It is a pleasure for me to follow the hon. Member for South-West Hertfordshire (Mr. Gauke), whom I genuinely rate and like. We went through the Standing Committee on the Finance Bill together last year, and he regaled us with tales of Mrs. Gauke. I hope that she is well.
Last year, I participated in the pensions debate. I followed the hon. Member for Hemel Hempstead (Mike Penning), who is in the Chamber tonight and whose commitment to this issue is not in any doubt, as I think the whole House will agree. I was struck at the time by the Opposition's amendment, which stated that the House should
"recognise the importance of consensus in ensuring long-term, affordable and sustainable pensions reform; and therefore welcomes the commitment of all major parties in the House to engage in the process of consensus building".
The shallowness of that commitment is clear from today's debate and the antics of Conservative Members, especially Front Benchers.
The idea that occupational pensions, especially those in defined benefit schemes, were perfect before 1997 and decimated by one single act in the Chancellor's Budget—the implication of some Conservative Members' contributions—is wrong, misleading and invidious.
We are experiencing a massive change in the provision of retirement benefits. Much of that is to do with globalisation and the links between Governments, companies and financial markets around the world, much is to do with demographic changes and much is to do with policies that previous Conservative Administrations pursued.
Companies in the post-1945 period provided an element of security for workers in retirement provision. Defined benefit pension schemes helped inject motivation and loyalty into the work force. That was entirely feasible in the relatively stable environment of the post-war period. The employer bore almost solely the risks associated with planning for retirement through a defined benefit scheme. If a defined benefit scheme fell short, the employer topped it up. Everyone accepts that that has been under severe strain for the past quarter of a century. During that period, some companies have tried to transfer the risk of retirement provision away from them and towards the employee or the Government.
Moreover, high stock market returns in the 1980s also prompted many companies, as we heard on numerous occasions today, to take pension contribution holidays. According to Inland Revenue figures, employers collectively saved almost £18 billion during the 1990s pension holidays, although employees were, more often than not, forced to carry on making payments.
The TUC said that contribution holidays have typically favoured employers over employees. It estimates that94 per cent. of surpluses were used to reduce employers' contributions or to give them a contribution holiday, with less than 6 per cent. providing employee contribution reductions—a ratio of 16:1.
In the 1990s, Unilever took seven years of pension holiday. It also took £270 million out of the then pension fund surplus and put it into its profit and loss account. In the decade after 1992, almost £1.5 billion was taken from its pension fund and almost two thirds given back to shareholders in the form of higher profits and larger dividends. I can envisage people saying, "Nothing wrong with that." However, last month, the company announced that it would close its final salary scheme to new entrants. It has failed to provide for liabilities in the long term.
The general reluctance by firms to hold the balance of risk is predominantly due to demographic changes. That has been mentioned in the debate, though not as often as I expected. The developed world is getting older and that poses daunting challenges. Declining birth rates means that the work force is not being replenished in western Europe, Japan and north America. The ratio of workers to pensioners is getting smaller and that will have a momentous impact on productivity rates and tax levels. That is happening throughout the developed work and I therefore find it odd that the Opposition have not mentioned it in the debate.
The Opposition's comments imply that only this country is affected by pressures on occupational pensions. That is far from being the case. A recent report by PricewaterhouseCoopers suggests that the state retirement age should be increased to around 70 in Germany and around 72 in Italy to allow state and occupational pensions to continue to be linked to earnings with unchanged contribution rates. PricewaterhouseCoopers also states that further delays will only make the required reforms more painful in the long term.
I want to return to the shift away from occupational pensions to private pensions. The emphasis on commission meant that hundreds of thousands of people were persuaded—by fair means or foul—to leave good, safe occupational schemes and to take out inferior personal plans instead. Well over a million people have received compensation following that mis-selling, largely as a result of measures taken by this Government.
The crux of the Opposition's argument about the Chancellor and occupational pension schemes seems to hinge on one single act, yet we have heard many times in the debate today that Lord Lamont, as Chancellor, announced a reduction in the dividend tax credit in his 1993 Budget, and carried that out five times. In announcing the reduction to the House in March 1993, he justified it by saying:
"The reduction in the tax credit that I am proposing will therefore have two important effects. First, the payments that lower rate payers, non-tax payers and particularly pension funds get from the Inland Revenue will be reduced by five percentage points, saving the Exchequer no less than £1 billion a year. Secondly, higher rate payers will have to pay an extra 5 per cent of tax on the dividends they receive in order to discharge their liability to tax at the top rate of 40 per cent. This, in turn, will yield an extra £200 million a year."
—[ Official Report, 16 March 1993; Vol. 221, c. 186.]
There is nothing there to help the underlying competitiveness of British industry, and nothing to stimulate a shift from short-term gain and boom and bust to long-term investment. It is merely a tax grab of £1.2 billion in a vain attempt to manage the economy following the debacle of Black Wednesday.
