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Encouragingly, since that time the stock market has recovered, trustees are being more realistic and the Government have introduced legislation to help the victims of failed pension funds. The new pensions Bill, which will come before Parliament in the next Session, will provide further help, and we want to restore the
link between earnings and pensions. In addition, we have introduced the winter fuel payment that has helped pensioners throughout the country, and the pension credit, which has helped to lift pensioners out of poverty. A range of things needs to be done, but my hon. Friend is right—people have to remember that what they get out of a pension has a lot to do with what they put into it, and the pension payment holidays did have a damaging effect in the 1980s and 1990s.
Sir Peter Tapsell (Louth and Horncastle) (Con): May I, in welcoming the right hon. Gentleman to his grand and historic office, remind him that yesterday, when I asked the Prime Minister about the massive blow that he struck, as Chancellor, against occupational pension funds, he replied by hiding behind the stock market crashes to which the right hon. Gentleman has just referred, and pointed out that pension fund assets had doubled? That being the case, how does the present Chancellor explain the fact that so many well-managed and profitable businesses now have very large pension fund deficits, and that almost all firms—including even the Bank of England—are closing their final salary schemes, which are so much more beneficial to pensioners than the alternatives now on offer?
Mr. Darling: I thank the hon. Gentleman for his opening remarks. I know that he has seen a good few Chancellors in his time, although I am not sure whether he was here when we joined the gold standard some years ago. I know that he has a keen sense of history, so he will know that before 1997, Chancellors of the party that he supports steadily decreased the amount of dividend tax credit. They started in 1979—when, incidentally, the Conservatives doubled VAT, even though they said during that year’s election that they would not—and they did it again in 1986, 1987, 1988 and 1993.
Sir Peter Tapsell: What has that got to do with it?
Mr. Darling: It has got a lot to do with it. The hon. Gentleman was critical of the decision that my right hon. Friend the Prime Minister took, as Chancellor, back in 1997. It was the right decision to take in the long-term interest of this country, and it is the long-term interest that we will keep our eyes on. It is very important to ensure that we have a climate in which people are encouraged to invest for good business reasons, and that the system is not distorted because of tax reasons. On the hon. Gentleman’s point about pensions, I refer him to what I said a few moments ago. Pension funds have got into difficulties because of a combination of factors. I mentioned the stock market collapse and the change to the accounting rules, which had a profound effect on pension funds. Other factors also had an effect, such as the pension holidays that such funds took. However, we are determined to do everything that we can to help pension fund trustees, as well as helping pensioners present and future.
Barry Gardiner (Brent, North) (Lab):
Will my right hon. Friend confirm that tax credit dividends were simply a perverse incentive not to invest in one’s business the profits that one achieved, and that the
long-term growth in the value of businesses as a result of the abolition of such tax credits is precisely the reason why the hon. Member for Louth and Horncastle (Sir Peter Tapsell) was able to allude to the fact that the value of pension assets has risen from £500 billion to more than £1 trillion during the period in question?
Mr. Darling: My hon. Friend is right and I can only assume that he has been looking at the papers that were made available to the former Chancellor, Norman Lamont, and released under the Freedom of Information Act 2000, which make it abundantly clear that at the time the Treasury was aware of the distortion. Of course, the document then went on to note:
“Everybody is being asked to pay more tax”—
“and exempting institutions must play their part.”
The Conservative Government made the changes because they had run out of money; we made them because we wanted long-term sensible arrangements to encourage long-term investment in this country.
Mr. David Gauke (South-West Hertfordshire) (Con): May I, too, welcome the Chancellor and congratulate him on his appointment? I press him to answer the question put by my hon. Friend the Member for Scarborough and Whitby (Mr. Goodwill). In 1997, the Chancellor was perfectly happy to say that
“there is no question that in the long term and the medium term”
the abolition of dividend tax credits for pension funds
“will be good for companies and it will be good for pensioners”,
despite the advice he received from Treasury officials. Independent experts say that the cumulative cost is something like £100 billion—at least. The Treasury must have made its own calculations. Let us hear what they are.
Mr. Darling: The hon. Gentleman refers to the advice that my right hon. Friend received in 1997, which was of course the subject of a debate in April—a debate that the Opposition may now wish they had not brought up. It was quite clear that all the predictions made when the Chancellor tested what might happen after the changes did not come to pass: the stock exchange rose afterwards and the amount of contributions to pension funds continued to rise. The hon. Gentleman needs to reflect on the fact that nobody—not the Conservative party, no one else in the country, no one else in Europe and the developed economies of the world—is actually calling for the restoration of that system of dividend tax credits. As the shadow Chancellor himself has said, the test of whether he is ready for government is whether or not he can resist additional calls for public expenditure. He is right on that point, even if not on most others.
Tax Credits
7. Mr. Andrew Robathan (Blaby) (Con): What estimate he has made of the likely change in the number of tax credit claimants following the abolition of the 10 per cent. starting band of income tax in the financial year 2008-09; and if he will make a statement. [149013]
The Chancellor of the Exchequer (Mr. Alistair Darling): I refer the hon. Gentleman to the answer I gave to Question 1.
