PERMITTED EXCESS OF THE FUND

§ Sir Brandon Rhys Williams

I beg to move, That the clause be read a Second time.

43 I believe that this is a matter that can be dealt with quite briefly because this clause provides an opportunity for my right hon. Friend to explain his position rather than that I should be obliged to expound my argument at any great length. Therefore, I hope that my right hon. Friend is ready with his case.

If I may explain briefly, this new clause arises from a perfectly proper decision taken by the Chancellor some 18 months ago that the tax haven status of occupational pension funds should not be exploited by corporate treasurers putting money into the fund far in excess of any reasonable expectation of liabilities of the fund over time, in order to take advantage of the tax haven status. That status gave complete exemption from tax on putting the money in and, as things used to be, complete exemption from tax on taking that money out. It was a glorious opportunity for large and small corporations, which temporarily had a surplus of funds, to put the funds to employment in a way that exploited the tax advantages which were intended for the pension fund beneficiaries, but which actually flowed back to the firm and were an abuse of the intentions of the Inland Revenue.

My right hon. Friend the Chancellor decided, perfectly properly, that money recouped from trusts that went back to the employer should pay a substantial rate of tax, recognising the fact that when the money was first taken out of the general funds of the company and put into the pension trust it was a tax-exempt transfer. To make certain that these things went right, my right hon. Friend suggested that funds that had got themselves overfunded should bring their funds down to 105 per cent. of their liabilities forthwith and incur the tax on making the adjustment.

Of course, there was a great deal of agitation in the pensions movement about those proposals. Compromises were suggested, some of which were right. It was suggested that, before the pension fund repaid the money to the employer, much should be done to improve the way in which the pension fund operated for its real purposes—namely, to provide benefits for the employees. I believe that much more could still be done. That is obvious from what I said on new clause 1. There has been and still is genuine concern that the 105 per cent. of the liabilities of the fund, as calculated at any one time, may not allow enough margin as things develop over time — inevitably unpredictably — for a prudent firm to say that it is operating its pension fund sensibly. If the trustees repay the fund to the employer and incur a lot of tax in so doing, it may well be found that 5 per cent. is not a sufficiently large margin to cater for all the changes and chances of this fleeting world.

When we heard the reasons why 5 per cent. had been chosen and why the Government intended to stick to 5 per cent., it appeared to me that the benefit of the doubt should be given to the Government Department concerned. However, as I know that there has been a continuing anxiety that, in some cases, 105 per cent. does not allow enough latitude even for prudent firms to manage their affairs in accordance with their predictable liabilities, I hope there might be some room for movement. I have suggested the figure of 10 per cent. simply because it is a round figure and because this subject should be kept alive and we should not leave the Finance Bill without 44 giving my right hon. Friend the opportunity to tell us about the discussions that have taken place and to explain his future intentions.

§ Mr. Norman Lamont

I hope that I may be able to allay some of the fears of my hon. Friend the Member for Kensington (Sir B. Rhys Williams). Although we are not immutable on this matter, I believe that my hon. Friend's fears are a little exaggerated.

5 pm

My hon. Friend the Member for Kensington said, quite rightly, that we had two aims when we brought forward our proposals last year— first, to discourage employers from parking spare profits in their pension schemes in order to delay or escape a tax charge, and, secondly, to reduce the uncertainty about when and in what circumstances an over-funded pension scheme can pay part of a surplus to an employer. Action was necessary not only to require heavily over-funded schemes to reduce surpluses, but also to clarify the rules regarding the possible scope for payments by schemes to employers, subject always to the overriding need fully to protect the prudential interests of scheme members.

The case for action was generally accepted, but, as my hon. Friend said, considerable concern was originally expressed that our proposals did not contain adequate safeguards. In particular, it was at first claimed that the proposed safety margin of 5 per cent. beyond which a surplus need not be reduced was too low.

As we made clear last year, the safety margin has to be considered in the context of other changes. I think it is fair to say that the criticisms that were made under-estimated the strength of funding methods and the security of the actuarial assumptions which will apply for these purposes. On the advice of the Government Actuary, these were deliberately chosen as being at the top end of the range. A 5 per cent. surplus on this basis is a much larger surplus than the funding methods and actuarial assumptions adopted by most pension schemes in this country.