What hypocrisy we have heard today! I hope that, if the Opposition are genuinely outraged at the events of 1997, their Front-Bench spokesman will apologise for the things that happened four years earlier and pledge to reinstate the dividend credit, if they feel that strongly about it. From what I have heard today, however, I do not think that that will happen.
Continued:
I was reading Lord Lamont's memoirs in the Library this morning, and I was struck by the fact that, when the right hon. Member for Witney (Mr. Cameron) was employed as a special adviser, Lord Lamont described him as an old Etonian with a taste for the good life. I wonder what that means.
It is true that the Chancellor in his 1997 Budget abolished tax relief on dividends, but that was accompanied by a range of other policies designed to move us away from short-termism towards stability and encouraging long-term investment. Corporation tax was cut to its lowest ever rate at that time in the UK. The small companies tax rate was cut by 2 per cent., to 21 per cent. There was a doubling—we have not heard about this today—of capital allowances on plant and machinery for small and medium-sized firms so that if companies invested in 1997-98, they could set off against tax a half of their total investment.
In those decisions made in 1997, the Chancellor laid the foundation for sustained economic growth. That was the conclusion of the International Monetary Fund in the past few weeks in its article IV consultation with the UK, which stated:
"The Executive Directors welcomed the economy's continued economic performance, which they attributed in part to policy frameworks that are responsive to the requirements for sustained strong growth, low inflation, a stable value for sterling and continuing growth of London as a global financial Centre with sound institutions."
That is not indicative of an economy beset by weak infrastructure and short-term decisions, which is where we were 15 years ago. The blocks are in place for stability and long-term investment decisions.
However, it is true that more needs to be done. Many of my constituents, who come from a traditional manufacturing area with good occupational pensions, have pension funds in schemes such as Roxby and Expamet. They have saved all their working lives and feel let down by changes and cuts to their planned provision. To tackle the plight of my constituents and others, a consensus is needed between the House, the Government, companies and individuals to ensure that those pensioners who have saved all their working lives in occupational schemes secure the benefits for which they planned. However, the comments and interventions by Conservative Members show that we are a long way from that consensus.
A key reason for changes to pension provision has been the fluctuating performance of stock markets around the world over the past 15 years. That has been mentioned time and time again. High returns in the 1980s prompted complacency and the feeling that the sun would shine for ever. That obviously was notthe case.
Between 2000 and 2002, stock markets around the world experienced sharp falls—something like $8 trillion of assets were lost in the US alone in that period. The NASDAQ dropped to as low as 1,108.49, a 78.4 per cent. decline from its all-time high of March 2000, a result of the bursting of the dotcom bubble, and the Dow Jones lost 26 per cent. of its value between 1999 and 2002—you can tell that I am a chartered accountant, Mr. Deputy Speaker. Given the openness of the UK economy and the central position of London in the world's finance markets, it is inevitable that this country would feel the brunt. Between 1999 and 2002, the FTSE 100 fell by 43 per cent., knocking some £250 billion off the value of pension fund assets. Yet pension fund deficits have reduced markedly over the past few years, reflecting the stock market improvement in recent months and years. Last month, Deloitte, a firm that I used to work for, forecast that the total deficit for the final salary pension schemes of the UK top 100 companies is currently £21 billion, with 25 per cent. of schemes now having a surplus.
The first three months of 2007 have been a roller-coaster ride. In the last week of February, deficits rose by £20 billion in one week as world stock markets fell dramatically. However, a combination of a recovery in the stock markets and a fall in the price of bonds have reduced deficits to a five-year low, showing the close correlation between stock market performance and the health of pension funds. If the Conservative party were determined to secure a consensus on this subject, that close correlation would be recognised.
I began by saying that providing for retirement is one of the biggest problems facing this country. Difficulties and challenges are being prompted by an ageing population, an end to paternalism, social changes, lower stock market performance and annual returns, and a wish for companies to transfer the risk of retirement away from themselves towards employees and the Government. There was an opportunity for Opposition Members to pledge consensus and seek to find appropriate ways of securing stability and reassurance for pensioners in the face of those massive global changes, but they failed to do that.
The use of terms such as "pension crisis" and the wording of today's Opposition motion, however brief it is, further undermine confidence in a pensions system that is still trying to recover from the likes of Maxwell, mis-selling and Equitable Life. As was pointed out by the hon. Member for Putney (Justine Greening), who is no longer in the Chamber, that puts people off. People are reluctant to save for their retirement through pension contributions, believing that it is not worth doing. That will do nothing to help those with occupational pensions who find themselves unfairly caught up in major global forces.
Today the Conservative party has ignored an opportunity to talk constructively about the long-term future of the country's economy and provision in retirement. Instead, it has focused on distorting history for their own narrow, short-term political advantage. No change there, then!
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