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Occupational Pensions

It is important to remember the context of the debate. It is undeniably true, and certainly something that is constantly repeated by my constituents, that senior citizens are far better off than ever before. Support for them has been systematically increased by the Government. As we all know, the basic state pension has risen by more than the rate of inflation and a raft of new benefits has been introduced since 1997. Hon. Members will be aware of them. As well as measures on the basic state pension, there is the winter fuel payment of £200 for households with someone over 60 and £300 for households with someone over 80. Free prescriptions and free eyesight tests have been introduced for the over-60s, and the over-75s receive free television licences. As we know, the Pension Protection Fund has been introduced. It is an innovative scheme, the first of its kind in this country. We also have the financial assistance scheme and related measures announced in the Budget. There have been many other measures as well. All those important measures and others have created a favourable situation for elderly people in this country. Reference has been made to the dividend tax credit changes that were made in 1997. As has been pointed out time and again today, there was an emerging consensus that that was the way forward. In 1993, when Norman Lamont was Chancellor, he cut the credit from 25 per cent. to 20 per cent. He made numerous statements at the time, but I shall quote just one. In March 1993, he said that the dividend tax credit distorted the commercial decisions of British companies. I believe that that was true then, and remained true until the abolition of the credit. A range of economic commentators and professional economists also said that the whole system needed to be modernised, and that the tax credit was outdated and an impediment to investment. I shall quote just one of those commentators. In his widely read and acclaimed book ““The State We’re In?, Will Hutton said:"““If the tax treatment of dividends…was changed…then the incentives in the system would be redirected towards tomorrow’s profits rather than extracting as much as possible today?." It was no surprise when, in 1997, the Chancellor of the Exchequer in a new Labour Government announced that the tax credit would be removed. Not only was the action generally anticipated and not only did it represent the summation of a developing consensus that transcended political lines, but it was widely expected in the stock markets. The day after the 1997 Budget share prices increased by 0.45 per cent., and that was not a one-off: the markets continued to respond favourably for some time afterwards. We should consider not just the position of senior citizens from 1997 until the present day, but the particular circumstances inherited by the Labour Government in 1997. They may be difficult for us to imagine now. At that time there was still high unemployment, along with relatively high inflation, high interest rates and a large budget deficit. The need to achieve stability and do everything possible to encourage investment was widely accepted in the financial community, and that, I believe, was the rationale behind this and other measures introduced in 1997 and thereafter. Those other measures are also important. It is impossible and wrong to see this measure, which has attracted so much attention in this and earlier debates, in isolation from others introduced at the same time and subsequently. For instance, the Government introduced measures that reduced corporation tax, thus also reducing the burden on companies significantly. That was warmly welcomed at the time, and rightly so. The difficulties that arose were not connected, directly or indirectly, with the difficulties that have been attributed to the change in the tax credit. As has been pointed out frequently today, there were other reasons for those difficulties. The fall in the stock market and the dotcom collapse were obviously of tremendous importance, and the reduction of about £250 billion in the market value of occupational pension schemes between 1999 and 2002 was enormously significant. Moreover, as at least some Opposition Members have acknowledged, life expectancy has increased. The 12 years for which a 65-year-old man could expect to live in 1950 have now become 20 years, and it is only common sense to realise that such a profound change in demography will have a profound effect on occupational pensions.