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4.45 pm

I shall move from human appeals to the more rigorous analysis that we are used to when discussing fiscal matters. I ask for a little more rigour in the Government's analysis, too. When the Paymaster General replies to the debate, he should not use the three arguments that I understand he used in Committee, none of which will wash. First, he should not talk about the feasibility and desirability of relieving the poorest savers from the need to pay tax, because that would not be the effect of the new clause.

Unfortunately, such is the effect of the abolition of advance corporation tax and the dividend tax credit that everyone who holds shares in British companies, directly or indirectly, will now pay tax. The argument is about whether the poorest pensioners and savers should pay double tax. The rest of us, whether we hold shares directly or through institutions and pension funds, will now pay double tax. The companies of which we are shareholders will pay corporation tax, and we will be taxed on the distributed profits. The issue is not whether, by means of the new clause, we should relieve the poorest savers from paying tax; it is whether we should relieve them of the burden of paying double tax.

The second point that I hope the hon. Gentleman will not make is that, for technical reasons, it is impossible to accept the new clause or to devise an equivalent measure to relieve the poorest savers--who are so poor that their incomes do not reach the income tax threshold--from the need to pay double tax on dividends from their investments. That cannot be true, because the Government have already introduced such a measure giving charities precisely the relief that we want for the poorest pensioners and savers. It will not wash to argue that there is no effective means of providing such relief, because the Government have condemned themselves by protecting charities from the abolition of the dividend tax credit.

The third argument, which has already been effectively demolished by some of my hon. Friends, is that the poorest savers can switch into the Government's new individual savings account. That argument will not wash

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either. As my hon. Friends have already said, the small savers involved are most unlikely to be able to benefit from the capital gains tax provisions of ISAs, because their capital gains will probably not exceed the individual allowance in any one year.

The major benefit of ISAs is the relief from capital gains tax liability. ISAs are not a solution to the problem of paying tax on dividends, because people will have to pay a management fee, and other commissions and charges, for the privilege of having an ISA. People will have to pay a fee to the intermediary who holds the franchise and who sets up the ISA: that is what these tax-advantaged savings vehicles are all about.

For people who pay tax at the standard rate of 23 per cent. or at the higher marginal rate of 40 per cent., it may be sensible to pay the fees required to join an ISA and to shelter part of their portfolio. Let me make the arithmetic simple. Let us say that the average dividend yield of the equities in an ISA is 4 per cent., and that tax is being paid at a marginal rate of 23 per cent. Roughly one of those four percentage points will be lost in tax. Someone who joins an ISA will probably pay 1 per cent. of the value of the fund by way of a management fee. In other words, what that person is not paying to the Revenue he will be paying to the financial intermediary who set up the ISA.

Opposition Members, at least, are concerned with the interests of poor savers. I am extremely sorry that that concern is not shared by Labour Members--apart from the hon. Member for Dudley, North (Mr. Cranston), to whom I pay tribute for his individuality and courage. By definition, poor savers are not currently paying tax. For them, the choice will be between paying a tax that they do not currently pay--and, in my view, ought not to pay--and paying the same amount to an intermediary for the privilege of putting their shares into an ISA. Either way, they lose, and whether the Revenue or the manager of the ISA gains is a somewhat academic question for them. As I said earlier, an apparently small financial loss may be disproportionately grave in terms of the sum of such people's happiness.

I hope that we shall hear none of those three arguments this afternoon. I hope that we can now concentrate on whether it is fair, and economically sensible, to penalise the poorest savers--those who may begin to save modest amounts from the lowest incomes--by imposing a double taxation regime on them. That is what the new clause is about. If the Government reject it--notwithstanding all the unpleasant, cruel and callous things that they have done so far, and the many more that they will no doubt do in future--their action will be written high up on their tombstone. It will remain in the minds of the electorate--not just those on the lowest incomes who will be directly affected, but all in our country who believe that taxation should be fair and just, and that those with the lowest incomes should be expected to pay proportionately the lowest share of the country's collective tax costs.

