Examination of Witnesses (Questions 180-199)
RT HON
JOHN HUTTON
MP AND MR
CHRISTOPHER EVANS
28 JUNE 2006
Q180 Grant Shapps: You cannot take
money out of something, reduce liquidity and then say there is
no responsibility for it.
Mr Hutton: No. I think the tax
changes to dividends, tax credits, which you are referring to
were part of a package, if you remember, which were welcomed by
business at the time because they incorporated other reductions
in corporation tax. Now you can frown if you like, I am just telling
you the facts.
Q181 Grant Shapps: Because business
is one thing, a business might welcome something because you reduce
corporation tax, as you say, that does not help their pension
position. What we are talking about here is pensions. There is
no doubt—I do not think you can realistically say this or
tell me if you are—that by abolishing tax credit on dividends
income did not reduce the pot of money available for pensions.
Mr Hutton: No, I think that is
true. The significant impact for pension funds would not be changes
to dividend tax credits but the reassessment of liabilities in
the light of increased longevity and the undisputed fall in the
value of equities which took place over this period.
Q182 Grant Shapps: What I am trying
to suggest to you, I suppose, is that the two are linked. If you
take liquidity out of the stock market, five billion pounds over
nine years, you will argue it is a little bit less than five billion
because of the technicalities of the way that abolishing tax credit
works but let us say for the sake of argument it is 30 or 40 billion
pounds, you take that out of the stock market, the stock market
goes down, pension funds, which are largely invested in the stock
market, have less cash, you have helped to create this problem.
Mr Hutton: No, we have not helped
to create the problem in the way that you suggest. Presumably
if you felt that was the case we would have heard a commitment
from your party to reverse those—
Q183 Grant Shapps: Hold on a second.
We are here as a Committee and I am making this point to try and
understand the background to the situation that we are now in.
I am not trying to make it as a party political point at all.
I think you have admitted this already, if you take money out
of the system then it means there is less in the pot to pay out
in pensions, and I think you have already conceded that point.
I am trying to make the further link that by taking the money
out of the liquidity of the stock market when pensions themselves
invest in the stock market that further reduces the value of people's
pension funds.
Mr Hutton: No.
Q184 Grant Shapps: It does not increase
it, does it?
Mr Hutton: What we are talking
about today are insolvent employers who are not able to meet their
liabilities under the legislation that your Government enacted.
That is the issue that we are discussing here. I do not believe
that the tax changes have anything to do whatsoever with that
fundamental issue before the Committee today.
Q185 Grant Shapps: Hold on a minute.
What we are talking about here today is what the Committee wants
to question you on. What the Committee wants to find out is the
extent to which the Government might have been responsible for
maladministration. The Ombudsman, as we have heard, says the Government
is 100% responsible for that maladministration. I am putting it
to you that the reason the Government is in such a hole, in other
words that these pension funds are not worth what they should
be, is partly to do with the Government's own position.
Mr Hutton: No, I do not accept
that.
Q186 Grant Shapps: Who then, tell
me, made the decision to ignore the ruling of the Ombudsman about
maladministration: you, the Prime Minister or perhaps the Chancellor?
Mr Hutton: It was a collective
decision of ministers.
Q187 Grant Shapps: So it was not,
as we might assume, the Secretary of State of the DWP?
Mr Hutton: Of course I was involved
in that decision because this primarily affects my Department's
responsibilities but this was, as I said again, a collective decision
of ministers.
Q188 Grant Shapps: That is quite
interesting. Was it a Cabinet decision? Was it discussed in the
Cabinet?
Mr Hutton: It was discussed by
ministers in the normal way through correspondence.
Q189 Grant Shapps: Yes, but "ministers"
could just mean you and your junior ministers. I am trying to
understand at what point in Government this was discussed.
Mr Hutton: It was a cross government
decision involving ministers from other departments in a way that
normally decisions are made in government.
Q190 Grant Shapps: It would have
included then the Treasury and the Chancellor?
Mr Hutton: Of course.
Q191 Grant Shapps: The Chancellor
who has, in my view, helped to create a position whereby there
is insufficient liquidity in the stock market and, therefore,
a problem with pensions leading to the accusation of the Ombudsman
of maladministration is also involved in deciding that the accusation
of maladministration is, in fact, entirely unfounded?
Mr Hutton: That is a proper exercise
of ministerial responsibilities.
Q192 Grant Shapps: I am just trying
to link up the way here that the Chancellor in particular in this
particular case is linked in the whole circle of this with both
helping to create the problem along with a lot of other things,
like people's longevity, which is a good thing I think we probably
assume, and other factors, but in the mix here is the fall in
value of equities and the raid on the pension funds themselves
which has created a problem which the Ombudsman says is maladministration
in terms of the way that has been dealt with and the Chancellor
has a hand in saying "No, no, no, it is not maladministration,
this is absolutely fine. We are going to ignore those findings".
Mr Hutton: I do not think there
is a connection between any of those points. In relation to the
wider issue about ministerial responsibility, this is how governments
make decisions. They consult and they make sure that ministers
are in agreement.
Q193 Grant Shapps: How can you say
there is no connection between these points? If the amount of
funds in pension benefits has reduced you cannot say that is not
connected to the fact that there is a problem with the amount
of money available to pay out in pension funds.
Mr Hutton: In the first instance
we are talking about employer insolvency, this is the root of
the problems that we are discussing here. The changes to dividend
tax credits did not create employer insolvency.
Q194 Grant Shapps: It is not just
employer insolvency, is it, because in particular the minimum
funding requirement makes it seem that as long as you are at 100%
of MFR then you are effectively pretty much protected. As we have
heard through the cases in Cardiff and elsewhere that has not
always been the case, even when the employer is not insolvent
people are having these problems. I wonder how we are doing on
the first question?
Mr Evans: I think the main relevant
booklet was one produced by the Occupational Pensions Regulatory
Authority in 1999 which was specifically a guide to the minimum
funding requirement. I think your question was where is it explained
in the leaflets.
Q195 Grant Shapps: Yes, I want to
know which of these leaflets warns scheme members that they need
to be at the minimum funding requirement in order to have the
same protection. I do not see it clearly stated in the information
that went out.
Mr Evans: This was a guide booklet
essentially for trustees and their advisers. It says that a scheme
which complies with the MFR will either already be funded to at
least the minimum level required by the law or will be aiming
to have that level of funding within certain time limits. It goes
on to say this will not necessarily ensure that all of the schemes
liabilities can be met fully if the scheme were to be wound up.
However, the MFR sets a benchmark against which the trustees must
measure the funding level of the scheme.
Q196 Grant Shapps: So the trustees
are told this information but actually anybody—
Mr Evans: It is available.
Q197 Grant Shapps: It is going to
trustees rather than members of the funds.
Mr Evans: It would not have been
distributed automatically by the government to all members of
schemes but it was available.
Q198 Grant Shapps: It was intended
for the trustees.
Mr Evans: Yes.
Q199 Grant Shapps: Is it not a strange
omission that it was not mentioned in the leaflets which were
intended for the individual participants of such schemes?
Mr Hutton: I think this comes
back to a discussion we had some time ago about what the purpose
and intent of those leaflets was. I have tried to explain what
the purpose and intention of those was.
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