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Rob Marris : I think that the right hon. Gentleman has been drawing on the information in table 2.4 on page 31 of the Red Book. If he looks at the back of the Red Book, he will see a table on previous borrowings. The Conservatives were in office between 1979 and 1997, and during 11 of those 18 years, the percentage of GDP that borrowing represented was considerably higher than it has been in any year under this Government since 1997. I think that I am right in saying that in all those 11 years, borrowing was well over 40 per cent. of GDP. Does the right hon. Gentleman decry the past of his party, during some of which time he was in government.
Mr. Redwood: I have already said that an economic mistake was made during the Conservative years. The mistake was backed and encouraged by the Labour party, but I never supported it. Yes, we borrowed more than we would have liked because of that mistake. The hon. Gentleman makes a party political point while I am trying to give a sensible analysis of the true position, so I would say that quite a lot of that debt was incurred to clear up the mess that Labour left behind in 1979, when we inherited a grossly over-borrowed and overtaxed country. Of course, the borrowing was especially high because Labour did not want to confess just how much it had to put up taxes to pay for the spending on its accounts.
Mr. Newmark: Perhaps I can help my right hon. Friend in answering the question raised by the hon. Member for Wolverhampton, South-West (Rob Marris). The problem goes back to the point about transparency that I made earlier. If one adds together the money that is off balance sheet and the amount that is on balance sheet, it comes to roughly £1.3 trillion, which is 105 per cent. of GDP, not 35 per cent.
Mr. Redwood: Once again my hon. Friend makes his point extremely powerfully. I note that the amount has gone up by several hundred billions while he has been sitting next to me. I have seen the figure of £1.3 trillion in public commentaries and the press. It must be right if it has appeared in the newspapers, must it not? Although I have not done the calculations myself, the figure feels about right. We can leave the House with the clear understanding that there is £1 trillion or so of liabilities, many of which are not stated in the figures. Such liabilities are serious for all taxpayers and our children, so a more honest recognition of the situation would be helpful.
I will make a final comment on the fiscal balances in table 2.4. It is a great pity that we do not have an honest account from the Chancellor of exactly what the cycle is. It is also a great pity that he does not stick to the same cycle each time he presents his figures because that would give far more cogency.
Chris Huhne (Eastleigh) (LD):
I want to be sure that I have not misheard the right hon. Gentleman. Did he say that he thought that there was £1 trillion of off-balance-sheet liabilities?
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Mr. Redwood: I am saying that there are about £1 trillion of liabilities, which are mainly pension liabilities. The hon. Gentleman should realise how expensive many public sector pensions will be and that practically all of them are without a fund. Fortunately, the House of Commons is not in that category because we have a properly funded scheme to which Members contribute and local government is also not in that position, although there are some deficits in local government schemes. However, there is nothing but deficits when it comes to all the unfunded schemes, and there should be a recognition of that in the accounts.
Mr. Newmark: Just to be accurate, I believe that approximately £436 billion is on balance sheet and about another £150 billion is off balance sheet, which is where we get the figure of £1.3 trillion from [Hon. Members: "What?"]
The hon. Member for Eastleigh (Chris Huhne) should do some more homework. I know that he has been busy losing the leadership of his party, but he should do a little bit of reading. If he reads the figures in the Red Book on the amount of outstanding national borrowing and adds to that the pension deficits of the funded public sector schemes, the PFI and PPP contingent liabilities, the debt that has not gone through the books that should have done so, and the very large figure for unfunded pension liabilities, he would not have change out of £1 trillion. It is a good round figure that should help to inform the debate. I will leave it at £1 trillion because I have not myself done the calculation down to the second decimal point. However, I have looked at the general arguments and I am satisfied that that is the order of magnitude to which the Chancellor needs to face up.
That brings me to box 2.5a fascinating little aside in the Chancellor's rambles through the state of the British economywith the catchy title "Low yields and the Government bond market". Normally, one's eyes would glaze over and one would pass hurriedly on, because it is usually a subject for anoraks only and I do not regard myself as being in that category. [Hon. Members: "Oh!"] I know that I have been regarded as an interesting skier off-piste, which I found fascinating as I have never taken to the slopes on the continent of Europe in that way.
However, I am interested in that box, and the House should be interested in it, too, because there is a serious danger that we are living through unnatural times in the bond market. Those unnatural times are already having a dramatic impact on the real economy, and they could have an even more dramatic and adverse impact on the real economy if the problem is not handled well.
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The problem began when the Chancellor, encouraged by the Prime Minister no doubt, thought that he had discovered that elixir of Labour Chancellorsa stealth tax that would raise a huge amount of money which would do no damage and which no one minded. He introduced a tax on the dividend income of British shares held through pension funds and other charitable funds. He has never published an accurate figure for how much that takes.
Mr. Redwood: The general £5 billion-a-year figure is in common circulation. It started at rather less than that, to be fair to the Chancellor, but it is probably now more. It is growing. Let us take it at £5 billion, however, because he will not give us the accurate figure. He would, I am sure, concede that it is a large sum.
If we take £5 billion a year out of pension funds for, say, 10 years of the policy, before Labour loses power, that is £50 billion out of pension funds. That is £50 billion that has not been invested, so perhaps another £20 billion would have been made on that from investment gain in income if it had been available to reinvest. We should then factor in the obvious point, which I made at the time, that the change was bound to hit share valuesshare prices valued as a stream of income from a companyand that if we tax that stream of income more heavily, it is worthless. I did a back-of-the-envelope calculation when the Chancellor proposed the tax and said that with the market valuing income at 20 times its rate, as it did at the time, the £5 billion off the stream of company income would mean a £100 billion fall in share values. Compared with the fall going on elsewhere in the German, French and American markets at the time, the fall in London was about £100 billion extra for a variety of global as well as national reasons.
Basically, the Chancellor decided to hit the pension funds by about £170 billion over a 10-year period as a result of capital loss income and income reinvested forgone. We now see that the actual deficits may be a bit lower than that, I am pleased to say, because the stock market has started to pick up some of the lost ground that the hit and other factors caused originally, and companies have put a lot of extra money in to try to make good some of the losses caused by the Chancellor. I think that everyone agrees, however, that there is still a serious pension deficit problem.
Chris Huhne: Just so that I can follow the right hon. Gentleman's argument, perhaps he can explain something. It is curious that he should say that there was a fall unique to the UK market given that we do not have capital controls, thanks to a move that I am sure he supported. Surely foreigners would have been buying our shares if they were such tremendous value, and there would not have been such a fall in the UK market.
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