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House of Commons

Thursday 18 July 2002

The House met at half-past Eleven o'clock


[Mr. Speaker in the Chair]

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Pension Funds

1. Mr. Mark Francois (Rayleigh): What recent representations he has received from pension funds on the effect of his policies on the value of their investments. [68397]

The Financial Secretary to the Treasury (Ruth Kelly): The Treasury receives representations from a range of financial services organisations, including pension funds. The Government have introduced reforms that have delivered, and will continue to deliver, a stable economic environment based on low levels of inflation and sustainable growth. This environment is designed to benefit all investors, including pension providers, because it supports longer-term investment and planning.

Mr. Francois: I thank the Minister for that reply. We know that she and the Chancellor take a keen interest in the subject of pensions and of early retirement. Is she aware that the Government's changes to the taxation of pensions are now costing each individual contributing to a pension scheme about £500 a year in tax?

Ruth Kelly: The hon. Gentleman is talking absolute nonsense. The changes in the tax credit system were an essential part of a wider range of corporation tax reforms that included cutting both main and small companies' corporation tax rates. They removed a major distortion in the tax system, and were designed to encourage long-term investment.

John Cryer (Hornchurch): Does my hon. Friend agree that the trend towards ending final salary pension schemes, which I assume the hon. Member for Rayleigh (Mr. Francois) was hinting at, started long before Labour came into office, about 30 or 40 years ago? The trend has a lot more to do with corporate greed and the pension contribution holidays that were taken in the 1980s during the casino boom that was assisted and encouraged by the then Conservative Government.

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Ruth Kelly: My hon. Friend makes some interesting points. The shift from final salary schemes to defined contribution schemes has been going on since the 1960s. There are several reasons for that, including increasing life expectancy. It is not the shift itself which is a disaster, but the fact that companies can use the shift as an excuse to cut contribution rates. Clearly we must establish a consensus. It is the responsibility of employers to provide for their employees. They should not enter into such a shift without giving it very careful consideration.

Mr. Michael Howard (Folkestone and Hythe): My hon. Friend the Member for Rayleigh (Mr. Francois) was absolutely accurate in his figure. It is a great shame that the Financial Secretary cannot bring herself to accept what are entirely factual and accurate figures concerning the damage caused by the Government's policies. Will she now accept what everyone knows—that, quite apart from the pensions tax, the disproportionate fall in the London stock market, contributed to by the policies of the Chancellor, has hit pension funds hard?

A month ago, to help the Prime Minister defend the pensions tax at Question Time, the Chancellor whispered some advice in his right hon. Friend's ear. Can the Financial Secretary shed light on whether it was on the basis of that advice that the Prime Minister told the House that the stock market was "massively up" on where it was five years ago, or had he misheard the Chancellor?

Ruth Kelly: I find it incredible that the right hon. and learned Gentleman should attempt to blame the Government for a global fall in stock markets. Nor would he expect me, as a responsible financial services Minister, to comment on day-to-day or even month-to-month movements in the stock market. The point is that the economy is fundamentally sound. We, as a Government, are taking the action necessary to make it easier and simpler for people to save and to raise the overall level of saving in the economy.

Miss Anne Begg (Aberdeen, South): I am concerned that a number of companies are closing their pension schemes, forgetting that they had the good times and forgetting that they have taken pensions holidays. Does my hon. Friend agree that they are using the downturn in the stock market and supposed Government policies as an excuse to end final salary schemes? We must be more honest. Companies are using those things purely as an excuse. The mark of a good employer should be to have a good pension scheme and ensure that employees are well protected in their old age.

Ruth Kelly: I completely agree with my hon. Friend's point. Employers have a responsibility to their employees to provide reasonable terms and conditions and a package that is attractive both from day to day and in the longer term. We are taking these issues extremely seriously. We have recently had two reviews. One—the Pickering review—considered occupational schemes. The other considered private sector personal provision. Key to this is making the system as simple as possible to administer,

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making it as easy to save as possible. The Government will be responding to those reviews, together with the Inland Revenue review of tax, in the autumn.

Dr. Vincent Cable (Twickenham): Is the Government's primary concern at present to encourage savings for pensions and long-term investment, or to encourage dis-saving to sustain spending and economic activity?

Ruth Kelly: Of course the Government are committed to increasing long-term levels of saving. I should point out to the House that real gross household savings have been robust in recent years, particularly in long-term retail savings products. Clearly, however, there are issues that we must address. Ron Sandler, when analysing the issues in his recent report, pointed out that long-term savings have been robust, but that there is a problem with middle and lower-income families and their ability to save. That is why he proposed a new range of stakeholder products that will make it easier and simpler for them to do so.