During the passage of last year's Finance Act through Parliament, we issued draft guidance notes on how the new rules would operate. These set out in some detail the proposed funding method and actuarial assumptions and they immediately reassured many of those who had previously expressed concern about these proposals. I must say that I am slightly surprised at what my hon. Friend the Member for Kensington has said about the reaction because it does not entirely tally with the reaction as it has been relayed to me.

Subsequently, the detailed provisions setting out the new rules were implemented when, under the powers conferred on it by schedule 12 of last year's Act, the Inland Revenue laid the Pension Scheme Surpluses (Valuation) Regulations. These provided, among other things, for the strong actuarial basis which would operate for these purposes, and for the margin of 5 per cent.

The question of pension scheme surpluses generally and the related issue of the investment policy of schemes have attracted a certain amount of attention. My hon. Friend the Member for Kensington, and some Opposition Members, argue that, as a matter of principle, first priority should be given to members. That is a separate matter, which goes rather wider than this new clause, and rather wider than my hon. Friend went.

We must remember that occupational pension schemes are arrangements made voluntarily by employers to 45 provide retirement benefits for their employees. The requirements of the Inland Revenue, in considering whether schemes should be tax approved, take no view on such matters as the level of benefits. Provided that the maximum limits are not exceeded, the Revenue leaves schemes free to fix benefits at whatever levels are considered appropriate.

Another argument is that pension scheme surpluses belong to members. I am aware of this line of argument, but in law, of course, members of occupational schemes have only a contingent right to benefits when they reach the relevant retirement date. They have no direct legal interest in any of the assets in the fund, whether or not they have paid contributions. As the House will know, many schemes are funded entirely by the employers' contributions.

Then, of course, there is the question which exercised people very much last year of employers raiding the pension schemes—a danger which, I think, has perhaps been exaggerated. Occupational schemes are, as the House knows, established under irrevocable trusts, and the interests of members are protected by general trust law. Moreover, the 5 per cent. additional margin and the 40 per cent. free-standing tax charge on refunds will act as a powerful safeguard against employers seeking to withdraw scheme funds without proper regard to the interests of their members.

§ Mr. Blair

One of the matters that concerned people was whether the 5 per cent. excess of the assets over the liabilities took sufficient account of the difficulty of assessing precisely what the value of the assets and liabilities may be, given the number of variables involved. Has the Minister been satisfied from the representations received subsequent to the Finance Act last year that the 5 per cent. margin covers any margin of difficulty in assessing the true value of assets or liabilities?

§ Mr. Lamont

I am satisfied. I was about to say to my hon. Friend the Member for Kensington that his fears are exaggerated. They do not correspond with what I hear.

The precise point put by the hon. Member for Sedgefield (Mr. Blair) is, of course, a technical matter. It would be a lengthy matter for me to seek to say how the Government Actuary chose to define 5 per cent., which was on a different basis from that presumed by the pensions industry when it initially reacted to the 5 per cent. figure. I could go into the matter, but it was debated at considerable length in Committee last year.

The criticisms that were initially levelled at the 5 per cent. figure now seem to have abated and the anxiety expressed about it receded when the full details of the new rules were made clear. However, if at some point in the future it became necessary to revise the 5 per cent. figure, we would amend the regulations, which I assure my hon. Friend is the more technically appropriate way to set about the matter. But we have not reached that point and, for the reasons that I have hinted at, I do not think that we are about to in the foreseeable future.

§ Sir Brandon Rhys Williams

With the leave of the House, I should like to comment briefly on what my right hon. Friend the Financial Secretary has said.

This short debate has been useful, in that it has brought a statement from the Front Bench on this subject, which I know is regarded as controversial, certainly by some schemes, if not by all. I recognise that if the assets are 46 valued on the same basis as the liabilities, the margin of 5 per cent. is very likely to prove acceptable in many cases, but it is possible to feel some anxiety that circumstances might change. I think that the House will have been interested to hear my right hon. Friend say that the figure of the excess of 5 per cent. might also be modified with the passage of time and in the light of experience. That was a helpful clarification of a concession that we did not appreciate that we had had before.

