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5.52 pm
Mr. Frank Field (Birkenhead): For the past two days the House of Commons has been reflecting feelings in the country. At Question Time yesterday, the Order Paper was dominated by questions on pensions. As for today, I cannot think of a previous debate on pensions that has had a time limit on Back-Bench contributions. The House is reflecting the urgency that is felt in the country, and in following the comments of the hon. Member for Bournemouth, West (Mr. Butterfill), it is thinking about what can be done so that our constituents do not face a leaner and meaner retirement.
There have been two significant changes with the change in the holder of the office of Secretary of State for Work and Pensions. The first is that, during this debate and on other occasions, he has called for a new consensus. In looking for that new consensus, I make a plea for us to look at the Order Paper. Constituents who may be watching the debate and seeing the normal way in which we behave may not have the opportunity of reading the motions and amendments on the Order Paper. I suggest that much of the consensus that the Secretary of State wishes to see in this area of policy is on the Order Paper, and I should like to highlight those points.
The official Opposition talk about the need to increase savings and funded provision. Although one or two people with eccentric views on this side of the House believe that that is not the way forward, the consensus is that we should pursue that policy. The Opposition's other suggestion is to cut regulation. Indeed, we are looking for the Pickering and the Inland Revenue reports to give a framework within which the Government can begin that process.
The Liberal Democrat motion breaks new ground by arguing that we should not have arbitrary targets regarding funding or pay-as-you-go schemes but should instead ensure that an increasing number of people are on a decent pension. I would enter a small amendment, in that we must think about how those pensions are delivered. My hon. Friend the Member for Colne Valley (Kali Mountford) was right to say that, ultimately, pensioners are making a claim on this year's national income. We have to debate the most effective way of delivering that claim. In this country, generally speaking, people have a greater chance of that claim being delivered if they have ownership of capital than if they rely too heavily on pay-as-you-go schemes. However, there needs to be a balance.
The hon. Member for Northavon (Mr. Webb)—I call him my hon. Friend, because he is in these matters—said that we must increase the state element in our retirement package. Although some people not too far from the Chamber quite properly claim that the existing pensioner population should have a much larger increase in the state pension, I think that a consensus will emerge, at least in the first instance, that we need to weight the increases in state provision towards the oldest pensioners who are, in general, our poorest pensioners.
My hon. Friend the Member for Northavon also made the point that we need to simplify pension provision because we are strangling occupational pensions, the one big welfare success of the past 100 years. In doing so, we need to reduce the numbers of people on means-testing.
In the Government's amendment to the motion, they rightly draw attention to the extra resources that they have made available to today's pensioners. No other Government's record can compare. The problem is that we are giving that form of help in a way that is undermining long-term provision of savings. Clearly, some changes have to be made; so the Government's recognition in their amendment to the motion that
- "there is still more to do"
I conclude with a suggestion about what "still more to do" might mean. It comes back to the point that my hon. Friend the Member for Northavon made about compulsion. This is not a debate about whether or not to have compulsion. There is already compulsion, in that taxpayers pay 4p in the pound on the standard rate of tax to finance means-tested benefits for people who, for reasons that are sometimes very good and sometimes not so good, have been unable to provide adequate pensions for themselves. Under the Government's projections, that compulsion will rise to 12p in the pound when the pension credit is fully operative. That form of compulsion is not sustainable.
The Government say that there is still more to do. I make a plea that, when the door is open to the reviews by Pickering, Sandler and the Inland Revenue, we should recognise that our biggest failure as a country has been our failure to provide people with an adequate basic pension in the first place. I believe that such a pension cannot be delivered simply through a pay-as-you-go scheme. We need to roll up our pay-as-you-go scheme with funded provision so that we offer an adequate pension for everybody.
If we begin to achieve that objective, many of the problems that we have spoken about will be resolved, because we will need less regulation. We will not have to regulate schemes to ensure that they deliver the funds to make good the failure to provide an adequate pension. The worries about mis-selling will be fewer, although not eliminated, because people will know that every penny they save will be added on to their basic, adequate pension rather than being subtracted in the way that governs so much of our current provision.
For two days running, we have reflected the concerns of our constituents, many of whom are genuinely worried that what they thought was to be a decent pension provision and a pension promise will be stolen from them, and who fear that unless the House of Commons acts soon, they will have a leaner and meaner retirement.
I very much welcome the comments made by the Secretary of State during the past few days, because he has called for a national consensus, the beginnings of which are on today's Order Paper. The cornerstone will be to implement an adequate first pension that is part funded and part pay-as-you-go. Would not it be a treat if, instead of our having to go through the Lobbies later on, the Government accepted that there is good in all the motions on the Order Paper, and if all the parties decided that the important thing was to begin to establish that national consensus instead of having three rather boring Divisions at 10 o'clock?
6 pm
Mr. John Redwood (Wokingham): I have declared my interest in the Register, and in the course of my remarks I shall draw on some of my experiences before I became a Member, as a director in charge of investment research and a pension fund manager in charge of considerable funds in the City. That experience seems very relevant as current events unfold.
