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Occupational Pensions

He did answer. My hon. Friend is quite wrong. He answered from a sedentary position and he said no, he would not be worse off. I have a simple suggestion for the Labour Front Bench. If it is the case in Labour economics that you are not worse off if you take a fifth of your salary away, will they all take a fifth of their salary and give it to the pensioners who do not have enough pension as a result of the policies that the Labour Government have been following? They would find it useful, and obviously the Chancellor does not think that it is very useful to himself. The Chancellor said that it would not make him worse off because he knew what was coming next. The second part of my question was, if taking a fifth of his income away would make the Chancellor worse off, would not taking a fifth of pension funds’ dividend income away make them worse off? The Chancellor is left trying to argue that it does not make them worse off if the Government take that money away. Perhaps the Chancellor does not understand the full power of compound arithmetic. A pension fund is a long-term fund. It may have a life of 50 or 100 years; it depends how long the company goes on making those promises and how long the members and pensioners live before the fund has finished its task. Every year, all those pension funds are receiving £5 billion less—probably more than that now; the Chancellor will not tell us the accurate figures—owing to the cancellation of the tax credit. It is not just that the pension funds are short of £5 billion a year. They would invest that £5 billion. Given that equities and property have been doing well in most of the years I have been involved with markets, after, say, seven years the £5 billion would be £10 billion because the £5 billion would have increased by 10 per cent. per annum. The funds would have £10 billion more just from one year’s dividend tax credit that has been forgone. Then the next year another £5 billion has gone missing; in 10 years time the amount forgone would be perhaps worth treble. So a large amount of money has clearly been forgone by the pension funds. We then come to the Chancellor’s second very clever argument. He says, ““Ah, yes, but between 1997 when the money began to be taken away and 2000, stock markets went up.? Yes, that is quite true, Chancellor of the Exchequer. So he says, ““Therefore, no damage was done because what pension funds lost on the dividend tax credit they made up on the share gains.? This is where stopping the clock at 2000 is an important part of the trick argument. From 2000 onwards, there was a sharp crash in the market. If the Chancellor were here he would say, ““Yes, but markets around the world fell so it was not just a British problem and it was not a result of my actions.? I have looked at the extent of the market falls in Britain and around the world. The evidence is clear that the British stock market fell by considerably more than the New York, Frankfurt and Paris stock markets. All the major markets performed rather better than the UK market. We can make a strong case that the extra decline in the London market reflected the economic policy of Her Majesty’s Government, especially the taxation policy. I will make a concession. It was not just the removal of the tax credit; another important tax change had quite a big impact on share values and that was the decision to take £22 billion out of the leading sector at the time—the telecoms industry—in the form of the auction tax so that companies could carry on trading. That had a huge impact on the share values of Vodafone and BT, which were the leading investments in most pension funds at the time. There was a double effect. The pensions tax—the biggest item—and the telephone tax completely smashed the equity valuations in typical UK pension funds.