As I said, four or five years ago the Government adopted a mature approach to the issue of pensions. They wanted to put in place something that was, if possible, the result of political consensus—which was broadly given—and was accepted by the industry, so that the new regime would endure and would not be tinkered with. Individuals need that certainty even more than institutions, because they need to make a commitment to a long-term pension investment over decades. They should not be messed around from Budget to Budget by finickety little changes. The measures in the Budget are not finickety little changes: they are a significant reverse in the Government's whole approach.
The language that the Treasury used is extremely revealing, talking as it does of fairness between schemes. One consequence of the measure to restrict income tax relief for higher-rate taxpayers is to focus attention on the increasing disparity between final salary and defined contribution schemes. There are, of course, fewer beneficiaries of final salary schemes than there were when the Government took office. The figures that I have do not go back quite that far, but in 2000, 18,100 defined benefit schemes were open to subscription. By 2007, that had declined to a mere 2,370 schemes still open for members. The number of members in those defined benefit schemes declined over that period from 8.6 million to 6.2 million, meaning that nearly 2.5 million fewer people were on defined benefit or final salary schemes.
Almost all that decline came from the private sector. At the end of 2007, there were only 1.3 million members of private sector defined benefit schemes, whereas in the public sector there are still 4.9 million members in final salary schemes. A further 1.8 million are still in schemes that continue but have been closed to new members. The vast majority of those closed schemes are, of course, in the private sector, with some 1.4 million people still in final salary schemes that are now closed to new members. That illustrates the scale of the decline in pensions presided over by this Government.
I labour this point because the capping measures for high-income earners and the forestalling measures that were referred to earlier in the debate will merely accelerate the trend away from final salary schemes. That will apply mostly in the private sector, leaving the public sector final salary schemes increasingly exposed to public scrutiny and criticism, which I expect has not even occurred to those on the Government Benches. That will expose the increasing lack of fairness. Those who are still entitled to final salary pensions will be protected not only from the mortality risk but from the investment risk, whereas those who are in defined contribution schemes will continue to have to bear both risks in the pensions that are ultimately paid out to them. Decreasing mortality means lower returns for defined contribution schemes, because providers have to assume that we will all live longer.
By taxing contributions at 20 per cent. on the way into the defined contribution schemes of the vast majority—contributors to such schemes by definition have to pay in a much higher proportion of their salary than those on final salary schemes, particularly in the public sector—as well as taxing income received from pensions on the way out will lead to an increasing disparity between those who defined contribution schemes and those who remain on final salary schemes, who are high earners. We are talking about a relatively small number of people who will be affected, but the fairness issue applies across the final salary scheme membership. This measure will require considerable debate within and between Government and Opposition to ensure that there is fairness in the way that the provision applies to those who are fortunate enough to be in final salary schemes.
The second issue that I want to touch on briefly was mentioned by my hon. Friend Peter Luff, the Chairman of the Business and Enterprise Select Committee, and concerns clause 9 and the extension of reduced standard rate and anti-avoidance provisions for VAT. The Chief Secretary was present at a meeting yesterday of the British Retail Consortium, held in Portcullis House, at which I was also present. It was quite clear that she was seeking to give the impression to the retailers present that the proposals for the termination in the cut in VAT were not set in stone. At that meeting, and again in the House, she referred to the fact that HMRC is prepared to engage in active discussions with retailers to seek to mitigate any problems that arise. That reverses the intention of the provisions.
The provisions are designed to provide the sort of certainty that my hon. Friend the Member for Mid-Worcestershire described, so that people know where they stand, by deferring the cut-off date from
As has been said, on
I urge the Financial Secretary not only to bring clarity to this situation, but before the conclusion of the Committee Stage to engage with the retail industry to try to come up with a sensible compromise—a cut-off date that will not engage retailers, at one of the busiest times of the year, in a great deal of extra work for no particular benefit to them. Retailers typically change their prices over a weekend. Major companies can do it all on a computer programme. Small retailers have to go round sticking all the prices on the goods themselves. That is a very labour-intensive process. It is costly for the retailer. They have to do it, typically, at night or on a Sunday, so they are paying overtime. That is not an easy thing to do in the middle of a very busy trading week. If I sound slightly anxious about that, it is because, having been a retailer, I know something about it.