The situation that it is not impossible to imagine is one in which wages rise faster than productivity. In final salary schemes, that would place higher obligations on the pension trusts than they might have anticipated, although it would also produce higher contributions than they might have anticipated. If wages rise faster than productivity, it seems inevitable that the real profits of the investments will fall and the assets of the pension trusts may not respond as the trustees hoped. There may be smaller dividends because the money is flowing out to the wage earners which they hoped would flow out to the investors, or there may be less capital growth because of various factors, when people do not put the same stock exchange valuation on assets because the dividends are proving to be somewhat disappointing. If that was so, a 5 per cent. margin might prove to have been inadequate and a refund to the sponsoring employer might prove to have been a most mistaken decision on the part of the trustees.

My right hon. Friend the Minister explained that in those trusts the beneficiaries do not have a direct claim on the fund, as I understand it. I regard that as in urgent need of change. That is why I place emphasis on the identification of the employees' assets and on the clarification of the duties of pension fund trustees, even where the pension fund has not been set up formally under a trust. The administrators or managers of these schemes, and the insurance companies that operate them, should recognise that they have the status of trustees, and that the money has been put in their hands for the beneficiaries and not to be refunded from time to time to the employers.

The circumstances in which the trustees are entitled to refund the money to the employer seem very unusual, and there should be far more pressure on the funds that have large sums at their disposal—possibly well in excess of their apparent liabilities—to find ways to distribute that money to the beneficiaries. If all occupational pension schemes accepted it as a liability to uprate fully with the RPI as public sector schemes do, in many cases they would prove not to be so fully funded as they think. There are plenty of other ways in which they could treat their beneficiaries more generously if they have funds to dispose of in trust for the beneficiaries that are not specifically allocated to meet their clear obligations. Nevertheless, as my right hon. Friend is aware that 5 per cent. may prove, with the passage of time, not to be a sufficiently generous figure, I beg to ask leave to withdraw the motion.

§ Mr. Norman Lamont

I beg to move, That the Bill be now read the Third time.

When a Bill is committed to a Standing Committee, it is customary to thank hon. Members at the end of the proceedings. However, as the Bill was discussed in Committee on the Floor of the House, it was not possible stop 47 to pay tribute to hon. Members at the end of the Committee stage. Had it been possible, I should have liked to pay tribute to two hon. Members. First, of course, I thank my hon. Friend the Member for Kensington (Sir B. Rhys Williams) who has advanced his views on pensions with remarkable resourcefulness and lucidity. We have all become well educated on pensions as a result. I only hope that my hon. Friend is not too despairing and truly believes in the Jericho principle that he enunciated on Second Reading.

The second hon. Member to whom, in the best nonpartisan way, a tribute should be paid is the hon. Member for Sedgefield (Mr. Blair) who has handled over 100 clauses absolutely on his own. All hon. Members who have listened to the debates will agree that he has done remarkably well. Now that the Opposition reshuffle has taken place, I am extremely sad that we are not able to welcome the shadow finance team here, because I wanted to point out that it has increased its numbers. For the first time, a shadow team outnumbers the real team; there are six shadow Ministers, compared with five real ones. There are only two explanations for that. One is that my right hon. Friend the Chancellor of the Exchequer is the Gary Lineker of politics: he has to be marked by three men at once. The alternative version, which the Opposition may prefer, is that the hon. Member for Sedgefield has done such sterling work in Committee that they cannot find two people up to doing the work that he has done so well. The hon. Gentleman may choose the interpretation that he prefers.

I must say something about the pension provisions because they are the largest group of clauses in the Bill. They contain important and far-reaching changes. Much has been done to widen the choice of pensions. Many employers have established occupational schemes for their staff with the help, as my hon. Friend the Member for Kensington has emphasised, of generous tax reliefs. At present, more than 10 million people are members of such schemes, but there was clearly considerable scope for more to be done. Some 10 million employees are still not in occupational schemes and make no private provision for retirement. A central feature of our strategy is to bring private pensions within the reach of those employees, for two reasons: first, to provide them with a pension of their own, and, secondly, to increase their independence.

