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Mr. Redwood: The main holders of UK shares at the time the change was made were British people and companies, especially their pension funds. There was bound to be a weight of selling to adjust the market value of those shares which exceeded the appetite from
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abroad. Hon. Members should remember the background. A fall in the world market took place shortly afterwards, so there was not a great appetite for what foreign companies perceived to be higher-risk overseas shares in a foreign currency at the time when adjustments were made in British portfolios to reflect the diminution in share values.

Chris Huhne indicated dissent.

Mr. Redwood: I do not think that the hon. Gentleman understands the situation. It is obvious that share prices were going to fall. He does not have to believe me; he merely has to look at what happened. What is the explanation for the additional fall of the London market if it is not the Chancellor's tax policies, taking income out of the hands of companies and savers?

Chris Huhne: Will the right hon. Gentleman give way?

Mr. Redwood: If the hon. Gentleman really wants to be knocked again, then fine.

Chris Huhne: Clearly, there would be some home currency questions, but the idea that it was one for one is simply absurd. There is no support for that in any literature or in what happened.

Mr. Redwood: The facts are clear: the London market fell rather more than other markets. I gave my sum. If the hon. Gentleman has an alternative sum to explain that decline, I look forward to hearing it in his speech if he catches your eye, Madam Deputy Speaker, and if he has done his homework by then, but he has come here not having done any homework and is just hoping to tell his local papers that he is back doing the normal day job.

Justine Greening: I wonder whether one reason for the fall was the growing uncertainty over the Chancellor's performance and the fact that he will change his mind about policies, such as the inclusion of property in self-invested personal pensions. Increased uncertainty about regulation can only harm our economy.

Mr. Redwood: I am reluctant to disagree with my hon. Friend, but I am not sure that that was a factor when we had the major fall in the stock market. I have set out my views. Perhaps she can set out her views in her contribution.

Sir Nicholas Winterton: On pensions, the Government apparently exhort people to save, in particular for their retirement. Does my right hon. Friend, to whose speech I am listening extremely carefully, believe that withdrawing the dividend tax has helped and encouraged people to save for their future, because that is critical?

Mr. Redwood: I was going on to say that it clearly did not. In fact, it did the opposite. As a result of that, a large number of companies—well intentioned towards their work force—have said, "We can't afford this any more, so we are going to close our funds." In some tragic cases, as we heard recently in the House, funds have folded altogether because a company has gone bust or is unable to make the contribution, and the funds do not
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have sufficient money to meet the requirements. A new generation of people who are going into work or are in junior positions in industry or commerce no longer have access to a final salary scheme. They are probably saving proportionately less, with the help of their employers, than under the old regime.

Worse still, the regulators and actuaries now say that because those funds are very mature, they should be invested not in equities, but in bonds. They have triggered either a mass exodus out of shares into bonds, or they have persuaded or required funds to buy only bonds and not shares. We now have a huge build-up in bond commitments and a run-down in equity commitments. That has had two unforeseen consequences—I think that they must have been unforeseen; I should not think that the Government wanted them.

The first unforeseen consequence is that corporate Britain is up for sale because equities in Britain appear to be relatively lowly rated compared with equities elsewhere. Many great British companies are successfully bid for from overseas because the natural buyers of shares—the pension funds—are not there to take the values up to levels that overseas buyers would find less attractive. We have seen O 2 , P&O, BOC and various others companies sold out, for premium, to overseas buyers because the UK equity market is relatively lowly rated—a direct consequence of the tax raid and the pension fund position. I see Labour Members getting uncomfortable. They obviously do not like corporate Britain being bid for, but they have no other explanation.

Alan Simpson (Nottingham, South) (Lab): I am interested in what the right hon. Gentleman says about the balance between equity markets and bond markets. Surely the biggest blow to equities was given by the collapse of the market following the horrendous speculative piece of adventurism, which in 2001–02 saw £250 billion of UK workers' pension funds wiped off because money had been used in a cavalier fashion, pushing share values through the roof, well beyond any realistic price. As a result of that and the unregulated market, which we created, people have lost their pensions and seen the money pilfered by everyone apart from the brokers who made the money out of the transactions.

Mr. Redwood: The figures show that the tax rate was far more important, but I agree that value was destroyed in global capital markets around 2000. The high-tech sector had been bid up to levels that proved unsustainable. That was particularly true of companies that had little turnover and no prospect of a profit. There was a big blow-off in the United States of America, but a lesser one in the UK because the situation had developed less dramatically. A special factor in the UK led to the collapse in share values in telecoms and high-tech areas, and it goes right back to the door of the Treasury: the Chancellor's decision to target telecoms for another of his stealth taxes that would do no damage. If one takes £21 billion-worth of tax in a single go out of the lead sector—[Hon. Members: "It is not tax."] We are now told that money going from companies involuntarily to the Treasury is not a tax. I do not care what Members wish to call it, but it looks like a tax and it feels like a tax.

Rob Marris : The right hon. Gentleman has just made   an extraordinary statement. He used the adverb
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"involuntarily". The transactions to which he referred were not involuntary; they were bids in a free market by telecoms companies. In retrospect, most people would agree that they over-bid, but they made the bids. It was not a mandatory tax; it was an optional purchase.

Mr. Redwood: It was effectively a mandatory purchase. The companies were bidding for monopoly licences and rights to the airways, and if they had not done so they could not have stayed in that kind of business. Of course they had to pay. If one offers fewer licences than there are companies wishing to buy, one will raise a very large sum. Indeed, I pay full tribute to the Chancellor and his advisers for optimising the take for the taxpayer by the brilliance of the auction that they worked out. It just happened to do enormous damage to our lead sector, and therefore to share prices in companies such as BT and Vodafone, which happened to be the leading investments for pension funds at the time. The hon. Member for Nottingham, South (Alan Simpson) is right that pensioners and future pensioners suffered badly from that, but the Chancellor once again played a prominent role, causing that problem.

We have undervalued companies that are now being subject to aggressive overseas bids, often when we do not have reciprocal rights in overseas markets, and bonds valued on tiny yields, which in turn increase pension fund deficits. That has created a virtuous circle for the Chancellor—take more money out of funds, damage the funds, get them to buy bonds, take the price of bonds up so that the Chancellor can pay for his borrowing more cheaply—and a vicious circle for pensions: get them to buy more bonds, value the bonds pessimistically, increase the deficits, demand they put more money in and pay more bonds. It is not a healthy situation.

I was very pleased to see the well known commentator, Anatole Kaletsky, this week at last putting that into the newspapers, explaining that the regulatory system could be creating a future large-scale crisis in pension funding. Therefore, my serious message to those on the Treasury Bench is: please look at the bonds spiral and the role of the regulators, and see whether there is a way of avoiding a future funding crisis. What if at some future date people decide that bonds are overvalued and yields go from, say, 4 to 5 per cent., which is not an impossible scenario? That would wipe out a quarter of the total value of pension funds. Is it true to say, at those levels, that bonds are risk-free, a safe investment and the right way to match future liabilities, given that the bond has a fixed income and liabilities have a rising price?

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