HC Deb 10 January 2000 vol 342 cc7-8
5. Mr. Tim Loughton (East Worthing and Shoreham)

What discussions he has had with the Treasury on the effect on pensioners of the abolition of the ACT dividend tax credits. [102931]

The Secretary of State for Social Security (Mr. Alistair Darling)

The Government withdrew the tax credits as part of a wider package of reforms that will help companies and benefit the economy overall.

Mr. Loughton

Will the Secretary of State come clean and acknowledge that one of the most iniquitous effects of the Government's stealth tax on pensions was to deprive the less-well-off pensioners who are not liable for tax of a few hundred pounds in tax credits, on which many of them greatly depended? Will he stand by his soundbites about giving a fairer deal to poorer pensioners and lobby the Chancellor hard to give back those ill-gotten gains to the 300,000 poorer pensioners who really need them, including many in my constituency?

Mr. Darling

The changes that we made after the general election have been widely welcomed because they will benefit companies and the economy overall. [Interruption.] The shouts from the Conservatives would have more credibility if they were committed to restoring the previous ACT system—I do not think that they are. Since the abolition of ACT in 1997, there has been a positive cash flow of £1 billion to business. In addition, because of the action that we have taken, two thirds of pensioners do not pay income tax. We have taken 200,000 pensioners out of tax and 1.5 million pensioners will benefit from the extension of the 10p starting rate of income tax by an average of £55 a year. Every one of those measures was opposed by the Conservatives.

Mr. Paul Goggins (Wythenshawe and Sale, East)

Is not one of the most effective ways of helping pensioners with modest incomes to take them out of the tax system? Will my right hon. Friend continue to press his Treasury colleagues for above-inflation increases in the pensioner's personal allowance?

Mr. Darling

As my hon. Friend said, the Government have done a great deal to help those pensioners who previously paid tax. Two thirds of pensioners now do not pay tax. We have taken 200,000 pensioners out of tax. Across the board, regardless of whether pensioners pay tax, the Government are honouring their manifesto pledge to ensure that pensioners share in this country's rising prosperity, not just through the tax system but through the winter fuel payment, the minimum income guarantee and other measures that help them a great deal. That help was never there under the previous Tory Government.

Mr. David Willetts (Havant)

Does the Secretary of State agree with his former ministerial colleague, the right hon. Member for Birkenhead (Mr. Field), who was a Minister at the time that the changes were introduced? He says that they imposed a £2.5 billion tax hit on pension funds in 1997–98. If the Secretary of State does not agree, will he give his estimate of the impact on pension funds of that horrific change in their tax treatment? Of all the Government's stealth taxes, is not that the biggest and the worst?

Mr. Darling

The hon. Gentleman's protestations would have more credibility if he were committing his party to the restoration of the ACT system. I do not believe that business in this country wants another change to corporation tax. As a result of the changes that we have made, there has been a £1 billion cash advantage to businesses and we have the lowest-ever rate of corporation tax. That has increased the profitability of companies. On top of that, we have a healthy and stable economy and an end to the boom and bust that characterised the Tory years. Most businesses welcome the way in which we are running the economy. By helping businesses and the economy, we help pensioners as well.

Mr. Willetts

I asked a simple, factual question to which we are still waiting for an answer. If the Secretary of State will not take responsibility for pension funds as a whole, will he at least accept some responsibility for the ACT burden that he has imposed on public sector funded pension schemes? Will he confirm the figures in Pensions Week today that show that local authority pension schemes around the country face enormous extra charges because of the change in the tax regime: £30 million for Greater Manchester; £33 million for Cornwall and £75 million for Staffordshire? We will find that, along with the pensioners referred to by my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) and future pensioners, council tax payers will pick up the tab for the hefty increase in tax on pension funds. However, we do not have a simple answer to a simple question about how big the tax hit is.

Mr. Darling

The answer is that our tax changes will benefit the economy and companies in this country and, because of that, will benefit pensioners and pension funds. We have reduced the rate of corporation tax, and we have some of the lowest interest rates that this country has seen for years. We have a benign economy that is helping companies to increase their profitability, and that will help pension funds. The changes that we have made are in the best long-term interests of the economy. I assume that the hon. Gentleman is saying, on behalf of the Conservative party, that he intends to scrap the system and go back to the old one. That would be another reason for British business to regard the Tories as hopelessly out of touch with the needs of this country.

Back to