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It is irritating that under this Chancellor's stewardship, the Budget speech, which should be a fair survey of the economy and the outlook for the country, has become increasingly selective. The right hon. Member for Dumbarton (Mr. McFall) correctly upbraided the financial services industry on the subject that what is said to prospective investors and that what is in a prospectus should be fair.
When it comes to businesses and even citizens, the outlook for the economy that the Chancellor paints provides a basis for people's decisions whether to save, spend or invest. Perhaps we would all agree that the Chancellor is a master at being selective.
I have noticed that in a Britain that has a Labour Government who are a little authoritarian, it has become unacceptable to voice criticisms and point out problems. We are damned with either misrepresentation or as doom-mongers. The hon. Member for Twickenham (Dr. Cable), in honest terms, pointed out the risks for house prices and has been written off as a doom-monger.
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I shall focus on some of the things that the Chancellor has not said and on some of the things that I view as bordering on mis-selling. As is the Chancellor's style, we shall no doubt learn subsequently of all the nasties that were not referred to. I shall be 60 in four years' time, and I now know that I will be able to use my free bus pass only during off-peak hours. I am disappointed to learn that the inadequate help with council tax will be for only one year.
I shall move on to a description of the past. My right hon. Friend the Member for North-West Cambridgeshire (Sir Brian Mawhinney) made similar comments. Everyone must welcome the recovery of employment and the fact that since 1992 we have been a successful economy. We have had low inflation, low interest rates and good growth, but it was Lord Lamont, the then Chancellor, who started the policy of inflation targeting, and the success has been carried right the way through under subsequent Chancellors. It is not something that the present Chancellor invented.
The problems in the early 1990s were very much the results of joining the exchange rate mechanism. The Chancellor forgets, rather conveniently, that he was a stronger advocate of joining the ERM than any Conservative Member. It was Bryan Gould, who said rather harshly at the time:
"It has always been a puzzle to me that people who make mistakes of such magnitude and reveal such a total inability to understand the issues of which they are supposed to be masters nevertheless sail serenely on unscathed by any suggestion that they might not be up to the job."
The Chancellor learned a new mantra thereafter. The issues that beset the economy, that caused many people to lose their jobs and did the Conservative party untold damage for a decade resulted from that unwise membership of the ERM at that time.
There are many other things that it would have been more open for the Chancellor to have mentioned. For example, over the Government's four-year term to date, the borrowing outcome has become about £80 billion worse than forecast. In terms of total progress of the economy since 1992, productivity growth has trailed off quite significantly since 1997. We have lost 1 million manufacturing industry jobswe had difficult times in the 1980s, but manufacturing jobs have continued to be lost and we have become increasingly uncompetitive. Above all, globalisationthe opening up of world economieshas enabled sustained prosperity to continue. In the past, both Labour and Conservative Governments had the problem of stop-go. Excess demand led to inflation, which in turn led to damping-down measures. But since globalisation it has led to a major rise in imports. The compound current account deficit since 1997 is now approaching £150 billion. There is no problem with that so long as there are matching capital inflows to finance it. Were we not in such an open global world, there would have been inflation problems as a result of excess demand.
The Chancellor has refused to enter into a debate on the warnings of the International Monetary Fund and the Institute for Fiscal Studies that taxation needs to be raised. He has not addressed the issue. My right hon. Friend the Leader of the Opposition quoted what the IMF had to saynamely, that the national accounts have deteriorated sharply over the past five years and that the Government are overspending. Indeed, the
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IMF calls for a reduction of £12 billion in public expenditure. The point that has not been made is that the deterioration in our public finances has been material in relation to the other economies in Europe.
My fear, in terms of both the proportion of the economy that is consumed by Government and the public finances, is that convergence with Europe will mean convergence with sclerotic economic conditions.
A bit has been said about pensions. The pension tax credit was targeted to help pensioners dependent on the basic state pension who were in need, but there has been a problem, with about 40 per cent. of the population having stopped saving for pensions in the private sector because pension credits are a major disincentive to do so. For those with private sector pensions, there is an unresolved problem. Millions of people will not receive the pensions that they had expected from their employment-related pension schemes. We are talking not only of the £35 billion cash-flow cost of the £5 billion per annum tax on pensions; there is also the fact that that has caused a fall of about £100 billion in the value of the assets held by pension funds. That sum is approximately equal to their deficits.
