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If the shadow Chancellor wants to cut corporation tax by 2p in the pound, as we did in 1997, why cannot he tell us how he could fund that other than by withdrawing the dividend tax credit? Why does he continue to tell us that he wants more investment in the economy while refusing to back the measures that increased investment in the economy? Why does he tell us that he opposes in principle the withdrawal of the
dividend tax credit when his own Government said that it was a bias against investment in 1992 and when he cannot tell us that he would restore it if ever he came to power? Why does he not admit that the Leader of the Opposition was the adviser to Lord Lamont on the fifth occasion on which the dividend tax credit was cut?
The shadow Chancellor says that he wants long-term answers to the problems of the economy, but every position that he takesrefusing to replace the dividend tax credit with something else and refusing to tell us how he would fund corporation tax cutsshows that he has learned nothing from two years as shadow Chancellor. His approach is short-termist, opportunistic and insubstantial. We take the long-term decisions for the economy; he has a short-termist approach.
we have sacrificed long term credibility for the prospect of winning the support of an aggrieved section of the population or ... winning a vote
Short termism has hampered attempts to develop a long term ... policy.
Mr. Graham Stuart: I am extremely grateful to the Chancellor for giving way. As ever, he prefers to talk about the policies of the Opposition, rather than the results of his own policies. Will he give an answer today, and say what estimate he and the Treasury make of the impact on pension funds of the pension tax raid that he authorised in his first Budget in 1997? Give us a straight answer!
Mr. Brown: The hon. Gentleman clearly has not read the papers in any depth. What the Treasury said was that actuaries would assume that there would be a 7 to 20 per cent. fall in the share price immediately after the announcement, but in fact the share price rose. It rose by 0.5 per cent., then it rose by 12 per cent. over the quarter, and then it rose by 27 per cent. over the year. That is why the assets of pension funds, which is the big issue, rose from £549 billion in 1996 to £820 billion by 1999.
Mr. Redwood: I am grateful to the Chancellor for giving way. Does he agree that if we took a fifth of his income away, he would be worse off? Why can he not accept that when he took a fifth of the dividend income away, pension funds were bound to be worse off?
Mr. Brown: I used at least to have some respect for the right hon. Gentlemans grasp of basic economics, but what actually happened was this: in 1993, the current Leader of the Opposition advised Lord Lamont to remove part of the dividend tax credit, but the Conservatives did not replace it with a cut in corporation tax. There was no cut in corporation tax. When we made our change, we cut corporation tax by 2p. What happens when corporation tax is cut by 2p? First of all, companies are more profitable. Secondly, they can pay more in employer contributions to pension funds. Their dividends rise and they are able to pay more dividends to pension funds. I have to tell the right hon. Member for Wokingham (Mr. Redwood) that all his assumptions are wrong, because what actually happened after the corporation tax changes was that companies paid more in employer contributions, dividends rose, payments to pension funds rose from £34 billion to £39 billion, and the assets rose from £549 billion to £820 billion.
The Leader of the Opposition puts forward all his proposals for tax cuts, but is it his priority to restore the dividend tax credit or not? It does not seem to be his priority, it is not the shadow Chancellors priority, and it does not seem to be the priority of anybody on the Conservative Benches.
Mr. Clarke: The Chancellor is carefully eliding and shuffling a few dates and events, so may I help him with his recollections? When he was shadowing me as Chancellor, neither of us realised that both of us were looking at the same proposition of a reduction on the tax dividend credit on pensions. In the Treasury, I discussed that proposition with my right hon. Friend the Member for Charnwood (Mr. Dorrell), who was then the Chief Secretary to the Treasury, and in the Grosvenor House hotel, the Chancellor discussed it with the current Economic Secretary to the Treasury and the hon. Member for Coventry, North-West (Mr. Robinson). We rejected the idea because we were satisfied that it would do damage to occupational pension funds. The Chancellor decided that it would not damage them, and he is still using the preposterous argument that it was responsible for the stock market boom that followed, but I seem to recall that the boom had something to do with the dot.com bubble in the United States. Is he still saying that the Grosvenor House mob came to the right conclusion, and that we came to the wrong one?
