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Mr. Quentin Davies: The hon. Gentleman is making a strong point. A case might be made for penalising
so-called unearned income, as opposed to earned income, and a case might be made for doing the opposite. At present, however, the Government are penalising unearned income at the bottom of the tax scale, and propose later, at the basic rate, to tax unearned income at a lower rate--dividends at only 10 per cent., and other savings income at only 20 per cent.--while taxing earned income at 23 per cent. That, surely, is complete madness.
Dr. Cable: The hon. Gentleman is right. The central issue of the debate is how the proposals affect people at the bottom end. I sense that the Government still have not appreciated the extent to which people who are otherwise very poor still depend on unearned income. The situation is quite common. We all have constituents in this position--for example, people who have not made the contributions that would entitle them to a state pension, and who therefore save. Because they have substantial savings, they will not qualify for income support, and their future retirement therefore depends almost entirely on savings income. Young pensioners in particular, and those whose allowances are particularly small--those who have retired prematurely, or have been made redundant--are being hit at very low levels of income by higher rates of tax. Therefore, the system does not merely discriminate against unearned income. As the hon. Member for Grantham and Stamford says, it particularly hurts poor savers.
In that context, I say a word about dividend tax credits and the dividend problem. It has been referred to, but it is helpful to go over a little of the chronology. The hon. and learned Member for Dudley, North (Mr. Cranston) has been singled out. I was present in the Committee when he spoke. He has been perhaps unfairly singled out because he was speaking up for the colleagues who were around him. He was representing a genuine disquiet among Labour Members about what was happening. Indeed, that continued for many months afterwards. There was a widely circulated early-day motion, which was, I think, roughly equally supported in the three parties.
I subsequently went to see the former Paymaster General with the hon. and learned Member for Dudley, North and the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). He was very accommodating and accepted fully that an unfair and unfortunate major anomaly had been created. He undertook to mobilise the Treasury's resources to try to do something about it. What was discreditable was not the fact that he was not able to something about it--there may have been genuine administrative difficulties in sorting out the problem--but that it took the Treasury six months to make up its mind to tell us. Its reply came through in a written answer to me; it was sneaked through six months later. Not merely the policy but the way in which the Treasury handled the matter subsequently was discreditable.
In addition to all the other disadvantages of applying extra rates of tax to savings incomes, the provision is a further measure disadvantaging and discouraging personal savings. As the right hon. and learned Member for Rushcliffe (Mr. Clarke) has been sitting patiently during the debate, it is worth mentioning that he introduced a particularly popular and valuable form of personal savings called pensioner bonds. I was intrigued, as one of my constituents asked, how the returns on pensioner bonds had developed since he introduced them. It was clear not merely that the nominal return on the bonds had gradually
declined over the past few years--I would expect that because inflation is lower--but that the real return on the bonds had been allowed to fall by about 2 per cent.
Therefore, a popular form of savings is being devalued and we have increased taxation of savings. In the short run, that may not matter--the United States has much economic growth and deteriorating personal savings--but it cannot go on. A society cannot grow rapidly and in a sustainable way without healthy personal savings. In addition to all the unfairness that the tax change introduces, it undermines the fundamentals of our economy.
Mr. Swayne:
I support new clause 3. I would have kept my peace but for being provoked to speak by the hon. Member for Croydon, Central (Mr. Davies). Otherwise, I would have relied on the eloquence of Conservative Members who have put the case solidly.
The hon. Member for Croydon, Central refused to take my intervention, which was uncharacteristic because he is normally generous in taking interventions. However, I could see his difficulty, with the Government Whip shaking his head and telling him to refuse. The penalty is that he must now endure listening to me.
The hon. Gentleman expounded a most peculiar argument. He seemed to suggest that it was all right to plunder the savings of the elderly, so long as Government policy was viewed in the round. Specifically, he cited the fact that those people would benefit from the minimum pension guarantee. It might have escaped his notice that the guarantee is not yet payable, yet elderly pensioners in my constituency have already lost the right to reclaim tax on dividends. As a consequence, while living on low incomes, they are paying tax where they were not paying tax before. That is what the new clause is designed to remedy.
Labour Members might also think that, generally, people who have invested in shares are at the wealthier end of the income ladder. However, the most distressing letters that I have received on the issue are from those who admit that being able to reclaim tax paid on dividends makes a difference, not between wealth and poverty for themselves but between being able to afford small luxuries--such as Christmas presents for their grandchildren, or visits to their relatives--[Interruption.]
Mr. Gray:
The hon. Member for Shipley (Mr. Leslie) laughed.
Mr. Swayne:
Labour Members may well laugh, but they might also recall that those are the very people for whom the Labour party--before it became new Labour,
Mr. Bercow:
The whole House will have noticed that the hon. Member for Shipley (Mr. Leslie) does not believe that pensioners should be able to buy Christmas presents for anyone--that is the scale of the scandal of his position.
Nevertheless, does my hon. Friend agree that, when the hon. Member for Twickenham (Dr. Cable) said that the Government's handling of the matter was dishonourable, the one thing that he omitted to mention was that, today, the single most dishonourable aspect of the Government's handling of the matter is that the only currently serving Treasury Minister who served in the Finance Bill Committee when the matter was discussed is not in the Chamber to reply to the debate? I refer, of course, to the Paymaster General. Where is she?
Mr. Swayne:
I entirely agree with my hon. Friend; he makes an important point. I am certain, however, that the dignity of age will change the views, and indeed the attitude, of the hon. Member for Shipley.
Quite unacceptably, the hon. Member for Croydon, Central contended that it is perfectly acceptable to plunder the savings, and therefore the self-reliance, of elderly people, and to replace them with means-tested benefit. What signal does that send to generations yet to retire? What message does it send in respect of self-reliance?
The hon. Gentleman went on to speak of the need to eradicate child poverty. Does he not realise that the tax that we are debating would be paid by children? Although I grant him that the tax is unlikely to be paid by children living in poverty--the nature of the arrangements that we are discussing are such that they are unlikely to be made for children by parents who are below the poverty line--I ask him to consider the fact that many parents have arranged for shares to generate income for their children precisely because those children will not be able to provide for themselves, as they are handicapped and their parents are worried about their future. They, too, will pay the tax, and their income will be affected by it.
I hope that the hon. Gentleman will reconsider his earlier remarks and reflect both on their wisdom and the message on self-reliance that they have sent to the British people.
Mrs. Roche:
The hon. Member for New Forest, West (Mr. Swayne) said that he was not going to speak but was provoked into doing so. I am in the same position: I was tempted not to speak until I heard his speech. I have never heard such arrant nonsense, although he is not alone in this debate. One would have thought that the Conservatives had not presided over record levels of child poverty when they were in government and that they had not introduced VAT on fuel--perhaps the most regressive measure to hit our pensioners; yet they have the temerity to pose as the party of the pensioner. That is nonsense.
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