The Financial Secretary to the Treasury (Mr. Stephen Timms): The savings ratio has risen over the past year. With individual savings accounts, the new child trust funds, the Sandler suite of stakeholder savings products available from April and an expanded pilot of the saving gateway for low-income savers, we are encouraging personal saving with new incentives, simpler products and better consumer information.
Mr. Bellingham: Is the Minister aware that, when the Labour party took office, it inherited a very healthy household savings ratio of nearly 10 per cent., and a private pension sector that was the envy of the western world? Eight years on, household debt has reached a staggering £1 trillion, and the private pension sector is in crisis. What has gone wrong?
Mr. Timms: The savings ratio is about at the level of the early 1960s, and above its level in 1988, when the hon. Gentleman was on the Government Benches. It is much higher than it is in the US, and about the same as in Japan. As I said, it has risen in the past year, but we want to do more to encourage saving and to build a savings culture across the UK. The new child trust fund is an excellent example of that, and we have made welcome changes in respect of pensions. Across the board, we are doing what is necessary, but I emphasise that the UK's savings ratio is extremely healthy compared to the position in the US and Japan.
Mr. Bill O'Brien (Normanton) (Lab): Does my hon. Friend accept that people now have more scope for saving than ever before, and that their quality of life is much better now than was the case under the Tories? Will he and my right hon. Friend the Chancellor ensure that Tory proposals have no chance to threaten those things, and that we are allowed to continue along the lines that have been set out?
Mr. Timms: I certainly will. My hon. Friend is absolutely right: there have been substantial increases in pensioner income since 1997, and the rate of increase has been significantly higher than that of earnings. That is extremely welcome, but we will also make sure that pensioners do not suffer from the very high rates of inflation and the 15 per cent. interest rates that we had under the previous Conservative Government.
Mr. Howard Flight (Arundel and South Downs)
(Con): Does the Minister appreciate that the Government's £5 billion pension tax has served to
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knock some £100 billion off the value of pension fund investments as well as costing them some £40 billion in accumulated income?
Mr. Timms: The Turner commission pointed out that the impact of that change was comparable to the change introduced in the Finance Act 1986, about which we hear rather less from the Opposition. No party in this House argues that the change should be reversed, and I know that the hon. Gentleman will agree that the last thing that we should do is go back to the days of very high inflation and 15 per cent. interest rates. Those conditions were very damaging, for pensioners and for everyone else.
Mr. Barry Sheerman (Huddersfield) (Lab/Co-op): Does my hon. Friend agree that there would be a higher level of personal saving if banks had a better reputation among consumers? That reputation could be secured if banks did not charge people for taking money out of cash machines and if they did something about orphan fundssuch as investing them in overseas development.
Mr. Timms: It is important, as the Treasury Committee has said, to build confidence in long-term savings. I look forward to giving evidence to the Committee shortly, specifically on the point about ATM charges made by my hon. Friend. We need to build confidence, and all the measures that we have taken, particularly the introduction of the Sandler suite of stakeholder products from April, will help the industry as a whole to build confidence among its customers.
Mr. Richard Spring (West Suffolk) (Con): Given the desirability of savings, not least to pay extortionate council tax bills, and given the view of the Association of British Insurers that there is an annual savings gap of no less than £27 billion, will the Minister limit the terrible damage that his taxes have done to pensions savings by ruling out any further tax grab on Britain's beleaguered savers?
Mr. Timms: I do not agree with a number of the hon. Gentleman's comments. The change in pension funds that he referred to was offset by the accompanying reduction in corporation tax. The impact of the change is about one tenth of the difference in performance between the best and worst performing pension providers. Pensioners and everyone in the UK have benefited enormously from the remarkable new stability that we have achieved in the economy since 1997, and our focus is on making sure that those benefits continue.
The Chancellor of the Exchequer (Mr. Gordon Brown):
Our G8 presidency will focus on global growth and stability and measures to achieve it, structural economic
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reform, modernisation of the international financial institutions, climate change and, as we have said this morning, issues of global poverty.
Mr. Brown: I am grateful to my hon. Friend. He will know that in his constituency we now have the lowest interest rates, inflation and unemployment for many years. [Interruption.] The Conservatives become restive when we talk about low inflation, low interest rates and high employment, because we did not have much of that when they were in power in the early '90s. As for the G8, we will discuss not only the economic issues arising from the current account exchange imbalance but the path of global growth over the next year. It will be up to every continent to make a contribution to global growth and stability. The American President spoke last night in his State of the Union address about the need to cut deficits, and European Ministers will speak about the need to intensify economic reform. Japan will be asked to look at its financial sector and how it can reform so that it can play a part in achieving growth. The way forward for the global economy is for each continent to say this weekend at the meeting of the G7 Finance Ministers that we will all contribute to higher growth levels in the world economy this year.
