient Members to staff Committees.
Mr. Quentin Davies:
Will the Minister give way?
Mrs. Liddell:
No. I shall make some progress; no doubt I shall give way to the hon. Gentleman later.
This evening, we have discussed what are, in effect, wrecking amendments. Their effect would be to allow pension funds to continue to receive tax credits until April 1999. After that, payments would be phased out over five years.
I am pleased that, at long last, the Opposition have apparently accepted the principle that the damaging distortion of payroll tax credits should be removed, albeit over a more extended period. That hardly seems logical, but we do not expect logic from the Opposition. That is about all that I can say about the amendments, as they are technically deficient in a number of ways. They would only save the payment of tax credits for companies, when most pension funds do not work in that way. They also purport to allow pension funds to continue to receive payment of tax credits after 1999 at a rate of 21 per cent., when by then the rate of tax credit will have been reduced by 10 per cent.
| Next Section
| Index | Home Page |