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7.3 pm

Mr. Ian Taylor (Esher and Walton) (Con): Obviously, by praising the Chancellor’s speech the hon. Member for Caerphilly (Mr. David) is applying to him late in life for a job, perhaps as his Parliamentary Private Secretary. I wonder whether he would have made that same speech so willingly in 1997, when the decisions we are discussing were being taken: would he have stressed the benefits of this change in advance corporation tax that the Chancellor had sprung on the House? It is my contention that at that time nobody knew what its full effect would be. The Chancellor certainly did not come clean about it in the Chamber. It is good that he is now belatedly being held to account, simply because we happen to have the Treasury evidence, which came out after 10 years. The Chancellor’s remark that he welcomed the Freedom of Information Act 2000 was one of the most amusing comments that he has made in the Chamber, and I hope that it will be included in future dictionaries of quotations. He clung on to information that some of us had anticipated must have existed in the first place—he legally tried to hold it back until he went on a trip, to Afghanistan—namely that he overrode the advice that he had been given and that he knew what the effect of his decision would be, although I suspect that he did not realise how bad it would be.

There is a pensions crisis, although I accept it is not caused entirely by the particular tax change that is at the centre of our debate—I shall come back to that point. There is a pensions crisis because people no longer have confidence in putting enough money aside for their retirement. Not only do they not feel that that is a justifiable saving, but they are unconvinced that the benefits of that saving will flow back to them when they have retired.

Stephen Hesford: I ask the hon. Gentleman to look back to 1990s. Because of Maxwell and pension mis-selling under his Government, people did not have confidence in the system then either, so what has changed if what he says is right?

Mr. Taylor: It is clear what has changed. In 1997 the pensions industry was, according to objective observation, in a good state. Of course, the Maxwell affair raised questions about what might happen, but people did not think that that was a generic problem. However, since 1997 60,000-plus occupational pension schemes have closed, final salary schemes are now regarded as too risky, and some people have lost money because of failed schemes or failed companies that fall outside the recently introduced lifeboat—we will return to that when we address the Pensions Bill tomorrow and the excellent proposals that the shadow pensions Secretary and his colleagues will put forward.

The constituents of the hon. Member for Wirral, West (Stephen Hesford) must be raising concerns. It would be very strange if they were not. [Interruption.] Well, the hon. Gentleman must live in an extremely affluent and contented constituency, but in the dark reaches of Surrey the natives are restless.

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Stephen Hesford: I am pleased to be able to tell the hon. Gentleman that I do live in a reasonably affluent and contented constituency.

Mr. Taylor: I am delighted that the hon. Gentleman can afford to do so, but some of my constituents have been affected by failed schemes. Arcolectric has a failed scheme. Mayflower is based in Guildford, but its failed scheme also affects constituents of mine. Those people are extremely concerned about their futures, and I hope that the Government will tomorrow adopt the Opposition’s amendment on this issue.

However, that is not the only issue that I wish to address. There is a pensions crisis and there is a savings crisis and we must do something about that. How we address those problems is perhaps not a matter for this debate, but I hope that something constructive will come out of it, because I am extremely concerned as the long-term prospect is that the state will not be able to provide sufficient for people in their retirement. People will live longer. Therefore, they will have costs to meet, not least in terms of nursing home care. In those circumstances, we desperately need there to be a thriving private sector pensions industry.

In 1997, it was clearly being rumoured that the Government were thinking of making changes. The hon. Member for Coventry, North-West (Mr. Robinson) made an open speech in which he was also affable—although he did not perhaps always mean to be so—and in which he revealed the truth: secret work was going on at that time to work out how to get more money from the taxpayer without them necessarily realising it. That is effectively what he said in his book, and it is what he has said in the Chamber today. There is nothing wrong with that in the sense that Governments occasionally have to consider how to raise tax revenues. All Governments have a responsibility to do that. It is always better—in the long term, it is better for the reputation of the Government—if they do so overtly rather than covertly, but the exercise undertaken by the hon. Member for Coventry, North-West was clearly covert. Again, I do not necessarily criticise him for being covert before a general election. Political parties do not always put all their policies in the shop window. What was damaging was that the introduction in the Budget was covert, glossed over and spun so that nobody understood its implications. However, the advice given to the Chancellor from several different quarters suggested what the effect might be.

