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1.54 pm
Mr. John McFall (Dumbarton) (Lab/Co-op): I welcome the Budget, which emphasises stability, growth and productivity, employment and public services. We do not want to return to the times when savings were wiped out every few years by bursts of double-digit inflation.
I welcome the Chancellor's assertion that the trend rate for growth—the best engine for delivering sustainable returns for savers and those in work—will be 2.5 per cent. until 2008. I agree with him that we must invest for the long term. The need for long-term investment is urgent, so it makes sound economic sense for low-debt countries to borrow to invest and not to impose balanced budget rules. I welcome the latest unemployment figures and the Chancellor's statement that employment is up by 1.3 million compared with the 1980s and by 1.5 million compared with the 1990s.
The hon. Member for Twickenham (Dr. Cable) discussed the euro. A housing market reform programme has been implemented, the inflation target has been changed, fiscal stabilisation has been achieved and the flexibility of the UK markets has been enhanced, and we must now follow through on those changes.
I remind the House of what the Prime Minister said in Tokyo last July:
- "Treasury studies have established that over the long term monetary union is in the national interest . . . We are not looking for completion of the impact of reform in all areas before recommending entry, and neither are we keen to reduce the hurdle through one of a mere balance of probabilities. A clear and unambiguous decision requires sufficient material change to give us real confidence that we will benefit from entry. But it is the aggregate nature of the changes that matters."
I welcome the Chancellor's announcement on tax avoidance. I have been asking for an examination of the issue because the top four accountancy firms made £1.5 billion in fee income from tax work in 2002–03, and experts say that those profits have risen rapidly since 1997. Schemes offered by the most respected firms of accountants and their partners include concerted attempts to avoid tax by manipulating the gilts markets.
Tax avoidance thrives on concealment. I recognise that the issue is international and that the choice is between following the Australian route by implementing a general tax avoidance measure, or the American route or requiring accountancy firms to disclose the schemes they sell to companies. I am glad that the Chancellor is taking up that issue, because, as Deloittes recently stated, up to 40 per cent. of avoidance schemes are successfully hidden. The Government have acted in every Budget since 1997 to close tax loopholes, but they have not had great success. They have not clearly defined tax avoidance or introduced a clear mechanism for ruling whether schemes are legitimate or illegitimate, and they should get on with such definitions as quickly as possible.
I welcome the Government's adoption of the recommendations of the Barker report, in which Kate Barker particularly emphasised social housing. The
number of social houses built in the UK has fallen from about 42,700 per year in 1994–95 to about 21,000 in 2002–03. Expenditure on social housing has increased from £800 million in 2001–02 to more than £1.4 billion in 2003–04, but the rate of supply has continued to decline. Over the next 10 years, it is estimated that the number of social and affordable houses must increase by at least 17,000 per year, which will require annual investment of about £1.2 billion to meet the flow of new needy households. The lack of social housing has been a scandal for many years, but the Government now need to pay the issue urgent attention.The central focus of my right hon. Friend's approach to his Budget has been productivity. I welcome the 10-year strategy for science spending, under which Government support for research will rise annually by at least 2.75 per cent. above inflation. I also welcome the consultative document published on the eve of the Budget, which invites business leaders, research councils, charities and scientists to advise on how the new money should be spent.
Two weeks ago, colleagues on the Treasury Committee and I visited Germany as part of our inquiry into productivity. We visited Berlin and former East German areas, including Jena. We examined the role of the research institutes, which help regions to develop their research and development. The research institutes are spread around the regions. One institute, the Fraunhofer, has links in every region of Germany. In Saxony, I pointed out to a businessman that if we developed a similar system people would say that it is for individual companies, not research institutes, to develop their research and development. He said, from a right-wing perspective, that he could not have developed his business if it had not been for the help of research institutes. There is a pressing need for a regional approach to research institutes in this country to improve competitiveness and innovation. I hope that the Government will consider that issue.
At the risk of being parochial, I must express my dismay at my right hon. Friend's imposition of tax stamps on the Scotch whisky industry. I took the Economic Secretary to my constituency and we toured the Allied Distillers plant. I put a hard hat on him and took him round the production lines. He saw for himself the effect that such an imposition would have on competitiveness and productivity. Sadly, when he went back to the Treasury, he failed in his mission, but I learn from my pager that he will meet me at 3 o'clock to discuss the issue. I warn the Government that productivity and competitiveness are extremely important to the Scotch whisky industry. It is a £2 billion industry, and we need to support it. Manufacturing has been declining year after year, and the Government should not engage in any activity that will affect productivity and competitiveness. I put the Government on warning that we will be back, week after week, to ensure that my right hon. Friend the Chancellor's rhetoric on innovation and assisting businesses is translated into action on the ground.
Mr. Alan Reid (Argyll and Bute) (LD): I wholeheartedly back the hon. Gentleman's support for the Scotch whisky industry. When he meets the Chancellor later, will he draw his attention to the fact that he has promised the industry only £3 million in
capital investment assistance? The hon. Gentleman will know that that is nowhere near enough—the cost to the industry will be far greater.
