HC Deb 27 March 2003 vol 402 cc447-8
11. Mr. Bill Wiggin (Leominster)

What estimate he has made of the effect on the stock market of the removal of dividend tax credit. [105160]

The Paymaster General (Dawn Primarolo)

It is not possible to attribute movements in share prices to the effect of particular Government tax changes.

Mr. Wiggin

This Government have taken some £80 billion from the United Kingdom stock market—£5 billion a year through their pension taxes. They now intend to withdraw the individual savings account tax credit. Does the hon. Lady not think that her answer was extraordinarily complacent?

Dawn Primarolo

The hon. Gentleman will be aware that the removal of tax credit as part of the reform of corporate tax in 1997 was part of a long-term plan to tackle the distortions in investment. He will also be aware that ISAs retain the 10 per cent. protection until April 2004. I remind him that when his Government cut tax credits, they paid no compensation to the corporate sector or anyone else.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

Will my right hon. Friend consider extending the ISA tax credit beyond 2004? It is a difficult time for people who have equity ISAs and it is the wrong moment to encourage them to switch to bond funds. In all other respects, I support my right hon. Friend in taking a long-term view of shareholder value that does not depend on the volatility of asset values in the stock market at any given time and does not encourage financial engineering.

Dawn Primarolo

As my hon. Friend is aware, the 10 per cent. of payable tax credit for ISAs was a transitional measure to allow investors to adjust their portfolios. I listened carefully to his comments on what might happen in future, although he would not expect me to announce anything from the Dispatch Box now. However, I shall certainly reflect on his concerns.

Mr. Howard Flight (Arundel and South Downs)

First, the stock market value of companies represents a multiple of their earnings, so a £5 billion reduction from aggregate dividend income at a price earnings multiple of 20 reduces stock market values by £100 billion per annum, which is roughly equal to pension fund deficits. Secondly, on the demand for UK equities driving prices, the Chancellor and the Paymaster General know well that the Chancellor's pension tax resulted in an acceleration of the closure of final salary pension schemes and a rebalancing of their portfolios, causing their equity holdings to fall from 53 to 39 per cent. Will the Paymaster General admit that the Chancellor's £5 billion pension tax has contributed materially both to the fall in the UK stock market and to the fact that the US stock market has outperformed the UK market by 50 per cent. since 1997?

Dawn Primarolo

First, the hon. Gentleman again completely misses the point about the package of reforms undertaken by the Government, including cuts in corporation tax and numerous measures to help investment in the economy; and secondly, he completely ignores the Government's Green Paper on occupational pension funds and our continued support of those funds, which he continues to undermine. Thirdly, he is entirely wrong to assert that the UK stock market has fallen to a greater extent than European stock markets. That is simply not true and he knows it.