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Taxation and Saving

8. Mr Andrew Mackay (Bracknell) (Con): What assessment he has made of the effect of the level of taxation on (a) personal and (b) retirement saving. [190544]

The Financial Secretary to the Treasury (Mr. Stephen Timms): Relief on the taxation of savings has a very positive effect. Tax support for individual savings accounts and other forms of personal saving amounts to more than £2 billion a year. Annual tax relief to individuals and employers for retirement saving amounts to more than £11 billion.

Mr. Mackay: As the Chancellor has raided £5 billion each year from our pension funds, will the Financial Secretary accept some responsibility on the Chancellor's behalf for the awful mess that our pensions are now in?

Mr. Timms: The change that the right hon. Gentleman refers to removed a distortion in the system
 
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that favoured dividends at the expense of investment—a point made in 1993 by the Chancellor, Lord Lamont, in his Budget speech. Commenting on surplus advance corporation tax, he said:

"This can have damaging economic effects . . . It cannot be right to distort the commercial decisions of British companies in this way".—[Official Report, 16 March 1993; Vol. 221, c. 186.]

I note that the Conservative party is not proposing to reverse that change. Of course, my right hon. Friend the Chancellor, at the same time, introduced reductions in the rate of corporation tax, offsetting that change. That package has led to the unprecedented period of economic stability and growth that we have enjoyed since.

Miss Anne Begg (Aberdeen, South) (Lab): Is it not clear from the Turner report, which was published this week, that if our country is to continue to pay the basic state pension we obviously have to keep the level of taxation that we have at the moment or increase it, or indeed increase the age at which people retire? The Opposition propose to link the basic state pension back to earnings, and they have been disingenuous in pretending that they can also lower taxation—

Mr. Speaker: Order. The Minister does not answer for the Opposition. The Opposition worry about Opposition policies.

Mr. Timms: Certainly the Opposition's policy is unaffordable. The Turner commission has done us a great service by setting out the challenges that we face, not so much in the next 10 years, but over a 20 or 25-year period. I hope that we can have a mature and sensible debate across the House about what is the right way forward.

Mr. Howard Flight (Arundel and South Downs) (Con): Does the Minister not realise the indirect damage that the pension tax has done, particularly to pensions saving, in terms of its leading to a 35 per cent. underperformance of the British stock market? There has been a major loss of value, and basically £5 billion is worth £100 billion of value.

Mr. Timms: The Turner commission makes the point that the impact of that change is comparable with that of the changes in the Finance Act 1986—a subject on which we hear rather less from those on the Conservative Benches. Turner also says—this is the key point—that the effects of both changes are small compared with the impact of the stock market fall and the rapid increase in longevity. Those are the big challenges that are affecting our pension system, and I hope we can have a mature and sensible debate about how best to address them.

Mr. Bill O'Brien (Normanton) (Lab): In considering the prospects for pensioners, will my hon. Friend ensure that the policies introduced by the Chancellor on pension credits, the 10p starting rate and the other benefits that pensioners receive continue—that is what pensioners are requesting, particularly poorer pensioners—so that we can ensure that they have a reasonable quality of life in retirement?
 
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Mr. Timms: I welcome all the work that my hon. Friend has done in campaigning for improved income for pensioners. In 1997, a large number of pensioners were on a total income of £69 a week. Through the changes that we have introduced and the pension credit in particular, there have been dramatic improvements. I assure him that we will ensure that the pace of progress continues.

Mr. Oliver Letwin (West Dorset) (Con): It would be churlish not to begin by welcoming the Financial Secretary back to the post he once occupied with some distinction, and by offering him my commiserations on having to deal with the Chancellor's mess on pensions.

This week, one newspaper carried the banner headline, "The Great Pensions Betrayal". Does the Financial Secretary understand that headline? Does he see why people feel betrayed by the Chancellor's taxes on savings, the £5 billion tax raid on pension funds, and the means tests for pensioners?

Mr. Timms: I am grateful to the right hon. Gentleman for his words of welcome, but I do not accept for a moment the characterisation that he has presented. As I said earlier, and as the Turner commission spells out clearly, the fall in the world stock market has raised big questions for the future of our pension system, as does the rapid increase in longevity, which of course all of us welcome. The impact of the items that the right hon. Gentleman listed is very small compared with those big changes. I genuinely hope that we can have serious reflection across the House on the basis of the Turner commission's useful work on the right way forward to deal with the big challenges that our pension system faces.

