asked Her Majesty's Government:

Whether Ministers decided not to follow advice from officials on the impact on the finances of pension schemes of the abolition of tax credits.

My Lords, Ministers followed officials' advice about the impact on the finances of pension schemes of the abolition of payable tax credits. The officials' advice was that the existence of the payable tax credit distorted investment decisions by encouraging companies to pay out dividends. Abolishing payable tax credits encouraged companies to base their investment decisions more on long-term commercial requirements and less on the need to pay high dividends.

My Lords, is the Minister aware that the system of advance corporation tax, which is the origin of this problem and was introduced in 1972 after over a year's very full public consultation, was intended to, and indeed did, remove the double taxation of distributed profits? Is he aware that that is largely in force today? Is he also aware that almost the only exception to that covers dividends paid to pension funds, where ACT was effectively removed by the Chancellor in 1997 without any consultation? Why must pension fund investors be the only shareholders to suffer double taxation on the distributed profits of the companies in which they invest?

My Lords, a strategic decision was taken in 1997 to link this issue to the reduction of corporation tax in order to guarantee incentives for greater investment in our business and industry, which in the longer run would benefit pension funds. That is largely what happened. The economic growth of the country since then has ensured that resources going into pension funds have increased substantially, but the whole House will recognise that the demands upon pension funds are accelerating at a great rate, particularly because of longevity.

My Lords, does the Minister agree that employees' contributions to pension funds are generally seen as deferred earnings? Will he therefore comment on the negative impact on pension funds caused by a number of employers taking pension holidays and refusing to contribute to their funds? Will he further say whether the withdrawal of the tax credit had the support of the CBI?

My Lords, we are engaging rather more with history than with the country's immediate position regarding pensions, but my noble friend is right that companies taking pension holidays, which were subsequently found not to be justified, was a contributory factor in the limited resources of pension funds. On the noble Lord's general point, there have been difficulties for pension funds, as we all recognise; nevertheless, I think that pension holidays are a thing of the past.

My Lords, will the Minister confirm that it was a legal requirement that employers took pension holidays when certain conditions were fulfilled and not a question of employers choosing to take them, which implies that they voluntarily weakened their pension schemes?

My Lords, we are back to the 1980s again. I can only emphasise that the most important decision with regard to the 1980s was the reduction in corporation tax, which greatly aided British industry.

My Lords, perhaps we may return to the present. Will the Minister confirm that the Chancellor continues to hit pension funds and that reducing rate relief on empty property in this year's Budget will wipe £3 billion from the assets of pension and life insurance funds?

My Lords, the noble Lord cannot have it both ways, because I know that his party is as vocal as any about our current accommodation problem and housing crisis. The Chancellor therefore bears in mind incentives for bringing as much property as possible into use and not keeping it empty. More generally, substantial progress on this matter has been made in recent years. I do not see the advantages in our revisiting 1997. There will always be arguments about a decision taken, but what do we gain from revisiting them?

My Lords, will my noble friend confirm that not a single opposition politician in either House was able to predict the dotcom collapse when it came at the end of the 1990s, which was in many ways responsible for what happened?

My Lords, immediately after the Chancellor's decision in 1997, investment in this country, contrary to some of the more pessimistic perspectives, rose significantly, by 16 per cent in three years. What was not foreseen was the exposed position of the dotcom companies. My noble friend is right that the losses sustained by pension funds from that collapse were much greater than anything that had occurred previously.