Mr. Dennis Skinner (Bolsover): Is it not a sad fact that pensions unfortunately have to suffer the vagaries of what happens on the stock exchange, which is nothing more than a glorified betting shop? During the pit strike, for instance, the index fell to below 1,000 points. Yesterday, after the Leader of the Opposition spoke about the vagaries of the stock exchange and falls in the stock market, I went outside and looked at the figures; the index was up by 160 points half an hour after he spoke.

Ruth Kelly: I thank my hon. Friend for those interesting observations. The important point here is that we have the right framework for pensions, based on a partnership between the state, the individual and industry. It is this Government who have tackled pensioner poverty, bringing in the minimum income guarantee. It is this Government who have enabled all pensioners to share in the country's rising prosperity, and it is this Government who next year will bring in pensioner credit, which will make pensioner households significantly better off.

Economic Growth

2. Mr. Desmond Swayne (New Forest, West): What his most recent estimate is of the rate of growth in gross domestic product. [68398]

The Chancellor of the Exchequer (Mr. Gordon Brown): Despite there being no growth at all in world trade last year, the UK grew by just under 2 per cent., the fastest growth rate of the G7. The growth forecast for 2002 of 2 to 2½ per cent. was set out in the Budget. I shall report again to the House in the autumn when the pre-Budget report is delivered.

Mr. Swayne: Ministers may discount warnings about the deteriorating fiscal position and the need for tax increases from Schroder Salomon Smith Barney and PricewaterhouseCoopers on the grounds that they are, after all, accountants. But when Vicky Price, the new

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adviser to the Department of Trade and Industry, adds exactly the same warning, is it not time that the estimates were reviewed?

Mr. Brown: The fiscal rules that we set down in 1997 give a stability to the British economy. We have met those fiscal rules every year, despite the Opposition saying every year that they would never be met. We will continue to meet our fiscal rules and disciplines; we will do that so we can finance higher levels of public expenditure while having the fiscal discipline that is necessary.

Denzil Davies (Llanelli): Does my right hon. Friend agree that one factor that would have an adverse effect on growth in GDP would be if the very low levels of inflation—which, of course, are welcome—were to slide into deflation? Given that over a range of manufacturing goods prices seem to be falling, will the Treasury start thinking about how to avoid deflation, since at times of deflation central banks are usually superfluous?

Mr. Brown: We made the Bank of England independent and set it an inflation target of 2½ per cent. It is the duty of the Bank to meet that target and it has done so for the past three to four years. It is a symmetrical inflation target; because of that, problems that may arise from deflation are as important as problems that arise from inflation.

Mr. John Bercow (Buckingham): Was it a lack of confidence in his growth forecast or an uncharacteristic coyness that caused the Chancellor to duck no fewer than six requests from James Naughtie on the "Today" programme on Tuesday to say whether he envisaged further tax rises in this Parliament?

Mr. Brown: I said to Mr. Naughtie—I repeat it to the shadow Chief Secretary—that our spending plans until 2006 are financed by the measures that we announced in the Budget. Indeed, our spending plans for the national health service until 2008 were financed by the measures that we put forward in the Budget. It is now up to the Conservatives to tell us whether they support spending on education and health, which is in the national interest.

Mr. John McFall (Dumbarton): My right hon. Friend will be interested to know that the experts who appeared before my Committee yesterday said that the spending plans were eminently prudent and that the figures were in the books. That is welcome news in terms of spending for the whole country. However, does my right hon. Friend agree that the question of targets needs to be addressed? There is a proliferation of targets and we must ensure that they do not get in the way of delivery on the ground.

Mr. Brown: First, targets are important because they set objectives for Departments and services. It is by setting targets and objectives that we are making progress in reducing health service waiting lists; getting up literacy and numeracy standards in our schools; getting more young people to stay on in school; and meeting all our objectives, as we will do during this Parliament and beyond, for health and education. As far as the fiscal position is concerned, my hon. Friend knows from the expert advice that he has been given that not only have we met our fiscal rules but those rules are drawn on a

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cautious basis with a margin. As far as the current balances are concerned, they will be £3 billion, £9 billion, £7 billion, £9 billion and £7 billion; those are several billions, which is the margin for prudence that I set out in the Budget statement. Again, the issue, which has been being raised all this week, is that we want to spend money on health and education, while the Opposition oppose such spending.

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