| Previous Section | Index | Home Page |
Clause 71 introduces schedule 35, which provides for a new tax on the pension contributions of higher earners. It effectively removes the principle of pension contributions being made from pre-tax income. The A-day regime for pensions, which has been referred to in the context of the Opposition amendment, was introduced only in 2006. What was meant to be a long-term regime for
long-term saving is being significantly tinkered with, and the signal is being sent out that the settlement is not the enduring fixed landscape that it was billed to be back in 2004, when it was first mooted.
The measure introduces more complexity and uncertainty; long-term commitments are being overturned for short-term gain. I have already acknowledged the Government’s concern that the 50 per cent. rate of tax makes pension tax relief an obvious route for legal avoidance; that is why they have sought to limit the availability of tax relief to the highest earners. But why on earth did they not do that in the simple and obvious way—albeit one that would also have breached the A-day commitments—of changing the maximum contribution limits under the A-day regime?
How can it be fair or reasonable that, under the regime proposed by the Chief Secretary, someone earning £150,000 can get 40 per cent. relief on a £100,000 pension contribution—that is, £40,000 of relief from the Exchequer—but someone earning £200,000, and contributing only £20,000 to a pension fund, is limited to 20 per cent. relief? That perverse outcome risks sending a signal of instability and unreliability throughout the pension regime. It risks a disengagement of top earners from company pension schemes that also benefit tens or hundreds of thousands of lower-paid workers. I am not convinced that disengaging top executives from pension schemes that benefit the many is the best way to protect those schemes.
Many savers will see the measure as the thin end of a wedge, reinforcing Labour’s attack on pensions which began in 1997 with the £5 billion-a-year tax raid on pension funds. That has undermined what the right hon. Member for Birkenhead has described as a pensions system that was once the envy of Europe, but is now arguably one of the least good on the continent.
Yvette Cooper: Does the hon. Gentleman think it fair for the top 1.5 per cent. of earners to get 24 per cent. of the tax relief on pensions?
Mr. Hammond: I have recognised that the Government had a legitimate motive for moving to limit tax relief on top earners in the context of a 50 per cent. tax rate. However, the right hon. Lady has not answered the question that I put to her: does she think it fair that someone earning £150,000 can put £100,000 into their pension fund and get full relief at 40 per cent., but someone earning £200,000 and putting £20,000 into their pension fund cannot get relief above 20 per cent.? That does not seem fair either.
Will the Financial Secretary confirm one issue in his winding-up speech? There is a great deal of concern in this country about the growing apartheid between private and public sector pensions. I want him to confirm whether in unfunded final salary pension schemes the value of the notional contribution that is subject to the tax clawback will be based on an actuarial calculation. Will the value of that contribution be added to gross salary for the purpose of calculating the £150,000 threshold? Take as an example a senior civil servant on £120,000—actually, they might be a middle-ranking civil servant on that salary these days. The real value of their pension rights imply an annual contribution of, say, £35,000.
How will that be treated to ensure a level playing field between unfunded public sector pension schemes and private funded schemes?
On the anti-forestalling regime, which has understandably been put in place to prevent people taking advantage of the delay in the implementation of the arrangements by making very large contributions to pension funds, does the Financial Secretary recognise that what is proposed penalises those who are not making regular payments, at least quarterly? Does that not betray a certain mentality in Her Majesty’s Revenue and Customs—that the people to be looked after are those in the pay-as-you-earn system in 9 to 5 jobs? Does it not betray a woeful failure to understand the lives and lifestyles of the self-employed, those who have irregular incomes and people whose incomes depend on the success of the small businesses that they run? Such people are typically advised to make annual or semi-annual contributions to their pension funds, but they will be excluded from making their usual contributions under the arrangements that the Financial Secretary has set out. This may be another case of HMRC having pulled the wool over Ministers’ eyes. Will the Financial Secretary consider the matter urgently and give an assurance tonight that he will ensure that those who have made regular contributions in the past—even if they have not been as frequent as quarterly contributions—will not be inadvertently caught by the anti-forestalling measures?