Mr. Letwin: When will the Financial Secretary and the Chancellor see that it demeans the whole of British politics when Ministers stand there and claim sole responsibility for all the good things in the economy and then claim that they have no responsibility whatever for the pensions crisis? Is he not concerned that, partly because of the Chancellor's taxes and his means test, we now have a savings ratio which is half the European average? Does not the Financial Secretary see that there is now an urgent necessity to restore the incentive to save?

Mr. Timms: The right hon. Gentleman needs to acknowledge that pensioner incomes have risen dramatically since 1997—faster than the rate of earnings growth. It is true that policy has focused, in our view, rightly, on the incomes of the least well off pensioners, but average pensioner incomes as a whole have risen faster than earnings. The current savings ratio is about the same as it was in the 1960s, the last time we had a period of stability and stable growth. Of course, in the early 1990s, because of the instability in the economy, the picture was different, but the savings ratio is currently higher than in the US. The right hon. Gentleman should pay tribute to my right hon. Friend the Chancellor for the long period of stability and growth that we have enjoyed, which means that pensioners and all of us are much better off.
 
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Health Expenditure

9. Siobhain McDonagh (Mitcham and Morden) (Lab): What the change in public expenditure on health has been in real terms since 1997. [190545]

The Chief Secretary to the Treasury (Mr. Paul Boateng): As a result of the Government's policy in successive spending reviews, public expenditure on health has risen by about 60 per cent. in real terms since 1997. By 2008, it will have risen by 90 per cent., to nearly £110 billion across the United Kingdom. That is the biggest ever sustained increase in national health service funding.

Siobhain McDonagh: May I thank my right hon. Friend for that brilliant answer, particularly for the people in my constituency? Under the last Conservative Government, the only remaining hospital in my constituency was closed, despite opposition from thousands of constituents. By contrast, my local health authority is today looking at ways to expand the health service, and one of its most amazing recommendations is that the Wilson hospital should reopen. If that recommendation is supported, as I anticipate it will be, what reassurance can my right hon. Friend give my constituents that the funds will be available to reverse the Tory decision and reopen the Wilson hospital?

Mr. Boateng: My hon. Friend is kind, but much more important she is also an effective campaigner for the health service in Mitcham and Morden. She will know that as a result of this Government's actions her primary care trust is seeing its budget rise by some 20 per cent. in real terms in just three years. The good news is that that resource is accompanied by reform that creates a more responsive service with greater choice and information for patients. I have no doubt that her constituents will continue to benefit from the reforms and resources that we are applying to the NHS. I have no doubt either that, in re-electing her at the next general election, whenever it comes, her constituents will comprehensively reject the mishmash of cuts and privatisation that are on offer from the Opposition.

Miss Anne McIntosh (Vale of York) (Con): If the Chief Secretary is right and so much more money, in his view, is being spent on hospitals, why is their state of cleanliness so poor, and why are thousands more people dying from MRSA?

Mr. Boateng: No one, least of all someone who has had the pleasure of working in the Department of Health, for one moment underestimates the challenges that are faced in terms of infection in hospitals or the extent to which dedicated NHS staff and managers are working to address those challenges. It is important to keep them in perspective, however, and to remember, too, that as a result of the investment in the NHS we are addressing those challenges, not simply with new build but also with training. We are making sure, too, that the procedures in place at every NHS facility correspond with the highest standards and the best international practice.

Andy Burnham (Leigh) (Lab): Does the Chief Secretary agree that this unprecedented rising tide of
 
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investment presents an historic opportunity to correct local deficits in health funding and to tackle some of the health inequalities that blight our country? While all primary care trusts got at least double figure percentage increases last time, nevertheless some in the most deprived parts are more than £10 million away from target funding, while others in more prosperous areas are probably £10 million over target. With the next round of PCT allocations imminent, will the Chief Secretary meet colleagues from the Department of Health to see what can be done to remove entirely all distance from health funding targets?

Mr. Boateng: I know that my hon. Friend spends a great deal of time in his constituency on health service issues, and I will certainly make sure that his concerns on deficits and their impact in terms of our capacity to meet the targets that we have set ourselves for reducing health inequalities are made known to my right hon. Friend the Secretary of State for Health—who, I am sure, will be only too happy to make sure that he and his departmental team are fully aware of all those concerns.

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