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This debate is important in that it has secured the presence of the Chancellor. My hon. Friend the shadow Chancellor made some important points to tease out of the Chancellor a glimmer of acknowledgement that some share of the responsibility for the problems that have arisen in the occupational pensions sector in the past 10 years could be attributed to him and what he did in the 1997 Budget.
The debate is relevant not only to the people in this Chamber and not just because the Chancellor has ambitions to succeed the Prime Minister. It is relevant to Labour Members, who have been able to see his reaction and whether he can say sorry, as he was asked to do by my hon. Friend the shadow Chancellor; whether he is able to show some element of contrition and responsibility for the action that he took. I regret to say that there was little evidence of that in his speech today.
The debate is also relevant following such a long period of denial of the fact that the 1997 decision had any impact on occupational schemes. It is evident from so much external commentary and comments in the debate today that the decision had a significant impact, the scale of which is up for discussion.
The Chancellor’s contribution to the debate will have disappointed many not only on the Opposition Benches but on his own Benches, and most independent commentators. It will have been of considerable concern to my constituents and other people watching from outside the House. It was a disappointing speech from a potential Prime Minister. It was disappointing for the message that he had to give, first, that it was not a real problem, and, secondly, that if there was a problem, it was not of his making.
The Chancellor’s mantra has been that under his stewardship there has been no return to boom and bust. He has mentioned it in every single pre-Budget report and Budget statement since he has had the job. But under his watch in the past 10 years, a large number of defined benefit schemes have gone bust, and two thirds of them have closed.
Some have questioned why we are raising the matter only now, 10 years after the event. It is perfectly obvious why: we are raising it on the first available opportunity after the evidence was revealed following much teeth pulling from within the Treasury just before the Easter recess. The Opposition are often criticised for not raising the issue regularly in the House and through the media. However, there have been some helpful contributions today, not least from the hon. Member for Birmingham, Erdington (Mr. Simon), who magnificently went through a year-by-year catalogue of the occasions on which this issue was raised by distinguished Members of this House, especially on the Opposition Benches.
The Chancellor has fought revealing the information doggedly for the past couple of years. He has issued a fog of denial, which has enveloped not just himself but most Labour Members. Few seem to have recognised what happened in 1997. We have heard some astonishing tales of denial, with the exception of two contributions from Labour Members, one from the right hon. Member for Birkenhead (Mr. Field), who referred to the double body blow—the first was an attempt to attack the shadow Chancellor but the second presumably related to the precise measure that the Chancellor introduced.
The other contribution was from the hon. Member for Coventry, North-West (Mr. Robinson). His speech was revealing. He attempted to paint a caricature of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) when he was Chancellor, but the hon. Gentleman’s description could have been that of the present Chancellor. He talked about a Chancellor who was running up high debts, who had a poor forecasting record and indulged in pre-election spending booms. On the Conservative Benches, we recognise all those things as attributes of the present Chancellor. The hon. Gentleman’s candid admission that the dividend tax credit was entirely a revenue-raising measure should percolate to other Labour Members.
I want to highlight two misunderstandings that emerged through the fog on the Labour Benches—I use the word “fog” to be charitable, but it may have been a deliberate attempt to spin Labour’s side of the story. First, Labour Members tried to claim that before 1997 there were five Conservative cuts in dividend tax credit, which were analogous to the Chancellor’s decision to abolish the credit. However, that claim does not recognise the fact that the first four cuts resulted from limiting the credit to the basic rate of income tax, which was successfully and successively cut by Conservative Chancellors during the 1980s and the early 1990s. That is not the same thing as abolition of the credit.
Secondly, several Members criticised pension holidays as a major contributor to the pension crisis. The hon. Member for Amber Valley (Judy Mallaber), who is not in the Chamber, claimed that pension holidays were forced on companies by measures introduced in a Conservative Budget in the mid-1980s. To put Labour Members straight, the purpose of those measures was to stop companies sheltering profits in their already well-funded pension schemes. They were legitimate measures to ensure that profits came into the corporation tax net. As Opposition Members have said, notably my right hon. Friend the Member for Wokingham (Mr. Redwood), the whole structure of trusteeship in the pension fund industry, with independent trustees and reporting actuaries, militates against assets being taken out of funds—other than in the Maxwell case, which was referred to earlier.
