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Baroness Seccombe: My Lords, I wish to add my congratulations to my noble friend Lord Dean of Harptree on initiating this debate today. The subject of personal savings has always been of great interest and importance to me. It is vital to use every opportunity to keep it high profile. I see myself, and speak, as a small saver. I do not intend to keep your Lordships for long. I wish to make just one or two points. First, we should recognise that there has always been a sector of society which has considered saving to be a way of life, while the majority hope that the rainy day will never come, and so never even contemplate such action. They just hope that they will manage.
Inflation is a great evil and great disincentive for saving. I am sure that we all remember with horror what happened during the previous Labour Government when, in the late 1970s, inflation touched 27 per cent. That resulted in prolific spending. Everyone knew that if they needed something they had better buy it that week, because by the following week it would cost more. Saving at that time went out of the window as few had sufficient funds to save, and, in any case, it did not seem sensible to do so. We all learnt from that experience as we watched people who had retired on what they thought would provide for a modestly comfortable way of life, find that they had to reduce their standard of living.
The introduction of PEPs and TESSAs was a much welcomed idea. Both are free of income tax and capital gains tax. They have been enormously popular, with 4.5 million people investing in TESSAs and 2.5 million in PEPs. We now await the details of and the debate on ISAs.
People who have invested would obviously be greatly concerned were there to be a cap on capital already saved. That would constitute retrospective taxation. That is something that is never popular; certainly not fair; and which should be condemned. If, in addition, tax were to be paid, even at a very low rate, the scheme would probably not be attractive for low-rate taxpayers--the very people we are anxious to encourage to save for their future. I understand that these matters are high on the agenda, and will be announced for consideration and discussion before long.
The last government's proposals for savers were visionary and exciting. The new measures were well liked. In addition to the vast growth in personal and occupational pensions, they took this country to the forefront of providing additional resources for retirement. One of the best and most liberating initiatives of the past 10 years was the independent taxation of married women. It opened up a whole new world and gave millions of women the opportunity to become savers in their own name.
I hope that I may be allowed, and will be forgiven if I am not, to mention the splitting of pensions on divorce. I know that when in opposition, the Government were keen that that should proceed quickly. We all await their proposals.
I cannot end without mentioning the Chancellor's raid on pension funds. The growth in occupational pension funds has been most impressive. Here perhaps I may declare an interest as I am chairman of a trustee's pension scheme fund. We must have the goodwill and support of employers. The start-up of schemes has been encouraged, but action such as that taken by the Chancellor in his Budget can act only as a disincentive to those employers who are considering introducing a scheme for their employees.
This country has £600 billion invested in pension funds. That is more than the rest of Europe put together. I am deeply concerned that were we to enter the EMU, this country would end up paying for other European countries to put their houses in order. That would be unacceptable to the British people.
Over the past 15 years, we have all become aware of the need to save. We are all living longer. Who knows what our financial needs may be. We must encourage everyone to save, paying special attention to those on low incomes and those who have to take time out from work for family responsibilities. We have made progress. We must build on that firm foundation, and not let it wither on the vine.
Lord Taverne: My Lords, I, too, am grateful to the noble Lord, Lord Dean, for initiating this debate. I shall not follow the noble Lord, Barnett, and my noble friend Lord Hooson and discuss the impact of EMU on the savings market, much as one is tempted. However, one might observe in passing that clearly the City thinks that joining a monetary union would be of benefit, and of course it would provide enormous opportunities for fund managers as there is likely to be a vast expansion of investment in equities and in cross-border investment, in which this country is particularly skilled.
In a 10-minute wind-up it is impossible for me to refer to all the worthwhile contributions that have been made. However, I wish to say how much I agree with everything said by the noble Lord, Lord Poole, and how fascinated and instructed I was by the speech of the noble Lord, Lord Lucas.
I wish to turn to pensions and savings and deal with a subject which has not been discussed in detail this evening, and was not discussed in detail last week. It is the question of how far we need to face compulsory contributions to private pensions. The aim of the stakeholder pension is not necessarily to abolish all poverty in old age, but to achieve an end whereby everyone at work can look forward to a reasonable replacement ratio in retirement of their earnings while at work.
The most important decision relates to compulsion or choice. If the aim is to achieve what I have described, compulsion is the only way. There is no other way of reaching the parts that the present system fails to reach. Which categories of people do we want to reach? First, there are the 3 million people on state benefits. Many of them will not have earned much. The only way of dealing with their plight is probably through the proposed citizen's pension--whatever form that may
The average contribution per month made to private pensions at present is some £68 whereas to secure a two-thirds replacement ratio it would have to be some £140. In what occupations do the people work who are not reached by the present system? They are the mobile workers. They are the people in the construction industry, the hospitality trade, the retail trade, in many cases the tourist trade, and those who work for small employers who feel that they cannot afford to contribute to an occupational pension.
However much is done which can and ought to be done on the lines advocated by many noble Lords--for example, the noble Viscount, Lord Brentford, made excellent suggestions about how savings for pensions and other forms could be encouraged--the fact remains that a voluntary scheme will not attract those people into savings. Tax incentives will not attract them into savings. As many noble Lords have pointed out, many people do not earn very much and therefore tax incentives are not worth very much. Indeed, tax incentives already exist.