That brings me to the third specific measure that I wanted to mention, which, I am afraid, also relates to the retail trade in particular although it impacts on many other businesses—the issue of trade credit insurance. I tip my hat to the Financial Secretary for introducing a measure that, while overdue, has been welcomed by the industry and is an important plank in trying to help keep businesses trading.
The use of credit insurance in trade in this country has become increasingly prevalent in recent years, but it is extremely reliant on a very few providers. Three providers—two large, one small—undertake the vast majority of credit insurance provision in this country. This measure will be of benefit to many companies, but many others—thankfully, a smaller number—will not be able to take advantage of it, because although the scheme is estimated by the Government to apply to some 14,000 businesses, it will apply only to those which have lines of credit insurance in place on
I am sure that Members will have received representations from businesses trading in their constituencies from whom credit insurance was removed prior to
I accept that the Government do not want to put themselves in the position of assessor of credit risk; that is a job for the banks and the credit insurers. However, the Government ought to have listened to some of the voices that said, way back at the beginning of this year or the end of last year, that such a measure was vital to keep businesses trading. Indeed, in January the Secretary of State for Business, Enterprise and Regulatory Reform publicly stressed his concern about what he called the "immense financial distress" placed on companies as a result of the loss of such cover.
It seems regrettable that despite all the discussions that took place in the first quarter of this year and at the back end of last year, the Government did not think to introduce the measure then. Perhaps that is because it is somewhat close to the national guarantee scheme proposed by Conservative Members, and the Government did not want to be seen to be taking up yet another of our ideas. To emphasise my point, I will quote Jane Milne, business director at the British Retail Consortium, who was present at the meeting yesterday. She described the scheme as
"much needed but...too little too late. Matching the trade credit insurance that private insurers are willing to provide is vital to helping fundamentally sound businesses weather the recession. But the unannounced detail confirms this safety net will be denied to companies whose cover was cut before
For retailers to survive and keep people in work they need to keep shelves stocked with the goods customers want. Insurers began removing cover as the downturn started to bite this time last year. The Government's scheme should apply from then"— that is, from
To conclude, there are measures missing from the Finance Bill that would help to address some of the vital shortcomings in the Government's approach to tackling the economy that I identified at the beginning of my remarks. There are hardly any measures in the Bill to encourage entrepreneurial incentive. There is a modest measure for increased capital allowances, but that really applies only to existing businesses, not to those that are growing significantly, although it might help in some isolated cases. There is very little help in the Bill for small businesses, the lifeblood of our economy, from which all big businesses emerge.
If the Financial Secretary gets out and about, as I imagine that he should, and talks to entrepreneurial clubs and groups of business men up and down the country, he will find that surprisingly large numbers of people responsible for significant businesses—businesses are increasingly mobile in this global economy—are actively considering relocating their centre of operations, or their business in its entirety, to outside the country. That is because they see the approach that the Government are taking, which is not to encourage entrepreneurial activity in this country. That is a great worry for this country, as is the question of how we will be able to weather the recession and retain a strong level of employment in years to come.
Secondly in my concluding remarks, there are very few measures in the Bill to encourage savings, and they are complex. Why was the welcome increase in the individual savings account limit staggered over two six-month periods? It defies any kind of sensible logic. I hope that that, too, will be pressed in Committee. The proposals contain little significant incentive to encourage the take-up of savings.
Thirdly and finally, the Bill betrays a lack of competence at the heart of Government in handling the economy. We have seen what has happened to the public finances over the past 12 months. That tells a story in itself. There is a complete absence of vision on the Government's part as to how they will be able to drive the economy out of the mess that they have driven it into. If they are incapable of vision to get the economy going again, they should go themselves.
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