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Let me begin by saying to Phil Wilson that I wish to draw attention to my entry in the
Register of Members’ Financial Interests, and my specific interests in the life insurance industry, because later I shall say a few words about the annuity market changes. Before that, I want to talk about the impact of the Budget on my constituency. The House will be delighted to know that I do not intend to trawl through all the provisions; I shall merely mention three specific headline issues that my constituents raised with me after the Budget, and were very pleased to raise with me.
The first of those issues, which has already been mentioned, is the increase in the personal tax allowance. That increase is significant, and I think it a mistake for any Opposition Member to talk it down. The allowance used to be £6,500, and next year it will be £10,500. That is a measure that will help the lowest paid: it will take 3 million people out of tax altogether. I am amazed that some Opposition Members are still shaking their heads over that proposition.
Secondly, my constituents were delighted by the announcement about child care costs that was made the day before the Budget. It will mean real help for people who want to get back to work. Thirdly, although this too will not be popular with Opposition Members, my constituents have told me how pleased they are that there is now petrol price stability—a stability that will be underpinned by the continual fuel duty freezes that we have seen.
Let me say something about the impact on the business community in my constituency. When I went to my constituency business club on Thursday evening, three items were mentioned specifically. The doubling of the investment allowance to £500,000 a year has been warmly welcomed, and there has been a widespread welcome in Wales for the announcement of a package for heavy users of energy. Mr Hain, who is present, will know how strongly Tata argued for that, and Celsa in Cardiff is delighted as well. There has been a universally positive response to the Government’s determination to lower corporation tax to 20% from the Welsh chambers of commerce, the Institute of Directors and the Federation of Small Businesses and others.
Let me now say something about the pension changes. The pensions landscape has changed dramatically since the 1990s. The shadow Secretary of State, Hilary Benn, told us that he was very proud of the last Labour Government—the Government who scrapped dividend tax credit, which cost pensioners £5 billion each and every year from 1997 onwards. Subsequently, we have seen Government policy pursue low interest rates and quantitative easing, which have driven down the value of our pensions. No one has mentioned that so far. Annuities are on the floor in comparison with their level in the 1990s: they are down to a third of that level. The fact is that those on both Front Benches are responsible for that. Between 2009 and 2012, the Bank of England and members of the Monetary Policy Committee claimed that £375 billion of quantitative easing would have a neutral effect on annuity-holders. However, in a report published two weeks, Ros Altmann made it clear that it was monetary policy that had driven down annuity rates.
One of the strengths of the Government’s announcement is the positive response not just from those approaching retirement, but from savers more generally. Along with the announcements of an increase in the amount that can be held in individual savings account and the National
Savings & Investments pensioner bonds, it has lifted interest among savers. However, I think that we need to concentrate on two other issues. First, the Government’s changes apply only in relation to direct contribution pension schemes. They have no relevance to, for instance, direct benefit schemes in the public sector, including those applying to Members of Parliament. Currently, however, it is possible to convert one to the other, and the Government have already signalled that they intend to block that conversion. If we want pensioners to be trusted with their own money, how can we easily restrict that principle to people who have direct contribution rather than direct benefit pensions?
Secondly, there is the potential negative impact on infrastructure investment. On Thursday, the Government signalled that they were aware of it. Insurers will undoubtedly be less interested in purchasing long-dated Government gilts if the long-term liabilities of those companies are cut to the extent that has been estimated by Barclays, which has said that in 18 months’ time the annuities market in the United Kingdom will be down to a third of its present level, and by investment advisers Panmure Gordon and accountants Grant Thornton, which have predicted that it will fall to a fifth of that level. Whichever may be true, that is a significant reduction in the demand on the part of the industry for those long-term infrastructure projects that back so many of the demands that are made by Members on both sides of this House. We all want to see that public sector investment, but the reality is that the pensions landscape is being changed. It is crucial that the Government consider the impact of this in order to ensure that this reform does not produce unexpected or unanalysed impacts.