The only way is a compulsory contribution of approximately 10 per cent. to be shared equally between employer and employee as a minimum. Anyone who contributes more will be exempt from the compulsory requirements. I assume that the basic state pension will be retained. I assume that SERPS will be phased out. It is an incomprehensible scheme which is worth little at present. It makes no sense to abolish it for those over the age of 50, but for those under 50 it should be phased out.
If the basic state pension is kept and SERPS has to be continued for those over 50, national insurance contributions must continue. The Institute of Fiscal Studies has calculated that there would have to be a new rate of about 8.5 per cent. How far would that mean double payment? It means that in future people will pay 8.5 per cent. plus a minimum of 5 per cent., making a total of 13.5 per cent. That is 3.5 per cent. more than they pay now. If that is phased in over about four years, it is not an insupportable burden; it is perfectly feasible. Of course, it must be a pension which is of low cost, portable and with certain minimum guarantees. Indeed, the Government could do much worse than look at the experience of Australia and at the system in the Netherlands, which probably has the best balanced pension system in Europe, including the UK. One noble Lord referred to the miracle of UK occupational pensions, but the Netherlands has a far wider coverage, with 85 per cent. of the population covered by occupational pension schemes of good value and invested in equities.
Such a scheme, if it were properly introduced, would not only reach the patches of poverty which are not now reached but it could also be popular. As was shown in Switzerland during their referendum--a popular subject at present--on whether there should be a compulsory, private occupational pension scheme, the Swiss, who are
I said that I would talk about pensions and savings, so perhaps I may comment on the impact on savings of a compulsory scheme, which I am sure the Government will have to adopt in the end. The target groups which would be reached by a stakeholder pension, if it were a compulsory scheme, would be those which do not save. They do not have the savings culture, the lack of which was referred to by the noble Baroness, Lady O'Cathain, and the noble Lord, Lord Rowallan. He referred to the spend, spend, spend culture, which affects many people inasmuch as they have money to spend. I calculated the net total new savings and reached a conclusion on a rough and ready back-of-the-envelope basis that they would be at least some £7 billion. I am fortified in that conclusion because work was undertaken by London Economics on behalf of the National Association of Pension Funds in preparation of its case for the Anson Committee inquiry, which also reached the conclusion that the total amount of net savings would be some £7 billion.
Of course there would be some loss of tax revenue. I agree with noble Lords who said that it is essential that contributions to pension schemes must receive the benefit of tax relief. One cannot have a system whereby some pensioners pay tax on their pensions and others do not, as the unfortunate Mr. Lilley proposed--I believe that the Treasury imposed it on him--and some pensioners receive relief on their contributions and others do not. If the compulsory scheme is to be acceptable, it must be seen as savings and there must be tax relief. Therefore, there will be some loss of tax income but that will be vastly outweighed by the extra savings generated. The total net effect on the economy would be wholly beneficial.
The Government must be clear in their aim. If they are, they will recognise that the route must be that of a compulsory pension. Many problems are associated with it; problems of administration, security and acceptability. However, such a scheme, if properly prepared--I am glad that the Government have taken such pains in setting up the working party and preparing for it--should be acceptable. It could be popular and it would be immensely economically beneficial by providing us with the savings that the country needs.
4.40 p.m.
4.46 p.m.
4.55 p.m.
Lord Mackay of Ardbrecknish: My Lords, we have had an interesting debate and I thank my noble friend Lord Dean for introducing it. There is a major link between the two aspects of the Motion; savings and the financial markets. Both require stability, certainty and security. The Government, in the past few months since they came to office, have not done very well on those counts. I do not wish to disappoint the noble Lord, Lord Barnett, so I shall deal first with the financial markets.
As the noble Lord, Lord Barnett, pointed out, on 26th September in the Financial Times a distinguished political editor, Mr. Robert Peston--not unknown to some of us in your Lordships' House--wrote an article in which he stated:
- "The government is on the point of adopting a much more positive approach to European economic and monetary union, with a statement shortly that sterling is likely to join at an early opportunity after the 1999 launch".
- "It is now clear that we must indicate our willingness to be in there".
On Saturday 18th October, The Times--significantly, when there is anything anti-European the Murdoch press can be relied upon to cover it--printed an article with the Chancellor attempting to change tack. The article stated:
- "Britain will not join the first wave of monetary union on January 1, 1999".
The article goes on to state that the Government's long-term intention will be made plain, which is that Britain will not join in the present Parliament. Will the Minister confirm what his noble friend failed to confirm today in a Question from the noble Lord, Lord Taverne, that with or without the triple-lock, as it was described to me today, the Government have no intention of joining a single currency in this Parliament, whatever the circumstances? I wish to underline "whatever the circumstances". I wonder whether during their cosy walk at Chequers the Prime Minister told Chancellor Kohl that he had no intention of joining a single currency in this Parliament.
