I recommend that my hon. Friend passes on to his constituent the thought that the Labour party cannot be trusted to do what they say they will do before an election. I shall quote to my hon. Friend what the Chancellor of the Exchequer said during the general election campaign:
All Labour's proposals will protect and improve the quality of life of pensioners. By contrast, a Conservative fifth term offers insecurity and fear for pensioners.
The then Leader of the Opposition, now the Prime Minister, said:
My message is, be warned—your pension isn't safe with the Tories.
What hollow words they were. Even while uttering those words, the Labour leadership must have been planning to reduce people's entitlement to pensions—a policy which we have now seen in the Budget.
Following the tax change and the abolition of the tax credit on dividends, a typical 35-year-old will have to increase his contribution by nearly one third if he is to maintain his future pension entitlement. A 45-year-old will have to increase his contributions by nearly a quarter.
The National Association of Pension Funds has said that the change in the Budget will cost pension funds about £4 billion a year. But remarkably, the Financial Secretary, who is in her place, when referring to the tax credit abolition on Thursday, said:
The measure is good for pensions and pensioners, not bad for them … People should understand that our reforms will benefit pension funds.
I should like to give the hon. Lady the opportunity to correct what must have been an error or, at the very least, give the Chief Secretary an opportunity during his wind-up speech to correct what his colleague has said, which is seriously misleading and has been directly contradicted by all the independent advice from actuaries, pension fund managers, trustees and business men. A pension change that takes £4 billion a year or more out of pension funds cannot be reconciled with the Financial Secretary's comment, when she said:
People should understand that our reforms will benefit pension funds."—[Official Report, House of Commons, 3 July 1997; Vol. 297, c. 507.]
I hope that the Government will use the opportunity of today's debate to correct that highly misleading statement.
What is particularly stupid about the proposals is that Britain has a comparative advantage in the field. We have £650 billion worth of private pension funds under management, which is more than the rest of the European Union put together. Those other countries face appalling strains on their public finances stretching into the next century. We, by and large, have avoided that because we have been successful in persuading people to provide for their own future.
Hon. Members on both sides of the House must realise that people cannot rely entirely on a state pension for a decent, comfortable and secure old age; they have to make provision for themselves by way of private pensions. What do the Government do in the face of our achievement, almost unique in Europe, in having built up a massive private pension sector? They tax it, they attack it and they try to take it over for the state. In summary, they have imposed a savings tax on at least half the population of Britain.
In some cases, it will be individuals who suffer lower pensions or have to make higher contributions to maintain the level; in other cases, it will be companies—companies, moreover, who will therefore invest less. The Post Office has apparently warned the Government that the Budget changes will cost it around £150 million—money that it will now have to put into its pension fund rather than use for investment. That £150 million—every year—is more than the Post Office raised last year by the 1p increase in the price of a stamp. So much for the Government's claim that this was a Budget for investment.
Another sector has been hit by the Budget in this way—local authorities, which also have funded pension schemes. The hon. Member for Putney (Mr. Colman)—a new Member, whom we welcome to the House—has written to the Chancellor of the Exchequer on behalf of local government pension funds. In his letter, he says:
the abolition of A.C.T."—
advance corporation tax—
would add at least 3 per cent. or £300 million to our employers' pension costs … No such increase could be afforded by local authorities without making further cuts to services to their local residents. … we would be bound to seek compensating increases to the revenue support grant.
The hon. Gentleman obviously has the authority of the local authorities to make that representation to the Government. I hope that the Chief Secretary, in winding up the debate, will use the opportunity to tell the House what he is going to do about that, how he will answer the
questions asked by his hon. Friend and whether he will compensate local authorities. After all, he has accepted the principle of compensating outside bodies; charities are to be compensated in due course for the reduction in the funds they receive from dividend income. Will he apply the same principle to compensate local authorities or will he accept the service cuts that his hon. Friend outlines in his letter? I hope that the Chief Secretary will address himself explicitly to that question.
There is an even bigger expenditure time bomb at the centre of the Budget. In his Budget statement, the Chancellor raised the inflation level without raising the expenditure limits. He raised a cheer among his more impressionable Back-Benchers when he announced more spending on health and education, but all he did was announce that he was raiding next year's reserve—a reserve he inherited from the Conservatives—which he thereby leaves dangerously low to deal with real contingencies, as my right hon. Friend the Member for South Norfolk pointed out. That means no new money for the national health service or anything else in the current financial year; it means not a penny for the NHS or education before next April. So all the strains and stresses on current expenditure remain entirely unrelieved. That brings me back to another bigger problem. The Chancellor has raised his estimate of inflation for the next two years and more. Obviously, he has very little confidence in his new Bank of England mechanism. As my right hon. Friend the Member for Fylde (Mr. Jack) pointed out, his inflation target is less rigorous than the one that he inherited.
Let us consider the impact on the NHS of raising the inflation forecast. Higher inflation in the current year and in future obviously means higher costs, but no more money has been provided this year, and the cash limits remain the same. Therefore, the Chancellor has imposed an immediate and savage squeeze on the real resources. He might have tried to put a bit of sticking plaster over the hole in the NHS budget by allocating more money to health from the reserve, but that does nothing for expenditure in the current year; nor does it affect other sectors of public expenditure that experience the same fiscal squeeze.
The Budget adds up to a major and sustained reduction in real public expenditure over each of the three survey years ahead. It was all documented subsequently by the Institute for Fiscal Studies, but none of it was clear from the Red Book, despite its so-called openness and candid presentation.
Alert and technically minded hon. Members will see that, on page 108 of the Red Book, the Chancellor has taken full credit for the extra inflation that he is now anticipating by adding an extra £1.8 billion in higher inflationary revenues in the current financial year and £3 billion in the next financial year. The Chancellor has taken full credit in his Red Book forecasts for his failure to control inflation, while allowing no extra expenditure for health, education, transport, the environment, law and order or anything else.
When the Chief Secretary replies to the debate—[HON. MEMBERS: "Get on with it."] He asked for 15 minutes, so I am not taking his time, if that is what the Chancellor is gesticulating about. When the Chief Secretary replies, will he explain why he is imposing a real cut in actual public expenditure and whether his plans are realistic in the light of the expenditure that the Government have carried forward from our last Budget?
In summary, we have a tax-raising Budget which does great damage to the long-term prospects of savings and pensioners. It is a betrayal of all the assurances that were given about taxes before the Budget. It attacks long-term planning, destroys savings and undermines investment. Moreover, it promises more Government expenditure, but actually plans for less. So, two months into this Parliament, the new Government have already betrayed their taxation and expenditure promises. This evening, there is an opportunity to pass judgment on that and I urge the House to do so.