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House of Commons

Thursday 13 October 2005

The House met at half-past Ten o'clock


[Mr. Speaker in the Chair]

Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Self-invested Pension Plans

1. Chris Huhne (Eastleigh) (LD): What assessment he has made of the implications for the liberalisation of the rules on eligible assets of aggressive marketing of self-invested pension plans. [17037]

The Chief Secretary to the Treasury (Mr. Des Browne): There has been widespread speculation about the impact of new rules that will allow self-invested personal pensions to invest in residential properties and other personal assets. Government guidance sets out the implications of putting a residential property into a SIPP, which is unlikely to be an appropriate investment for most people. The Government will keep the matter under review and will not hesitate to act if there is evidence of abuse.

Chris Huhne: Given that an investor would normally need about £1 million in assets in order to put one residential property into a SIPP and maintain a reasonable diversification of assets within the fund, does the Chief Secretary regard the Government's advice as adequate to prevent what could be a pensions mis-selling problem in the future?

Mr. Browne: I thank the hon. Gentleman for his question, but may I say at the outset that when the hon. Member for Yeovil (Mr. Laws) spoke for the Liberal party on the simplification of pensions and related law, he supported this simplification? All the reasons that he gave then, particularly when he spoke in Committee on 8 June 2004, still stand. I have already said that SIPPs are not an appropriate type of pension fund for most people, and the limitations attached to such investment mean that it is unlikely, in our view, to have an appreciable effect on the housing market. As the hon. Member for Eastleigh (Chris Huhne) knows—he has issued a press release on the matter—we are currently consulting on the proposed changes to open up the personal pensions market and, indeed, to make the regulation of providers, including SIPPs, more transparent and comprehensive.

Jim Cousins (Newcastle upon Tyne, Central) (Lab): I welcome my hon. Friend's statement that he will review
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the issue so that we can prevent a whole new set of tax-avoidance rackets arising. Will he examine both the rules for attributing rent to property that may be placed inside self-invested pension funds and the tax rules on debt, so that people cannot use SIPPs as a way of passing on to their successors untaxed tax relief supporting large investments?

Mr. Browne: I am grateful to my hon. Friend for his question, but I have already made it clear that the Government will monitor the impact of the changes. As with all tax policies, we will keep the rules under review. If we discover a loophole or identify distorting effects, we will take appropriate action. As to the policing of the SIPPs tax regime, Her Majesty's Revenue and Customs will ensure that the tax privileges granted to pension schemes are used for their attendant purpose and will target compliance procedures accordingly.

Adam Price (Carmarthen, East and Dinefwr) (PC): The Minister said that the Government have set out their policy, but in the last few weeks Her Majesty's Revenue and Customs has had to withdraw its guidance note on the personal use of holiday homes and admit that it had got it wrong. The Government are in a muddle on this issue, which will cost the taxpayer billions and will send property prices soaring beyond the reach of first-time buyers.

Mr. Browne: The hon. Gentleman will be aware that the regulatory impact assessment that was published at the time of simplification assessed the entire pension simplification package as costing about £250 million a year. He will also remember that questions have been answered in the House to make it clear that there will be a tax charge on the sort of developments that he suggests might take place. As he is aware, consultation is also taking place on the proposed changes, including regulation, at the moment. If the hon. Gentleman would like to make some comments, it would be appropriate for him to feed them into that consultation.

David Taylor (North-West Leicestershire) (Lab/Co-op): It is not unknown for regulatory impact assessments to get predicted costs wrong, as in the example of the £10,000 tax-free provisions on micro limited companies, which had to be withdrawn. Would the Minister be prepared to meet some of my constituents who lost their pension funds when British United Shoe Machinery Ltd. went down and explain to them why a scheme that gives tax breaks to the rich and the mega-rich—some estimate to the tune of £2,000 million a year, which is 100 times the amount that the Government are putting into pension rescue funds—is not a bit of an anomaly?

