We are extending opportunities to save through our policies for a stable, low-inflation and growing economy, with rising real living standards, and through the extension of the lop rate of tax, the success of individual savings accounts and action to tackle financial exclusion.
I am sure that the House will be surprised that the Minister did not actually say that the Government have no policy to extend saving, as the savings proportion of people's income has gone down from 10.6 per cent. to 3.8 per cent.
Can the right hon. Gentleman perhaps tell the House something that might be simpler for him to explain? Every year £5 billion pounds is now being taken out of people's pensions and the pensions of future pensioners. How much is that contributing to the enormous slash in the amount that is being saved by the nation?
As the hon. Gentleman should well know, the dividend tax credit was ended precisely because it provided a perverse incentive to the distribution of profits in dividends rather than as re-investment. Not only all shareholders but particularly future pensioners will benefit from the economic growth that will be derived from the levels of investment that will now follow. As for our record on savings, the hon. Gentleman seems to overlook the success of ISAs, which the Conservatives derided when we brought them in. In the first year of their introduction, £28 billion was invested in more than 9 million accounts—one third more than went into PEPs and TESSAs the year before.
May I pursue the point about ISAs? My right hon. Friend is absolutely right to say that they are now being opened by people in parts of the country and from parts of society who never had a savings habit before, and that they are encouraging and incentivising that habit. May I urge that the £7,000 limit on ISAs, which was extended from one year to two, be extended for a third year and made a permanent feature of the ISA system, so as to encourage that growth in ordinary people's savings throughout their lives?
My hon. Friend is quite right. Many people in our country were excluded from prosperity and from the chance to save under the previous Government but they now have the opportunity to benefit because we have a million more people in jobs, because of the help through the working families tax credit and because of the way in which ISAs respond to their needs. We are helping them further by tackling financial exclusion, for example by encouraging credit unions. As to my hon. Friend's proposal for the extension of the £7,000 limit, all advice for the Budget is gratefully received and I am sure that my right hon. Friend the Chancellor will give it due weight.
Why does the right hon. Gentleman have such difficulty in recognising his own figures? Is he aware that the Treasury's own published documents record a collapse in the proportion of savings as a percentage of national income, from 11 per cent. when the general election took place to 7 per cent., then to 5¾ per cent. and now to less than 4 per cent.? In the real economy, rather than the economy inhabited by Treasury Ministers, that is extremely serious and has very damaging implications for the long term. It is attributable to the £5 billion a year raid that the Government are carrying out on pension funds, which they started in 1997 and which is still under way. Will the right hon. Gentleman now admit his own figures, agree that there has been a collapse in private savings and tell us what he is going to do about it?
The right hon. Gentleman would do well to recall that the savings ratio fell to a lower proportion under the previous Conservative Government. He would also do well to understand, as I am sure that he does, that the savings ratio necessarily reflects spending patterns which themselves reflect the low unemployment, strong earnings growth, low interest rates, low inflation and strong growth in wealth that we are seeing in the country right now. Talking of figures and them adding up, the question that he and his right hon. and hon. Friends have to answer is from where the £16 billion of spending cuts will come. They will not help savings.
Does my hon. Friend agree that one of the best encouragements that the Government have given to savers has been to create a strong and stable economy and to put in place measures to safeguard economic growth in the medium to longer term? Of course, extra incentives may be necessary for individuals and families to save even more, and the Government are putting those incentives in place, such as employee share ownership plans, ISAs and stakeholder pension schemes. But a return to boom-and-bust economics, which would certainly accompany the return to office of the Conservative party, would destroy the secure savings environment on which the take-up of such incentives depends.
My hon. Friend is right. Nothing would damage the prospects of prosperity and future savings more than a return to the chronic short-termism and boom and bust of the previous Conservative Administration. Conservatives would do well to remember that under our spending plans, as set out this week, for every extra pound spent, only 17p goes on social security and debt interest. Throughout the Conservatives period in office, 43p went on social security and debt interest. There could be no clearer sign of how we are ensuring stability and steady growth. The extra money that we are able to spend goes to front-line services, and the Opposition still cannot say where they would find their £16 billion in cuts.