I do not want to be told that I should wait until the Chancellor makes a Statement next week. This is one of the Houses of Parliament. A Statement could easily have been made here last Thursday and not made to the Murdoch press. A Statement could easily have been made yesterday. I offered the Government the opportunity of accepting a Private Notice Question, but they declined, saying that the matter was not urgent enough. It could be made today when the noble Lord responds to the debate. Clearly, either the story on 26th September was false or the story on 18th October was false. One or other of them, perhaps indeed both,
for all I know, created a false market. If a company gives wrong information to the market and, as a result, decisions are made on the basis of that information, it would be a very serious matter indeed.There were some very unusual movements in the markets just before those articles appeared. On 25th September, the day before the article in the Financial Times, from around midday on, people were quite clearly selling sterling and its value fell sharply, indeed, by four pfennigs. And then on Friday 17th October, the day before the article in The Times, sterling rose all day from the opening of the market to the end of the market. It rose from 2.82 to 2.87. Therefore, on both those days there were movements which appear to have foreshadowed the newspaper stories which were about to be published, emanating from the Government, whether from the Red Lion or not, I know not.
Perhaps there are other explanations as to why those movements took place. Perhaps it was just an accident. If so, I should love to hear the Minister's explanation; otherwise, some people will conclude that all that spinning was out of control before those articles appeared.
My right honourable friend Peter Lilley has written to the Governor of the Bank of England asking him to investigate those movements. I want an assurance this evening that the Government will co-operate with the Governor in investigating those movements and, in particular, they will tell the House whether the Government issued any debt during that important three-week period.
I turn to the first part of my noble friend's Motion which refers to savings, of which pensions are a very important aspect. We have heard some very interesting contributions this afternoon. My noble friends Lord Rowallan, Lord Brentford and Lady O'Cathain emphasised the need to encourage people not just to spend, spend, spend but to save and, indeed, in relation to pensions, to start early.
My noble friend Lord Poole explained the statistics which underline the need for more pension provision. Those are statistics which your Lordships have heard me talk about on previous occasions.
All those matters are important. One of the most important aspects of pensions is the question of security. I re-read some of the debates that we had on the Pensions Bill. Your Lordships will remember that a fair proportion of that was trying to make sure that no other person would inflict damage on pensions in the way that Mr. Robert Maxwell had done.
There was a great deal of discussion on pensions during the course of that Bill. The noble Baroness, Lady Hollis of Heigham, said that the test to apply was to ask,
- "Do they deliver the pension promise that in return for an appropriate contribution to the scheme of choice, one's pension will be both secure and adequate?".
I have some evidence which is a study made by the City University Business School in a report commissioned by the NAPF. That report says quite clearly:
- "We show that companies that pay dividends are more likely to invest in R&D and their R&D expenditure is significantly higher than those who do not pay dividends".
- "Overall, our analysis does not provide support for the short-termism argument and suggests that dividend payments as well as investment in R&D are distinct strategic decisions of the firm, both aimed at maximising shareholder wealth. The two decisions are complementary and neither is at the expense of the other".
I have a final question for the noble Lord, Lord McIntosh of Haringey. Did the Treasury consult the DSS before it made that decision about ACT? If so, what did the DSS say about the impact on SERPS? How many people was it thought would opt back into SERPS? How many of the 6 million people who have opted out will opt back in and cause serious problems for the Government's finances? What will it cost? In case the noble Lord does not have an answer, I suggest that it will cost at least £500 million per year to the Government's funds from people opting back into SERPS. That seems to be totally contradictory to what I always understood was the Government's proposition that they wanted to try to get away from SERPS and into a different kind of savings and pension scheme.
Those are important issues. Pensions need stability; the financial markets need stability. We need a clear decision from this Government about the single currency and about where they are going on pensions.
5.6 p.m.
Lord McIntosh of Haringey: My Lords, I see from the Daily Telegraph this morning that I am to be forced to respond to this debate this afternoon. I assure the Daily Telegraph and noble Lords that I certainly do not need forcing. It gives me enormous pleasure to be able to respond not to one debate but--and I was going to say to two debates--perhaps to one and a quarter debates. There is one serious debate which has occupied virtually all the time and all the speakers this afternoon; that has been the debate about savings and pensions. I propose to devote the bulk of the time available to me in responding to that serious debate. I congratulate and thank noble Lords who have taken part in that.
There has been a much less serious "quarter debate" which has been dominated by the extraordinary speech of the noble Lord, Lord Mackay of Ardbrecknish.
My noble friend Lord Barnett, out of the goodness of his heart, did the "quarter debate" the honour of spending five minutes of his time on it, and the noble Lord, Lord Hooson, who also has a very good heart, thought that it was desirable to pay attention to the late addition to the subject matter of the debate. But we all know that that was a political trick which was being carried out at the expense of the House and of noble Lords who came expecting to have a proper debate about savings and pensions.I must commiserate with the noble Lord, Lord Mackay, because he has been peculiarly unfortunate in his timing. If the House had sat on Monday, no doubt he would have sought a Private Notice Question along the lines of the statements of Mr. Peter Lilley, who said that the discussion on EMU would have that desperate effect on the markets and,
- "serious implications for the state of financial markets and the well being of people's savings and investments".
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