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Dividend Tax Credit
2. Mr. Andrew Mackay (Bracknell): What estimate he has made of the effect on pensions of the removal of dividend tax credit. [111883]
The Paymaster General (Dawn Primarolo): Payable tax credits were withdrawn on dividends paid to pension funds as part of a package of reforms that included cuts in corporation tax and the abolition of advance corporation tax. These changes were designed to improve the climate for long-term investment in the United Kingdom. In the long run, this should benefit all investors, including pension funds and those saving for retirement.
Mr. Mackay : Will the Paymaster General now accept that, although the removal of dividend tax credits in the afterglow of the 1997 general election victory might have seemed like a clever wheeze and a clever stealth tax at the time, many pensioners in my constituency and elsewhere are suffering hugely in the cold light of today because of this irresponsible raid on pension funds?
Dawn Primarolo: As the right hon. Gentleman knows, the abolition of the dividend tax credit was part of a wider corporation tax reform to remove a distortion in the market—a distortion that the then Chancellor of the Exchequer, now Lord Lamont, described as having a "damaging economic effect" when the Tories themselves reduced the tax credit. Furthermore, in an article published on 24 November 2002, when asked whether the Conservatives would reintroduce the tax credit, the hon. Member for Havant (Mr. Willetts) said:
- "Actually, I don't think we'll be doing that. Helping pensions funds doesn't mean going back to the same system we had before, you know."
Miss Anne Begg (Aberdeen, South): Does my right hon. Friend agree that the message for those who are in work is that they must save more for their pensions? In that way, they will have a better future once they have retired. Has she made any assessment of the effects that the removal of the money released by the abolition of the dividend tax credit from public spending would have on public services?
Dawn Primarolo: My hon. Friend raises an important point. This is precisely why the Government have introduced proposals on the simplification of tax payments and support to those saving for retirement. The Green Paper looks at ways to give greater choices, more flexibility and secure savings, so that people can plan for the long term. The money released in the way that my hon. Friend described was used to cut corporation tax and to help to introduce reforms in the corporate tax system to enable our businesses to become more competitive and to tackle the productivity gap. That is why this country has, according to the
Organisation for Economic Co-operation and Development, one of the best environments for companies in the European Union.
Mr. Peter Lilley (Hitchin and Harpenden): The Minister seems to hold the almost incredible belief that removing £5 billion a year from pension funds has no negative effect on those funds. Does she know anyone who shares that view, other than the late Robert Maxwell?
Dawn Primarolo: As the right hon. Gentleman knows—or as I thought he knew—the effects on pension funds and on the stock market are varied. To try to attribute those effects to changes in the tax system—changes that were beneficial to our companies, and which his party pursued when in government—is absolutely ridiculous. He needs to address the question of why the hon. Member for Havant, the Conservative spokesperson on social security, now says that he does not think that the Conservatives will be returning to the tax credits. There are better ways of helping pensions and pension funds than going back to the old system. It is the right hon. Gentleman who lives in the past; this Government are placing the economy in a competitive system to benefit citizens now and in the future.
Kali Mountford (Colne Valley): What analysis did my right hon. Friend make before taking decisions on the future of pensions, based on the comparison of £4 billion taken out of pensions in an unregulated pension market by the previous Government? When looking at how money is used in the pensions services, is it not better to consider a proper, regulated market with properly managed funds in a strong, stable economy in which people can make proper decisions about their futures?
Dawn Primarolo: I entirely agree with the points that my hon. Friend makes, and I remind her that the right hon. Member for Hitchin and Harpenden (Mr. Lilley) was a member of the Government who presided over mis-selling and the cheating of millions of people in this country of their pension rights. This Government enabled that mis-selling to be put right and put in place the financial services structure to protect pensioners in the future.
National Insurance
3. Sir Michael Spicer (West Worcestershire): What estimate he has made of the effect of the recent national insurance rises on UK competitiveness. [111884]
The Chancellor of the Exchequer (Mr. Gordon Brown): With regard to national insurance rises to pay for the national health service, employers' costs for health care have reached £30 a week in Germany, £60 a week in France and £70 a week in the United States. Even after the national insurance rise, employers' health care costs in Britain are, on average, £10.50 a week, while average wages rose by just 2.4 per cent. last month.
Sir Michael Spicer : Why has the rate of productivity gone down ever since the day that Labour took office?
Mr. Brown: Productivity in this country is growing. I am glad that the hon. Gentleman has raised this: the only years in which productivity has been negative were Conservative years. The only years in which manufacturing productivity has been negative were also Conservative years—1995 and 1996. I am afraid that he wants to oppose the national insurance rises in health care because he does not believe in the NHS.
Mr. James Plaskitt (Warwick and Leamington): What assessment has my right hon. Friend made of the effect of past under-investment in the NHS on UK competitiveness?
Mr. Brown: I am grateful to my hon. Friend, because the Confederation of British Industry did a study on those issues fairly recently and it is estimated that the cost of sickness is over £11 billion to business every year. The British Chambers of Commerce president said last year that it is our duty to ensure that investment takes place in health care for the interests of business and of employers. The choice is very clear for this country: the national insurance tax rise, which is paying for 80,000 extra nurses between 1997 and 2008 and for 25,000 extra doctors, or the Flight plan, which means 20 per cent. cuts in our public services.
Mr. Howard Flight (Arundel and South Downs): Is it not extraordinary that the Chancellor apparently made no assessment of the effect of the additional £3.9 billion of national insurance employment tax that he is imposing this year on employment and business competitiveness? Has he forgotten, or changed, his conclusion of 21 March 2000 that lower national insurance contributions would act to promote employment opportunities? Is he not concerned at the findings of the recent British Chambers of Commerce survey that one firm in five intends to lay people off and that 16.7 per cent. of firms plan to cut investment as a result of the additional national insurance tax when the profitability of British companies is at its lowest for a decade?
Mr. Brown: The hon. Gentleman seems to forget that there are 1.5 million more jobs in the economy and that unemployment is at its lowest since the 1970s. Unemployment is lower than in America, lower than in Japan and lower than in the rest of Europe. We have the lowest inflation for 30 years and the lowest long-term interest rates for 40 years. Now, on national insurance, perhaps he will get to the Dispatch Box and explain how he could save 80,000 nurses' jobs in the health service with a plan to cut 20 per cent. out of public expenditure.
Jon Trickett (Hemsworth): Is it not clear that there is a direct correlation between health expenditure funded by the national insurance fund and a productive labour force? Many people in my constituency and elsewhere have long-term illnesses, although they might be able to get back to work if the health service was properly funded. Derek Wanless clearly showed that 40,000 of the 110,000 people who die each year from coronary heart disease would still be living, and perhaps be
contributing to a productive economy, if the health service was adequately funded, as it will be under this Chancellor.
Mr. Brown: That is precisely why the health service is performing more operations, more beds and hospitals are being opened in the health service, and more nurses and doctors are being employed. I believe that in every part of the country people want that additional investment in the NHS. As for its general effect on competitiveness, perhaps the shadow Chancellor and members of the Conservative party generally will read their own observations about the United Kingdom being the most liberal economy in the European Union. How can they say at one and the same time that it is wrong to invest in the NHS and that ours is the most liberal economy in Europe?
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