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Occupational Pensions

I am afraid that the hon. Gentleman does not understand stock markets. On an earnings multiple valuation, the market has not actually risen at all in recent years; all that has happened is that earnings have gone up a bit and the stock market has kept pace with that rise. In real terms, the stock market is well below where it was at the market peak and it has not yet moved on to a higher valuation basis, as it had done before the full impact of the changes was discounted by the market. I am not saying that the entire market drop was the direct fault of the tax changes. Quite a bit of it was a worldwide phenomenon; liquidity was withdrawn by central markets around the world, so world markets dropped. The extra fall in the United Kingdom is clearly the result of tax changes in the UK, so the Chancellor’s argument for getting out of jail tonight—that because share prices rose for a couple of years all was well—has to be looked at in light of the fact that what happened next was that share prices fell. Clearly, if £5 billion is taken out of companies’ income, their shares will be worth much less. I did the sum for the Government shortly after the first Budget. In the Budget debate, I said from the Dispatch Box how damaging the proposals would be. I then made a back of the envelope calculation that they would cost £100 billion. It was an easy sum to do, because in those days the markets valued companies on 20 times earnings. In effect, £5 billion was being taken from company earnings, so multiplying that by 20 meant that there would be a £100 billion capital hit. In practice, the excess drop in the London stock market was more than £100 billion compared with other world stock markets, but that reflects the telecoms tax and other adverse factors that were then discounted by stock markets. The Secretary of State for Work and Pensions is shaking his head in disagreement; in the wind-ups it will be interesting to hear his argument as to why taking £5 billion a year from company income does not have a negative impact on values and why one should not calculate how much more the London stock market fell than other stock markets.