|Previous Section||Index||Home Page|
those who are about to retire (or who have just retired) would be worst affected.
The officials said that, at the time, 8 million people were in money purchase schemes. Yet in July 1997, when challenged by Conservatives that the tax changes to pension funds would have a devastating impact, the Prime Minister reassured people, saying:
Pensioners, in my view, will not lose out over this in the way that people are suggesting.
The changes were not backed by the CBI at the time, although the right hon. Member for Normanton (Ed Balls), now the Secretary of State for Children, Schools and Families, desperately claimed otherwise a few weeks ago. Lord Turner, director general of the CBI from 1995 to 1999, dismissed that claim as completely untrue. Richard Lambert, the current head of the CBI, said that the right hon. Gentlemans claim was
a convenient bit of spin by the Treasury.
Mr. Mike Weir (Angus) (SNP): Throughout his speech the right hon. Gentleman has talked about crises in the pension system, but there is nothing in the motion about the state pension. Many of the low-paid to whom he refers rely almost entirely on the state pension for their income. Does he have anything to say about the difficulties with the state pension system as well as the private pension system?
There are, of course, huge issues surrounding the state pension. As the hon. Gentleman knows, the Opposition support the principle, as
espoused by the GovernmentI think that it has cross-party supportof restoring the earnings link. But we want to champion the cause of those who save for their own retirement. It is vital that, as a nation, we restore confidence in the principle of saving for retirement, and under this Government that principle has been dangerously weakened.
It is not the case that, as the Prime Minister has told the House, his 1997 changes were good for pension funds. The charge against him is this. In the areas where he had responsibility, such as taxation and regulationof course there are factors affecting the markets and the performance of pension funds that are outwith the ability of politicians to influencein the past 10 years he has plainly got it wrong. The overall effect has been the continuous decline in pensions that we have witnessed.
Since Labour took office in 1997 there has been a collapse in good-quality occupational pension provision, and 60,000 occupational pension schemes have been wound up or have begun the process of winding up. The right hon. Member for Birkenhead said:
five sixths of the final salary schemes that have closed have done so since 2000; in other words, they have closed under our watch.[ Official Report, 31 January 2006; Vol. 442, c. 257.]
The membership of employer-sponsored defined benefit pension schemes has fallen to 35 per cent. of the working-age population, from 46 per cent. in 1997. Now, 47 per cent. of adult employees are not members of any pension scheme, and 6.7 million women have no retirement provision at all, 400,000 more than five years ago10 years after the election of a Labour Government. That is a damning record.
Rebuilding trust in occupational pension savings is a long-term issue that must be addressed. But there is also a pressing short-term issue that must be dealt with urgently, and it is something that the Secretary of State and I will undoubtedly be debating in the next few weeks. The failure of occupational pension schemes has, sadly, had all too human consequences. Since 1997, 125,000 people have lost pension savings and been left with little or nothing when their pension schemes failed. These are decent people who have saved all their lives and done the right thing. They did what successive Governments told them to do.
Last year, the ombudsman produced an independent report on the scandal, and found the Government guilty of maladministration. Since then, the European Court of Justice, the High Court and the Public Administration Committee have criticised the Governments handling of the crisis. Yet Ministers have still refused to accept responsibility. The Government have consistently refused to provide those people with a proper package of assistance. All that they have is the failing financial assistance scheme.
Some 10,000 people should be eligible for help from the FAS now, with an additional 115,000 or so people becoming eligible once they reach the age of 65. But so far the FAS has made payments to only around 1,300 people, and this matter should be in a prominent position in the Secretary of States in-tray. The scheme has cost some £10 million to administer so far, but it has paid out only £4.9 million to the pensioners affected, and that is a scandalous failure. It is totally unacceptable. The scheme must do much better, and quickly. The money is not yet getting to those who need it.
The scheme chose to publish its most recent annual report, showing up this failure, last Wednesday, the day that the Chancellor became the Prime Ministergiving rise to more suspicions about burying bad news, one of the Governments more persistent traits.
We have put forward constructive proposals to top up those peoples pensions to Pension Protection Fund level without long-term public expenditure implications. Those proposals have support on both sides of the House and were passed in the other place last month as new clauses tabled to the Pensions Bill. The first test for the new Prime Minister and the new Secretary of State is whether they have the decency to acknowledge that those people need a better solution. Will the Secretary of State now give his support to those amendments? Will he give those 125,000 people the good news that they have been waiting for?