Justine Greening (Putney) (Con): Does my hon. Friend agree that the biggest problem was that the covert change took the choice away from individuals saving through occupational or private pensions, because they did not realise that they needed to decide whether to increase their contributions? They were left thinking that there had been no change and that therefore they did not need to change their provision. They were wrong.

Mr. Taylor: I welcome that point because it underlines the concerns that I have about how we get people to realise the full extent of their personal liabilities for their own futures. Anything that reduces their awareness of what they need to do is of considerable concern.

When the Chancellor introduced his 1997 Budget, he was aware that some of us were already talking about the implications of what might happen. My right hon.
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Friend the Member for Charnwood (Mr. Dorrell) was involved in the previous decisions and I was aware that we had rejected a change of the sort that the Chancellor and the hon. Member for Coventry, North-West were considering. Therefore, the first time that the Prime Minister’s came to the Dispatch Box to answer questions, in May 1997, I asked him whether he would compensate pensioners for any loss that might arise from the rumoured changes in tax, including a windfall tax and advance corporation tax. Not surprisingly, I got the brush-off with an evasive reply. The Prime Minister merely commented that a windfall tax would not damage pensioners and did not comment on advance corporation tax. He also took some sideswipes at my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) and the pension proposals and reforms that we had put forward before the 1997 election. That attack was disingenuous, because at least we had put our proposals forward for public consultation. They were misrepresented by the incoming Labour Government, but I strongly suspect—as my right hon. Friend pointed out in his speech today—that they subsequently regretted having written off those proposals, which meant that they could not grasp the pension problem for some years.

Lord Simon of Highbury, then a Minister, also apparently made it clear that the changes would be damaging. He also said that the proposed tax change was a particular concern, given its impact on investment in the UK and pension provision. The Chancellor claimed that he was given the opposite advice today—that the decision would help investment. Those issues have been addressed by colleagues in previous speeches, so I shall not go over them.

The Chancellor was aware of the implications, but he did not make them clear in his Budget speech. I am not sure that he fully understood what the implications were. Local authorities have been mentioned, and I checked with my local authority, Surrey county council, today. It said that at the 1998 valuation the deficit on the pension fund was £243 million, but at the 2004 valuation—the latest official valuation—the deficit had grown to £517 million, despite the council making additional contributions of £200 million to reduce the deficit over the period. That prudently run county council has been hit, with the result that council tax payers are paying more. The impact of the measure in 1997 was not only felt by pensioners, but caused collateral damage. Did the Government admit that? Did the Chancellor come to the House and say “Well, I think that this is a necessary measure because we need to raise more money. I have been advised by my Minister”—the hon. Member for Coventry, North-West—“that we have to raise £5 billion and this is how we’ll do it. It will of course affect pensioners, but in the long term we think that the pension industry will survive, and of course it will have a knock-on effect on council tax payers, but they must play their part.” He did not say any of that.

The accusation against the Chancellor is not that he thought through some measures and happened to come up with some that were tax-raising. That is the job of the Chancellor. The accusation is that he did that in a clandestine, covert way and has never apologised to the people who have been affected. Apologies in the Chamber are always highly regarded and respected by colleagues. The House listens sympathetically if a Member comes to the Chamber and says, “Well, I didn’t understand the full implications of what I have been doing. There were
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merits to my decision and I took good advice, but the effect has been worse than I expected.” But even today, when the Chancellor’s cover has been blown, we did not hear a word of apology. There was lots of talk about other measures that he had introduced to try to protect from flanking cover the problems that he had caused by that decision, some of which have been beneficial to pensioners, but that does not alleviate the damage to confidence in the pensions industry.