Mr. Brown: First of all, the ex-Chancellor supported, during the period in which his party was in government, the reduction of the dividend tax credit from 33p to 30p, then from 30p to 27p, then from 27p to 25p, and then from 25p to 20p. It was virtually halved in the period in which the Conservatives were in government, and it was halved on the advice of the Leader of the Opposition; he advised Lord Lamont to go ahead with the move. As far as the ex-Chancellor is concerned, the problem is that in 1997 and 1998, he thought that there would be a recession in Britain, so it was not the right time to deprive companies of those resources, but I took the view that the economy would continue to grow. I was proven right: instead of a 7 or 20 per cent. cut in share prices, shares continued to rise, profits continued to rise and investment continued to rise. The ex-Chancellor said:
Ive been forecasting a hard bump and not a soft landing for the British economy since Brown handed the job of setting rates to a committee of bankers...He is going to bust our economy
Mr. Dorrell: I am grateful to the Chancellor, but I was actually the Financial Secretary. Can we be clear about one thing? Since the Chancellor came to power in 1997, the number of private sector final salary pension schemes accepting new members has been cut by two thirds. Is that a successful policy, an unsuccessful policy or nothing to do with him?
Mr. Brown: It is absolutely right that there has been a cut in those schemes in every major country in the world, but I have to tell the right hon. Gentleman that I have the figures with me, and the cut in defined benefit schemes between 1995 and 2000 was 2 per cent. Between 1990 and 1995, there was a cut of 5 per cent. under his Government. I remind him that when he spoke in 1993 on the Finance Bill, he supported the withdrawal of the divided tax credit to 20 per cent. He said the Tories were doing it
in a way that does minimum economic damage, recognising the substantial tax benefits available to pension funds as collective savings vehicles.[ Official Report, Standing Committee A, 15 June 1993; c. 377.]
Pete Wishart: Thank you, Mr. Speaker. Is it not the case that the pension fund raid will cost the average Scottish family £3,750 at a time when one in five Scottish pensioners live in poverty? When the Chancellor came to Scotland, he said that he regretted nothing and that he would do it all again. Should he not apologise to the Scottish people, and does he not understand that this is the final nail in Labours coffin in Scotland?
Mr. Brown: I have just explained to the House that we put £11.5 billion into pensions from 1997 until now in real terms. We have done more to abolish pensioner poverty than was ever done by the Opposition. We introduced a winter fuel allowance and free television licences, which were opposed by the Opposition. We introduced the pension credit, and the only plans that do not add up are those of the Scottish National party, which assumes billions in oil revenues that do not exist, which promised to spend money that it does not have, and none of whose figures add up. The hon. Gentleman should go back to Scotland and explain why his policies and plans are economically illiterate and cannot make a difference to the people of Scotland.
Mr. Garnier: I am very grateful to the Chancellor. In my constituency and throughout Leicestershire, there are thousands of former British United Shoe Machinery pensioners who, instead of living in retirement on their occupational pensions, have a vastly reduced income and just about survive on benefits. Does the Chancellor claim that as one of his great policy successes?
Mr. Brown: First, we have just announcedand we are the first Government ever to do soa financial assistance scheme worth £8 billion to the 125,000 pensioners who are in difficulty. I hope that the hon. and learned Gentleman supports that. My right hon. Friend the Secretary of State for Work and Pensions will be able to say later in the debate that, as part of the £8 billion announcement, we are reviewing the assets of all the fundswe announced that weeks agoto see if more money can be found. Far from the shadow Chancellor announcing anything new today, he is reheating an announcement made by the Pensions Secretary weeks ago. If the hon. and learned Gentleman is worried about the condition of his pensioners in the meantime, perhaps he should now support the pension credit, the winter allowance, free television licences and the minimum pension guarantee, because I have not heard many Conservative party members or Conservative MPs who are anxious to come out and support those things.
Mr. Philip Dunne (Ludlow) (Con): With reference to the £8 billion that the Chancellor has just mentioned, will he acknowledge to the House that that is payable over 60 years and that its net present value is less than £2 billion?
Mr. Brown: We have just raised the figure from £2 billion to £8 billion. We have made it possible for every one of the 125,000 people who have lost out to benefit. Is the hon. Gentleman repeating what the shadow Chancellor has said, that there will be no extra funds for pensions, or is he demanding that the shadow Chancellor produce extra funds for pensions? Perhaps Opposition Front Benchersin particular, the shadow pensions spokesmanwill clarify in the course of this afternoon whether they are offering new money or whether they are sticking to the shadow Chancellors pledge that there will be no new money at all.
