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I am concerned about the impact that the Government's fiscal and monetary policies have had on pensions and their provision. However, I applaud the Chancellor for accepting most of the recommendations that Sir Paul Myners recently made in his excellent review of institutional investment, many of which relate to the provisions of the Pensions Act 1995. I was a critic of many aspects of that legislation, although it tried manfully to deal with the problems that arose out of the Maxwell pension scandal. It imposed a great deal of useful regulations on the pensions industry, but it also created
The Budget does not deal with the costs that the 1995 Act imposed on providers of company pension schemes. The regulatory burden has driven many people away from the provision of defined benefit schemes and into defined contribution schemes, to the detriment of the public. It will be interesting to know whether the Treasury has proposals to deal with the problem of the regulatory burden, which acts against the national interest.
I applaud the abolition of the minimum funding requirement. I always opposed it. I said in 1995 that it would distort investment decisions and diminish the value of funds because it would lead to more cautious investment. It also has the perverse effect of increasing the purchase of gilts, thereby depressing the yield on annuities. There was a double whammy for pensioners. First, the value of their funds was diminished and, secondly, the fund would buy less of an annuity on maturity than would otherwise have been the case. To the extent that the Chancellor has accepted that problem, I welcome what he has done to address it.
However, other policies have made pension funds and people with private pensions considerably worse off. Despite the fact that the value of pension funds was diminishing, because of the factors that I have outlined, the Chancellor introduced in a previous Budget the £5 billion a year tax on pensions. In response to questions about this Budget, he said that the total value of pension funds has increased. It has, but their liabilities have increased even more, so that what will be bought in terms of pension has less value. There has been a significant net reduction in the value to pensioners as a result of that policy.
The fact that the Chancellor, highly commendably, has made substantial repayments of the national debt has also affected pensions dramatically. Those repayments, amounting to £34 billion, do not all result from his prudence; they result largely from the sale of telecoms licences, which accounts for £23 billion alone, and other privatisation receipts. I applaud the repayment of debt, but we must look at its effect on pensions that will become in-payment. It will reduce dramatically the volume of gilts available on the market at a time when Government policies are encouraging their greater purchase. That will drive gilt deals down even further and annuities will yield less and less.
We are creating a black hole for annuities; more of them have to be purchased to produce less and less income. Because they produce less income, even more of them have to purchased. Until the Government tackle the annuities problem, we will not get over the difficulties that will face all pensioners who save for their retirement.
That is a very severe problem indeed. I have introduced a private Member's Bill, the Pension Annuities (Amendment) Bill, which we tried to debate last Friday. Sadly, it was blocked by the Government Whip, but I hope to have further discussion with the Economic Secretary on the subject. It is interesting that her officials are telling her that the cost of an annuity equal to the
The Government have double standards on the minimum income guarantee. Although they say that it will cost £72,000 to replace it for someone with a private pension, a pensioner wanting to claim it is excluded from doing so if he has a mere £12,000 of savings. One cannot equate easily equate £12,000 and £72,000. We are faced with a Government who discourage people from becoming independent by saving for their retirement and ceasing to be a burden on the state. At the same time, they rely on means-tested benefits, which are ever more complex and difficult to claim and which create a dependency society. The minimum income guarantee encourages people not to save because, as the Government's own figures demonstrate, under the present rules, it is difficult for most pensioners to save enough money to avoid it. People who buy stakeholder pensions, as urged by the Government, will therefore be led into a colossal mis-selling of pensions, because nearly all of them would be better off not buying them and relying on the minimum income guarantee.
The remedy is in the hands of the Treasury. If it gets rid of its obsession with annuities, which are an outdated investment--no one was advised to buy them--it could solve the problem. Annuities are such a bad investment that the actuarial profession is saying that most people would be better off buying the underlying gilts that are being bought by insurance companies. They would have a better income and their capital would not be lost on their death, as they would avoid the position of having nothing left to pass on to future generations. The Treasury and Inland Revenue would do better because they would pick up additional inheritance tax on the way.
Mr. Desmond Browne (Kilmarnock and Loudoun): I listened carefully to the hon. Member for Bournemouth, West (Mr. Butterfill), who speaks with clarity about a difficult subject. Every time I hear him, I learn a little more, and some day perhaps I will understand the complexity of pensions. I sense that some day those on the Treasury Bench will be receptive to the issue that he rightly persists in raising.
I, too, shall be brief. Like the right hon. Member for East Devon (Sir P. Emery), I tender my apologies to right hon. and hon. Members for my absence during the bulk of the debate. I was in Standing Committee B, where we were considering the International Development Bill under the chairmanship of the hon. Member for Bournemouth, West.
Replying to the Budget statement of my right hon. Friend the Chancellor, the Leader of the Opposition spoke for 34 minutes. During the whole of that time, he never mentioned the word "poverty" once, and he made no reference to the eradication of it. Perhaps that is hardly surprising, as the subject does not lend itself to stand-up comedy or pre-scripted jokes. However, the subject is important to many of my constituents.
On 12 July 1999 the Select Committee on Scottish Affairs published its report entitled "Poverty in Scotland". To measure the extent of poverty in Scotland, the Committee drew on a statistical base for the period to the end of 1996, and concluded in paragraph 22:
I understand that the factors that cause and sustain poverty are complex, but in my constituency, Kilmarnock and Loudoun, over the period from 1979 to 1997, we had them all. We witnessed a decline in our industrial and manufacturing base and a trend towards part-time, flexible and short-term working. Industrial and economic change brought high unemployment, low pay and poverty in work. Conservative Government priorities between 1979 and 1997 increased that poverty and inequality.
