|Previous Section||Index||Home Page|
Mr. Steve Webb (Northavon): The hon. Gentleman has criticised the £5 billion tax on pension funds. Will he tell us how much of that £5 billion would have been put back under the manifesto on which he stood at the last election?
Mr. Willetts: Our manifesto made it clear that we wanted to encourage people to save for their retirement. [Hon. Members: "Aah!"] I would very much like to be able to reverse the tax, but the fact is that that money is now being spent. That is why we cannot pledge to reverse it.
Mr. Chris Pond (Gravesham): Conservative Members continually repeat the figure of £5 billion. Will the hon. Gentleman confirm that the Conservative Government took £10 billion out of the state pension scheme while they were in office?
Mr. Willetts: I am coming to this important point: we are not talking about a one-off £5 billion. It is £5 billion a yearyear after year, ad infinitum. The figure is now £25 billion and rising every year. That is the point.
Mr. Field: Given that the country is worried about its future pension provision, may I make a plea that, once the hon. Gentleman has made these points, he quickly moves on to what the Opposition will contribute to the evolving debate? It is understandable that he will point out the effect of changes in advance corporation tax on the prosperity of occupational pension funds, but does he agree that that was the second blow, and that the first blow was delivered when the Conservative Government changed the tax laws so that funds that were in surplus had to run their surpluses down to 105 per cent. of their liabilities or face penal rates of tax for not doing so?
Mr. Willetts: I will give way to the right hon. Gentleman in a moment, but I want to give him one more figure. I respect his expertise and, as he knows, I am very happy to contribute in a constructive spirit to debates on his own imaginative ideas on pension reform.
I want to make two points. First, it is incorrect to compare the capital value of the loss of the value of sharesthe capital effectwhich may be hundreds of billions of pounds, with the flow of £5 billion as a tax hit. We have to realise that this is not just a one-off tax hit; it is £5 billion a year. That is why it is so significant. If we calculate the current cost of a £5 billion-a-year tax, we get a very large sum indeed.
My second point is that Labour Members regularly mention enormous figures for the total fall in the value of the stock exchange. They now seem keen to tell us how much value shares have lost under their managementthat is the point that they like to make. They talk as if those shares all belong to pension funds. Pension funds own only about 18 per cent. of British equities, so it is not correct to compare the £5 billion, which is merely the annual effect of the tax, with the £450 billion, which is the total loss in value of all shares, of which only a small proportion are held by pension funds. That is why the tax impact was so great.
Mr. Field: I am doubly grateful to the hon. Gentleman. Is not it true that ACT has had the effect that it has because the Conservative Government forced pension funds to run down their surpluses? Had they not been forced so to do, many more funds would have had greater buoyancy to enable them to withstand the ACT changes. The running down of surpluses pushed more pensions nearer to the precipice. Most people would say that both sides have made mistakes, but the country wants to hear what constructive proposals the Opposition have.
I shall move from abstract statistics to something vivid and direct. I cite a Member of the other place, who is well known to Labour Members because he is a Labour supporter, a Labour donor and a Labour peer: Lord Paul of Caparo Industries. I shall quote what he said about the decisions that his steel company is making in its attempt to close its final salary pension scheme. When asked why he was closing his final salary scheme, he said:
What do members of the Labour-supporting steelworkers' union do in response to a Labour peer trying to impose a Labour pensions policy as a result of a Labour tax? The Labour-supporting trade union goes out on strike. That is what its members are threatening to do as a result of the measures that the Government have taken.
That is not the end of the story, because there is another stealth tax, perhaps even stealthier than the £5 billion a year tax on dividends, and that is the miserly uprating of the contracted-out rebates that was announced in April. The actuaries William Mercer estimates that those rebates are now about 15 per cent. below the level necessary to provide the contracted-out benefits that companies are obliged to provide as a condition for contracting out.
With rebates for pensions running at about £11 billion a year, the actuaries are saying that the contracted-out rebate is £1.5 billion a year short. It is not just the £5 billion a year tax on its own, but the £5 billion a year tax plus another £1.5 billion, because the value of the contracted-out rebate does not match the cost of providing the pension that has to be provided in return.
The Government have taken the two main forms of financial support that Governments have historically given to occupational pensionsthe tax relief and the contracted-out rebatesand imposed an extra £6.5 billion a year burden on our pension funds.
I can now answer the question put by the hon. Member for Falkirk, East. The entire value of the contribution holidays taken by companies between 1987 and 2000, which has exercised Labour Members, works out at £1.4 billion a year. That has a far smaller impact on the value of company pension schemes than the tax and rebate changes made by the Government. I hope that the hon. Gentleman therefore accepts that it is no good turning to employers and blaming them for the effect of their contribution holidays.
Mr. Willetts: The hon. Gentleman is in a hole, and he should stop digging. I am comparing a £6.5 billion imposition by the Government with the £1.4 billion a year impact that is the maximum that can be calculated to be the effect of pension contribution holidays.
The effect of the changesthe tax increases and the reduction in the value of contracting-out rebatesis to drive pensioners, now and in future, on to means-tested benefits. That is where they will end up; there will be lower pension saving and more dependency on welfare. In the early 1990s, the Chancellor famously told the Labour party conference:
That is what we believe in, and that is what is being damaged and destroyed by the Governmentalthough the Prime Minister pledged, in one of their first documents after coming into office, that his aim was to change the balance of pensioners' dependence on benefits and funded pensions. He said that he wanted to reverse the situation whereby pensioners get 40 per cent. of their income from funded savings and 60 per cent. from the state, so that they get 40 per cent. of their income from state benefits and 60 per cent. from funded pension savings. That is an objective that we completely endorse. However, typically of this Prime Minister, despite having that grandiose objective, he has done absolutely nothing to implement it. If one asked him to do the washing up, he would announce that he had a 20-year plan for a cleaner kitchen on which he would undertake widespread consultationbut a pile of dirty crockery would be left at the end of the day. That is what he is like. He has a grandiose objective and no means of implementing it.
Conservative Members, by contrast, know how that vision should be delivered. We are committed to the reform of annuities. My right hon. Friend the Member for Skipton and Ripon (Mr. Curry) has introduced a private Member's Bill that would do so. We have voted for such a provision time and again, but the Government tried to stop it every time. We have called for reform of the accounting standard FRS17. I was pleased to hear about today's announcement whereby, in line with our requests, there will be a delay in implementing it until we know what the European standard will be.
We have called for less means-testing of pensioners. We worked with the right hon. Member for Birkenhead (Mr. Field) and with the Liberal Democrats to propose an alternative to the pension credit, suggesting that that money could instead have been put into a higher pension for older pensioners, who tend to be poorer, to offer more help to poorer pensioners without more means testing.