Many Labour Members are confused about the impact of the dividend tax cut on pension schemes. I urge them to go back to their constituencies, as I am sure some will do for the local elections, and talk to their councillors about what has happened to council tax as a result of the need to restore some of the unfunded deficits in council pension schemes. They will get a much better answer if they ask how much the dividend tax credit contributed to the situation.
In conclusion, there is a degree of consensus on the need to sort out the current pension crisis and on what needs to be done to sort out state pensions and to restore the savings ratio and personal responsibility. However, consensus is best achieved when analysis of the causes of the problem is shared, so it is disappointing that throughout the debate there has been no hint of contrition from the Chancellor or his supporters about the causes of the problem or any recognition that it was of his making.
9.28 pm
Mr. Philip Hammond (Runnymede and Weybridge) (Con): The question before the House is this: given what we know now about the circumstances of the 1997 tax raid—the advice that was received, the secrecy with which it was prepared, the concealment of the effects both during the election campaign and after the event—do we, in the words of the Leader of the Opposition’s motion, have “no confidence” in the Chancellor’s stewardship of occupational pensions, or do we, in the extraordinary words of the Government amendment, note and welcome
“the acts of this Chancellor and Government to...remove the dividend tax credit”?
That is a pretty clear choice—one that millions of savers up and down the country will be watching very carefully.
What have we heard to help us to make up our minds this evening? My hon. Friend the shadow Chancellor set out the case and asked the Chancellor for a simple thing: he asked for an apology. But what did we get? We got an extraordinary rant from the Chancellor. Actually, it consisted of a speech with no interventions, followed by a series of interventions with no speech—punctuated with all sorts of accusations and assertions. He accused the Tories of not having introduced the Pension Protection Fund before 1997, but there was no need for such a fund before 1997. He told us that auto-enrolment will mean that all employees will have a pension at work, showing that he clearly does not understand the challenges facing the personal accounts agenda.
The Chancellor then told us that he is looking for long-term answers, but people in this country who believe that their pension is the longest-term issue for them will not understand that comment from a Chancellor who has shattered their confidence in their long-term savings. He told us that because of changes to corporation tax, employers could make higher contributions. That may or may not be the case, but the fact is that they did not make higher contributions. When confronted with the need to make good the deficits, they closed schemes instead, and there was no recognition at all from the Chancellor of the problems faced by the smaller companies, which often do not make profits and do not save corporation tax, that have been at the root cause of the problems faced by the 125,000 unfortunate people who have lost some or all of their pensions.
The Chancellor told the House that the problems of those pensioners were caused by their employers going bust, but he is quite wrong and obviously does not understand the position at all. Some of those employers have not gone bust and many others have gone bust without causing any problems to the pensions of their workers if their schemes were fully funded. The problem is the underfunding of the schemes, not the insolvency of the employers.
Perhaps most tellingly of all, we got no apology whatever from the Chancellor. Far from it. Indeed, we got the absolute opposite: with the Chancellor’s clunking fist banging on the Hansards on the Dispatch Box, we were told that if given the chance, he would do it again. Thousands and millions of savers throughout Britain will draw their own conclusions about that statement tonight.
We heard a very good contribution from my right hon. and learned Friend the Member for Rushcliffe
(Mr. Clarke), who drew the House’s attention to the extraordinary fact that the Chancellor, when in opposition, and my right hon. and learned Friend as Chancellor at the time, were considering precisely the same set of proposals and came to completely different conclusions. My right hon. and learned Friend was not prepared to take risks with the security in retirement of millions of ordinary people. He told us how just four sentences in the Chancellor’s 1997 Budget concealed the largest tax-raising measure in it. Many of us will remember that Labour Members thought it was a tax cut. It took The Times of the next day to disabuse them of that.