There is another big pensions issue in the Secretary of States in-tray. The gold-plated retirement promises made to millions of Britains public sector workers have incurred, depending on whether one believes the Government or independent actuaries, liabilities of somewhere between £530 billion and £1 trillion, which is a staggering amount of money. The Government still will not disclose what the liabilities were at March last year, and the figures are now three months late. The new Prime Minister has claimed to usher in a new era of transparent Government, but he is not even willing to publish such an important figure. As usual, what he says and what he does are miles apart.
Tom Levitt: On occupational pensions, the hon. Gentleman discussed topping up the Pension Protection Fund level. Does he agree with his immediate predecessor, the hon. Member for Runnymede and Weybridge (Mr. Hammond), who told members of the Turner and Newall fund in my constituency 10 days ago that it is important to have an alternative to the PPFin other words, a better deal than the PPF? Is that Conservative policy?
Chris Grayling: I am sure that the hon. Gentleman sympathises with that aspiration. We want to make sure that the people who have lost out as a result of pension collapses do not lose out indefinitely. We will continue to push proposals that give those people a better deal. It is to the discredit of this House that the Government still refuse to accept changes that command support from hon. Members on both sides of the House. When the proposal returns to the House next week or the week after, I hope that we will see a change in Government policy.
The Secretary of State knows that we must all share the burden of demographic change, and it is the Governments duty to the taxpayer to ensure that the costs of public service pension provision are transparent. The cost of unfunded final salary benefits, with retirement at 60 for many, indexation and a lump sum allowance plus generous ill-health and death benefits for millions of public sector workers have created a gaping black hole in public funds, which will ultimately have to be filled by the taxpayer, which is one of the great challenges facing the new Secretary of State. It is an issue that the Prime Minister conspicuously failed to tackle throughout his time as
Chancellor. Whenever problems were around, the former Chancellor was nowhere to be found. Now that he is Prime Minister, that will have to change.
We have heard much in the past few days about how the Prime Minister is trying, rather improbably, to be the change that Britain needs. That claim will ring pretty hollow among current and future pensioners whose retirement has been jeopardised by the misjudgements of the new occupant of No. 10 Downing street. Today, 125,000 of the worst affected pensioners are still waiting for a pensions lifeboat, and millions of others face a retirement in which money will be a constant struggle. The repair job will take a long time, and it will take cross-party consensus and the continued help of some of Britains best financial minds. However, none of that work should provide a smokescreen from the finger of blame, which last Wednesday moved from No. 11 to No. 10 Downing street.
That this House welcomes the policies of this Government to tackle pensioner poverty which have lifted two million pensioners out of absolute poverty and one million out of relative poverty, the action to tackle the legacy of pensions mis-selling, support occupational pensions through a Pension Protection Fund set up for the first time and a new Pensions Regulator, further support for 125,000 people through the Financial Assistance Scheme whose occupational pensions were affected by employer insolvency, set out the long-term framework for pensions through the new Pensions Bill, including re-linking the basic State Pension to average earnings, introduce a new scheme of low cost personal accounts and stakeholder pensions of which over three million have been created, remove the dividend tax credit, make reductions in corporation tax which have contributed to the 50 per cent. rise in business investment, broker public sector pension agreements which ensure a fair deal for todays and tomorrows public sector workers and introduce free television licences and the Pension Credit to provide an additional framework of support for todays pensioners..
I welcome the hon. Member for Epsom and Ewell (Chris Grayling) to his place. He has made an assured first speech after a days preparation or less than that, and I congratulate him on his appointment. Although I welcome his promises to be constructive and to seek consensus, I am disappointed that he treated us to nearly half an hour of rhetoric and a certain obsession with the Prime Minister. By the way, the Prime Minister has leapt above the leader of the Conservative party in the popularity stakes, and the Labour party is now ahead of the Tory party, which has held a poll lead for the past year. Perhaps the hon. Gentleman is right to be obsessed by the Prime Ministerif I were sitting in his seat, I would be obsessed by the success of the new Prime Minister in taking over from the most successful Prime Minister that the Labour Party has ever had.
My hon. Friend the Member for Livingston (Mr. Devine) pointed out that the hon. Gentleman did not make a commitment to reverse the dividend tax credit change, which he and his predecessor have consistently castigated. The Opposition have had 10 years and two general elections to commit themselves
to reversing the changes that we made. They could have done that today, so why did they not do so? The truth is that the Tories were responsible for beginning those changes. In fact, the leader of the Opposition was the adviser to Lord Lamont on the fifth occasion when they cut the dividend tax credit.
