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Occupational Pensions

My right hon. Friend is absolutely right. Any fair system taxes money either when it goes in or when it comes out, but not when it goes in, when it is in there and when it comes out again, which is where we are heading under this Government. There is another change that no one has mentioned so far, which is the double whammy that this Chancellor landed on the pensions system, namely, the resort to extensive and almost universal means testing. That has meant not only that the pensions system bears more taxes, but that the incentive to save is reduced, particularly for those on middling and low incomes. That will have a serious, long-term deleterious effect on savings and provision for pensions in this country, not least because it means that most providers of pensions are now afraid that they will be acting unwisely if they advise someone who is not very rich to save and invest, which is surely a serious indictment of the situation that this Chancellor has created. The Chancellor justified what he did in his Budget speech and subsequent interviews in three ways. First, he said that the measure would increase investment. Figures from the Library show that when the measure was introduced business investment amounted to 10.4 per cent. of GDP—it subsequently went down before recovering again to 10.4 per cent. of GDP. The measure has not raised the level of investment in this country—I will not pretend that the decrease was due to the tax change—and it has failed in the central thing that it was supposed to do. The Chancellor said that the measure would discourage dividend payouts. As we all know, dividend payouts follow a cycle, but in the nine years since the measure was introduced, the payout rather than falling has risen compared with the nine years before its introduction. The amount is only small, but the measure has had the opposite effect, if any, to that which the Chancellor proposed and forecast. He imagined that there would be a complex system whereby even though the cash flow of companies would clearly be reduced by this tax measure—there is no way of taking money from companies and pension funds that does not leave them with less—they would none the less invest a higher proportion of a reduced cash flow, which would increase asset values in the long term sufficiently to offset the effect of the money that was taken out. That was an absurd, incredible and complex thesis which I am pleased to say that the Chancellor did not resurrect today, although it will be interesting to see whether his devoted colleague and potential successor will do so in the wind-ups. Finally, the Chancellor said that it could all be paid out of surpluses—that these pension funds were awash with money that served no purpose, and that they could pay it out at a rate of £5 billion a year with no harm done. As we have seen, however, those surpluses were available at that time but subsequently disappeared and have been replaced, by and large, by deficits on a fairly substantial scale.