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8.31 pm
Mr. Eddie O'Hara (Knowsley, South): As Labour co-chairman of the all-party group on aging and older people, and a co-signatory of the early-day motion that has been referred to, I feel that I must contribute to this debate. That early-day motion was tabled before we had the promised clarification by the Paymaster General. It asked for that clarification and, naturally, requested an outcome in accordance with the reasons for seeking a review in the first place.
The Opposition motion is, rather lazily, based on that early-day motion, the signatories to which may not be happy to be associated with an attack on the Government for their decision, after the event. But I make no complaint about that: it is all part of the robust style of debate in the House, in which all parties indulge on different occasions.
I shall not indulge in point scoring or political embarrassment, but I once again make a reasoned appeal to the Government on this matter. I wrote to my hon. Friend the Paymaster General after the clarification was announced in December. Will the Government, even at this late stage, consider the point that, as the tax credit will remain payable in respect of dividends paid on investment in ISAs and PEPs until 2004, and for up to seven years for charities, it does not seem logical that it cannot be paid to UK resident non-taxpayers during that same period?
It is only non-taxpayers who lose income because of the decision. In July 1997, the Inland Revenue even went to the extent of ensuring that higher-rate taxpayers did not suffer as a result of the reduction of the tax credit to 10 per cent. Non-taxpayers--those on the lowest incomes, as has fairly been pointed out--will lose income from April 1999. That does not make logical sense to me.
Two thirds of pensioners pay no tax, so tax-free savings are an inappropriate and unnecessary compensatory mechanism for them. The cost implications of transferring investment to ISAs are liable to outweigh any benefit from retaining the 10 per cent. tax credit, because the start-up costs are so great and there are limits on how much can be transferred into an ISA in any one year.
I hear the arguments about the macro-economic benefits to the Treasury accruing from the adjustments to advance corporation tax, and the arguments that have been rehearsed many times by my hon. Friend the Paymaster General about the alternative shelters for investments, but I ask the Treasury to consider the puny £25 million that it would cost to restore the tax credit facility for non-taxpayers, as against the £5.4 billion accruing to the Treasury from the overall adjustments to tax credits.
I ask the Treasury, even at this late stage, to consider the fact that some old people manage their own investments. I hear what my hon. Friend the Member for Croydon, Central (Mr. Davies) said about people being senile, deaf and blind, but there are old people in the real world who manage their own investments and may not be able or disposed to reorder their investments into ISAs as has been suggested, which may in any case not even be cost-effective.
I urge the Government to consider whether UK resident non-taxpayers should be able to continue to claim the reduced tax credit of 10 per cent. on their investment income after 6 April 1999. As a minimum, they should be allowed to claim the tax credit until 2004, when it will be phased out for PEPs and ISAs, or until 2006, when it will be phased out for charities.
Mr. Michael Jack (Fylde):
I congratulate the hon. Member for Knowsley, South (Mr. O'Hara) on a brave and principled speech. He has thought through his arguments carefully and put them before the House with clarity. He made a telling point at the end of his speech, reminding us that this is certainly not the last drop saloon for this issue. If the Government are unmoved to change their mind, even at this late stage, as he said, there will still be an opportunity for the matter to be revisited on each and every Finance Bill of this Parliament, as we attempt to change the Treasury's view.
I was planning to make a very short speech, but I have to respond to one or two of the Paymaster General's comments. It was sad that she was not prepared to face the music of financial analysis; otherwise, I would have reminded her that, when I held the post that she helduntil recently--Financial Secretary--I considered the differences between classical corporation tax systems and those such as ours, based on the imputation system.
Many of the arguments now made in strict economic terms to justify the change simply did not stand up, according to the arguments of the Treasury officials: the same officials who now advise the Government. They pointed out to me that the biggest single economy in the world that works on a classical corporation tax system--that of the United States--has a higher level of distributed profits than the United Kingdom economy.
It is a bizarre idea that, by recreating a classical system in this country, there will be a magical improvement in economic activity. That is for the birds. The former Secretary of State for Trade and Industry, the right hon. Member for Hartlepool (Mr. Mandelson), made many trips to the United States to learn how it was that that economy was so vibrant and healthy in terms of growth and job creation--in short, how it managed to do exactly what Treasury Ministers claim will be achieved by the Government's policies to change the tax system. In economic terms, the Government's arguments do not add up.
The second charge made by the former Financial Secretary was that the previous Conservative Government did nothing to support savers. I remind Ministers that one of our best achievements was to change the tax system so that many pensioners became non-taxpayers--one reason for our being here tonight. We also worked hard on TESSAs and PEPs, and we did much to help saving and the ethic of saving in this country.
However, I shall focus on some of the wider consequences of the change. We have talked about its impact on pensioners, and the Government have argued that people can make compensatory adjustments to their financial position and income flow. I have studied a group of institutions that find it incredibly difficult to make such adjustments, but whose investments service the needs of their pensioners.
I started with the Church of England, and the Economic Secretary might be interested to know that, in answer to a question from me, the hon. Member for Middlesbrough (Mr. Bell), in his role as Second Church Estates Commissioner, representing the Church Commissioners, said:
A closer examination of the effect on Church pension funds of the change reveals that, again according to the hon. Member for Middlesbrough, it
I also checked the effect of the policy on other Churches. For the Roman Catholics, Monsignor John Moore said a submission to the Treasury had been made to point out the folly of its ways--perhaps the Catholics hoped that a sinner would repent, even at such a late hour. However, Monsignor Moore said the measure would cause a "considerable loss" for his Church's pension funds.
It is clear that the entire Christian community will stack up against the policy, but the effect is not limited to the Christian Churches. Those who are of the Jewish persuasion are already employing actuarial experts to work out the impact for them. Fundraising in these areas is most difficult, yet the Government have decided to hit them hard.
"At their 1997 dividend levels, the Commissioners estimate that the removal of payable tax credits will ultimately reduce their income and their total investment returns by £12 million annually."
Each and every year, therefore, the Church of England will have to find another £12 million. Grossing up that figure to include other Churches, I estimate that this country's Churches, all of which have a responsibility for former clergy, will be about £40 million down as a result of this mean-minded measure.
"will also reduce returns on the newly established contributory pensions scheme, which meets pension liabilities for service from 1998 onwards, which is administered by the Church of England Pensions Board."--[Official Report, 7 December 1998; Vol. 322, c. 53.]
Will the Economic Secretary say how the Church of England is supposed to extract from the already limited money in its Sunday morning collection plates an extra £12 million every year? It cannot adapt to those conditions easily, but perhaps the Minister believes that the widow's mite will make up for the Treasury's meanness.
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