Previous Section | Index | Home Page |
Mr. Jim Cousins (Newcastle upon Tyne, Central): I shall make only a short contribution, which perhaps befits my position as the only Labour Back Bencher in the Chamber.
The hon. Member for Eddisbury (Mr. O'Brien) did not acknowledge all the Government's achievements. ISAs have been an extremely effective savings instrument, and we should protect them. Some of the information supplied by the hon. Gentleman illustrates that some ISAs are held inappropriately by non-taxpayers. That should give sections of the financial market cause to think about their selling methods. None the less, he did acknowledge that ISAs have been a huge success.
The hon. Gentleman was not entirely fair to the Government when he said that they were deliberately taking action on that. The opposite is true. When ISAs were introduced, the Government reserved the position of the dividend tax credit in ISAs until April 2004.
So far as I am aware, the Government have not struck a position on the future of the dividend tax credit or on any successor arrangement that might preserve the benefits of the DTC after April 2004. For the record, I do not possess any equity ISAs. I was one of the fortunate people who got out about six months before the stock exchange reached its height. However, we are talking about a feature of the ISA scheme that the Government should seek in some form, albeit not necessarily in its present form, to preserve. Those who hold equity ISAs have had a bad time on the markets. That being so, there is great reluctance to continue to invest in equity ISAs. It would be unfortunate if the DTC were withdrawn, and there was a market perception that that was a reason either not to invest or to sell up. That would be singularly unfortunate and might have the effect of producing market distortion at what I suspect, in April 2004, might be quite a sensitive moment.
There is another feature that needs to be examined, and that is that the dividend tax credit, as its name suggests, is given to dividends. People who invest in stocks and shares ISAs and hold them in the form of bonds are unaffected. It would be unfortunate at this
stage in the development of the bond market if there were to be an apparent tax quirk that favoured building up investments in the form of bonds rather than in the form of straightforward equities. That would be an unintended distortion of the market, and it cannot be the Government's objective to allow that.I hope that the Government will consider how the dividend tax credit within the equity ISA can be preserved in some form, albeit not necessarily in its existing form. I am not aware that the Government have yet struck a position on that. I hope that they will consider these issues extremely carefully and be able to come up with a scheme that will preserve the good common sense of the present arrangement.
Mr. Laws: The hon. Member for Eddisbury (Mr. O'Brien) has raised an important point about one of the anomalies relating to the way in which the Government tax different forms of savings and financial assets. To some extent, my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins)
Mr. Laws: The hon. Gentleman is a former colleague on the Treasury Select Committee, even if he is not an hon. Friend. He has acknowledged the points made by the hon. Member for Eddisbury (Mr. O'Brien).
I shall raise one specific issue that perhaps the hon. Member for Eddisbury was not able to cover. Perhaps it is appropriate for the Paymaster General to respond on the substance of the matter because she may have access to information that the hon. Gentleman would not have had when he made his comments.
First, what would be the cost of the new clause and the amendments that are essentially being proposed by the hon. Gentleman? We should know how much money we are talking about if we are to make the changes that the hon. Gentleman proposes. Secondly, what effect would his proposal have both on the total stock of savings and on the distribution of savings between different classes of assets? Perhaps we could not have expected the hon. Gentleman to be able to address that issue.
Mr. Stephen O'Brien: On the second point, I think that the movement would be upwards. That is the idea and the purpose. The hon. Gentleman wonders whether the Paymaster General will deal with specific cost. I, too, will be interested to hear what she has to say on that. In former times, it was expected that that might have been about £180 million. Over recent times, that is estimated to have come down to about £130 million. I put that on the record as an answer, to compare and contrast with whatever we may get from the Paymaster General.
Mr. Laws: I am grateful to the hon. Gentleman. That intervention was extremely helpful on two fronts, the second of which related to the effect on the total stock of savings, to which I shall return briefly. The first front related to the cost of the proposed measure. One beneficial effect of the hon. Gentleman's intervention may have been to give the Paymaster General time to gather her thoughts on the cost issue. I hope that she will be able to give us a detailed estimate of the cost.
In raising the issues of cost and the effect on the stock of savings, I wish to concentrate on what the effects of the hon. Gentleman's proposal may be. Although he has indicated that he believes that the effect will be to increase the stock of savingspresumably in a significant way, otherwise he would not have bothered to table and introduce the new clausehe will probably know that many independent economic commentators who have assessed the effects of tax relief on savings over many years, both in respect of PEPs and TESSAs, and also in respect of ISAshave often expressed scepticism in their economic research about the effects of these tax incentives in terms of the total stock of savings.
In other words, evidence has often indicated that while tax reliefs can often benefit those who have savings, and while they may certainly effect the distribution of savings between particular financial assets, they do not always result in a significant increase in the total stock of savings. We may be talking about how tax relief is distributed across a particular group of taxpayers who are wealthy enough to be able to save, but the hon. Gentleman will be aware that the vast majority of taxpayers have incomes that are so low that they are not able to save. When we consider the new clause, we should have in mind not only what effect it will have and what its cost will be in terms of existing savers. We should surely be reflecting also on how the moneys might be used to restructure the entire system of savings and pensionsa very big issue at presentto help those at the bottom end of income distribution who, at the moment, do not benefit from the reliefs that we are discussing, and who, in a substantive sense, are too poor to save.