We did not get an apology. Instead, we got bluster, fight-back and statistics that did not make comparable sense with the time scales involved. Interestingly, few of the figures came from after 2001. Heaven forfend that I should have to read the Chancellor’s speech in Hansard tomorrow, but I think that that is true. That is interesting, because one of the arguments that he has used is that the stock market went up. It is rare that Chancellors claim credit for stock market movements, and he certainly would not wish to claim credit for the fall in the stock market, which logically he should. If he is behind all movements, the fall must also have had something to do with him.

Lord Turnbull said that the Chancellor was behaving like Macavity the cat, and my hon. Friend the shadow Chancellor referred to that. That excellent poem also says:

Well, the crime has been discovered. The Chancellor was there, but he did not come to the House and own up. That is the accusation that we are making.

7.17 pm

Judy Mallaber (Amber Valley) (Lab): No crime has been committed. That is a ridiculous way of putting things. The statements and analysis given by the Chancellor and others have made the position clear, and they contested very strongly the points made by the Opposition.

It was unclear from the exchanges between the right hon. Member for Charnwood (Mr. Dorrell) and the Economic Secretary what the advice and recommendations were on the relationship between investment and dividend tax relief, and it will be fascinating to read the papers when they are released. I get the feeling that a range of advice was given by the Treasury and advisers from other Departments. It is like what people say about economists—get three economists in a room and one ends up with four opinions. The debate on the advice reminds me of that saying.

We all know what the debate is actually about. I do not have the polemical flair of my hon. Friend the Member for Birmingham, Erdington (Mr. Simon), who was very up front on this issue, but the debate today—certainly for those who initiated it—has been about trying to denigrate the economic record of the Chancellor, which the Opposition have not previously been able to challenge seriously. He has been able to see off one shadow Chancellor after another because of the excellent performance of the British economy under his stewardship.

We have had the longest sustained period of economic growth, with 2 million more people in work and higher incomes for the British people. The unspoken element of this debate is that the Tories want to denigrate the Government’s record because their attack has moved from the Prime Minister to the Chancellor ahead of the leadership election. They are determined to damage the Chancellor, regardless of the seriousness and importance of the issues relating to pensions.

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Justine Greening: The constituents who came to my surgery this week to raise their concerns about pensions and the Chancellor’s smash-and-grab tax raid believe that those are live issues for everyone outside the Chamber. The hon. Lady dismisses their concerns and pretends that we are holding this debate only to pin something on the Chancellor, but that is untrue.

Judy Mallaber: The problem is serious and we need to have a proper discussion about the consensus that we want to build in respect of pensions in the future. However, the way in which the debate has been initiated means that it cannot offer a serious representation of what has happened. All hon. Members know that constituents are worried about their pensions and livelihoods, both now and in the future. No one denies that, but that is not the substance of the debate. Some serious contributions have been made, but there has been little attempt to give a serious representation of what has happened, and why.

The debate is an easy hit for the Opposition. Few people understand the complexities of pensions or the workings of the stock market. Not many are familiar with dividend distribution and the nature of investment, the implications of demographic change resulting from rising life expectancy, or the changes in accountancy laws. The issues are complex, and it is easy to claim that a smash-and-grab raid has been carried out and to say, “The Chancellor stole your pension.” That is the soundbite, but it is not an accurate or sensible reflection of what has happened. The truth is very different.

When we look back at the relevant documents, I shall be interested to see what they have to say about the relationship between the abolition of dividend tax credit and investment. It has been claimed that the aim was merely to raise money, and the right hon. and learned Member for Rushcliffe (Mr. Clarke) said that the money was to be used for the Government’s employment programmes. As I understand it—

Mr. Dorrell: The hon. Member for Coventry, North-West (Mr. Robinson) said that.

