My Lords, I am grateful to the noble Lord, Lord Davies of Oldham, for introducing the debate. I also want to say how much I enjoyed the contributions of the four maiden speakers, especially that of my noble friend Lord Steinberg. The Minister took too much credit, and I regret that there was much in his speech with which I could not fully agree. He expressed the view that the rising indebtedness was balanced by borrowers' growing confidence in the economy. He may be mistaken. Surely much of the increased debt burden has arisen in compensation for increased taxes and retirement incomes that are lower than expected.
The gracious Speech started with a statement that Her Majesty's Government,
"will continue to pursue policies which entrench economic stability and promote growth and prosperity".—[Hansard, 23/11/04; col. 1.]
However, it is finally becoming clear how the Government's actions now tend to achieve the very opposite of their expressed intentions. One of the most serious problems may be the decline of the savings culture, encouraged by the Government's mean-spirited reductions in the annual amounts that can be invested in ISAs, and by the abolition of advance corporation tax credits on UK dividends. The savings ratio has fallen by more than a third, from 9.5 per cent to 6 per cent since 1997.
When the Government came to office, our pensions were the envy of the world. Many companies took pension holidays because they were so confident that their pension fund assets would continue to grow at least as fast as their liabilities. As many of your Lordships are aware, membership of final-salary defined benefit pension schemes has halved since 2000. The much less satisfactory defined contribution pension schemes that are replacing them have contribution rates below the level likely to be required to provide adequate pensions. Around 9 million people are saving too little, at a time when longevity is increasing and will continue to increase. The latest survey published by the National Association of Pension Funds found that 55 per cent of private sector final-salary schemes in its sample closed to new members in the past three years.
I apologise to noble Lords for again returning to the subject of advance corporation tax credits. When I spoke on the subject in the debate on
The effects of the abolition of those tax credits on pension schemes and charities are consistently understated. The damage inflicted is far more than £5 billion a year for the five years since the abolition, because the effects are cumulative. Each year, pension plan managers have received less dividend income to invest, which has led them to reduce their weightings in UK equities. Both factors have resulted in a reduction in the amounts that they have invested in the UK stock market.
That is the principal reason why the UK stock market's FTSE 100 index has risen by only 2.1 per cent since
Stock market investors have actually done even worse than those figures imply, because inflation over the period has amounted to 18 per cent in total. Such investors are therefore worse off in real terms by 15 per cent. That is before taking into account the effects of the abolition of the ACT tax credits. It would appear that new Labour is every bit as bad for the stock market as old Labour. The Government enjoyed a golden inheritance in May 1997, but the competitive advantages that they inherited have been progressively eroded by new regulations and tax increases. The costs of those have resulted in an additional annual burden on business amounting to £18 billion, which dwarfs the benefit of an estimated gain by business of £3 billion resulting from the cut in corporation tax from 33 per cent to 30 per cent.
That situation has been developing against a background of a growing budget deficit. PricewaterhouseCoopers has predicted that the budget deficit is likely to rise to about £36 billion this year—3 per cent of GDP—and to around £40 billion next year.
As my noble friend Lady Noakes clearly explained, the growing structural current budget deficit will most probably lead to fresh tax increase in the medium term, amounting to some £10 billion. So much for the Chancellor's cherished "golden rule". Perhaps the Minister would confirm when the Government think that the current economic cycle will end for the purposes of determining the extent of adherence to, or breach of, the golden rule.
In his Budget speech, the Chancellor announced a reduction of 14,000 staff, resulting from the proposed merger of the Inland Revenue and Customs and Excise. Today the Minister said that the figure was 16,000. I should like to ask the Government to what extent that reduction has been achieved. It is, in any event, dwarfed by the relentless net increase in the Civil Service as a whole, which now numbers some 520,000 people. This figure, of course, does not include large numbers of officials employed by the rapidly expanding regional administrations. The electors of the north-east have given their verdict, but the Government take no notice. In those circumstances, there should be no question of any reduction in the powers of your Lordships' House. It is arguable, indeed, that this House does not have enough powers to protect the freedoms of minorities and to act as an effective check or balance against the overwhelming power of an elected majority in another place.
I agree with the noble Lord, Lord Newby, that the Government's regional policy is in tatters. I also agree with him that the Government's attempt to force far too much new housing on the south-east must be resisted. But I fear that my agreement with the noble Lord does not go as far as agreeing with him on the remedy. Rather, I would advocate that planning powers be immediately restored to county councils, which I believe are the tier of government to which powers should be devolved—not to Mr Prescott's artificial, unloved and expensive regions. I was appalled to learn that representatives of developers have votes in regional assemblies which can overrule county councils' decisions on planning. The recent decision by the East of England Regional Assembly that Hertfordshire should have an extra 15,000 houses out of the 18,000 demanded for the region by the noble Lord, Lord Rooker, in spite of the strong condemnation of that plan revealed by the strategic environmental assessment of the plan, is a case in point. I fear that the Minister was too complacent in his introduction to this debate. The economy is now beginning to feel the effects of the Government's economic stewardship over the past seven years.
I welcome the Government's commitment to strengthen the voluntary sector and I look forward to seeing their proposals to modernise charity law. I wish that the gracious Speech had used the verb to "improve", rather than to "modernise", because it certainly does not follow that what is modern is necessarily an improvement over what was there before. As a former trustee of the Royal Air Force Benevolent Fund, I can say that the abolition of advance corporation tax credits has reduced the amount available for distribution as direct charitable expenditure by more than £1 million a year.
In conclusion, the gracious Speech seems thin on measures that would help to arrest the deterioration of the savings culture in this country; and it is, therefore, hard to be optimistic that our stock market will soon rise to levels which fairly reflect the success and continued growth of the private sector. But, to ensure the continuing future prosperity of that private sector, we need different policies that will restore the savings culture and a vibrant stock market.