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Occupational Pensions

It is always a great pleasure, and an increasingly frequent one, to follow my hon. Friend the Member for Beverley Holderness (Mr. Stuart). He spoke with his customary vigour, both in his main contribution and in his several robust interventions earlier. This is a very important debate, for various reasons but not least because it will have an impact on a great many people outside the House. The hon. Member for Hartlepool (Mr. Wright) made a very thoughtful and welcome speech, in which he set out some of the demographic matters that had not been mentioned before. It is a fact that 18.5 per cent. of this country’s population are over the age of 65, yet many people, until approaching retirement, have no real understanding of the significance of pension arrangements. Moreover, a great many of the people who have retired have suffered the shock of discovering that their pension schemes have closed. As we have heard, more and more people find themselves in pension difficulty as each year goes by. I am especially worried about that, because so many people choose to live out their retirement days in my constituency: 26 per cent. of my constituents are over 65, and the proportion is expected to rise to 30 per cent. by the end of the decade. One reason why I was especially interested to join the Work and Pensions Committee when I came to the House was that, during the last general election, a great many people raised their concerns with me about the pensions crisis developing under this Government. In my constituency, members of pensioner groups and the local Senior Citizens Forums regularly ask me what can be done to put right the damage inflicted on pensions. Generally speaking, people have lost confidence in their retirement prospects, but that is not entirely due to the decision to abolish dividend tax credit. I do not intend to argue that that was the sole reason, as the problem has several contributory factors—one of the most fundamental being that the savings ratio has halved over the past 10 years. This is an argument for which the Government take no responsibility, but it is a fact that savings have declined significantly partly because people do not believe that it is in their best interests to save for their retirement. Returns from pensions have been cut, as we heard just a moment ago, with the decline in the number of defined benefit schemes. Only a third are now open to new members compared with the number in 1997. The income from final salary schemes is falling across the country. Defined contribution schemes, for all their attractions to the funders, are not expected to provide the same level of income in retirement as the final salary schemes that they replace. Another major issue that is having a big impact on people’s confidence in retirement has been the threat of means testing. There was a big discussion about that earlier, which I will not repeat. I recognise that a large part of the measures in the Pensions Bill is aimed at reining back the spread of means testing. I welcome that because otherwise, as Lord Turner’s report demonstrated, 70 per cent. of the population would be on means-tested pension benefits. This debate is important in that it has secured the presence of the Chancellor. My hon. Friend the shadow Chancellor made some important points to tease out of the Chancellor a glimmer of acknowledgement that some share of the responsibility for the problems that have arisen in the occupational pensions sector in the past 10 years could be attributed to him and what he did in the 1997 Budget. The debate is relevant not only to the people in this Chamber and not just because the Chancellor has ambitions to succeed the Prime Minister. It is relevant to Labour Members, who have been able to see his reaction and whether he can say sorry, as he was asked to do by my hon. Friend the shadow Chancellor; whether he is able to show some element of contrition and responsibility for the action that he took. I regret to say that there was little evidence of that in his speech today. The debate is also relevant following such a long period of denial of the fact that the 1997 decision had any impact on occupational schemes. It is evident from so much external commentary and comments in the debate today that the decision had a significant impact, the scale of which is up for discussion. The Chancellor’s contribution to the debate will have disappointed many not only on the Opposition Benches but on his own Benches, and most independent commentators. It will have been of considerable concern to my constituents and other people watching from outside the House. It was a disappointing speech from a potential Prime Minister. It was disappointing for the message that he had to give, first, that it was not a real problem, and, secondly, that if there was a problem, it was not of his making. The Chancellor’s mantra has been that under his stewardship there has been no return to boom and bust. He has mentioned it in every single pre-Budget report and Budget statement since he has had the job. But under his watch in the past 10 years, a large number of defined benefit schemes have gone bust, and two thirds of them have closed. Some have questioned why we are raising the matter only now, 10 years after the event. It is perfectly obvious why: we are raising it on the first available opportunity after the evidence was revealed following much teeth pulling from within the Treasury just before the Easter recess. The Opposition are often criticised for not raising the issue regularly in the House and through the media. However, there have been some helpful contributions today, not least from the hon. Member for Birmingham, Erdington (Mr. Simon), who magnificently went through a year-by-year catalogue of the occasions on which this issue was raised by distinguished Members of this House, especially on the Opposition Benches. The Chancellor has fought revealing the information doggedly for the past couple of years. He has issued a fog of denial which has enveloped not just himself but most Labour Members. Few seem to have recognised what happened in 1997. We have heard some astonishing tales of denial, with the exception of two contributions from Labour Members, one from the right hon. Member for Birkenhead (Mr. Field), who referred to the double body blow—the first was an attempt to attack the shadow Chancellor but the second presumably related to the precise measure that the Chancellor introduced. The other contribution was from the hon. Member for Coventry, North-West (Mr. Robinson). His speech was revealing. He attempted to paint a caricature of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) when he was Chancellor, but the hon. Gentleman’s description could have been that of the present Chancellor. He talked about a Chancellor who was running up high debts, who had a poor forecasting record and indulged in pre-election spending booms. On the Conservative Benches, we recognise all those things as attributes of the present Chancellor. The hon. Gentleman’s candid admission that the dividend tax credit was entirely a revenue-raising measure should percolate to other Labour Members. I want to highlight two misunderstandings that emerged through the fog on the Labour Benches—I use the word ““fog? to be charitable, but it may have been a deliberate attempt to spin Labour’s side of the story. First, Labour Members tried to claim that before 1997 there were five Conservative cuts in dividend tax credit, which were analogous to the Chancellor’s decision to abolish the credit. However, that claim does not recognise the fact that the first four cuts resulted from limiting the credit to the basic rate of income tax, which was successfully and successively cut by Conservative Chancellors during the 1980s and the early 1990s. That is not the same thing as abolition of the credit. Secondly, several Members criticised pension holidays as a major contributor to the pension crisis. The hon. Member for Amber Valley (Judy Mallaber), who is not in the Chamber, claimed that pension holidays were forced on companies by measures introduced in a Conservative Budget in the mid-1980s. To put Labour Members straight, the purpose of those measures was to stop companies sheltering profits in their already well-funded pension schemes. They were legitimate measures to ensure that profits came into the corporation tax net. As Opposition Members have said, notably my right hon. Friend the Member for Wokingham (Mr. Redwood), the whole structure of trusteeship in the pension fund industry, with independent trustees and reporting actuaries, militates against assets being taken out of funds—other than in the Maxwell case, which was referred to earlier. Many Labour Members are confused about the impact of the dividend tax cut on pension schemes. I urge them to go back to their constituencies, as I am sure some will do for the local elections, and talk to their councillors about what has happened to council tax as a result of the need to restore some of the unfunded deficits in council pension schemes. They will get a much better answer if they ask how much the dividend tax credit contributed to the situation. In conclusion, there is a degree of consensus on the need to sort out the current pension crisis and on what needs to be done to sort out state pensions and to restore the savings ratio and personal responsibility. However, consensus is best achieved when analysis of the causes of the problem is shared, so it is disappointing that throughout the debate there has been no hint of contrition from the Chancellor or his supporters about the causes of the problem or any recognition that it was of his making.