The new personal pensions will be available to all employees who are not in an occupational scheme, to the minority of employees who choose to opt out of their occupational scheme and to the self-employed. These schemes will be available from next January. The legislation is based on the present, broadly similar, retirement annuities provisions but, in addition to being brought up to date, the new measures incorporate a number of new features that have been widely welcomed. The Social Security Act 1986 enables employees to contract out of the additional component of the state scheme through a personal pension. The Finance Bill provides the necessary tax procedures to achieve that. Everyone will agree that these are important proposals, and my hon. Friend the Member for Kensington, who has been frank in some of his criticisms of the pensions regime, was kind enough to describe them as "inspired and imaginative." I hope that he will not mind my reminding him that those were his words.

48 In addition, the Bill enables a much wider range of pension providers to establish personal pension schemes. As well as insurance companies and friendly societies, the field will be open to banks, building societies and unit trusts. The Bill also contains provision to allow members of occupational schemes to make additional voluntary contributions to a pension plan that is completely separate from their employer's scheme, up to the tax approval limits on contributions and benefits. That, too, has been widely welcomed as something that will increase the choice of providing for retirement.

A number of hon. Members expressed concern about two aspects of the AVC proposals. First, they argued that benefits should not, as we propose, lose the right to be commuted. I am afraid that the Government do not accept that, because the tax reliefs for AVCs are intended to assist provision for additional pension benefits. Secondly, it was argued that the present benefit limits should not apply to free-standing AVCs which, it was suggested, were analogous to personal pensions. Again, I had to disagree with some of my hon. Friends and made clear my view that AVCs—whether in-house or free-standing—are not only personal pensions under another name. They provide benefits that supplement those available to someone in an occupational scheme. Therefore, I cannot accept that the benefit limits should not apply; nor do I believe that the necessary monitoring arrangements that the Revenue will be working out in consultation with the industry will make free-standing AVCs unworkable.

A further purpose of our reforms is to remove as far as possible the pensions obstacles to job mobility. My hon. Friend has emphasised time and again the problem of the early leaver. There is no quick and easy solution to that, but the new pensions opportunities which have been brought forward and which I have described will greatly reduce some of the worst aspects of this problem. I hope that my hon. Friend will at least agree with that. The improvements that we propose can be justified only if the tax reliefs for pensions are not abused. We have felt it necessary to impose some limited restrictions to guard against misuse of the tax reliefs, particularly by a small number of very high earners. The tax rules for pensions were never intended merely as a tax shelter for investment generally, with scope for postponement and, when it comes to lump sums, complete elimination of a tax liability. These restrictions will have no impact on the vast majority of pension scheme members. For ordinary working people, the opportunity for abuse has never been available.

During the debates in Committee, a number of hon. Members suggested that some aspects of the proposals — in particular, the rules on accelerated accrual of pensions—would restrict job mobility. My hon. Friend the Member for Slough (Mr. Watts) was extremely concerned about that. I am still not persuaded that any change in our proposals is justified, but I can assure my hon. Friend and the House that we shall keep the position under review, and if the rules appear to have a wider and more adverse impact on job mobility than I expect, we shall urgently consider the case for modifying them. I hope that my hon. Friend the Member for Slough will note that.

I could not leave the subject of pensions without again referring to what my hon. Friend the Member for Kensington has said about final salary schemes, although in the debate on new clause 1 we covered that ground fairly 49 well. My hon. Friend is right that the question of early leavers still poses problems that we need to address in certain ways.

§ Mr. John Redwood (Wokingham)

Does my right hon. Friend agree that if in some future legislation we manage to move nearer to money purchase in the way described by my hon. Friend the Member for Kensington (Sir B. Rhys Williams) we would solve the problem of early leavers and the whole point of those amendments was to improve job mobility?

§ Mr. Lamont

My hon. Friend the Member for Wokingham (Mr. Redwood) is absolutely right. I hope that in the proposals we have brought forward in this Finance Bill we have taken a modest step in that direction. As my hon. Friend said, those arguments will disappear the more we go down that road. It is to some extent a question of people's choices under the new types of pensions that are now available.

The hon. Member for Sedgefield asked whether the personal pension legislation in clause 21(2), which concerns the waiver of premium options, represents a change from the present law. The answer is no. Such an option allows premiums payable under a contract to be waived if a person cannot afford to pay them because of illness. That is possible for retirement annuities now, but does not have to be expressly legislated for. Personal pensions legislation, however, is structured in a different way.