It is with great relief that my constituents see that they now have a Government who not only talk about poverty, but set targets for tackling it. Not only are they committed to the eradication of poverty, but they have set indicators of progress towards that target and policies designed to improve the incomes of the poorest pensioners, the poorest families and the poorest children.
I have the regard for the right hon. Member for East Devon that his seniority and position in the House demand, and I listened carefully to his remarks. Like him, because I represent a constituency that is substantially rural and has many farmers in it, I, too, hope that the Government will rethink the previous policy on consequential losses arising from foot and mouth disease. However, the right hon. Gentleman will forgive me if it sticks in my throat a little to hear a call based on morality, allegedly, coming from those on the Conservative Benches, when throughout the period during which they were in charge of the country's economy, the Conservatives did nothing, while consequences much worse than those now faced by the farming community in my constituency were faced by the industrial and town communities of my constituency.
I should like to speak briefly about some of the micro-economic announcements contained in the Budget statement. I believe that they will build on the steps that the Government have already taken to deal with the consequences of Tory policy. The omission of any measure from my comments should not be taken as a lack of support for it. Like my hon. Friends, I welcome the Budget, which will greatly improve the lot of almost 10,000 working families in my constituency. I represent a community that is among those with the highest unemployment in the UK. On any measure, whether
Opposition Members groan and jeer in unison when my right hon. Friend the Chancellor or other Labour Members describe the macro-economic objective of trying to avoid a return to boom and bust. Every time I hear them do so, I wonder whether they still fail to understand the need for a stable economic platform to establish policies that deal with the concerns and problems of communities such as that which I represent, or whether they still do not care. Whichever is the case, it is none the less an indictment of them.
It is to the Government's credit that they established that platform of stability. Despite the difficult decisions that had to be made, unemployment in my constituency has dropped significantly--by about 26 per cent. overall--and long-term youth unemployment has fallen by more than 60 per cent. The most interesting thing is that it never dropped at all--never mind significantly--in any of the boom periods that occurred under the previous Government. Of course, there was no new deal when they were in power. [Interruption.] The right hon. Member for Kensington and Chelsea (Mr. Portillo) guffaws, but those who have been among the long-term unemployed in my constituency, perhaps as youths, have lived through booms before. Governments of whom he was a member were responsible for managing those booms, but they never delivered jobs. In the current growth period, with the help of the new deal, 60 per cent. of unemployed youths in my constituency have found work. He can guffaw if he likes, but those who have benefited from the new deal will recognise his attitude.
Despite the success of the new deal, there is still persistent unemployment in East Ayrshire. If that unemployment, including the continuing redundancies in manufacturing, are not dealt with, my community will be left behind while others move on towards the goal of full employment. I share that goal, which was last achieved in this country the 1950s. The news on the jobs front is not, however, entirely bleak. Since I was elected to Parliament, more than 1,200 new jobs have been attracted into my constituency. About 80 per cent. of those jobs are in call centres, while the rest has been produced by attracting further inward investment. All of them are a tribute to the partnership between local and national Government agencies. The new M77, which is due to be completed in 2005, will link Ayrshire with the national motorway network and enhance the work that has already begun. The Budget contains specific provisions that could have been framed for constituencies such as mine. Indeed, I hope that they were.
Like my hon. Friend the Member for Luton, South (Ms Moran), I welcome the provisions that are designed for regeneration. In particular, I welcome those that aim to cut the cost of small business borrowing. I welcome the new community investment tax credit, the community development venture capital fund and the accelerated tax credits that are designed to encourage brownfield development. Developers in my constituency have already contacted me about those credits, as they are interested in developing sites that were previously unattractive. I welcome also the abolition of stamp duties on all property transactions in the most deprived and disadvantaged urban areas. God knows, enough wards in my constituency
In recognition that East Ayrshire is a localised pocket of high unemployment and deprivation, it was chosen as an area for the job action team pilot. I pay tribute to Jim Burns, the manager of the employment services pilot scheme, his staff and their partners for embracing so enthusiastically and imaginatively the opportunity provided by the pilot. In the first six months of their work, they have managed to identify job opportunities and to match them with long-term unemployed people so successfully that they have found work for 20 per cent. of those registered for jobseeker's allowance in the pilot area. In addition, they have helped a number of other jobseekers into work. They have shown that targeting resources works, and they welcome the extension of the action team funding for the whole of the spending review period.
A serious problem exists in my constituency in terms of opportunities for work. Throughout Scotland thousands of unemployed people are unable to cope with the demands of training or to hold down jobs because of drug problems. The announcement of a £40 million, three-year project to address that problem will bring welcome additional help. However, in our poorest communities a longer-standing, and just as devastating, problem has blighted the job prospects of countless thousands for generations. That is the problem associated with alcohol abuse. I make a simple appeal to my right hon. Friend the Chancellor to consider the extension of the rightly lauded drugs initiative to those with alcohol misuse problems.
I welcome the Budget. It contains welcome provisions to support families, women and children, and strikes a proper balance between economic stability and social justice. It has been warmly welcomed by the thousands of families in my constituency who will benefit from its provisions, and by many others. It also contains great promise that policies have at last been marshalled that will begin to address the persistent problems that have kept many of my constituents in poverty for far too long.