Mr. Browne: Simplification provides benefits for all taxpayers, including those on lower incomes, and not just for the rich. The simplification process, of which this is part, was widely consulted on. The then Financial Secretary to the Treasury did precisely what my hon. Friend now suggests—he consulted MPs and communities about the effects. Much more flexibility was needed in the pension system and it has been introduced, to the benefit of all those who are in pension schemes.
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Economic Performance

3. Mr. Brian Binley (Northampton, South) (Con): What recent assessment he has made of the performance of the UK economy. [17039]

8. Sir Michael Spicer (West Worcestershire) (Con): What assessment he has made of the state of the UK economy. [17044]

The Chancellor of the Exchequer (Mr. Gordon Brown): As normal, the pre-Budget report will update our assessment on the overall economy, but yesterday's employment figures revealed that there were 350,000 extra jobs in last year alone and 2.3 million extra since 1997. I inform that House that I have today submitted Britain's national economic reform programme to the European Union and published detailed proposals for the Hampton Court summit to raise levels of British and European economic growth.

Mr. Binley: Yesterday, Mr. Mervyn King was reported as saying,

He asked,

His answer was, "That seems unlikely." Will the Chancellor be kind to me and say whether he agrees or disagrees with those remarks?

Mr. Brown: First, the Governor of the Bank of England was referring to the trebling of oil prices over the past three years, and the reaction and response that has had to come from Governments around the world. He is right to say that we have had a golden age of stability over the past 10 years. That is simply the result of the macro-economic reforms in monetary and fiscal policy that we made in 1997, which enabled us to have stability and growth.

As for the prospects ahead, the hon. Member for Northampton, South (Mr. Binley) will know that, also yesterday, the OECD said that Britain was a paragon of stability, with the most stable economy of all the G7 countries. It noted too that, in terms of income per head in the G7, we had moved from seventh place out of seven in 1997 to third place now. If the hon. Gentleman disagrees with the policies pursued by this Government, will he ask us to adopt the policy that he put on a website yesterday, where he advocated a flat tax that would mean £50 billion in public expenditure cuts? That would be especially interesting, given that he told the House of Commons in July that he wanted more spending on police in his constituency.

Sir Michael Spicer: Given the Government's miscalculation of its gross domestic product forecast, taxes are going to have to go up, are they not?

Mr. Brown: The public spending plans that we have published are perfectly affordable. As I said on the radio this morning, we have published in detail our plans for the next few years. They are perfectly affordable, and we will continue with them. What would not be affordable would be the introduction of a flat tax that would cost
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£50 billion in public expenditure cuts. That is especially important, as the hon. Gentleman states on his website that he wants more expenditure on his local hospitals.

Mr. Dennis Skinner (Bolsover) (Lab): Will the Chancellor agree with my assessment of the Bolsover economy? When Labour came to power, unemployment was at 10 per cent., and all the pits had closed. Now, a formerly derelict textile mill employs 650 people, and factories have been built at every pithead. When we get junction 29A, there will be another 5,000 jobs for the north Derbyshire area. That contrasts with Black Wednesday 1992, when Boy George's pal, the hon. Member for Witney (Mr. Cameron), was the special adviser to Norman Lamont. What a mess that was!

Mr. Brown: It is true that the photograph taken on the day this country left the exchange rate mechanism and had to impose 15 per cent. interest rates shows that, standing next to the then Chancellor, was the policy adviser who happens now to be a candidate for the Conservative leadership. People will not forget the 15 per cent. interest rates imposed by members of the previous Government, nor that we had 10 per cent. interest rates for more than four years under that Government. Under this Government, interest rates in Britain have averaged 5 per cent., and have recently come down. We will continue to follow the advice that we should create jobs in communities where there has been dereliction. I do not know about junction 29A, but I hope to visit it some time in the future.

Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): Energy prices have risen significantly over recent times, but analysts such as Utilyx and Barclays Capital say that British business is losing out on £1 billion a year through poor energy-buying practices. Does my right hon. Friend feel that there is anything more that the Treasury might be able to do to encourage British business to retool its energy-buying practices to get the benefits that could accrue from better management?

Mr. Brown: I will certainly look at the point that has been made. It is clear that the doubling of oil prices has brought new pressures for businesses and consumers, but we also face pressure to look at new measures for energy conservation, alternative sources of energy and better energy purchasing policies by businesses and Governments, as my hon. Friend suggests. We will continue to examine all those issues. At recent meetings of the International Monetary Fund in Washington, we agreed a five-point plan, proposed by Britain, which included seeking better ways of using existing energy.

Sir Peter Tapsell (Louth and Horncastle) (Con): May I give the Chancellor a second opportunity to obfuscate the clear remarks made by the Governor of the Bank of England on Tuesday? He said that this country is heading for rising inflation and lower economic growth. Does the Chancellor agree, and if so, what will he do about it?

Mr. Brown: I would take the advice of the hon. Gentleman more seriously if he had not predicted that
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giving the Bank of England control over monetary policy would lead to deflation and higher unemployment. In fact, in these years—

Sir Peter Tapsell: Answer the question!

Mr. Brown: In these years, we have created 2.3 million jobs. The Governor of the Bank of England was referring to the doubling of oil prices. In fact, oil prices have trebled in the past three years. That creates a more difficult environment, but in no other decade would a trebling of oil prices have led to anything other than a recession in the British economy. Nor, if I may say so, in any other decade would the increase in house prices of the past few years have been moderated without a recession—but that has happened under this Government and the policies that we have pursued. The hon. Gentleman, who was wrong about the Bank of England's independence, should congratulate the Government on the stability that we maintain and are determined to continue to maintain, with low inflation, low interest rates and rising employment in our economy.

Mr. Brian H. Donohoe (Central Ayrshire) (Lab): As part of my right hon. Friend's assessment, does he agree that Europe must grow faster?

Mr. Brown: I agree entirely. The proposals that we are making today recognise the fact that if the euro area economy is growing by only 1 per cent. and 50 per cent. of our exports are to that area, we are directly affected by low growth in the European Union. Therefore it is not a source of celebration when neighbouring countries grow slowly: it is a source of worry and anxiety for the British economy. Because Germany has barely grown in four years, Italy is now in recession and France and the Netherlands are growing slower than Britain, it means that our four major importers in the euro area are experiencing real difficulties.

We must produce policies for greater growth in the European Union as a whole, and that is why we put forward the proposals this morning, first, to speed up the internal reforms in the single market, including competition investigations; secondly, that Europe should make progress in the trade talks so that we end the costs of agricultural protectionism; and thirdly, that we reform the social model in the European Union, so that instead of having 20 million unemployed, we get people back to work. I hope that we will have all-party support for those proposals.

Dr. Vincent Cable (Twickenham) (LD): As the Chancellor blames the OPEC oil producers for the sharp slowdown in the economy, to half the Treasury forecast, how does he explain the independent analysis of bodies such as the National Institute of Economic and Social Research, which has shown that less than a quarter of the slowdown is attributable to that source? The vast majority of the problem is home grown, caused by weakness in private investment and nervousness among private consumers about their large levels of personal debt and the possibility of the housing bubble bursting.

Mr. Brown: If the problem was as home grown as the hon. Gentleman suggests, why is Germany growing
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slower than us, France growing slower than us, Italy growing slower than us and the Netherlands growing slower than us? Why is it that the European Union is growing far slower than us, and Japan, Australia and New Zealand are growing slowly? Why are other countries around the world facing difficult situations? One reason is, of course, rising oil prices, but a second reason—affecting Britain directly—is low growth in the European Union. Interest rates were raised four times last year, so we slowed down the growth of consumer spending. I believe that the Bank of England made the right decision, and the housing market has moderated as a result. Some people, including the Liberal Democrats, predicted a house price crash, which has not happened.