Hon. Members: He was not here.
Mr. Robathan: Actually, I was here. May I, too, congratulate the Chancellor on his new job, and also on his relatively reasonable response to my hon. Friend the shadow Chancellor about the shambolic and chaotic situation regarding tax credits? Given that almost half the claims have been mispaid and that of those, nearly 2 million people have received demands to pay back money, which of course they have already spent, does he think it sensible that by abolishing the 10p tax rate, instead of first sorting out the system, more people will become eligible for it and thus sucked into that shambolic and chaotic situation?
Mr. Darling: There are two points and I think that the shadow Chancellor touched on the first when he made the perfectly reasonable point that people had been overpaid, the sums can be substantial and if they are on modest incomes that is one of the reasons why it takes longer to get repayments and there is more money outstanding. We have to be sensitive about people’s ability to pay. However, on the second point, I do not follow the logic of the hon. Member for Blaby (Mr. Robathan) at all. If changes are made to the tax system that relate to people with children, it is important that we use the tax credit system to help them. The changes that the then Chancellor announced earlier this year in the Budget mean that more families with children are being helped, which is something that I want to continue to happen.
David Taylor (North-West Leicestershire) (Lab/Co-op): The Institute for Fiscal Studies is hardly a cheerleader for our party, but its assessment of the Budget in this regard is broadly very positive indeed. The IFS indicated that of the 10 deciles of income where it had assessed the impact the lowest two had benefited most from the changes. However, will the Chancellor respond to the IFS’s one observation of concern, which is that those who lost out due to the changes were disproportionately low-earning, single people, with no dependent children? Will he promote take-up—
Mr. Darling: I agree with the point that my hon. Friend made in relation to the IFS, which was extremely complimentary about the budget changes; but of course, I recognise what he said. The former Chancellor increased the threshold for working tax credit. He increased the child tax credit itself, which will help us to take 200,000 children out of poverty. We increased the age allowance, so low-income pensioners over the age of 65 will be no worse off and 580,000 will be removed from tax altogether. As my hon. Friend has said, the IFS showed that the biggest proportion of gainers are those at the lower end of the income distribution, which stands in stark contradiction to what the Liberals are proposing today.
Non-domiciled Status
8. Norman Baker (Lewes) (LD): When he expects to complete his consideration of the tax liabilities of those with non-domicile status. [149015]
The Financial Secretary to the Treasury (Jane Kennedy): I saw the hon. Gentleman make his entrance halfway through our time this morning, and I am pleased that he has found the time to join us.
The Government’s review of the residence and domicile rules is ongoing. The Government are mindful that any change to the current system would need to balance carefully the principles of ensuring fairness and of promoting the UK’s international competitiveness.
Norman Baker: I thank the Financial Secretary for her courteous welcome.
The review was started in 2002 and seems to be taking an inordinate amount of time. Is that in any way connected with the large sums of money given to the Labour party by those who qualify for non-domiciled status, such as Lakshmi Mittal? While we are on the subject of this new sleaze-free environment that the Prime Minister has created, can we have an absolute guarantee that neither the Prime Minister nor the Chancellor will appoint as an economic adviser anyone who qualifies for non-domiciled tax status?
Jane Kennedy: To deal with the general point about non-domiciled status, it is important to keep such issues in context and perspective. Resident non-domiciled people remain a relatively small group who are liable to pay UK tax on their earnings in the UK. Indeed, the Exchequer benefits to the tune of £3 billion. It is rich for the Liberal Democrats to come here and seek to lecture other hon. Members, given the circumstances in which some of their donors are living.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): Does my right hon. Friend not acknowledge that this issue is now a rich source of public concern, a great deal of complication, which makes money for accountants, and a great deal of abuse? Britain’s reputation as an offshore tax haven and the concern expressed by tax authorities in the United States about that must be addressed. We cannot run the tax economy of this country as a large-scale version of Chelsea football club.
Jane Kennedy: Contrary to recent press claims, the International Monetary Fund does not categorise the UK as a tax haven, despite some recent publicity attached to an IMF working paper, which was seeking to develop a methodology to identify tax havens. Under that proposed methodology, the UK would have counted as a tax haven, but the methodology is seriously flawed. I could go into the detail of why that was so, but I suspect that I would try your patience if I did so, Mr. Speaker. However, I acknowledge the concerns that my hon. Friend has raised and appreciate that a debate is taking place about the matter, and I will keep it under very close review.
Mr. Mark Field (Cities of London and Westminster) (Con):
Although I have some sympathy with the concerns addressed by the hon. Member for Lewes (Norman
Baker), at least in relation to donors to the Labour party, may I tell the Financial Secretary that it is of great importance to the City of London and to ensuring its place as a pre-eminent global financial capital that we ensure that we have the very best talent here? Will she therefore ensure that, whenever the report comes into play—five years seems quite a long time for it to be ongoing—there is a balance between the interests of London as a global financial capital, which benefits all of us, and the issues of non-domiciled status?