Mr. O'Brien: In addition to the citation from Hansard about what the Government said about the increase in savings in ISAs in 2001 over every income group, including, most significantly, the lower income groups, there was the increase in savings in TESSAs and PEPs during 199899. That gives some credence to the overall take-up. It is interesting that there is evidence to show that from 1992 to 2000 there was an exponential increase in retail funds under management, and therefore savings. We can chart the acceleration of growth in relation to the introduction of tax savings and tax attractive schemes throughout all income levels. With the higher rate preference, as it were, the proposal is rough on those who pay the basic rate of tax.
Mr. Laws: I am grateful to the hon. Gentleman for his intervention. Of course, I do not want to take us too far away from the new clause. I am sure that the hon. Gentleman would accept that it is one thing to demonstrate that particular forms of savings increased rapidly during a period when financial markets were buoyant, when people may have been switching savings between particular asset classes, and another thing to show that the total stock of savings has been increased by these types of relief. The evidence from many independent commentators, such as the Institute for Fiscal Studies, suggests some scepticism about the effect of these sorts of relief on the total stock of savings rather than on distribution between different forms of financial assets. I hope that the Paymaster General will say
something on that. Her response may help us to understand whether these types of relief in themselves are useful and efficient.
Mr. Redwood: The tax relief has been welcome, and I disagree with the hon. Member for Yeovil (Mr. Laws), the Liberal Democrat spokesman, in that to me it is self-evident that if people are offered an incentive to do something financially, they are more likely to do it. All these schemes have been actively marketed by City firms on the basis of the tax relief that is available, and they have been very successful. I have saved through TESSAs, PEPs and ISAs, and I know many others who have done similarly. That is because we do well by forgoing taxation on some of our savings out of income that has already been heavily taxed. We see that as an advantage.
I therefore welcome the decision of my hon. Friend the Member for Eddisbury (Mr. O'Brien) to highlight that as a major issue for debate, and to set out the Opposition's case for more savings and continuing with a family of tax reliefs to encourage that. One of the most worrying features of the Government's economic policy is the precipitate and continuous decline in the savings rate during their years in office. People have found it more difficult to save, as income has been taken away from them through stealth taxes of all kinds. They have recently suffered the double whammy of national insurance and council tax hikes, so they have less disposable income available to save. However, they have also faced a collapse in the returns on their savings. The Government have presided over a massive boom and bust in the equity market, which they did a lot to extend through their decision to take huge sums of money out of that market near its peak through their taxes on telecoms and pensions. We have moved into an era of low returns on bonds and deposits, which has been welcomed by borrowers but which, of course, has been upsetting for people who had saved for their old age, but who now discover that their deposit income is a modest fraction of what it was 10 years ago, through no fault of their own.
One would have thought that at this juncture the Government would want, first, to increase savings overall, responding to the collapse that they have helped to generate and, secondly, to increase savings through equity-type vehicles, claims on real assets and investments in productive British companies. One would expect them to want to do so now because the equity market has fallen a great deal over the preceding three years, so better values are now available, and because British companies have been starved of cash for some time and, in many cases, need to be refinanced. A better flow of new moneys from the share market in Britain to those companies would be welcome, and would enable them to begin to see again the opportunity both to strengthen their balance sheets and for new investment.
The new clause is not just about the question of the saver but the use that the money can be put to by companies through the UK marketplace. Another worrying feature of the Government's mismanagement of the economy is the fact that in recent years there has been a shortage of new money going into companies
through the stock market. It would therefore be perverse in the extreme for the Government to remove one of the last remaining tax incentives for Mr. and Mrs. Everyman to save through company shares at exactly the point at which companies may again see the advantage of turning to stock markets and raising capital for their investment programmes. The House should therefore urge the Government strongly to pledge that they will not go ahead with their plan to remove that important last remaining tax relief.My hon. Friend the Member for Eddisbury made it clear that it would be perverse of the Government to persist with their intentions, not least because helpful tax relief would be taken away from people on average or about average earnings who pay standard-rate tax. However, some benefit would be left for people on higher earnings. The Minister, in discussions on the Bill has been keen to close every conceivable loophole for people on above average earnings or who own assets of above average value. It would be interesting to hear why, in this case, she thinks that it is good idea to help people who are doing a bit better than average and clobber those who are not. I urge her to do the decent thing and affirm in the House that the Government do not wish to hit hard people on about average earnings who pay standard-rate tax, and that the tax relief will remain.
If the Minister cannot make that pledge or guaranteeI fear that she may notshe owes the House and the country an explanation of why the Government have such a downer on savings and savers and why they do not want to have any pro-savings policy at all. The Government have wrecked the telecoms industry with a £22 billion telecoms tax and the pensions industry with a £5 billion a year pensions tax[Interruption.] Government Members are laughing, but they ought to talk to the people who lost their jobs, shareholdings and family livelihoods as a result of those punitive taxes. The Government are now offering to remove an important tax relief for non-pension savings.
Next Section
| Index | Home Page |