amendment of the law

Debate between George Howarth and Lord Darling of Roulanish

Tuesday 25th March 2014 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

The hon. Member for Forest of Dean (Mr Harper)will forgive me, I hope, if I do not follow him directly in what he has just said. I want to say something about infrastructure in this country, and I want to talk about some of the slightly longer-term issues in relation to the capacity in our economy as it now is, as well as levels of public expenditure, but I start with annuities. In drawing the attention of the House to my entry in the Register of Members’ Financial Interests, I declare a further interest. As I was 60 at the end of last year, my professional interest in pensions has become rather more personal.

Five years ago when I was Chancellor I looked at the whole question of annuities, which at that time was receiving quite a lot of publicity. There were two reasons that I did not make any changes. One was that I was concerned about any major change that would undermine the insurance principle that underpinned the idea of annuities when they were introduced some 70 or 80 years ago. Also, at that time I was concerned about some of the safeguards that we would need. Given the general economic climate at the time and because I was more focused on what was happening to our banks rather than our insurance companies, I did not pursue the matter.

However, I quite accept now that, because of the very poor annuity rates in the past few years and because the industry has not helped itself in the range of products that it offers people, it is time to look at the matter again. There are three areas about which I want to express my concern. These are issues that the whole House needs to address, and the Government need to address them during the consultation period that follows. First, I am concerned about the effect of the proposals on the annuity market. It is interesting that one does not have to get too many pages into the White Paper to see that at paragraph 2.27 the Government say that annuities are

“the only realistic option for many.”

I read last week that the IFS is concerned about the effect that taking out the higher end contributions will have on annuity rates. The Government need to have regard to that. It is not insuperable, but we need to look at it.

Secondly, the Australians have shown that it is possible to have a wide range of products that we would not necessarily recognise as annuities, but safeguards are needed, particularly in relation to the advice being offered. The Government said last week that they had made £20 million available. When I read the detail, I was surprised to find that that is a one-off payment. There is nothing after that. We in this House should all know that unfortunately the financial services industry has shown that if there is scope for mis-selling, mis-selling will happen. This is critically important.

Although the Pensions Minister may be indifferent as to whether or not somebody buys a Lamborghini, if they are buying it, they must at least understand that there might be consequences for how much money they have for the rest of their lives. It is not in the public interest that people go into something that might have to last them for the next 20 or 30 years without having received proper advice. That needs to be looked at. The offer of guidance is not enough.

Thirdly, the Government will have to consider the scope for tax avoidance. The reason that pensions are tax-privileged is that there is a societal interest in making sure that we save for our retirement. It was never designed to enable people to shelter their money from tax. Those are all aspects that need to be looked at.

I want to say a word about infrastructure. On Monday last week in the Financial Times there was the now traditional announcement of all the infrastructure projects that were on their way and on show, and an invitation to the pensions industry and others to invest. That is all very well. There were some old familiars which I recognise from my time in government, which are still not built and are still looking for money. Owing to the Budget, the pensions industry has just been relieved of quite a large sum of money. I would be interested in the Government’s assessment of where we will get the additional funds that we all know are needed from both the public and the private sector if we are to improve our housing stock, our transport stock and our ageing power fleet, which we are still struggling to replace. Successive Governments have had difficulties with that and this Government need to attend to the matter. That infrastructure will have some bearing on the capacity in our economy if we are to be able to provide for an ageing population and everything we have taken for granted over the past 30 or 40 years.

Reading the OBR report on the Government’s measures announced last week in relation to the economy, we see, rather surprisingly, that none of the measures announced by the Chancellor will, in the view of the IFS, make any difference whatever to the country’s GDP. The annual investment allowance which he doubled will, it says, have a negligible effect. That did not surprise me, because I doubled it when I was the Chancellor and it had no effect then. At least the advice from the IFS and the Treasury is entirely consistent. What is worrying is that we must increase the capacity of our economy. If we do not, we are locking ourselves on to a path where austerity will be unavoidable, because we will not have the wealth to pay down our debt, reduce the borrowing and generate the capacity needed in an economy.

This is an issue for Members on both sides of the House. We must decide how we are going to get more capacity into the economy. I hope the measures announced last week in the Budget work, but whether firms come to this country will be determined far more by big issues such as our infrastructure than by simply fiddling round the edges with tax reforms.

[Mr George Howarth (Knowsley) (Lab)]

My right hon. Friend speaks with great authority on these matters. Does he agree that unlocking potential capacity and creating more employment in turn creates more revenue?

[Mr Darling]

Absolutely, and the argument that has been with us throughout this Parliament has been about how to ensure that we generate growth to pay down the debt. Part of the problem that the Government have at the moment is that the plan that they started out with did not achieve significant results—it is not the same plan as they are operating now, by the way, because it is running some four years late and is significantly different from the one set out in 2010—because we simply did not have the economic growth that people expected.

One of the most worrying points in the OBR’s report is that it expects our economy to be at full capacity in just four years’ time. Normally, when growth recovers after a recession, as it did in the ’80s and ’90s, it peaks at 3% or perhaps 4%, because spare capacity is being used up. The OBR says that there simply is not spare capacity in the economy at the moment. That should worry us, because if our economy is operating at capacity in four years’ time and inflationary pressures start kicking in, how on earth will we meet the future bills of a mature economy with an ageing society?

I understand that some Government Members are more ideological than others about public expenditure, and understandably, many of them expressed concern about the flooding in the west country earlier this year.