Jane Kennedy: I am grateful to the hon. Gentleman for those comments. I acknowledge the very serious point that he makes. As I said earlier, fairness in the tax system is one of our primary objectives, but it is also important to promote the UK’s competitiveness, by remaining an attractive place to do business.
Mr. George Mudie (Leeds, East) (Lab): The Financial Secretary will be aware that a Select Committee is looking at private equity and non-domiciliary taxation as an aspect of private equity. It is clear already that those matters are costing the Treasury and the taxpayer considerable sums of money and that they are rewarding the main participants—the self-proclaimed masters of the universe—with grossly inflated sums of money, without any real risk. Can the Financial Secretary confirm that the review set in train on those taxation measures is still under way and will report at pre-Budget time?
Jane Kennedy: I can confirm that the review is under way and that it will report. If my hon. Friend will excuse me, I will not be drawn into a discussion on the particular issues that he raised, because it is a much wider subject. Estimates of the tax loss to the UK as a consequence of the use of the remittance basis by those who are not domiciled in the UK are not routinely made. We do not hold information on overseas income and gains that do not give rise to a tax liability in the UK, but, as I have said, individuals claiming that they are resident but not domiciled declare approximately £9.8 billion in taxable income, which leads to a UK tax liability of about £3 billion.
Income Tax
9. Jo Swinson (East Dunbartonshire) (LD): What account he took of the estimated number of people who would be subject to a higher marginal rate of taxation as a result of Budget 2007 in taking the decision to abolish the 10p rate of income tax. [149016]
The Chancellor of the Exchequer (Mr. Alistair Darling): I would have referred the hon. Lady to the reply that I gave to Question 1, but I do not think that she was here when I gave it. My right hon. Friend the Prime Minister looked at a range of factors before deciding to reduce the basic rate of income tax to 20p from next year.
Jo Swinson:
I thank the Chancellor for that reply. Obviously, my question was different from Question 1. I have seen from his written answer that the Treasury’s own figures show that 5 million households are worse off as a result of abolishing the 10p tax rate, and it is those on low and middle incomes who are suffering
most at the hands of the Labour Government. Will the new Chancellor rise to the challenge of creating a fairer tax system, or will he continue his predecessor’s habit of acting like Robin Hood in reverse?
Mr. Darling:
The hon. Lady would do well to read in Hansard tomorrow the exchange in relation to Question 1, which she might find interesting. As I said just a few moments ago, when she was in the Chamber,
we increased the working tax credit to help people without children. We also increased child tax credit, which helps people on low incomes. I suggest that before she next gets to her feet to speak she should have a good look at her own party’s proposals, because the benefit they provide to people on low incomes is very small indeed. Green taxes are interesting, but they can sometimes hit people on low incomes very hard, and she needs to think about that.
Business of the House
11.31 am
Mrs. Theresa May (Maidenhead) (Con): May I ask the Leader of the House to give us the forthcoming business?
The Leader of the House of Commons (Ms Harriet Harman): The business for next week will be:
Monday 16 July—Opposition day [17th allotted day]. There will be a debate entitled “Overseas Corruption” followed by a debate entitled “Fair Taxation on the Super Rich”. Both debates arise on a Liberal Democrat motion.
Tuesday 17 July—Consideration of Lords amendments to the Pensions Bill followed by, if necessary, consideration of Lords amendments, followed by Committee and remaining stages of the Parliament (Joint Departments) Bill [ Lords ].
Wednesday 18 July—Consideration of Lords amendments to the Statistics and Registration Service Bill followed by, if necessary, consideration of Lords amendments.
Thursday 19 July—If necessary, consideration of Lords amendments, followed by a debate on Zimbabwe on a motion for the Adjournment of the House.
Friday 20 July—The House will not be sitting.
The provisional business for the following week will include:
Monday 23 July—Second Reading of the Criminal Justice and Immigration Bill.
Tuesday 24 July—Opposition day [18th allotted day]. There will be a debate on an Opposition motion. Subject to be announced.
Wednesday 25 July—Consideration of Lords amendments followed by consideration of the draft legislative programme on a motion for the Adjournment of the House, which I will open, followed by, if necessary, consideration of Lords amendments.
Thursday 26 July—Motion on the summer recess Adjournment.
I anticipate making an oral statement to the House on my priorities as Minister for Women before the summer recess. As my right hon. Friend the Prime Minister said yesterday, we also expect an oral statement next week on the Government’s housing policy.
Mrs. May: I thank the right hon. and learned Lady for giving us the future business. Last week, she offered me a non-aggression pact. Of course I am happy to co-operate with her in the interests of the House, as I did with her two predecessors, but pretending to protect the interests of the House to stop me holding the Government to account is not a peace deal—it is an attempt to use hon. Members as a human shield, not to protect the House, but to protect her from scrutiny.
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