| Previous Section | Index | Home Page |
8.45 pm
Mr. Ian Pearson (Dudley, South): I begin by welcoming my hon. Friend the Paymaster General to her post. Although she is not at present in the Chamber, I know that in the past she has shouldered much of the burden of Finance Bills: her hard work means that she deserves her promotion.
The Government are right to abolish advance corporation tax and foreign income dividends, and to phase out dividend tax credits. I must resist the temptation to engage in economic debate with the right hon. Member for Fylde (Mr. Jack), but I am persuaded that a modern corporation tax system with in-year payments will remove previous distortions in the market. In the long run, it will lead to greater investment in British business.
The Conservative Government broke the link between pensions and earnings. They were also responsible for pensions mis-selling and for taking away free eye tests. Until the Labour Opposition stopped them, they would have doubled VAT on fuel as well. It is a bit rich, therefore, for Conservative Members to argue that they are standing up for the rights of pensioners. Already, after only 20 months in office, it is clear that this Labour Government care for pensioners and want to do something practical to help the poorest pensioners in our society. The minimum income guarantee for pensioners, lower fuel bills, the state second pension and stakeholder pensions--all those initiatives show that Labour are delivering on election promises.
The facts in the debate are a little out of date but not seriously in dispute. About 300,000 non-taxpaying pensioners receive a dividend credit of about
£75 on average. That average implies a saving fund of about £12,500. Pensioners probably will have got their money through a building society demutualisation, or through investments in one or two privatisations whose shares they have kept as savings in their own accounts. About 160,000 non-taxpaying pensioners have a dividend tax credit of £50 or less.
Does it matter? I suggest that the average of £75 per year that the non-taxpaying pensioners will lose is significant.
Mr. Robert Syms (Poole):
Will the hon. Gentleman give way?
Mr. Pearson:
In a minute. The minimum income guarantee is of £75 a week for a single pensioner, so we are talking about a loss equivalent to one week's earnings for a poor pensioner. That is an important amount for people on low incomes and we need to think carefully about what to do about it.
Mr. Syms:
No doubt the hon. Gentleman has received letters from pensioners complaining about the change. In his replies to them, has he called the change insignificant?
Mr. Pearson:
The hon. Gentleman must have misheard me. I said that the change is significant and that the Government must consider what to do about it. I listened to my hon. Friend the Paymaster General with great interest when she talked about alternative saving vehicles. The ones that exist are relatively straightforward. At present, they are either PEPs or TESSAs, which in the future will become ISAs. It is clear that, in relation to a fund size of £12,500, the average costs of management charges at 0.5 per cent. will more than swallow the benefits to be gained by sheltering half the dividend tax credit in one of the new ISAs.
The Government appear to be saying that small shareholdings of £12,500 are not appropriate for people on low incomes and that they would be better placed as individuals getting tax relief by putting their money in a building society or some other savings vehicle, because they can at least claim the tax benefit from doing so, whereas if they invest in the equity market, they cannot. I am not sure that that is a message that we should be sending to poor non-taxpaying pensioners, but it appears to be the logical conclusion to draw from the Government's actions.
Mr. Howard Flight (Arundel and South Downs):
Albeit in her absence, I congratulate the Paymaster General on her promotion. I sympathise with her attempts to defend that which most hon. Members believe to be quite indefensible. I shall refer to the arguments she used, but it must be said that there can be no justification for worsening the position of those who, by definition, are badly off, for they do not pay tax. By removing what
I cannot understand the justification for the abolition of advance corporation tax--the whole argument is totally bogus. Everyone knows that the change was made to increase tax revenue by £5 billion per annum, at the expense of pension funds. Every economist knows that it is nonsense to argue that investment increases if the money is left with companies rather than distributed, and if the market is left to decide how it is to be reinvested. The result of the changes is that the savings rate has fallen from 10.4 per cent. to 7.2 per cent. As everyone knows, in the long term, investment is a function of savings; therefore, as the savings rate in this country falls, so does investment. Smokescreens and distortions have been thrown around what is essentially a tax-gathering change; and in an obscure little area, in a mean and doctrinaire measure, a tax credit benefiting a particular category of not-well-off pensioner that cost only £25 million per annum has been abolished.
The reason why the Government have refused to give way is not administrative--as we know, form R85 could deal perfectly easily with the situation. They refuse because the sort of elderly person who has a few shares does not appeal to the Government--they do not see such pensioners as their supporters and cannot derive from doing something for such pensioners the sort of propaganda hype that can be spun from winter fuel payments and alleged income guarantees. The pensioners who are affected by the Government's changes are independent people, self-respecting, often elderly widows--not the sort of people who fit into the Government's preferred role model. The Government believe that they are not worth bothering about, even though the cost of helping them would be minuscule.
Ms Ruth Kelly (Bolton, West):
I have recently had occasion to reflect on the subject of the debate and find it astonishing that the Opposition should have chosen the Government's actions in respect of pensioners as their line of attack. As my hon. Friend the Paymaster General said, the Opposition do not have an honourable record on the subject. To call themselves the friends of the pensioner, when the Conservative Government were involved in the huge pensions mis-selling scandal in which 600,000 people at or near retirement were mis-sold pensions, is a bit rich. However, I shall do them the courtesy of concentrating my arguments tonight specifically on the
Let me start with the tragedy of the persistent under-investment that has afflicted the British economy. Too often, British companies have invested too little, too late in the economic cycle. One does not have to look far to see some of the reasons: the pattern of booms and busts, intensified during 18 years of Tory rule; economic uncertainty; and inflation gripping the system. Another less-noticed reason--albeit not an obscure little area, as the hon. Member for Arundel and South Downs (Mr. Flight) put it--was the desperately outdated tax system. That system meant that pension funds--the most important investor group--stood to gain more if the company paid out a dividend than if it retained or invested its profits; and, as dividends were tax exempt, the funds could claim back the tax, all of which caused a major economic distortion.
As the professor of finance, Janette Rutterford, wrote in The Guardian in June 1997, shortly before the Budget changes:
"No wonder that UK companies top the global dividend yield tables. The corporate tax system positively encourages pay-outs. The solution is to remove the refund for tax-exempt shareholders."
I agree. What the Labour Government have to do is create a climate in which the level of investment is raised. It should be up to companies to take appropriate decisions, based on economic merits, on whether to pay out dividends to their shareholders or to benefit from growth in capital values as they reinvest in the business.
| Next Section
| Index | Home Page |