Perhaps even more thoughtfully, my right hon. and learned Friend challenged the notion that successful and profitable companies should be allowed to keep all their profits and reinvest them in their own businesses. The Chancellor seems to think that that is the way to promote economic growth, but he should know that it leads to misallocation of capital resources. It should be the owners of capital who have the opportunity to decide where to invest it. Indeed, the Chancellor himself, in finally accepting the arguments for real estate investment trusts in the property sector, has acknowledged the truth of that point.
My right hon. Friend the Member for Wokingham (Mr. Redwood) drew attention to the interesting fact that the FRS 17 has been almost exactly the same size as the estimated cost of the Chancellor’s tax grab. He generously described both the Chancellor and the Economic Secretary as having mounted a clever defence of their policies. I am not sure whether that view persisted, however, when the Chancellor answered my right hon. Friend’s intervention as to whether he would be worse or better off if 20 per cent. of his income were taken away by saying that he thought that he would not be any worse off if 20 per cent. of his income were lost.
Then we heard from the hon. Member for Coventry, North-West (Mr. Robinson). We got a lecture on the skills necessary for opposition and a plea to be a bit kinder to the Chancellor. He made the extraordinary case that the mark of a serious Opposition is making policy in secret, locking it up during an election, concealing their tax raising plans, and then releasing them on an unsuspecting British public after that election is over. But at least we got from him a candid admission—not in the debate tonight, but in his book, which was quoted—that this was simply a revenue-raising measure. It was nothing to do with stimulating investment or promoting business. It was about hitting pensions—a soft touch. He was honest; it is a pity that he could not have been so at the time.
My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) made the key point that what matters is not simply the size of the pension funds, which the Chancellor quoted at the House, but the balance between their assets and liabilities. He drew attention to the real problem of trying to stimulate pensions saving in an environment of high levels of means-testing. That is a real difficulty for the personal accounts agenda, which the Chancellor appears not to recognise.
Then we had a contribution from the hon. Member for Birmingham, Erdington (Mr. Simon), who asked why we had raised this subject for debate now. Did we pluck it out of thin air? Apparently he has been on holiday for the last couple of weeks and is not aware of
the dramatic release by the Chancellor on 30 March of the hitherto secret documents.
Until 1997, Britain had arguably the best pension provision in Europe and now it has arguably one of the worst. Part of the reason for that is the Chancellor’s 1997 tax changes. Ministers deliberately concealed the impact of the annual tax raid, both before and after the event, and have consistently denied that wiping £100 billion or so off the value of pension funds has had any negative effect on pension provision. The Paymaster General, who was then the Financial Secretary, said in July 1997:
“our reforms will benefit pension funds.”—[ Official Report, 3 July 1997; Vol. 297, c. 508.]
The then Secretary of State for Trade and Industry told us that the reforms would be “good for pensioners.” The Chancellor himself reassured the country, saying:
“We are not raiding pensions, that’s just ridiculous”.
But a decade later, with the benefit of these documents, we know the extent of the Chancellor’s reckless disregard of the warnings that he received and his shameful gambling with the future retirement security of millions of ordinary people. We know that only because of the freedom of information request made by The Times. The Chancellor told us that he welcomed the information coming into the public domain and he claimed credit for introducing the Freedom of Information Act 2000. So why for two years has he spent our money fighting the release of the papers that The Times requested, saying that their release would damage the process of government?
Suddenly, when the damage to the Chancellor’s own career progression seemed to be more at risk, the damage to the process of government faded into insignificance and out the papers came—on a Friday afternoon, after Parliament had risen for the Easter recess, when the Chancellor was safely abroad engaged in statesman-like posturing in Afghanistan. The Economic Secretary, whose hands are far from clean in this matter, was left to defend the indefensible. Tonight, we are faced with the even more ludicrous spectacle of the Chancellor’s position being defended by the Secretary of State for Work and Pensions. I would repeat his comments on the Chancellor’s fitness for the highest office, except that you have previously ruled that they are too unparliamentary to be quoted in the Chamber, Mr. Speaker.