As I listened to the Secretary of State's remarks, I found it curious that the man who has just managed to get out ahead of the private finance initiative and public- private partnership disasters that are likely to implode in the Treasury—under the rigged accounting that the Government are going in for—should be given the rather difficult task of picking up the unfolding pensions crisis so nimbly left to him by his predecessor. I congratulate the Secretary of State; I admire him for many reasons, but this challenge will prove extremely difficult. It may concentrate his mind to realise that if he fails, he will be off, like his predecessor, to try to sort out the railways, which will prove an even more difficult task for the Administration.
Mr. Peter Viggers (Gosport): Not only would the right hon. Gentleman be in charge of sorting out the railways, he would also have to sort out the air traffic control system, having previously told the Labour party conference that our air was not for sale.
Mr. Redwood: My hon. Friend is right. That is one of the PPPs that will cause continuing hassle and call into question some of the accounting techniques.
The Secretary of State used curious arguments. He said that the low savings rate was a sign of great success in our economy. He seemed to imply that when we had higher savings rates and people were making much better provision for their retirement and other events in their lives, that was a great failure. I would rather swap our failure—higher savings rates—for his success. Extending his argument, if we took 20 per cent. off his salary—as the Government took 20 per cent. off the dividends going into pension funds—the Secretary of State would feel richer. It would not feel like that to anyone else, but that is the topsy-turvy world of the Secretary of State's economics, which seem to invert everything known to the rest of us.
The Secretary of State also told us that the dividend tax had been extremely good for British businesses; it had been wonderful to take some of their money away and that was one reason they were investing far more money. If that is the way to attain higher investment targets and raise productivity, why do not the Government take even more money away from companies?
Opposition Members are shaking their heads—they know that the Secretary of State's argument was fatuous. The Government have made a series of tax raids on pension funds and companies and they have suddenly woken up to the awful fact that the money is running out. There simply will not be enough money to pay all the promises, meet all the expectations and pay all the bills that the Government blandly assumed would be paid and met by the private sector, despite their tax policies.
Let us consider some of the figures. As some of my colleagues had to point out to the Government, the £5 billion is £5 billion a year deliberately removed from
pension funds by the Government—money that the funds could otherwise have invested. Worse than that, the removal of that money must have an impact on the value of all the shares held in the portfolios of those pension funds. That is why I intervened to ask the Secretary of State a simple question: if the Government decide to take £5 billion away from companies, will that lead to share prices rising or falling?Everyone outside the House—with or without investment experience—could give the Secretary of State the answer. I will give him the answer—based on 15 years' experience at senior level in a leading investment house: all things being equal, it will lead to lower share prices. That is exactly what has happened in recent years as the full consequences of the dividend tax have worked through the investment markets in Britain.
When the tax was imposed, companies were expensively rated. For example, if we take a modest rating of 16 times below the market average reached as the market rose, we would expect £80 billion to be wiped off shares in Britain as a direct result of imposing a tax of £5 billion a year on company profits and dividends. A similar figure is reached by a calculation based on dividend yields. I am sure that colleagues understand how the arithmetic would work.
I have consulted people outside who have told me that my figures were rather modest. Many people would expect £100 billion or more to be wiped off share prices as a direct result of the £5 billion tax. There is a double whammy for the pension fund; it is short of the income to reinvest and the capital value of its underlying assets is falling.
The Government made the extraordinary decision—the Chancellor of the Exchequer again—to impose a substantial tax on telephone companies that wanted to remain in business and continue to develop the mobile telephony that is so important to their future. The Government worked out such a clever system that they managed to relieve the leading telephone companies in Britain of £22.5 billion. Does the Secretary of State think that taking away £22.5 billion would make those companies stronger or weaker? Will it lead them to invest more or less? Will it be good or bad for their share prices? Drawing again on my past experience, I can give the Secretary of State the clear answer that he was unable to offer the House: it is bound to lead to a sharp reduction in the share prices of those companies.
These matters are important, because when the Chancellor imposed that tax, those companies were extremely popular with investors and pension funds in the City, which had massive positions in leading companies such as Vodafone and British Telecom. The share prices of those companies have fallen far more sharply and devastatingly than the market averages, partly because of the Chancellor's clumsy intervention and the deliberate reduction in shareholder value that he created.
If that £22.5 billion—a one-off amount—is spread over a five-year period and we apply a multiple well below that on which telecoms were then selling on the stock market, we would expect their shares to fall by at least £90 billion, as a direct result of the £22.5 billion being removed from their coffers. What happened in practice? Overall, share prices fell by much more than that. At its
peak value, Vodafone was worth more than £240 billion in the stock market; pension funds had very large positions in that company. Today, it is worth about £60 billion. About £180 billion was wiped off the shareholder value of Vodafone, some of which is directly attributable to the decision of Her Majesty's Government to lift so much money off the company.The situation was similar for British Telecom, which also held a large and favoured position in many pension funds; it reached a peak value of about £100 billion. Today, the value of BT and mm0 2 , a spin-off of the company, is about £26 billion. About £74 billion has been wiped off the value of BT. Again, part of that is the direct result of that very expensive tax imposed by the Government.
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