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The Financial Secretary to the Treasury (Ruth Kelly): Treasury Ministers receive representations covering a wide range of issues including savings. The Government recognise the value of saving and asset ownership. Our policy is to create the right environment for savings and incentives for people to save, and ensure that all individuals have the information and skills to make the right savings choices.
Ruth Kelly: I am sure that the hon. Gentleman is not claiming that a high savings ratio under the previous Government is anything to be proud of. It was driven by households retrenching and building up their savings as boom and bust destroyed confidence. We are determined not to return to that. Of course, we accept that individuals need to save more and we have a comprehensive strategy to raise the rate of savings. We have introduced individual savings accounts, stakeholder policies and across the board we are looking at ways of encouraging individuals to save more. I hope that the hon. Gentleman is not claiming any success for the previous Government in that area.
Geraint Davies (Croydon, Central): My hon. Friend will know that for many people the primary source of savings is the value of their home, which is not included in the savings ratio. Does she accept that it is worth the Government looking at the value of people's homes in aggregate savings so that we can measure realistically the move from investment in pensions to investment in new homes?
Ruth Kelly: My hon. Friend makes an interesting point and is right to point out that net wealth has indeed risen under this Government. We must ensure that we have a platform of macro-economic stability, the right savings incentives and a comprehensive strategy to encourage savings, which is precisely what we are doing.
Mr. Peter Lilley (Hitchin and Harpenden): Does the Minister agree that the policies that do most to boost long-term savings encourage people to opt out of the unfunded state pension system into genuine savings in occupational and personal pensions, for which they receive national insurance rebates, which now amount to £6 billion per year? Will she contrast the Conservative policy of putting £6 billion into genuine savings for
Ruth Kelly: The right hon. Gentleman must surely realise that when he was Secretary of State for Social Security in the previous Government, hundreds of thousands of pensioners were forced into poverty. To ensure that pensioners share in the country's rising prosperity, we are spending an extra £6 billion every year on them from this April, which is over £3.5 billion more than, for example, if we had merely restored the link between pensions and earnings which, of course, the Opposition broke when they were in power. We are determined to ensure that pensioners do not fall into poverty in their old age and have the right incentives to save in future.
Mr. Barry Gardiner (Brent, North): I know that my hon. Friend will be as concerned as I was in reading the report from Oliver, Wyman and Co. commissioned by the Association of British Insurers which showed that a £27 billion savings gap is accruing. Does she agree that financial services companies need to provide three things in their products to ensure that that is tackled effectively? I call them the three Cs. The first is clarity of financial product and the second comparability across the financial products range. Will my hon. Friend commend the work[Hon. Members: "That is only two."] I shall come on to the third one. Will my hon. Friend commend the work of the Pensions Protection Investments Accreditation Board to ensure that the first two Cs are achieved. The third C is suitabilityI was always better at numbers than English.
Ruth Kelly: My hon. Friend made several interesting points. He is right that clarity, simplicity, transparency and the ability to understand products are at the heart of encouraging and of making it easier for people to save. It is a fact that the selling process can be so complicated and over-burdensome that it effectively disfranchises certain groups from saving. We are committed to tackling that problem and to introducing greater simplicity and clarity to the sales process. We have commissioned Ron Sandler at the Treasury to examine how to empower the consumer and to create greater competition in the market, and the Inland Revenue to examine how the tax system behind pensions, for example, can be simplified, so that greater clarity and simplicity can be introduced.
Mr. Howard Flight (Arundel and South Downs): At least in the past, the Government used to stress that an adequate level of savings was crucial to economic stability. The £5 billion pension tax grab has led not just to the pension crisis, but to a reduction in pension savings with the closure of final salary schemes. The savings rate has collapsed to a forecast 3.75 per cent this year. What level of savings do the Government think is consistent with avoiding boom and bust?
The hon. Gentleman asks about our policies on tax credits. Tax credits on pension funds were part of a wide package of corporation tax reforms, which removed a distortion in the tax system and which will encourage long-term investment. He asks how we are going to encourage savings. Earlier, I laid out in a reasonable fashion our policies on raising savings. At the same time, we are the party determined to combat pensioner poverty. It is a bit rich for hon. Members to go on about how to avoid boom and bust.
