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Occupational Pensions

As always, it is a great pleasure to follow the hon. Member for Wirral, West (Stephen Hesford), whose contribution was in the style of a winding-up speech. I certainly look forward to the day when he can deliver a winding-up speech from the Dispatch Box. It has been a curious debate, because there is an argument, which is wrong but respectable, for the abolition of tax credits. That argument is simply that the Government need to find revenue somewhere, and they can do so by abolishing tax credits. That was certainly touched on by the hon. Member for Coventry, North-West (Mr. Robinson) in his speech and made explicit in his book ““The Unconventional Minister?, in which he argued that the Government needed the money. That is a valid argument, because any taxation has a downside effect. If one increases taxes on income, that acts as a disincentive, and if one introduces high rates of corporation tax that forces businesses overseas. That tax on pensions caused harm but, on balance, the Government took the view that it was worth introducing. That is a wrong but respectable argument. However, we have consistently heard Government Members, particularly the Chancellor, advocate a rather different approach, which sticks doggedly to the position taken in 1997 and stipulates that, first, the abolition of tax credits on pension funds will not damage pension funds and secondly, it will be good investment. That extraordinary argument was made by the Chancellor in his 1997 Budget, and he and a number of his colleagues made it earlier today. First, the notion that taking £5 billion a year out of pension funds does not damage those funds is ridiculous. Secondly, the belief that it is good for investment is not supported by the facts. With the benefit of hindsight, there is absolutely no evidence that it has encouraged investment. As we have heard, business investment as a proportion of gross domestic product has fallen to record low levels under the Government. Adair Turner, the then chairman of the CBI, said at the time that"““this may increase the cost to business of funding employee pensions and may reduce funds for investment?." In 2005, a study by the Institute for Fiscal Studies, to which the hon. Member for Twickenham (Dr. Cable) has referred, showed that that had no effect whatsoever on investment, which should have been apparent even at the time. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my right hon. Friend the Member for Charnwood (Mr. Dorrell) made the very good argument that it is a curious idea that the best way to allocate resources is to keep funds within existing companies. The argument that the management of existing companies should not distribute profits in the form of dividends is absurd, because innovation often occurs in new companies. Freeing up funds from companies does not necessarily mean that those funds go to consumption and are lost from investment, because it can often be positive. When the economy has done well in recent years, it has often involved new businesses with, it must be said, private equity. At the time, the argument was made that high dividend payouts are not necessarily bad for a company in terms of long-term investment, because high dividends often increase a company’s share value, and an increased share value improves a company’s position to borrow. The argument does not stand together either in theory or as it has turned out in practice.