Greg Clark (Tunbridge Wells) (Con): Will the Chancellor confirm that his raid has been not only on pension funds, but on Britains charities? And will he confirm that Britains charities have lost £1.3 billion to date as a result of that policy?
That is not true. [ Interruption. ] The shadow Chancellor thinks that the matter is so important that he did not even mention it in his speech. [ Interruption. ] The dividend tax credit was indeed paid to charities, but we gave them compensation for five years afterwards, and at the same time we introduced a major reform of charities. Gift aid was worth £135 million when we
came in; it is now worth £750 million. I have not seen the Conservatives supporting what we have done in that area, either.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): If it was damaging to charities and the Chancellor had to compensate them, why does he not admit that it was damaging to pension funds and issue compensation?
Mr. Brown: The right hon. Gentleman had better be careful in joining this debate. He was the author of plans on pensions that virtually lost his party the 1997 election. I have just explained to him that companies paying into pension funds are paying employers contributions, which rose by £2 billion between 1996 and 1999. It was wrong that so many companies were taking employer holidays, and it was also wrong that the share of wages paid in pension contributions was only between 1 and 2 per cent. Those companies had unfortunately been encouraged to take those holidays by the taxation regime operated by Lord Lawson, which was why those pension funds were not receiving employer contributions as they should have done. Once we made the change, employer contributions started to rise. They have now risen to £33 billion a year, and I hope that the right hon. Gentleman will acknowledge that employers are now paying a fairer contribution to the pensions of their workers. In my 1997 Budgetthis is why the shadow Chancellor was completely wrong when he tried to suggest that this was not in the 1999 BudgetI said that employers had been taking holidays for too long and that it was time for them to restore contributions.
Most sensible people who look at what happened will find that because we cut corporation tax, employers were able to pay more contributions, which rose by £2 billion in that period. At the same time, of course, there were higher dividends, so the effect of the dividend tax credit was wiped out. The whole argument put by the shadow Chancellor this afternoon was dependent on a 7 to 20 per cent. fall in the stock exchange, which was the worst scenario drawn up by Treasury officials. We decided that that would not happen and took the view that the economy would not experience that share cut. We were right and share prices rose by 12 per cent. in the quarter and by 27 per cent. It is about time the Opposition, who pride themselves on having some knowledge of economics, understood that because we acted on corporation tax, which they failed to do, we were able to recycle revenues to both pension funds and higher dividends, which meant that the assets and incomes of pension funds rose between 1996 and 1999.
Mr. Brown: As I just said, the bigger fall in defined benefit schemes was between 1990 and 1995, when there was a 5 per cent. fall; there was only a 2 per cent. fall between 1995 and 2000. I have to accept that around the world, particularly in America, defined benefit schemes were running into trouble [ Interruption. ]
Mr. Brown: The hon. Member for Sevenoaks (Mr. Fallon), who sits on the Treasury CommitteeI am very grateful to him for praising my economic record a few weeks ago, which would not have gone down well with the shadow Chancelloris a member of the No Turning Back group, which is recommending [ Interruption. ] This is absolutely relevant to the debate. Members of the No Turning Back group want tax cuts. Unfortunately, they have made all these representations for tax cuts, yet not one of them is about restoring the dividend tax creditthat is how strongly they feel about it.
Andrew Selous (South-West Bedfordshire) (Con): It has been estimated that council tax payers are paying an extra £175 a year in council tax because local authority pension funds have had so significantly to increase their contributions because of the pension tax raid. What does the Chancellor say about that? [ Interruption. ]
Mr. Brown: I do not accept what the hon. Member for South-West Bedfordshire (Andrew Selous) says. He is a member of the Cornerstone group, which wants a flat tax based on a single rate of 22 per cent., a personal allowance of £10,000, an overall tax cut
Andrew Selous: I am happy to tell the Chancellor that I shall be voting for our amendment tomorrow to help these 125,000 people, and my hon. Friend the shadow Chancellor will be making further plans public over the coming year.
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