inflation to come down significantly over the course of the next few months.
Whether in terms of rising inflation, the record tax burden, the billions of pounds that we see being wasted on projects such as the NHS computer system, or that con-trick Budgetor, indeed, the pensions raidthis Chancellors boast of economic competence is unravelling before our eyes. [Interruption.] The first, and worst, of all his mistakes was that raid on pensions. When he stands up to respond, let us find out if he can look Britains pension holders in the eye and say sorry. One Browne has already done that this week. [Interruption.] Let us see if another Brown has the courage to do so again today.
Mr. Osborne: The plans for the pension tax raid were, strangely enough, dreamt up in a hotel room. They were dreamt up by the small cabal of the then shadow Chancellor, which included the Economic Secretary, in the penthouse suite of the Grosvenor House hotel, which was taken by the hon. Member for Coventry, North-West (Mr. Robinson), who I see has also brought a copy of his book into the Chamber. He is the Chancellors former paymaster in more ways than one. It is all there in the hon. Gentlemans memoirs, which are titled The Unconventional Minister. I guess that unconventional meant that he was bankrolling the Chancellor, and providing Tuscan villas to the Prime Minister and mortgages to Peter Mandelson.
It is clear from the memoirs that right from the start the tax on pensions was never about encouraging retained profits or increased investment, or any of the other excuses that the Chancellor still peddles. The paymaster says in his book:
We needed the money. It had to come from somewhere. We set a target of increasing revenues by £5 billion per annum...There were not many options. If the target was going to be met, then tax credits had to go.
David Taylor: It is clear from what the hon. Gentleman has said so far that basic GCSE economics was not on the curriculum of the minor public school that he attended. Would he acknowledge the force of the argument by many independent economic observers that the pension fund deficits and the closures of schemes have much more to do with the extended and unjustified holidays from employer contributions and extended life spans than with any of the actions to which he refers?
When Labour gained power in 1997, Britains occupational pensions were the envy of the world...Ten years on the scene is one of large-scale desolation.
Mr. Frank Field (Birkenhead) (Lab): Would the shadow Chancellor like to quote what I said about the two body blows to pension schemes? The first was under the Conservative Government when they taxed surpluses on pension funds.
Mr. Osborne: We will wait for the right hon. Gentlemans speech, when he can tell us about the second blow to pensions. I did read his article in which he talked about the changes that Lord Lawson made and the tax on the pension surpluses, but as the right hon. Gentleman says, by 1997, the pension system was in extremely good shape. He has said that on several occasions. While of course he makes the point about Lord Lawsons tax, the fact was that when this Government came in, the occupational pension system was strong and the right hon. Gentleman, as the Minister for Pensions at the time, did not knowas the electorate did not knowthat the Government were planning to abolish dividend tax credit.
Mr. Field: There are two points. One is whether the assets looked strong. The second is the crucial factor of the running down of pension surpluses. If the hon. Gentleman were more honest[Hon. Members: Oh!] I am sorry, if he were more accurate, he would admit that his party fatally weakened pensions. That makes the charge that he is trying to make more serious, not less serious.
Mr. Osborne: The right hon. Gentleman has said on several occasions that when Labour came to office, we had one of the strongest pension provisions in Europe. Now we have probably some of the weakest. That was the situation in 1997. The right hon. Member for Birkenhead did not know about the dividend tax changes because, presumably, they were kept secret from him. They have done enormous damage, as I think he understands[ Interruption.] It is no good the Chancellor joining in the cheering, as he has not spoken to the right hon. Gentleman for 10 years.
Mr. Speaker: Order. The hon. Gentleman has indicated that he is not giving way. Also, I appeal to hon. Members not to shout across the Chamber. If they do, they run the risk of being expelled from the Chamber. That is what will happen.
Mr. Osborne: The Government kept their stealth plans secretfrom the public, from the rest of the Labour party, and even from the then Leader of the Opposition. Clearly, the Chancellor was starting as he meant to continue. According to the memoirs, the tax plans were locked in a safe in that hotel room throughout the election, while the rest of the Labour party went around the country campaigning on a promise not to increase taxes at all.
John McFall: Does the hon. Gentleman remember that Norman Lamont, who was Chancellor in 1993, said that dividend tax credits had to go because they distorted the market? On five separate occasions over their 18 years in office, the Conservative Government reduced the level of dividend tax credit. Is he contradicting the policies adopted by that Conservative Government?
Mr. Osborne: I can tell the right hon. Gentleman that Norman LamontLord Lamontdid not abolish dividend tax credits. That is why they were there for the present Chancellor to abolish them in 1997. When Treasury civil servants proposed to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) that he should abolish them, he absolutely rejected the idea, because he knew the damage that would be done to pensions.
