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Ms Kelly: If the Opposition believe that this measure is deeply flawed, would they reimpose the tax credit?
Mr. Gibb: The debate is about Government activity. We want this tax credit to be extended to 2004 as a minimum. Ideally, we would like the full credit to remain at 20 per cent. and not to be abolished for non-taxpaying pensioners. It is wrong to end the repayment of dividend tax credits to 300,000 non-taxpaying pensioners. It is wrong to confiscate an average of £75 a year from people who can least afford to lose that amount. It is wrong of the Treasury to argue, as the Paymaster General did in her press release, that these people have
- "time to consider their investments before the new rules take effect, for example, moving to tax-favoured investments should they wish to do so."
Mr. Gibb: No, I shall not give way, because I want to make progress.
This measure is wrong because the 300,000 people concerned are not highly sophisticated investors who consider their investments. They are elderly people on very low incomes with a few privatisation or windfall shares. They have come to rely on the tax credit refund that they claim every year. It is wrong of the Government to tell them to sell their shares and to buy gilts, or to transfer their shares to an ISA, the charges relating to which will be more than the tax credit they are losing. This measure affects people of an age and at a time when they will never be able to earn or to save enough money to make up the loss.
The hon. Member for Kingston and Surbiton (Mr. Davey) said that the minimum income guarantee alluded to by the Paymaster General does not protect the incomes of people who have savings in excess of £8,000 and so will not qualify for income support.
The hon. Member for Knowsley, South (Mr. O'Hara), who chairs the all-party group for older people, made a reasoned and well-argued appeal to the Government, pointing out that, in July 1997, special efforts were made to ensure that basic and higher-rate taxpayers would not lose out from the changes to tax credits. He also pointed out that two thirds of pensioners did not pay tax at all, and that tax-free savings vehicles were therefore inappropriate for most pensioners. He also made the point that the cost of ISAs would probably outweigh any benefit to be gained from putting shares into such vehicles.
My right hon. Friend the Member for Fylde (Mr. Jack) made the excellent point that the idea that returning the United Kingdom corporation tax system to the classical system that exists in the United States would reduce
the level of dividend payments was nonsense, given that the United States has a much higher dividend-payment ratio than the United Kingdom. He also drew attention to the effect that this mean-minded measure would have on the Church's income, resulting in some £12 million less for the Church of England and £400 million less for the charity sector as a whole.
The hon. Member for Dudley, South (Mr. Pearson), formerly parliamentary private secretary to the former Paymaster General, expressed the same sympathy for the cause as his former boss. He believes that the measure may well appear mean-minded and unfair to those affected by it.
My hon. Friend the Member for Arundel and South Downs (Mr. Flight) pointed out the nonsense of the Government's description of the abolition of dividend tax credits as some kind of beneficial corporation tax reform, saying that in reality--as everyone knows--it was simply a major tax revenue-raising measure. The hon. Member for Bolton, West (Ms Kelly) made a valiant attempt to defend the indefensible, but I am afraid that, despite her technical expertise, she is wrong. She claimed that non-taxpayers should never have been allowed to reclaim the tax credit--that was somehow an anomaly. That is nonsense. Unless non-taxpayers can reclaim the credit that is available to taxpayers, they will effectively lose the benefits of their personal tax allowance, an allowance granted to the whole population by Parliament.
My hon. Friend the Member for Poole (Mr. Syms) mentioned the surprise felt by many of our constituents that the Government have not sorted out the problem. They made a big error in not doing so: they have shown that they are not listening to the real anxieties felt by thousands of pensioners.
The hon. Member for Harrow, East (Mr. McNulty)--in a complacent speech, in which he tried to defend the Government--revealed only that he does not understand the issue, or, more worrying, does not care about it. My hon. Friend the Member for Banbury (Mr. Baldry) pointed out that Labour Members who tried to defend the Government had not dealt with any of the substantive points in the motion. My hon. Friend the Member for Tewkesbury (Mr. Robertson) observed that, in urging pensioners to move their investments, the Government might well, in effect, be urging people to take their investments away from industry. My hon. Friend the Member for Maidenhead (Mrs. May) pointed out that, as most non-taxpaying pensioners were not even aware of the issue, the Government's problems were yet to arise.
The Paymaster General made an astonishing defence. She listed a set of economic objectives that she believed would be achieved by taking £25 million away from the poorest pensioners in the country. I cannot believe that she really thinks that. She talked about the poorest pensioners' having an alternative if they transferred their shares to an ISA. Has she seen the briefing by Age Concern to which the hon. Member for Kingston and Surbiton referred? She seems to be saying, from a sedentary position, that she has, but has she read it? It clearly states that the average amount currently reclaimed by non-taxpayers is worth £75. That means that the non-taxpayer involved will have an income from shares of £375. If we use the Treasury's own assumption of a 3 per cent. return on income, that means that the capital will be £12,500, leading to a charge in an ISA that is likely to be about 0.5 per cent., or £62.50 a year.
When that credit falls from 20 per cent. to 10 per cent., as it will in April, the income will be £37.50, which will be more than eaten up by £62.50 worth of charges. On top of that, there is likely to be a 1 per cent. start-up cost in the ISA of £125.
The measure that we seek to have reversed arose from the Government's decision in July 1997 to end repayment of dividend tax credits to pension funds. Either inadvertently or deliberately, the measure was extended to include non-taxpaying individuals from April this year.
During the passage of last year's Finance Bill, we tried to persuade the Government to reverse the measure as it affected individuals. Although we failed in our attempt, we received a sympathetic hearing from the then Paymaster General, who said that he would look again at the issue. Sympathetic noises continued to emanate from the Treasury until 10 December. On that day, the then Financial Secretary sneaked out a written answer that stated that the Government confirmed the decision that was taken in July 1997 to end the repayment of dividend tax credits to non-tax paying individuals.
That decision has disappointed many hon. Members and many thousands of pensioners, including my constituent, Mr. Caffyn. On reading the Government's decision on 10 December, he wrote to me that he "was sadly disappointed." He went on to say:
Mr. Bercow:
Does my hon. Friend agree that, if the 28 Labour parliamentarians who signed early-day motion 56 criticising the Government on the subject fail to join us in the Division Lobby tonight, they will be guilty of an abdication of responsibility that should be widely publicised?
Mr. Gibb:
It would be sad if a large number of the hon. Members who signed the early-day motion were not to join us in the Division Lobby tonight because it would send a clear signal to the Government, who may change their mind.
Dr. Desmond Turner:
It is touching to hear the Opposition's concern for the deprivation of £75 a week from the average pensioner--[Hon. Members: "A year."] Sorry, a year. It is touching also to hear the Opposition's concern for the poorest pensioner. It is not the poorest pensioners who are being deprived, but it was the poorest pensioners who were deprived of £1,000 a year by the previous Government through their decision to break pensions' link to earnings. Has the hon. Gentleman forgotten that?
Mr. Gibb:
Will the hon. Gentleman give a commitment that his Government will restore that link?
"It's more upsetting when I know that many of the people who will be affected by this travesty are those who served in the armed services or nursing services during the 39/45 war years."
Age Concern, which has campaigned vigorously on the issue, has rightly pointed out:
"many of those affected are likely to be older pensioners who will not have had the same opportunity to contribute to SERPS or private pensions and are therefore heavily dependent on income from savings and investments."
The majority of hon. Members know that the decision is wrong. Because they know it to be wrong, it is right that we do our duty as Members of Parliament and tell the Government so.
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