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Occupational Pensions

That is a very good question, but Conservative Governments reduced the relief five times, from 35 per cent., so some in the hon. Gentleman’s party took a different view. I said at the start of my speech that these are complex issues and that people have different opinions about them. I was in the City yesterday, and I asked one of the practitioners there about the decision taken 10 years ago. I was told that the market goes up and down on a daily basis, and that decisions must be judged according to whether they achieve their objectives. No one can see 10 years into the future, as the correspondence published in the Financial Times over the past few weeks demonstrates. In a letter dated 3 April, a chartered financial planner named Peter Cave said that we should put the pensions issue into context. He said:"““Pension funds are rarely invested 100 per cent. in equities, so the tax charge affected only a portion of pension investments: let us suppose a 50:50 split between shares and equities. What is the average dividend in shares? Let us pretend it is…5 per cent. a year?." That is ambitious in today’s environment, but Mr. Cave went on:"““Then, by stopping the (current) 10 per cent. tax refund, Mr. Brown is stopping 10 per cent. of the 5 per cent., namely 0.5 per cent. So the current annual loss to a pension fund, through Mr. Brown’s tax change, is 0.5 per cent. on half of the pension fund—namely 0.25 per cent.?" So we are talking about 0.25 per cent. of £1,000 billion, but I can tell the House that, behind closed doors, fund managers can put up their fees just like clicking their fingers and we will know nothing about it. That is how complex the matter is. As Chairman of the Treasury Committee, I have been lobbied a lot by industry representatives over the years. They have been concerned about two things: how to restore confidence in the industry so that people on lower incomes get saving again for their pensions, and how we can get people on average salaries of £10,000 to £25,000 to enrol in pension schemes—something that the Government have done a lot to facilitate with their establishment of the national pension saving scheme. The Treasury Committee has made its view clear, saying:"““The long-term savings market is worth £1,900 billion-plus, and its efficient working is vital for the prosperity of both savers and the wider economy. It is widely accepted that there is now a damaging lack of consumer confidence in long-term savings.?" The Committee added that savers need to be given ““clear, succinct information? that would reduce the risk of mis-selling. The Treasury Committee has also been responsible for establishing a committee comprising industry and consumer group representatives to look forward and plan the pension industry. Richard Lambert, the director of the Confederation of British Industry, was kind enough to be the original chair of the committee. The Treasury Committee’s aim was to reach cross-party consensus about the pensions problem, and we made recommendations to the Chancellor about tax and benefits. We said that the present complex tax arrangements needed to be made more coherent to encourage people to save. The Pensions Commission set up under Adair Turner agreed, saying that"““many do not trust the financial services industry to sell good-value products?." It said that the combined result had been a dramatic growth in the numbers in the private sector work force who do not contribute to a non-state pension from just over 8 million in 1996-97 to nearly 12 million in 2004-05. Lord Turner concluded that"““the private pension system, far from growing to fill the gap left by the State…is actually doing less.?" As responsible politicians, we must focus on that, on a consensual basis, as otherwise we will not succeed in making improvements. Lord Turner has performed a good service, especially in respect of the auto-enrolment that has been mentioned already, and of the annual management charge. Stakeholder pensions were introduced with an annual management charge of 1.3 per cent. They failed because the industry was not attracted by that, and Turner asked for a management fee of 0.3 per cent. If, during the lifetime of a pension the management fee is 1 per cent. more—1.3 per cent. rather than 0.3 per cent., which is a low figure for the industry today—the end result for a worker is that they have 20 per cent. less in their pension. That is one fifth less. So it is important for us to engage in the setting of annual management fees and ensure that the industry brings its costs down. The Secretary of State for Work and Pensions knows that I have been on his back and I will keep on his and other backs on this matter because until we get low fees and competitive charges we shall be doing a disservice to those who save their money on a weekly basis. That is the issue that we should focus on. I mentioned the issue of hypocrisy. The dividend tax credit was cut five times in 18 years by the previous Government. Norman Lamont in his 1993 Budget clearly said that it could have damaging economic effects and it distorted the market. He said:"““It cannot be right to distort the commercial decisions of British companies in this way?.—[Official Report, 16 March 1993; Vol. 221, c. 186.]" So hon. Members who have addressed the House this afternoon agreed with that Budget, but it seems that they have now turned turtle and they do not agree with the policy. This is where the charge of hypocrisy sticks. If it was okay during 18 years of Conservative rule to reduce dividend tax credits, why are Conservative Members bleating now—particularly those who have a firm ideological viewpoint? The tax credit should be seen as a subsidy, and why should people get a subsidy when other people do not get it? The Pensions Commission reserved its real comments for Lord Lawson’s Budget and the Finance Act 1988, which forced companies to take contribution holidays. Turner said:"““indeed not only did contributions fall but they were required to fall by deliberate government policy… the Finance Act of 1986…required pension funds to identify whether…they had a surplus of 5 per cent. or more, and to take action to remove the surplus within five years, or else lose some part of their tax exempt status. The deep dip in contributions seen in the period 1988-91…almost certainly reflects the impact of this policy.?" So we had a perverse situation in which companies paid more tax if they invested in their pension fund, but paid less tax if they paid out a dividend. Surely that was a market-distorting policy. Surely it was for the benefit of the long-term economic future of the United Kingdom to get rid of that policy. My right hon. Friend the Member for Rotherham (Mr. MacShane) has written a letter to me. He says that he tried to get it published in The Economist, but it was refused. It regards the comments of John Moore, who was a Conservative Treasury Minister and has endorsed the release of this information. The letter says that John Moore said to my right hon. Friend that"““the first thing an incoming Labour government should do would be to switch the tax relief for private pension funds to more worthwhile ends.?" He was a Treasury Minister, a professional accountant, someone who had experience in this House. So I hope that the charge of hypocrisy sticks perhaps only for today and that we get back to the consensual approach to pensions provision. So what should we do? First, we need to get back to a consensual approach. We should accept that dividend tax credits distort the market. We should work together to reverse the historic under-investment and short-termism in the British economy. We should also continue on the path of reducing corporation tax. We should provide incentives for investment. I am particularly keen that the Government should provide incentives for those in low-paid work to save for their retirement. We should also recognise the long-term nature of the problems with pensions and get back together, working on a consensual basis to find a solution to a long-term problem.