Judy Mallaber: I have not read the book that everyone is quoting as though it was the new Bible. I shall have to get a copy.

The windfall tax covered the amount needed for the Government’s new deal—a programme which, along with other measures, has cut significantly unemployment in my constituency. It has also enabled us to spend less on funding unemployment, and to have more money for investment in public services.

Mr. Dorrell: The hon. Lady does not need to read the book. The hon. Member for Coventry, North-West was in the Chamber earlier, and he made it crystal clear that the change to taxation of pension fund dividends was motivated by a need to raise revenue.

Judy Mallaber: I am sure that my hon. Friends on the Front Bench will respond to that when they reply to the debate, but my understanding is that the change was made to assist in investment—something that I, as a member of the Trade and Industry Committee, consider to be very important.

However, if it was such a bad thing to remove the dividend tax credit, why did the present Opposition cut it five times when they were in government? I return to a question that I asked earlier. Lord Lamont was Chancellor
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in 1993: did his special adviser at the time support his statement that dividend tax credit distorted the commercial decisions of British companies? The shadow Chancellor refused to answer. He merely resorted to an easy jibe, claiming that I was asking a planted question. That made me wonder why I bothered to stay up late reading so many articles and newspaper commentaries—many of which blamed our current pensions difficulties on a variety of different factors.

My right hon. Friend the Chancellor said that dividend tax relief halved under the Conservatives, so we are entitled to ask whether the right hon. Member for Witney (Mr. Cameron) supported the argument that there would be an impact on investment decisions.

I turn now to the article by Stephen Yeo that has been quoted before. I do not know the extent of his relationship with the Conservative party, as I do not share the great interest exhibited by some of my hon. Friends in such details. However, Stephen Yeo is a partner at Watson Wyatt pensions consultants, and he has said that

He added:

I understand that Opposition Members respect Mr. Yeo and listen to what he says, but he is not the only commentator who does not consider that scrapping dividend tax relief posed serious difficulties for the viability of pension funds. Most of the money gained from cutting dividend tax relief was returned to companies through changes such as the cut of 2p in the pound in corporation tax. The aim was to remove the bias against investment, and to encourage companies to make decisions about future investment based on commercial rather than tax considerations.

We are forced to return to the question of what the present Government inherited. That is quite nice, because we are usually told that far too much time has passed to allow us to talk about what happened under the previous Conservative Government. We are supposed to have moved on from all that but the Opposition have given us the opportunity to return to such questions, as this debate takes us back to the circumstances of 1997.

At that time, the UK was suffering from historic under-investment. For every £100 invested here, Germany invested more than £140, the US and France £150, and Japan more than £160. The various measures taken by this Labour Government have meant that we have had continuous growth since 1997. We have managed to cut the historic cost of unemployment by getting people into work and creating 2 million more jobs.

Mr. Newmark: The hon. Lady has repeated what the Chancellor has said—that part of the motivation was to increase investment. However, what evidence is there that investment has increased? As far as I can see, the facts suggest that investment as a percentage of gross domestic product is at an historic low.

Judy Mallaber: I advise the hon. Gentleman to look at the record of economic growth and rising employment—

Mr. Newmark: I was talking about investment.

Judy Mallaber: The economy is far healthier than it was. The Opposition seem to want to denigrate the economic success that has been achieved. They cannot say that there has been no investment: in my constituency,
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companies have been able to invest and to create new jobs. Even Conservative party advisers such as Stephen Yeo do not say that the dividend tax cut was responsible for what has happened with pensions.

Mr. Newmark: Will the hon. Lady give way?

Judy Mallaber: No, as my time is running out.

The suggestion is that the abolition of dividend tax relief was the reason for the present serious problems with pension funds. However, no reference has yet been made in the debate to the TUC, which represents many of those who have suffered as a result of what has happened to pension schemes. If the proposition behind the debate was correct, I do not believe that the TUC would say the following:

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