Mr. Kelvin Hopkins (Luton, North): I support entirely what my hon. Friend has said, but does she agree that the one thing that should not happen is a rise in interest rates, at least in the short term, because inflation is low, the needs of manufacturing are still acute and there are recessionary trends in the world? Does she agree that we should applaud the Monetary Policy Committee for keeping interest rates down?
Ruth Kelly: I agree with my hon. Friend that we should applaud the Monetary Policy Committee, which was a welcome innovation. It introduced a degree of stability in interest rates and inflation over the longer term. I take his specific points about interest rates as representations that he should probably make directly to Monetary Policy Committee members as they consider the next interest rate move.
The Chief Secretary to the Treasury (Mr. Paul Boateng): The abolition of payable tax credits removed a major distortion in the tax system that encouraged companies to pay out their profits as dividends rather than retain them for investment, and were part of a wider package of corporation tax reforms that included tax cuts. No estimate has been made of the impact of the corporate taxation changes since 1997 on public sector pension schemes.
Mr. Clifton-Brown: I add my personal congratulations to the Minister, whom I always had satisfactory dealings with in his previous offices, so perhaps he will be able to give me a satisfactory answer to my question. He will be aware that the ACT changes as they reflect public sector pension contributions have put a particular burden on the local authority budget.
Indeed, it has been estimated that the increase in contributions has amounted to a council tax increase of 1.5 per cent. Taken together with the increases in national insurance, that has a considerable impact on every departmental budget. Does he agree that the comprehensive spending review will have to be increased
Mr. Boateng: The hon. Gentleman is very generousone tries to give satisfactionbut I am afraid that he will find my answer to his question far from satisfactory. The reality is that, under this Government, local government settlements have been generous, compared with those that were reached when his party had stewardship of the economy. To suggest otherwise flies in the face of all reason. He will understand why I do not intend to anticipate the comprehensive spending review, save to say that I am sure that local government will be satisfied.
Mr. Jim Cousins (Newcastle upon Tyne, Central): May I also congratulate my right hon. Friend on his wider responsibilities? He has yet to fail to satisfy me[Hon. Members: "Ooh."]although my needs are few. Will he acknowledge, however, that public sector pension schemes are likely to be the last bastion of salary-related schemes? Most public sector schemes are not funded, and are therefore completely unaffected by the tax changes that Opposition Members have drawn attention to. Will he ensure that, as part of the Government's policy, they will defend public sector salary-related pension schemes, funded or otherwise, particularly in areas such as health, education, andimportantlythe fire and police services?
Mr. Boateng: My hon. Friend, who is a distinguished member of the Treasury Committee, is very kind. I always take seriously the representations that he makes, and I shall certainly take that one seriously. He is absolutely right about unfunded schemes: contrary to Opposition Members' frequent suggestions, they are not affected. Would that they realised that, because they are giving a distorted picture of the reality on the ground.
Mr. Michael Howard (Folkestone and Hythe): May I add my congratulations to the Chief Secretary and welcome him to his new position? In retrospect, are he and the Chancellor proud of the £5 billion a year tax hit that was imposed on pension funds, including public sector ones, in 1997?
Mr. Boateng: The right hon. and learned Gentleman is courteous, as always. However, to describe what happened as a tax hit, a stealth tax or a raid on pensionshe has done all those thingsis as absurd as it is simplistic. He knows that that is not true, and nor should he forget the cuts in corporation tax. In the longer term, investment performance is likely to improve as a result of these measures, so the situation is far from what he describes.
The key is stability, avoiding the boom and bust that characterised the time when his party were in government, and avoiding the mass unemployment that he presided over as Secretary of State for Employment. He needs to realise that this Government have provided 1.5 million new jobs for the economy, and that his Government took away many more.
Mr. Howard: Yesterday, the Prime Minister said that the stock market was massively up on where it was five years ago, but in fact, it is down by 2 per cent. When he made that statement, was he accurately reflecting what the Chancellor was whispering in his ear, or are the Chief Secretary and the Chancellor now among the 56 per cent. of the electorate who do not regard the Prime Minister as honest or trustworthy?
Mr. Boateng: The Prime Minister is both those things. He was absolutely right: the stock market is £300 billion net up on what we inherited. That is the truth of the situation. Why does the right hon. and learned Gentleman not have the grace to recognise it?