The Chancellor knew from the outset that his position was untenable. That is why he resisted for two years releasing the papers and why he released them only when Parliament was in recess and when he had put 6,000 miles between himself and this place. Labour deceived the electorate in the 1997 election into believing that it was committed to no new taxes and the Government concealed the effect of the changes after they had implemented them.
When the whole story came out on 30 March, the Economic Secretary and the former Paymaster General engaged in a predictable series of ducking and weaving exercises in the Chancellor’s absence. First, they said that this was all done on the advice of civil servants, but the documents released proved that that was not the case. They then said, “Actually, the CBI told us to do it, so that’s all right,” until up popped Lord Turner to say that that was completely wrong. Despite a few mumblings off in private, I have not heard any Minister say in
public that Lord Turner was lying, so if that is what the Government want us to believe, perhaps someone will jump up and say so.
The hon. Gentlemen then claimed that the whole package stimulated business investment, but business investment has fallen as a percentage of GDP —[ Interruption. ] Yes, it has. The Government then said, “The Tories did it,” but there was a world of difference between the adjustments that my noble Friend Lord Lamont made to dividend tax credit and the wholesale abolition that the Chancellor undertook. I remind the Chancellor that my right hon. and learned Friend the Member for Rushcliffe had taken the decision that no further cuts in dividend tax credit were appropriate or possible.
The facts are that the pension tax raid was the Chancellor’s decision, that it was taken against the advice of his civil servants, the CBI and the Prime Minister, and that it was not an adjustment of rates, but a carefully planned and executed raid that totally abolished dividend tax relief for pension funds. Even after taking the corporation tax changes into account, the raid resulted in a net gain to the Treasury of £3.5 billion. It did not deliver increased business investment, it did not boost productivity growth and it did not help any of the other fundamental drivers of prosperity in our economy.
I readily recognise that the Chancellor’s tax grab was not the only factor affecting pensions, but it was the factor over which he had direct control. The end result is that Britain’s gold standard pension system has been reduced to ruins. Some 60,000 schemes with 1 million members have wound up since 1997. Over the same decade on the Chancellor’s watch, final salary schemes, except those in the public sector, have lurched into terminal decline—less than 10 per cent. of the private sector work force now have access to them. More than £100 billion has been wiped off the value of pension funds and more than £7 billion of annual cash flow is now being sucked into the Chancellor’s coffers.
For the 125,000 people whose pension schemes have failed with insufficient funds to pay them what they are due, the crisis is not a future problem, but something that is real and immediate. The Chancellor has turned his back on those people, which was why my hon. Friend the Member for Tatton (Mr. Osborne) today outlined the measures that we will propose with cross-party support in the House —[ Interruption. ] The measures are supported in all parts of the House, except the Government Front Bench. They represent a consensus around the moral and pragmatic case for delivering proper benefits to that group of victims.
The truth is that the Chancellor thought that he could get away with it. He thought that as long as the dotcom bubble lasted, no one would notice £100 billion or so. He gambled with the future retirement security of millions of ordinary, hard-working people. When the bubble burst and he lost, they were left to pick up the tab—they will not forget that.
The debate is about the Chancellor, his judgment and his operating style. We have heard how he plotted his tax raid in secret, how he ignored the advice of everyone—colleagues, civil servants and the Prime Minister—how he dissembled about the effects of his 1997 announcement, and how he has tried to deny the consequences and suppress the evidence ever since.
Finally, we have heard how he tried to bury bad news when he could no longer keep it hidden in the Treasury.
Tonight, the question and the motion on the Order Paper are about the Chancellor’s handling of occupational pensions. However, he knows that the question on the lips of millions of pensioners and savers throughout Britain goes wider than that. The House has a choice: it can express its solidarity with the millions of people whose pensions have been affected, or it can turn its back on those people and vote for the Government’s whitewash amendment, which actually praises the decision to scrap tax credits. We can reflect the huge concern across Britain about what has happened to our pensions, and about the Chancellor’s role in that regard, or we can turn a deaf ear to the questions that are rightly being asked about the judgment and the style of the man who aspires to the highest office in the land.
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