The Bill risks being a missed opportunity to prepare Britain for economic recovery in a climate of continued fiscal restraint—a world where equity and saving will replace excessive debt and easy credit, and where green industries, local, close-to-market manufacturing and new services will rise to balance out Britain’s over-dependence on the financial and property sectors and on public spending growth. It is not too late; substantial—one might even say fundamental—changes have been made in previous Finance Bills as a result of parliamentary pressure and belated attention to outside experts. I hope that that will happen this time.
A strong and powerful signal needs to be sent that Britain is open to the world for business and that in the recovery we have resolved, despite our problems, not to look inwards and withdraw from the challenges of global competition, but to embrace those challenges. We need to signal that we are determined to create the competitive, world-class business environment that will attract the jobs, trade and investment to secure Britain’s prosperity well into the 21st century. To do that, we need continuity, simplicity, fairness, transparency and certainty in our tax regime. The Bill does not achieve that, and this Labour lot cannot achieve it. Change is needed so that Britain can begin the process of rebuilding an economy shattered by Labour’s recession.
2.27 pm
Mr. Frank Field (Birkenhead) (Lab):
I want to address an assumption about the Budget which is shared not only by all those on the Treasury Bench but by those on the official Opposition Front Bench. I hope that they are correct. The assumption to which I refer is that somehow the country will get safely through to a general election, which most of us expect to be called in May next year. I want to question whether the Budget’s assumptions on borrowing will be borne out, and whether the market will continue to buy those assumptions,
particularly given the Government’s difficulty, in rapidly changing circumstances, in presenting the House and the country with figures that have some semblance of stability.
Think of the past six months, during which we have been through three very different worlds. There was the world prior to the pre-Budget report. Another world was then described to us in the pre-Budget report, whose assumptions and figures began to give way very quickly to a clearer reality. Finally, the pre-Budget report was replaced by the Budget itself. As Members have already made plain, some of the assumptions that underpinned the Budget did not even last for 24 hours. I question whether it is safe for the country, and therefore proper for this House, to continue a debate on the Budget that does not have a plan B ready to implement should the Government’s trust in the debt market not be fulfilled.
Mr. Love: This morning, along with some Opposition Members, I went to the Debt Management Office, where we saw a market being made for a £3.5 billion, 4.5 per cent. interest rate gilt over 10 years. That was more than two and a half times covered; indeed, we were told that the market was very satisfactory. When asked, members of the Debt Management Office staff confirmed that there is continuing confidence in and appetite for gilts in this country.
Mr. Field: Of course the office would say yes to that question, because if they said no, then whatever we call it would hit the fan. I am grateful for my hon. Friend’s intervention, because I want to emphasise that one hopes that the scenario that he describes continues, as it is in the immediate interests of the country. I raised the issue because on three occasions the Debt Management Office has had difficulties in placing a week’s debt. Given that, as a country, we are attempting to float debt of an unprecedented size, it would be extraordinary if that did not affect long-term interest rates and therefore the long-term recovery that we so desperately want in our economy. In the terrible scenario whereby the Debt Management Office reports to the Treasury that that day’s debt has not been sold, we are in another world, which has not yet been described.
Mr. Field: I will give way, but I do not want to take too long.
Mr. Stuart: The right hon. Gentleman will be aware that over many years our banks moved from depending on depositors to depending on the international money markets, which seemed to be functioning well. When those markets froze, the trigger came that caused the collapse of so many financial institutions—or might have done were it not for Governments intervening. He is right to bring to the House the issue of what would happen if the gilts markets too lost people’s confidence and ceased to work.
Mr. Field: My point is to draw attention to the scenario—not to wish that it would occur, but to suggest that it would be sensible if we thought that it might, and planned for it, given the horrors that would confront the country if there were nothing in the cupboard at that time.
We are in a different position from when we were raising similar sums of money to fight the second world war. Then, some of our allies, particularly Canada, gave us huge sums of money, and others lent us huge sums; they all had surpluses and were keen to lend to us. But now, all of the Group of Eight countries are hoovering the markets to raise money to cover their debts. We are not the only country doing this, and lending to us may not be seen as the most favourable option by people who have money to lend. It is wrong to assume that because we have done this before in wartime, we will somehow be able to do it now. We have to take the view that several major economies are now in the same boat, and it seems reasonable to assume that over time it will get more difficult, not less difficult, to cover that debt.
