What assessment he has made of the impact on pension funds of the abolition of dividend tax relief in 1997; and if he will make a statement.

When my right hon. Friend the Prime Minister was the Chancellor and he ended dividend tax relief and announced a 2p cut in corporation tax in 1997, he considered a wide range of factors.

Various figures have been bandied around as to the effect of the abolition of dividend tax relief. To put the record straight, what is the most recent Treasury figure for the cumulative effect of that annual smash-and-grab raid on our pension funds?

The only figures that have been bandied around have come from the Conservative party. The decision that the then Chancellor took was right. We wanted to ensure that investment decisions were taken for good business reasons, rather than for tax advantages. The hon. Gentleman will no doubt bear it in mind that under the previous Conservative Government the rate of dividend tax relief was cut on no fewer than five occasions. The last time it was cut was in 1993 when the then Chancellor, Lord Lamont, was being advised by the current leader of the Conservative party. Not only did the Conservatives cut the rate of dividend tax credit, but they failed to cut corporation tax at the same time.

Rather than continuing to look at the change in corporation tax, will my right hon. Friend look at what I think is the real cause of pension funds getting into trouble and subsequently having to receive help from the financial assistance scheme: the pension holidays that many of them took? I have been asking questions requesting the publication of information on how many of those funds had previously taken pension holidays, but the Treasury has as yet failed to answer. I hope that the Chancellor will change his mind and look into the issue, because it is the cause of the subsequent problems.

I agree with my hon. Friend. The causes of the difficulties that many pension funds encountered in the early part of this decade were many. There was the stock market collapse, following the collapse of the dotcom bubble in 2000. Many pension trustees had allowed a pension holiday through the 1980s and 1990s, and many did not realise until the beginning of this decade that their beneficiaries were living a lot longer than they thought. Moreover, a change to the accounting rules made companies bring on to their balance sheets their occupational pensions, which unfortunately led to many deciding to curtail their benefits or to end the schemes altogether.

Encouragingly, since that time the stock market has recovered, trustees are being more realistic and the Government have introduced legislation to help the victims of failed pension funds. The new pensions Bill, which will come before Parliament in the next Session, will provide further help, and we want to restore the link between earnings and pensions. In addition, we have introduced the winter fuel payment that has helped pensioners throughout the country, and the pension credit, which has helped to lift pensioners out of poverty. A range of things needs to be done, but my hon. Friend is right—people have to remember that what they get out of a pension has a lot to do with what they put into it, and the pension payment holidays did have a damaging effect in the 1980s and 1990s.

May I, in welcoming the right hon. Gentleman to his grand and historic office, remind him that yesterday, when I asked the Prime Minister about the massive blow that he struck, as Chancellor, against occupational pension funds, he replied by hiding behind the stock market crashes to which the right hon. Gentleman has just referred, and pointed out that pension fund assets had doubled? That being the case, how does the present Chancellor explain the fact that so many well-managed and profitable businesses now have very large pension fund deficits, and that almost all firms—including even the Bank of England—are closing their final salary schemes, which are so much more beneficial to pensioners than the alternatives now on offer?

I thank the hon. Gentleman for his opening remarks. I know that he has seen a good few Chancellors in his time, although I am not sure whether he was here when we joined the gold standard some years ago. I know that he has a keen sense of history, so he will know that before 1997, Chancellors of the party that he supports steadily decreased the amount of dividend tax credit. They started in 1979—when, incidentally, the Conservatives doubled VAT, even though they said during that year's election that they would not—and they did it again in 1986, 1987, 1988 and 1993.

What has that got to do with it?

It has got a lot to do with it. The hon. Gentleman was critical of the decision that my right hon. Friend the Prime Minister took, as Chancellor, back in 1997. It was the right decision to take in the long-term interest of this country, and it is the long-term interest that we will keep our eyes on. It is very important to ensure that we have a climate in which people are encouraged to invest for good business reasons, and that the system is not distorted because of tax reasons. On the hon. Gentleman's point about pensions, I refer him to what I said a few moments ago. Pension funds have got into difficulties because of a combination of factors. I mentioned the stock market collapse and the change to the accounting rules, which had a profound effect on pension funds. Other factors also had an effect, such as the pension holidays that such funds took. However, we are determined to do everything that we can to help pension fund trustees, as well as helping pensioners present and future.

Will my right hon. Friend confirm that tax credit dividends were simply a perverse incentive not to invest in one's business the profits that one achieved, and that the long-term growth in the value of businesses as a result of the abolition of such tax credits is precisely the reason why Sir Peter Tapsell was able to allude to the fact that the value of pension assets has risen from £500 billion to more than £1 trillion during the period in question?

My hon. Friend is right and I can only assume that he has been looking at the papers that were made available to the former Chancellor, Norman Lamont, and released under the Freedom of Information Act 2000, which make it abundantly clear that at the time the Treasury was aware of the distortion. Of course, the document then went on to note:

"Everybody is being asked to pay more tax"— in that Budget—

"and exempting institutions must play their part."

The Conservative Government made the changes because they had run out of money; we made them because we wanted long-term sensible arrangements to encourage long-term investment in this country.

May I, too, welcome the Chancellor and congratulate him on his appointment? I press him to answer the question put by my hon. Friend Mr. Goodwill. In 1997, the Chancellor was perfectly happy to say that

"there is no question that in the long term and the medium term" the abolition of dividend tax credits for pension funds

"will be good for companies and it will be good for pensioners", despite the advice he received from Treasury officials. Independent experts say that the cumulative cost is something like £100 billion—at least. The Treasury must have made its own calculations. Let us hear what they are.

The hon. Gentleman refers to the advice that my right hon. Friend received in 1997, which was of course the subject of a debate in April—a debate that the Opposition may now wish they had not brought up. It was quite clear that all the predictions made when the Chancellor tested what might happen after the changes did not come to pass: the stock exchange rose afterwards and the amount of contributions to pension funds continued to rise. The hon. Gentleman needs to reflect on the fact that nobody—not the Conservative party, no one else in the country, no one else in Europe and the developed economies of the world—is actually calling for the restoration of that system of dividend tax credits. As the Shadow Chancellor himself has said, the test of whether he is ready for government is whether or not he can resist additional calls for public expenditure. He is right on that point, even if not on most others.