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Mr. Purchase: I find what the hon. Gentleman says fascinating; I know that he is very knowledgeable. At that time, were not pension funds more prudent in investing and were not their investments spread more widely? The old rules of going in quietly, coming out quietly and never causing a ripple were more or less obeyed at the time. We have become very adventurous, and part of the cost of that has been the difficulty that we have experienced recently. Does he agree?

Mr. Davies: I do not. Incidentally—if I may return the compliment—the hon. Gentleman has intervened on almost every speech made from either side of the House and has made very sensible and challenging interventions. That is how parliamentary debates should proceed, and I pay tribute to the hon. Gentleman; that is why I was delighted to give way to him.

If the hon. Gentleman cares to spare a little time looking at the history of pension funds, he will find that when they started in the 1930s, and during their big growth in the 1950s, a typical portfolio was more conservative, or, as he would say, more prudent. There was a larger amount of fixed interest, particularly gilts, in the portfolio, and in those days we had debentures, which were a form of fixed interest that does not exist now—it was destroyed by a Labour Government in the 1970s, but that is a long story. Funds therefore had rather fewer equities.
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The position changed in the 1960s, which were an interesting time not only for the growth in the economy but for the growth of economic theory. As the hon. Gentleman may recall, great strides were made in modern portfolio theory. It became generally accepted at that time that one could not achieve a reasonable return from a long-term pension fund except through equities. Fixed-interest gilts or other forms of fixed interest were a bad investment in theory, and should be the minority of the funds in a pension fund. I think that the hon. Gentleman will find that from the 1960s through to the 1990s, the commitment to equities has been very much a constant. Of course it varies across the cycle, but there has been no conceptual change in fund managers' views over that time.

Over the past few years, in the light of the series of crises and new regulatory requirements, a number of funds have reduced—wrongly so—the share of equities in them. That is unfortunate, but it is a consequence of the crises, and has been a feature of the past two or three years, but not all of the past 10 years. If the hon. Gentleman cares to spend half an hour on his computer looking at the information that he can gather on this subject, he will, on reflection, not disagree with my analysis.

Rob Marris: Will the hon. Gentleman give way?

Mr. Davies: I enjoy the hon. Gentleman's interventions, so I shall give way in a moment. However, perhaps I can at least deliver the first two sentences of what I was about to say.

Mr. Bercow: Marvellous.

Mr. Davies: I am grateful for approval from my own side for once. It is always a pleasure.

The real thunderbolt from the blue, or deus ex machina, which was very unpleasant and had not been predicted—it hit the ship below the waterline—was the Chancellor's pensions tax in the summer of 1997.

Rob Marris: The hon. Gentleman rather patronisingly suggested that my hon. Friend and neighbour the Member for Wolverhampton, North-East (Mr. Purchase) spend half an hour on his computer looking into these issues. I have spent four years on the Select Committee on Work and Pensions looking into them, and I disagree profoundly with the hon. Gentleman's analysis. It may well be true that the £5 billion tax did not help pensions but, to use his phraseology, two things holed them below the waterline. The first was the revelation brought about by FRS 17 of the terrible state of some pension funds that the Government inherited from the previous Government, which had been hidden for years. The other thing that definitely holed them below the waterline was the appalling oversight by actuaries concerning rising longevity. Although the hon. Gentleman's Government and this Government are perhaps partly responsible for that oversight, the actuarial profession should bear the major part of the responsibility, and it is still making mistakes today.

Mr. Davies: We are now getting deeper into this subject, and the hon. Gentleman is not going to get away
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with what he has said. I respect his knowledge of the subject, and I dare say that I was optimistic in suggesting that half an hour was enough to consider the changing structures of pension portfolios over 30 or 40 years. Perhaps he and I should form a club, so that we can spend many hours on the subject. I am sure that that would be very revealing.

The hon. Gentleman is not right on a number of points, and although he may not realise that he was doing so, he has opened up another field for major criticism of the Government. They were completely crazy to implement FRS 17 when they knew that the new international directive under the international financial reporting standard was coming in two or three years later—indeed, it is coming in this year. Its implementation caused quite unnecessary consternation in boardrooms around the country and quite unnecessary panic about the liabilities of pension funds. That was very foolish and a great mistake.

I am glad that two Treasury Ministers are listening to what I have said about the implementation of FRS 17. The Government should have gone to the Accounting Standards Board and said, "Look. We're getting these new international accounting standards, IFRS, in 2005. There's no point in implementing this in 2003." It was a gratuitous additional blow to the pensions industry, but it did not compare with the death blow dealt in the Chancellor's first Budget in 1997.

Again, if the hon. Gentleman looks at some historic series—I know that he enjoys looking at historic series—he will see the rate of creation of new pension schemes. Right until 1997, virtually no defined benefit pension schemes were closed down, except in exceptional circumstances when companies went out of business, and new defined benefit schemes were created every year. From that Budget on—from the very moment when the pensions tax was announced—not one new defined benefit scheme has been launched, and that has been the case for eight years. That tells us something. If the line on a graph suddenly goes down as though it is falling off a cliff, that should tell the hon. Gentleman something. He accused me of patronising him, but I know that he is intelligent and spends a lot of time on these matters. He does his best to defend the indefensible, but it is an impossible task.

We have not had a word of apology from the Chancellor. We have had attempts by his supporters gallantly to defend him, but despite their gallantry, they cannot achieve the impossible. I do not know whether the Economic Secretary would like to intervene to express a brief apology to those whose lives and prospects in retirement have been devastated by the collapse of defined benefit schemes—and, indeed, to future generations.

I declare an interest. Like many hon. Members and members of the public in the Gallery, my children will no longer be able to look forward to—let alone take for granted, as my generation did—a pension system that assures them that after a lifetime of hard work, they can look forward to a reasonable amount of security in retirement. That has been destroyed by a devastating mistake. I do not suppose that the Chancellor wanted to destroy that. He was just incredibly imprudent. He thought that the rise in the stock market would go on for ever. He said at the time that he would get away with it because the stock market kept on rising. After about
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two weeks, he said that that rise had compensated for the damage that he had done by reducing the return to pension funds over that period.

What an extraordinarily incompetent thing to say. What an extraordinarily naive thing to think. What a desperately complacent attitude towards something that is fundamental to the sense of security and well-being of millions of families. The Chancellor needs to be on the Front Bench when someone talks about pensions and to tell the country himself what he really thinks about that now. Was it really so clever to introduce that pensions tax eight years ago? If not, I look forward to hearing an apology in the House. Nothing less will do.

The rest of the Budget was pure electioneering. Some of it, frankly, sank to a level that insulted the public's intelligence. The Opposition propose to reduce council tax for people over 65 by 50 per cent. or £500 a year, whichever be the less. The Chancellor thought he would match that and came up with £200 for just one year, and it happens to be in a year when we think we will have an election. Does he really think people are that stupid? Does he really think he is dealing with an electorate who are about five and a half years old, whose teddy bear has been taken away and who think it a good deal to be offered a sweetie in exchange?

As a result of that self-congratulation and complacency, the Chancellor is becoming so cut off that he is beginning to underestimate the intelligence of the electorate. When politicians underestimate the intelligence of the electorate in a democracy worthy of the name, something nasty happens to them. I trust and believe that something nasty will happen to the Chancellor in electoral terms before too long. He will have no one but himself to blame.

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