Let us suppose that it all goes wrong—pray God that it does not, but let us suppose that it does—and the Debt Management Office reports to the Prime Minister that money is not forthcoming. What would happen to sterling on the markets the next day? It would collapse, and then what would happen to the well-being and the living standards of our constituents? That is too terrible to contemplate. That is why I tabled an amendment, supported by the Liberal Democrats—I assume, Mr. Deputy Speaker, that we will not get a chance to vote for it—proposing that, given the paralysis on the part of those on the Treasury Bench and on the official Opposition Front Bench, this House should play some part in seriously discussing how we can bring our tax revenue and our expenditure into balance.
Let us assume for a moment that the figures that the Government gave us in the tables in the Red Book are right. They assume that by 2012-13 we will all be singing and dancing, and the economy will be back in growth again. Even in those circumstances—again, let us hope that the assumptions are correct—we expect to raise, as a proportion of GDP, a little less than 38 per cent. in tax, but we will still be spending 41 per cent. Today the National Institute of Economic and Social Research has suggested that those figures will not hold—they will crumble—and that in 2012 expenditure will be 48 per cent. of GDP. That means that in each week of that year we will try to offload on to the debt market shed-loads of debt the like of which we have never tried to get buyers for before. We can put our heads in the sand and pretend that we might get through with a bit of luck, or we could, as a House, decide that given the failure of those on the Treasury Bench and of the official Opposition, we should take some hand in planning how we are to try to achieve a greater balance between tax revenue and expenditure.
I shall conclude by referring to a matter that I have raised in the House before—the size of the lost revenue for pension savings. In introducing the debate, the Chief Secretary said, I think, that that figure would be £30 billion. If we started to discuss options rationally, not in a crisis where we have to slash and burn the night before the markets open the next day, we could seriously consider what this country does in supporting pensions. We could have a reform that says that we will put ourselves on track to abolish pensioner poverty. In the past, I have made proposals describing how we could achieve that through a funded scheme that would wrap around the state pay-as-you-go scheme. If we did that we would
know that, over a 15-year period, the cost of the failure to have serious pension reform, which is currently £15 billion and rising, would be on a downward course. We could say to savers, “Because we are putting in place a guarantee which will take every decent citizen out of poverty in old age, over time—15 or 20 years, maybe longer—we are going to phase out the subsidies that we give through the tax system to try to get you to save in a particular way to get a pension at the end of the day. That won’t be our concern, as a Government.”
That would also provide a civilised way of saying to the public sector, which includes us, “We are closing all public sector schemes to new members.” If things do not change, we will, on today’s terms, be paying out £90 billon a year to public sector pensioners like me—more than most of the Government’s major departmental budgets. Does anybody think that even if we did not have this sort of crisis, we would have the revenue to pay that?
Mr. Philip Hammond: The right hon. Gentleman mentioned the public sector, “including us”. Will he acknowledge that we have to start somewhere, and that the Leader of the Opposition has made the commitment that a Conservative Government would close the parliamentary pension scheme to new members?
Mr. Field: Closing schemes to us will be the easiest bit. The difficult bit will be closing them to other people—but it is a start.
Mr. Hammond: The right hon. Gentleman himself suggested that schemes needed to be closed to new members.
Mr. Field: Absolutely, and of course that will be a start, but important though our budget is to taxpayers at the moment, it is small compared with the budget that we will be paying out mid-century—£90 billion, unless we make changes. We could just say in a rough and ready way that we are closing schemes, or we could have serious pension reform and consider that the only task of Government is to get a scheme that takes everybody out of poverty in old age providing that they have been decent citizens. We could then say to people, “It is being closed, but nobody will be pushed into poverty as a result. What you add on top is your concern, not ours. We are not even going to lecture you about it, and we are certainly not going to bribe you to do it.”
With those moves alone, the means-test budget of £15 billion and rising would be set on a downward course. The Chief Secretary told us today that there would be a £30 billion subsidy budget in the tax system for pension savings, and that that budget, too, would go down and then be eliminated. We would prevent future liabilities from accruing in the public sector, although of course we would have to accept the bill for paying off the liabilities that have been earned.