Mr. McFall: I have great respect for the hon. Gentleman, but I always like to have Liberal Democrat statistics checked. When I have done so, I will discuss the issue with my right hon. Friend the Chancellor. However, I pay tribute to the hon. Gentleman for the work that he and other colleagues have done with me on the all-party Scotch whisky group.
The Treasury Committee is concerned about credit cards and debt. Much has been made of the issue, but we approach it from the point of view of transparency and competitiveness. We look to the industry to improve the situation because, at present, consumers are left in the dark. They do not understand how annual percentage rates are calculated, because there are two definitions of them; nor do they understand how interest rates are calculated, because there are 10 different ways of doing it. That deceives the consumer, and the sooner the credit card industry realises that, the better. It is making record profits on the back of consumers' ignorance. I tell the industry that the Treasury Committee will bear down on it and that if it does not do anything over the next few months its representatives will have to reappear before the Committee, in June or July, to go through the whole rigmarole again.
We need a victory for the consumer. Last week, we heard of the tragic case of Mrs. Lewis, whom I had the opportunity to meet. When her husband died, he had 19 credit cards and excessive debt of more than £65,000. The industry does not share information about credit history. I have had some lively exchanges—all very positive—with the managing director of MBNA in this country, General Chuck Krulak, a four-star Purple Heart Vietnam veteran. He cannot understand why our industry does not adopt the open system that operates in the US: if the US has it, why cannot we have it? An information-sharing system would reduce the opportunities for people such as Mrs. Lewis's husband to get into unmanageable debt. It is important that the credit card industry ensures that that happens.
The Financial Secretary knows that the Treasury Committee is conducting an inquiry into long-term savings. Last week was a terrible one for the retail savings industry, starting on Monday with Lord Penrose's report. On Thursday, the Treasury Committee published its endowment mortgage report, which showed that the saver has no confidence in the savings integrity of the life assurance industries. Until that confidence is re-established, it will be bad news for the savers and for society. Paul Myners and Ron Sandler appeared before our Committee. Ron Sandler said that the insurance industry was trusted less than local supermarkets. That trust must be re-established, and the Government must look at the issue.
I hope that the Financial Secretary will think about reaching out to the less affluent, because the insurance industry has not tackled that issue. The less affluent are gradually being priced out of the savings and pension market. Not only has the old industrial branch, which collected premiums by making monthly home calls, disappeared, but most direct sales forces have been wound down. With the best will in the world,
independent financial advisers will not make a living concentrating on the poor. The result is that long-term saving is increasingly becoming a middle class pastime. The Government and the industry need to have a long, hard look at how we might get financial advice and financial services to the less affluent.The Committee will take evidence from several groups that are interested in the issue. It is curious, however, that the UK industry seems happy to ignore a slice of the population that others here and overseas have found to be a profitable and growing market if it is approached innovatively. Sandler products might well provide an ideal platform for selling via the workplace—regulated products with a lightly regulated sales process—but the industry's generally negative response to them has been telling.
The industry has focused on commission, but the investigation of endowment mortgages convinced the Treasury Committee that the sales-driven approach to upfront commission ensures that when the sale is made the relationship between the provider and the customer is severed. As Paul Myners said when he appeared before the Committee, there is no duty of care for the insurance and savings industry towards the saver. When the industry comes knocking on the Financial Secretary's door saying that a cap of 1 per cent. is not enough, I advise caution, because we have to address what those sales are for. Are they merely to provide up-front commission or are they to ensure that we have a well-regulated suite of low-cost products in which the consumer has confidence and that a long-term relationship is established between the industry and the consumer?
The focus should be not on selling but on what is provided over the long term. The mixture should be selling, investment performance and after-sales care. Those three ingredients are important to restore confidence in long-term savings. The Treasury Committee is looking for a much more intelligent debate within the industry, which is why my colleagues and I will meet industry representatives to ask them to come up with ideas that go beyond their complaint about a 1 per cent. cap on commission. If a product, such as a pension, is sold to an individual over a 50-year period on 1 per cent. commission, the probable cost to the customer over that period would be 30 per cent; in other words, a third of that contribution comes from the customer. That is not a bad deal.
The Financial Secretary must ensure that the industry lays out exactly what its approach to the customer will be, and after-sales care must be at the heart of that approach. The Committee is asking the industry to come up with initiatives and, over the coming weeks, we shall question it about restoring confidence in long-term savings. We shall also invite my hon. Friend to tell the Committee about her links with the industry and to confirm that new, positive measures will be put in place.
Savings are extremely important. As I said, I do not want us to go back to the days of double-digit inflation, because if we do the people who will lose out are the elderly and ordinary, low-paid individuals. A stable economy is essential and I wish the Government well in
that respect, but I also want them to take cognisance of the points that we have made so that the stable economy is married to a fair environment.
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