The Chancellor and the man who is now Economic Secretary dropped their tax bombshell on to the laps of Treasury civil servants the day after the 1997 general election. Their advice was clear, and we know the truth thanks to the two-year campaign undertaken by The Times. I congratulate that newspaper on its efforts, which it maintained despite the costs incurred.
The Chancellor should be condemned for his efforts to stop that campaign. Indeed, I hope that he will be able to confirm something that a member of the Government told me privately yesterday[ Interruption.] I can tell the House that someone in my job gets quite a lot of advice about the Chancellor from members of the Government.
Yesterday, I was told that the documents were finally released only because the Permanent Secretary to the Treasury refused to go on funding the legal costs involved in blocking their release.[ Hon. Members: Oh!] As I said, I hear many stories from Labour Members about
the Chancellor. When the right hon. Gentleman responds to the debate, perhaps he will confirm the truth of that story.
In the end, the Chancellor was forced to release the documents. However, he did so very late on the Friday afternoon after the House had begun its Easter recess. The Government have made a habit of burying bad news, but that was one of their shabbiest attempts, and I am pleased to say that it failed spectacularly.
We can now see the Treasury advice, and understand why the Chancellor was so desperate to conceal it from the public. In its submissions to the Chancellor in May and June 1997, the Inland Revenue warned that
abolishing tax credits would make a big hole in pension scheme finances
the change would lead to a reduction in pension benefits for the lower paid
any loss of pension could be difficult for someone on a small income to cope with,
everyone in a money purchase scheme is a potential loser.
to consult the DSS before Budget Day.
Of course, when Labour Members listened to the Chancellor make his 1997 Budget speech at the Dispatch Box, none of them could have guessed that when he promised to undertake a long-needed reform of company taxation to encourage investment, he meant that he was about to clobber their pensions with a stealth tax worth £5 billion a year.
That first Budget speech established the reputation for stealth and dishonesty that all the right hon. Gentlemans subsequent 10 Budget speeches have lived up to, and none more so than the con trick that he delivered a month ago.
The second is a structural reform that will also encourage investment.
The present system of tax credits encourages companies to pay out dividends rather than reinvest their profits. This cannot be the best way of encouraging investment for the long term, as was acknowledged by the previous Government. Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform. ... so with immediate effect, I proposed to abolish tax credits paid to pension funds.
Now, will the hon. Gentleman withdraw the accusation that the House of Commons was not told in 1997? The House of Commons was told not only what we were doing but why we were doing it and why, incidentally, the previous Government had cut the tax credit five times.
pensions will be smaller and pensioners will be worse off.[ Official Report, 2 July 1997; Vol. 297, c. 306-321.]
five sixths of the final salary schemes that have closed have done so since 2000; in other words, they have closed on our watch.
Only a third of the remaining final salary schemes are open to new members, and 125,000 people have lost all or most of their pension altogether. I give way to anyone who will vote for that amendment tomorrow.
Judy Mallaber: Did Lord Lamonts special adviser, the right hon. Member for Witney (Mr. Cameron), agree with Lord Lamont when he cut dividend tax credit in 1993 that it distorted the commercial decisions of British companies? Did his special adviser accept and agree with that, or not?
Mr. Osborne: May I give some advice to the hon. Lady? Reading out the planted questions of the Labour Whips Office will not give her that preferment that she has been seeking under the current Prime Minister or indeed under the next one.
Mr. Andrew Robathan (Blaby) (Con): When my hon. Friend referred to the 125,000 people who have lost their occupational pensions, is he aware of the extraordinary and disgraceful rumour that, when confronted with the victims of the pension raid, the Chancellor said, These are not our people. Will my hon. Friend comment on that extraordinary remark?
Mr. Bellingham: I am grateful to my hon. Friend the shadow Chancellor for giving way. Is he aware that I represent a large number of former Albert Fisher employees, who have lost the vast majority of their occupational pensions? The compensation currently on offer under the financial assistance scheme is inadequate. Does my hon. Friend understand their resentment and anger about what is going on?
Mr. Osborne: I will give way to the hon. Gentleman because I know that he has some of these cases in his constituency, and it is a seat that we hope to take at the next election. Perhaps he can tell us how he will be voting.
Tom Levitt: If the hon. Gentleman is referring to the Turner and Newall case, it has absolutely nothing to do with this issue; it is to do with the administration of the American parent company, nothing else. The hon. Gentleman has been speaking for 20 minutes and has not yet mentioned changes in interest rates, changes in the stock market, the pension contribution holidays that were taken or increased life expectancy. Is he seriously implying that none of those issues has had any effect on pensions and that it is all down to dividend tax credits? No one believes that.