Surely this House ought to gird its loins and say that this is the sort of debate that we want to have, and that we are going to reshape the nature of government in the next Parliament. This debate could play a key part in that, but it could also act as the longstop and the plan B. If the day came—I hope that it never does—when the Debt Management Office said that confidence had
drained away and that we could no longer shove shed-loads of debt on to the market and get it bought, we would already have in place a civilised way of bringing public expenditure and tax revenue back into balance. That would reassure the markets, so that the terrible day would not come upon us when the Government simply could not raise the money to pay the wages that week.
2.42 pm
Mr. Jeremy Browne (Taunton) (LD): Thank you, Mr. Deputy Speaker, for giving me an opportunity to contribute to our deliberations this afternoon.
The Budget that gave rise to this Finance Bill was a total humiliation for the Prime Minister himself and for the Labour party generally. The reputation of the former has been destroyed for ever, and the reputation of the latter for at least a generation, and possibly irredeemably. Their self-imposed destruction does not concern me, as they are the architects of their own misfortune and eventual downfall, but what does concern me is the catastrophic impact that this Budget and this Bill will have on our country both financially and socially for many decades to come.
The context of all our deliberations is debt. That point was made by the right hon. Member for Birkenhead (Mr. Field), and is made in the amendment that he, my hon. Friend the Member for Twickenham (Dr. Cable) and I tabled. I shall turn to it repeatedly throughout my contribution. I wish to examine what the Government are going to do, and the suggestions being put forward by the other parties to try to tackle that huge burden. The scrappage scheme, the increased alcohol duty and the manifesto-shredding, aspiration-capping 50p income tax rate are all brought about by the need to address our huge public debt.
The Government of this country are now borrowing £480 million every day. We are borrowing £20 million an hour. Our national debt increased by £12 million during the time that the Chief Secretary took to make her speech opening this debate. I am afraid that it went up by another £21 million while the Conservative spokesman was talking, which makes the rate charged by the Conservative shadow Foreign Secretary seem positively mean-spirited. I shall try to boil those numbers down to understandable levels, because people trade tens of billions as though it were small change. Our debt is clocking up another £1 million every three minutes, and it is a serious and frightening problem. It will rise by £175 billion this year, £173 billion next year and £140 billion the year after that. When the Prime Minister delivered his first Budget as Chancellor in 1997, almost exactly 12 years ago, total Government spending was £322 billion. Now the debt increase alone for the next two years will be £348 billion.
The Prime Minister used to boast about the golden rule of keeping total debt below 40 per cent. of GDP. Now, according to the Institute for Fiscal Studies, we will not get down to that proportion until I am 62-years- old, and I am 38 at the moment. I was going to say that that would be the rest of my working life—but by the time I get to that age we will had to respond by increasing the retirement age significantly. All those assumptions are desperately bleak, but they are, simultaneously, heroic in their optimism.
Mr. Graham Stuart: The hon. Gentleman has just moved on to the point that I wished to make, which is that the assumptions are based on optimistic forecasts about future growth, which no one believes. Following on from what the right hon. Member for Birkenhead (Mr. Field) said, when someone running a small business is in difficulty and goes to the bank, the single most important thing that they have to do to ensure that the bank will continue to lend to them is to give realistic forecasts. The bank will lend even with quite bleak forecasts, but it will not continue to lend to someone who has given forecasts that turn out to be completely and utterly wrong, because that undermines the confidence of those doing the lending.
Mr. Browne: I agree with the hon. Gentleman’s point, because the predictions are both bleak and optimistic at the same time. The Chancellor tells us that the economy will grow by 3.5 per cent. in 2011 and the same in all subsequent years. He had better be right—but I am afraid that the Government’s track record of predicting economic growth is hardly encouraging.
In his final Budget, in 2007, the present Prime Minister tried his hand at predicting future debt. We can see the predictions year on year by going back and looking at Red Books. His predictions in 2007 were the least accurate forecast that this country has seen since the day before southern England was flattened by a terrible storm, when Michael Fish said:
| Next Section | Index | Home Page |