The hon. Gentleman should say now what he has said previously, when he applauded our record of creating stability in the economy. I certainly will not take up the policies of the Liberal Democrats. They dropped their tax rise proposals at their conference last month, but kept all their spending proposals. [Laughter.] Oh, yes. Their home affairs spokesman wanted more money spent on prisons. The dentistry spokesman wanted more money spent on dentistry. The health spokesman wanted more money spent on health, and then the junior health spokesman wanted more money spent on mental health. Far from reducing their spending commitments, the Liberal Democrats have increased them—with no money to pay for any of them.

Ian Lucas (Wrexham) (Lab): In north-east Wales, Airbus UK recruited 115 apprentices this year to work in British manufacturing industry. Those apprentices will have the opportunity to secure an aerospace degree by working with the local Deeside college and the North East Wales institute of higher education. Is not that an excellent example of the success of UK manufacturing industry and of the UK economy?

Mr. Brown: I am grateful to my hon. Friend. He mentions a factory that I have visited in the last few months, and he is absolutely right that the number of apprentices in the British economy is increasing in a way that nobody could have foreseen a few years ago. When we came to power, apprenticeship was almost dying out as a means whereby young people got a trade or profession. We are now in a situation where in the next years about 300,000 young people will be taking modern apprenticeships. That bodes well for the future of the British economy, but we are not complacent and we must do better. We want more young people to have chances, especially in some of the regions where unemployment is higher. Again, I hope that there can be all-party support for the investment in education and apprenticeships that is necessary for the future of our economy.

Mr. George Osborne (Tatton) (Con): For months the Chancellor of the Exchequer stubbornly stuck to those growth forecasts when everyone was telling him that he was wrong. Productivity growth has slumped and business investment is at a record low; indeed, the British economy is growing slower than the average for other developed economies in the world. Could the Chancellor of the Exchequer tell the House when he knew that he had got it all wrong?

Mr. Brown: The shadow Chancellor has got it wrong. The British economy is growing faster than Germany's,
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faster than France's, faster than the Netherlands' and faster than Italy's. The British economy is growing faster than the EU's. I have just explained the circumstances in which higher oil prices have caused the difficulties that all economies face. What the shadow Chancellor had better look at is the fact that since the general election he has had only one policy proposal: a flat tax, which would mean that £50 billion would be cut from public expenditure. Can he tell the House how that could possibly aid the British economy in its present situation?

Mr. Osborne: After the mess that the Chancellor has made of our tax system he should listen to the tax reform commission, because it includes the director general of the British Chambers of Commerce, the person who advises the Chancellor on tax reform for low-income people, the former president of the Chartered Institute of Taxation and indeed the person who is helping him with his tax simplification process. I will send him a copy of the report when it is published. In the meantime, as he is lecturing other European economies about reform, will he explain why we are adopting European levels of taxation and regulation in the UK? Why are we becoming less and less competitive in a more competitive world? Why have we fallen from fourth to 13th place in the world competitiveness league, and why is this 20th-century Chancellor running out of ideas for the 21st century?

Mr. Brown: We have just been praised by the Organisation for Economic Co-operation and Development for having the most stable economy in the G7. In fact, the words used by the OECD were that we are a "paragon of stability". If the Conservative party, which ruined the macro-economic policies of our economy with 15 per cent. interest rates and two recessions during the last 18 years, will not begin to apologise for the mistakes the Conservatives made when they were running the economy, I do not believe that a serious debate about economic policy is possible.

Will the shadow Chancellor confirm that his proposal for a flat tax would mean, if implemented on the Adam Smith Institute proposals, a £50 billion cut in public expenditure? How can he possibly think either that it is fair to the British people that a millionaire pays the same rate of tax as a nurse, or that he could ever afford public services on that basis? I remind him that he is currently campaigning for more money for his local hospital.

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