Mr. Francis Maude (Horsham) (Con): Will the right hon. Gentleman spend a little less time worrying about other countries' economic difficulties, because the reality is that if Labour wins the next election, he will not be Chancellor of the Exchequer? It is common knowledge that the Prime Minister has decided that he is unfit to be Prime Minister after him.
Mr. Brown: I would spend more time listening to the right hon. Gentleman if he had not spent all his time as shadow Chancellor predicting a recession in Britain. He should congratulate us, because we are the only major industrial country that has maintained consistent growth in the past seven and a half years of a Labour Government. That would not have happened under the policies that he advocated.
Ms Julia Drown (South Swindon) (Lab): During our presidency, will the Chancellor tackle global poverty by raising the issue of looted assets. The United Nations estimates that $11 billion has been looted by corrupt people from Kenya and Nigeria. Much of that money is in western banks in the developed world. There has been an initiative to try to tackle money laundering for terrorism and drugs. Could that be extended so that money can be returned to the poorest countries where it is most needed?
As my hon. Friend will know, the question of looted assets from Nigeria is being discussed in some detail by the authorities. As for the general issue of action against terrorism and drugs, there will be a discussion about that at the G7 meeting. We must agree to tighten up in every country the rules governing the treatment of those issues. I hope, over the course of the
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year, that we will be able to secure a general statement from the International Monetary Fund and the World Bank on those matters.
Miss Julie Kirkbride (Bromsgrove) (Con): The Chancellor said that climate change would be one of his priorities for the G8. Is that just another example of his trying to lecture others when he does little about the issue at home? One of the most obvious things he could do would be to create a differential between unleaded fuel and other fuels, which would significantly cut carbon dioxide emissions. He does not do that. Is that because he is more interested in tax revenue than in the right policy?
Mr. Brown: The hon. Lady speaks for a party that when it was in government introduced an above-inflation rise in petrol, saying that it was doing so for environmental reasons. The minute we said we would continue with that policy, the Conservatives dropped their policy in its entirety. They said that they would support us on climate change yet they oppose the climate change levy. We shall take no lectures on the environment from the Conservatives.
Dr. Nick Palmer (Broxtowe) (Lab): Will the Chancellor explicitly reject the suggestion from the Opposition Benches that we should take no interest in the economic policies of other countries? Does he agree that nowadays Britain needs more than ever to work with its partners in the European Union and across the world because the world is interdependent and our prosperity depends on it?
Mr. Oliver Letwin (West Dorset) (Con): Given that China's productivity growth is running at about three times the rate of the G8 countries', I am sure that the Chancellor will agree that productivity needs to be a priority for the G8. But how can he hope to put that vital topic on the G8 agenda when his taxes and regulations have caused a drop of a third in Britain's productivity growth rate?
Mr. Brown: I just mentioned the shadow Minister for deregulation who has congratulated us on our record on the economy[Hon. Members: "Answer the question."] This is the answer to the question. The right hon. Gentleman mentioned the problems that he thought we were creating. Businesses are reluctant[Interruption.] This is what the shadow Minister for deregulation said:
"The single most important consideration is the cost impact of Government. Businesses are reluctant to locate in places where . . . tax rates are high . . . Places like . . . the UK . . . attract because their tax rates for business are low."
The Chancellor's concept of an answer is an interesting one. He did not mention productivity
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growth rates, which are what my question was about. There is of course a reason why he did not mention them. Britain's productivity growth rate has been only 1.8 per cent. a year over the last eight years, compared to a G8 weighted average productivity growth rate of about 2 per cent. over the same period. The Chancellor did not always avoid the subject. In 1998, he described productivity growth as
Mr. Brown: I have to tell the right hon. Gentleman that he should look at the facts. Year on year, there has been productivity growth in the British economy. Year on year, there has been manufacturing productivity growth. That did not happen under the previous Government when productivity suffered negative growth. If he wants to know about the comparison with other countries, we have closed the productivity gap with Japan, we have closed the productivity gap with Germany, we are closing the productivity gap with France and we are making inroads in the productivity gap with the United States. The reason that we are doing so is that we have achieved a level of economic stability in this country that his party could only dream of.