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Occupational Pensions

I am pleased to contribute to tonight’s debate, not least to put some facts and figures on the record that have been ignored so far. I am glad that my hon. Friend the Member for Caerphilly (Mr. David) mentioned some of the positive effects that the Government have had on the lives of pensioners since coming to power in 1997, but he missed out a few that deserve a mention—not least the fact that the basic state pension is now guaranteed to rise in line with prices or 2.5 per cent., whichever is the higher, as we move to increase that pension in line with earnings. Pension credit ensures that no pensioner need live on less than £119 a week from 2007-08 and we have also introduced stakeholder pensions and the Pension Protection Fund, not to mention the financial assistance scheme. I apologise for referring to my notes, but there are some figures that I really want to get right. As the Chancellor noted in his opening speech, many of the measures that we have implemented were opposed by Conservative Members, who called today’s debate. In 1997 when we came to power, it was necessary to address historic underinvestment and short-termism. The main rate of corporation tax was too high, pension funds had the incentive of encouraging companies to pay out large dividends, which inevitably had an impact on investment decisions. Dividend tax credits alongside corporation tax disadvantaged British-based international companies and an increasing amount of dividend tax credit—about £1.8 billion—was being paid to shareholders other than pension funds. Our package of reforms included a reduction in the main corporation tax from 33 per cent. to 31 per cent., as well as the removal of the dividend tax credit, a reduction in the small companies’ rate of corporation tax and increased incentives for investment, including increased capital allowances. Those changes encouraged long-termism in the British economy. Abolishing payable tax credits allowed companies to base their investment decisions more on long-term commercial requirements and less on the need to pay high dividends. Our reforms encouraged higher levels of investment, helping to account for a rise in business investment. In fact, the figures show that foreign direct investment has risen threefold since 1997 and is now at its highest level since records began. In the quarter after the summer 1997 Budget, business investment grew by 1.75 per cent., then by 6.1 per cent., and then by 7.1 per cent. So between the 1997 and the 1998 Budget, business investment rose by 16 per cent. Since 1997, total business investment has risen by 60 per cent., compared with 34 per cent. in the previous decade. Whole economy investment has risen in every year since 1997—a decade of rising investment. In the previous 18 years, investment growth was negative for a quarter of that period. The purpose of the changes was, of course, to make companies more profitable and to enable them, by being more profitable, to resume higher contributions to pension funds and to pay higher dividends. Companies were more profitable after tax, as rates of return rose from 13.5 per cent. in 1996 to 15.1 per cent. last year—higher than ever before. Companies could afford to pay more in pension contributions, which were up 16 per cent. by 1999 and almost three times as much by 2006. Funds enjoyed high dividends despite the dividend tax credit change between 1996 and 1999, and even the dividend income of pension funds was higher in 1999 than it was in 1996. Companies did put more money into the pension fund. By 1992, total contributions, less refund, totalled £13.7 billion—an increase of £2 billion compared with 1996. Before Opposition Members jump to their feet to say, ““Give the woman a job? or whatever, I want to make it clear that I am very happy being a Back-Bench Member representing Stourbridge and a PPS in the Northern Ireland Office—and I do not want another job.