In 1986, 1987, 1988 and 1993 the Tories made successive reductions in the rate of dividend tax credit from 30 per cent. to 20 per cent., and in 1996 they took away payable tax credits on some share buy-backs that happened to exploit the distortion caused by those credits. Unlike our changes, and contrary to what the hon. Gentleman has saidI am sorry to correct him on his first daythose reductions were not offset by cuts in corporation tax. When we made our change, we cut corporation tax by 2p, and when corporation tax is cut, companies are, of course, more profitable, which means that they can pay more in employer contributions to pension funds, their dividends rise and they can pay more dividends to pension funds. The reality is that the system of payable tax credits before 1997 represented a serious distortion in the tax system, encouraging companies to pay out their profits as dividends rather than retaining them for reinvestment in the business.
Sir John Butterfill: It was not companies but charities that suffered most. The charitable bodies that relied on being able to reclaim the tax credit were the ones that suffered, and they did not benefit from the reductions in corporation tax, so the impact on charitable institutions up and down this country was immense.
can have damaging economic effects...It cannot be right to distort the commercial decisions of British companies in this way.[ Official Report, 16 March 1993; Vol. 221, c. 186.]
Those are the words of the then Conservative Chancellor, Norman Lamont, in his 1993 Budget speech. Even the Conservatives recognised that the dividend tax credit caused distortions, which is why they started cutting it, but now they are seeking to rewrite history.
Indeed, the last time the House debated the matter, the then shadow Work and Pensions Secretary sought to describe the actions of the previous Tory Government not as cuts to the dividend tax credit, but as adjustments. The Conservatives supported the policy when they were implementing it, but not when we continued it. As my new hon. Friend the Member for Grantham and Stamford (Mr. Davies) so eloquently put it in his resignation letter of 27 June:
The Conservative party has ceased collectively to believe in anything, or to stand for anything. It has no bedrock. It exists on shifting sands. A sense of mission has been replaced by a PR agenda.
Mr. Drew: I welcome my right hon. Friend to his new position. He will have heard my earlier intervention on the impact of pensions holidays on those companies that subsequently became eligible for the financial assistance scheme, and it would be very useful if the Government were to publish that information. The Opposition spokesman did not mention a point of paramount importancethe use of early retirement in the 80s and 90s. In that period, early retirement was often compulsory in both the public sector and the private sector. It was a way of getting people off full-time employment, and it did immense damage. Rising expectations and longer life expectancies have resulted in that trend having a lasting impact, and I wonder whether the Government should examine the implications.
Of course, the downside here is that benefits would be smaller and that this would run counter to a policy of improving retirement income.
Forgetting the shameless opportunism of the Conservatives in attacking a policy that they themselves launched, let us look instead at the way in which our corporation tax reforms have improved the climate for investment and the competitiveness of United Kingdom businessesan approach that has delivered, over 10 years, the longest unbroken period of economic growth on record, the best combination of unemployment and inflation in the G7, instead of one of the worst when the Conservatives were in power, and an end to the years of economic instability that for so long had hampered the performance of UK business.
The tax reforms announced in the 1997 Budget took place against the background of a strongly performing stock market and with about three quarters of pension funds in surplus, with total surpluses amounting to about £50 billion. Between 1993 and 1996, pension scheme assets had increased by 13 per cent. and total contributions by 12.5 per cent. If the tax changes were to have had the devastating effect claimed by the Opposition, one would have expected to see the situation deteriorate in the following years after those changes were brought in, but, until the global stock market fell at the end of the decade, that was simply not the case. In the years after the abolition of the dividend tax credit, pension scheme assets did not increase by the 13 per cent. by which they had in the previous three years under the Toriesthey increased by four times as much, by 50 per cent. Total contributions increased by 18 per cent. and total pension income increased by a further 15 per cent. By 2006, even after the shock of the stock market crash, pension fund assets were more than £1 trillion. In fact, pension fund assets have doubled during the period of this Labour Government. What actually happened after our package of corporation tax changes was that companies paid more in employer contributions,
dividends rose, assets rose, and payments to pension funds rose from £34 billion in 1996 to £39 billion in 1999, and by 2006 the figure of £71.3 billion was twice as much as it was under the Tories in 1996.
The problems that occurred in the new century were due to the stock market downturn, not to the tax change, which was minuscule compared with pension fund turnover. As the respected economics commentator, Anatole Kaletsky, wrote in The Times earlier this year,
How could the removal of a £5 billion annual subsidy suddenly reduce a pensions industry with more than £1,000 billion in assets from the healthiest in the world to one that was nearly bankrupt? The answer is that it couldnt and it didnt.
|Next Section||Index||Home Page|