HC Deb 20 June 2002 vol 387 cc404-6
10. Mr. Geoffrey Clifton-Brown (Cotswold)

What estimate he has made of the cost of the ACT changes since 1997 on the cost of public sector pension fund contributions. [60347]

The Chief Secretary to the Treasury (Mr. Paul Boateng)

The abolition of payable tax credits removed a major distortion in the tax system that encouraged companies to pay out their profits as dividends rather than retain them for investment, and were part of a wider package of corporation tax reforms that included tax cuts. No estimate has been made of the impact of the corporate taxation changes since 1997 on public sector pension schemes.

Mr. Clifton-Brown

I add my personal congratulations to the Minister, whom I always had satisfactory dealings with in his previous offices, so perhaps he will be able to give me a satisfactory answer to my question. He will be aware that the ACT changes as they reflect public sector pension contributions have put a particular burden on the local authority budget.

Indeed, it has been estimated that the increase in contributions has amounted to a council tax increase of 1.5 per cent. Taken together with the increases in national insurance, that has a considerable impact on every departmental budget. Does he agree that the comprehensive spending review will have to be increased by several billion pounds merely to fund these two taxes alone, or will the Treasury tax the Deputy Prime Minister's Department to pay its own taxes?

Mr. Boateng

The hon. Gentleman is very generous—one tries to give satisfaction—but I am afraid that he will find my answer to his question far from satisfactory. The reality is that, under this Government, local government settlements have been generous, compared with those that were reached when his party had stewardship of the economy. To suggest otherwise flies in the face of all reason. He will understand why I do not intend to anticipate the comprehensive spending review, save to say that I am sure that local government will be satisfied.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

May I also congratulate my right hon. Friend on his wider responsibilities? He has yet to fail to satisfy me—[HON. MEMBERS: "Ooh."]—although my needs are few. Will he acknowledge, however, that public sector pension schemes are likely to be the last bastion of salary-related schemes? Most public sector schemes are not funded, and are therefore completely unaffected by the tax changes that Opposition Members have drawn attention to. Will he ensure that, as part of the Government's policy, they will defend public sector salary-related pension schemes, funded or otherwise, particularly in areas such as health, education, and—importantly—the fire and police services?

Mr. Boateng

My hon. Friend, who is a distinguished member of the Treasury Committee, is very kind. I always take seriously the representations that he makes, and I shall certainly take that one seriously. He is absolutely right about unfunded schemes: contrary to Opposition Members' frequent suggestions, they are not affected. Would that they realised that, because they are giving a distorted picture of the reality on the ground.

Mr. Michael Howard (Folkestone and Hythe)

May I add my congratulations to the Chief Secretary and welcome him to his new position? In retrospect, are he and the Chancellor proud of the £5 billion a year tax hit that was imposed on pension funds, including public sector ones, in 1997?

Mr. Boateng

The right hon. and learned Gentleman is courteous, as always. However, to describe what happened as a tax hit, a stealth tax or a raid on pensions—he has done all those things—is as absurd as it is simplistic. He knows that that is not true, and nor should he forget the cuts in corporation tax. In the longer term, investment performance is likely to improve as a result of these measures, so the situation is far from what he describes.

The key is stability, avoiding the boom and bust that characterised the time when his party were in government, and avoiding the mass unemployment that he presided over as Secretary of State for Employment. He needs to realise that this Government have provided 1.5 million new jobs for the economy, and that his Government took away many more.

Mr. Howard

Yesterday, the Prime Minister said that the stock market was massively up on where it was five years ago, but in fact, it is down by 2 per cent. When he made that statement, was he accurately reflecting what the Chancellor was whispering in his ear, or are the Chief Secretary and the Chancellor now among the 56 per cent. of the electorate who do not regard the Prime Minister as honest or trustworthy?

Mr. Boateng

The Prime Minister is both those things. He was absolutely right: the stock market is £300 billion net up on what we inherited. That is the truth of the situation. Why does the right hon. and learned Gentleman not have the grace to recognise it?

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