Mr. Purchase: On the point about the £5 billion, does the hon. Gentleman recall that at the time that the so-called raid on pensions was made, the tax mountain from unclaimed advance corporation tax stood at £12 billion? It is through reform and the abandonment of ACT that companies have benefited. I do not say that they have benefited to the tune of £5 billion a year, but they have benefited year on year from the change in ACT.
Mr. Flight: Even if companies have benefited, members of pension schemes have suffered. I discovered only recentlysomething that I found most disturbingthat when the Treasury was examining the issue in 1997, the argument was made that British equities were over-valued in relation to European equities because of the ACT credit, and that it would be a convenient opportunity to get rid of that because the stock market was buoyant.
A responsible person would have seen that we were in a bubble market that was highly vulnerable, and would have gone on to ask what would be the impact when the situation boiled over and markets fell severely. The impact was that markets fell by 25 per cent. more than they otherwise would have done. They fell to a level where dividend yields exceeded gilt yields, which is normally where stock markets bottom. Had dividend yields been 25 per cent. higher, with ACT credits, markets would not have fallen to the extent that they did. Having fallen thus far, pension funds and insurance companies all became forced sellers and have never rebuilt their equity holdings. The net result has been about £100 billion of pension fund deficits. That is about equal to the total deficits, which pension funds will be unable to make up.
Mrs. Helen Liddell (Airdrie and Shotts) (Lab):
The hon. Gentleman's memory is rather selective. He seems to have forgotten that the beginning of the phase-out of ACT began under the previous Government. When he referred to the disincentives to saving in private sector
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pension schemes, he failed to recollect the scandal of personal pensions mis-selling, which adversely affected the public's perception of how such schemes operate.
Mr. Flight: I think that we are all aware of the 2 or 5 per cent. reduction in the ACT credit during the time when Lord Lamont was Chancellor. The right hon. Lady will be aware, however, that that was part of a plan to reduce the level of taxation and to bring the two into line; there was nothing secret about it. But that really misses the point, which is that a modest reduction was nothing in comparison with getting rid of the whole lot and its impact on pension schemes.
The right hon. Lady and I could debate pensions mis-selling for a long time, but if she believes passionately that everything should be correct, clear, transparent and open, she will agree that the Chancellor should, similarly, present a correct, transparent and open picture of the prospects, pluses and minuses for the UK economy, not a selective picture.
Finally, on pensions, while it is excellent that the public debt has been reduced to £401 billion, in the meantime, on Watson Wyatt's measure, there is an actuarial deficit of £695 billion in relation to public sector pension schemes. Mercifully, that deficit will not present itself as a cash liability, but it is a forward contingent liability that will need to be addressed in one way or another. While private sector pension members have had a rough time, the taxpayer subsidy to pay-as-you-go public sector pension schemes, which remain index-linked, has continued to rise. That is an issue about which the Chancellor, conveniently, does not talk.
We have all got used to the phrase "stealth taxes", and everybody is broadly aware of the 65 per cent. increase in taxation in cash terms since 1997 and the famous 66 new taxes, but it is some of the more devious aspects of that increase that I dislike. For example, 7.5 million people have been raised into higher tax bands because tax thresholds were under-indexed over the past eight years. Indeed, if we added up all the clever ways that the Chancellor has found to extract more tax from us and asked what income tax would be if he had used none of those, we would find that it was 39p in the pound.
The Chancellor boasts of attractive corporation tax rates. However, Terry Leahy, the head of Tesco, has pointed out that national insurance charges, corporation tax, property taxes and employment taxes, when taken together, mean that Tesco now pays more than 50 per cent. of its profits in some form of taxation. If we compare UK tax rates with those in other EU countries, we find that the net taxation paid by British businesses is, in the main, now slightly higher; we are no longer the attractive tax base to invest in that we were. That is one reason why inward direct investment, which is needed to finance the current account deficit, has halved. Indeed, when I looked at last year's figures for what matched the substantially rising current account deficit, I was concerned to discover that about half of it was what we used to call hot money in the old days; it was not safe, long-term investment flows.
I shall go on to comment on what I call cooking the books. I remember sitting all through the night in this House when we debated the Government Resources and
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Accounts Bill. I said at the time that, although it might be deemed a great advance to move from cash accounting, which had been there since Gladstone, to resource accounting, the change offered whoever was in power the opportunity to cook the books; they had only to change the depreciation rates. Even if cash accounting has its shortfalls, I prefer something that is extremely transparent. Such is the complexity of the public accounts that it is hard enough for anyone to understand what is going on anyway. However, I have done a little digging.
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