Mr. Andrew Tyrie (Chichester): I cannot do better than say how much I agree with what I have just heard from my hon. Friend the Member for Grantham and Stamford (Mr. Davies). It was a typically eloquent and impressive exposition of the arguments, referring to all the key points, including those which I hope we shall not hear later from the Paymaster General--who, I must say, has looked rather bored during our proceedings so far. He

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has looked at his watch no fewer than three times, and has sat with his arms folded in a rather uninterested manner for most of the debate.

Let me begin by praising my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), who is a neighbour of mine down in West Sussex and who first alerted me to this issue. Had he not done so, I would not have twigged--at least, not for a long time--that this change was in the Finance Bill. It was, of course, hidden away. It is a hidden consequence of the decision to make a grab on pension funds. The Labour party, which pushed the measure through at the time of the last Budget, had not thought it through at all. Many aspects of the legislation have had to be repaired: the sticking plaster has had to come out, and the Government have had to make emergency adjustments so that it looks right.

I have wondered why that is, and I think that the resignation of Sir Terry Burns gives us at least a bit of the answer. Sir Terry Burns is one of the best and most senior advisers in the Treasury. I would not mind betting that the policy on the pensions grab was thought out when Labour was in opposition, and was foisted on the Treasury without its having the opportunity to think it through carefully. That is why all the unintended consequences are now coming out of the woodwork--consequences that need to be dealt with.

I hope that Treasury Ministers will now begin to learn that it really does help to use the official machine rather than trying to bypass it. The press reports stating that the Chancellor works without properly consulting his official advisers, using an inner coterie instead, appear to have some credibility when we consider the effects of legislation such as this.

What exactly are those unintended consequences? My hon. Friend the Member for Bognor Regis and Littlehampton spelled them out very eloquently. They are very bad news for non-taxpayers, the people whom Labour purports to want to help most. We know that Labour does not help taxpayers, but we now also know that it does not want to help non-taxpayers either.

As I understand it, non-taxpayers used to be able to claim tax credits on dividend income, but they will soon be unable to do so. There are 300,000 people over 65 in that category--some are my constituents--and they will be deeply angered by the change. One of them came to see me about it before I understood the issue. Until he sat down and described it to me, I did not have a clue what it was about: I had not grasped the significance of the change. Several more people have written to me expressing their concern.

Incidentally, when I write to the Paymaster General, I rarely receive answers to my letters inside two to three months. He is not listening now, as is so often the case when people try to make points to him. I have a whole batch of letters--

Mr. Hammond: My hon. Friend may be interested to know that some members of the Standing Committee are still waiting for letters that the Paymaster General promised to write to them during the Committee stage.

Mr. Tyrie: That does not surprise me at all. I am flabbergasted by the time it takes to get a reply from the Paymaster General on this or any other issue.

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As my hon. Friend the Member for Bognor Regis and Littlehampton pointed out, the average amount involved may seem small--£75, although it may be appreciably more in some instances--but it is a significant sum for non-taxpayers, to whom such small amounts matter a great deal. That is why Age Concern, among other organisations, has decided to make such an issue of the change. We have heard at least one quotation from an Age Concern document this afternoon. Age Concern is right to be worried, because the poor will be hit hardest. As I understand it, taxpayers will continue to obtain the benefit of the tax credit, but non-taxpayers will not. That will be the fundamental anomaly and injustice in the legislation, unless the Government make a last-minute decision to find a way out of this hole.

At present, the vast majority of those who will be affected--two thirds of a million altogether, including 300,000 pensioners--do not know about the measure. They have no reason to know, and no way of finding out whether the change will happen. They do not follow the Finance Bill. I am sure that those who drafted the Bill did not know about it at the time. How, then, can those people be expected to know? The time will come, however, when they will know, and they will resent it very much.

I said that the change was unintended. That may be a charitable view, but it is probably accurate. I gave an explanation of why it was unintended: Treasury Ministers do not listen to their own officials, although I think they are beginning to listen to them a little more than they did when they first arrived. Some of their best officials pushed off immediately; others waited a year out of politeness.

This afternoon, we shall find out whether this is an unintended measure that the Government want to put right, or a measure for which they should henceforth be squarely blamed. If they refuse to accept the new clause, we will know that this is something that they intend and want to do. They will have had ample time to reverse it and to think through what to do. They will be judged on the decision that they take.

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