My hon. Friend the Member for Ryedale (Mr. Greenway) asked, in regard to clause 22, whether the new earlier retirement age of 50 may be applied between now and 4 January to existing retirement annuities. I am afraid that the answer is no. The present retirement annuity rules are not being changed, but there will be no objection to the amendment of existing retirement annuity contracts after 4 January so that they will be capable of approval under the new personal pension legislation.

My hon. Friend the Member for Ryedale was also concerned about the administrative arrangements for dealing with excessive personal pension contributions. Those and other aspects of the administration of personal pension schemes will he discussed fully with the pensions industry. It is hoped that a discussion document will be circulated to interested parties by the end of the month.

In addition to the debates about pensions, we had two important debates on retrospection. The first was in the context of United Kingdom members of foreign partnerships in clause 62, and the second was in the context of roll-over relief for gains on oil licences in clause 80. I understand completely why the House and the Committee were concerned and anxious to examine those matters closely. Hon. Members will recall that in both those clauses the Government recommended retrospective legislation to restore the general understanding of the law following unexpected decisions in the courts. The general understanding of the law prior to those decisions in the first case was that United Kingdom resident partners of foreign partnerships are liable to United Kingdom tax like all other United Kingdom residents, and in the second case that roll-over relief is not available for gains on oil licences.

Right hon. and hon. Members will recall that I said that such retrospection has caused the Government very deep concern, and we had not come to the decision easily. We had to give greater weight to the interests of the majority 50 of taxpayers than to a limited class of taxpayer. In both cases we were introducing legislation which, while restoring the general understanding of the law, was also preventing third parties from suddenly deriving a windfall benefit from the decisions of the courts for six years back.

The provisions in clause 70 on Lloyd's reinsurance to close are an important part of the Bill. The original proposals caused hon. Members considerable worry and perhaps I should remind the House why legislation was necessary.

As matters stand, the Revenue does not have an effective locus for examining claims for tax deductions in respect of reinsurance to close premiums and, where necessary, making adjustments for tax purposes If nothing were done, Lloyd's underwriters would be in the unique position of being able to determine the amount of a tax deduction without effective review by an inspector of taxes.

There must be an effective system for ensuring that reinsurance to close premiums can be properly scrutinised for tax purposes. That is both right in principle and necessary to ensure fairness to other taxpayers whose claims for tax deductions have to satisfy examination by the Revenue.

However, the system must also be fair to Lloyd's and take account of its special features. We recognised that fact from the outset and when my right hon. Friend the Chancellor of the Exchequer announced the proposals in his Budget speech he said that there would be immediate consultations with Lloyd's on the details of the legislation. Those discussions have been extensive and thorough and we have carefully considered Lloyd's representations.

Quite properly, Lloyd's has recognised throughout the discussions that there needs to be a proper system for ensuring that tax deductions for reinsurance to close are not excessive, but it was worried about the original wording, which treated reinsurance to close as a provision. In particular, it objected to the principle of equating reinsurance to close premiums paid by one syndicate of Lloyd's underwriters to another with the provisions for outstanding liabilities made by insurance companies. Lloyd's feared that if those criteria were applied to it there would be excessive disallowances of claims for tax deduction, which might consequently damage Lloyd's commercial position.

The revised clause in the Bill, with the amendments made in Committee, meet Lloyd's anxieties about the original proposals. The chairman of Lloyd's has told his members that the Lloyd's council considers that the legislation should prove to be "workable and acceptable".

Instead of equating reinsurance to close with insurance company provisions, the Bill now provides a free-standing test for the tax deductibility of reinsurance to close. The test is that the figure must be a fair and reasonable value of the liabilities, designed to produce neither a profit nor a loss for the underwriters who assume the outstanding liabilities. So reinsurance to close will be tax deductible in full if — but only if — the figure can be justified by adequate evidence.

I think that it is fair to say that clause 70 is a satisfactory outcome of the consultation with Lloyd's. It meets the twin objectives of giving the Revenue an effective locus, which it must have, and being fair to Lloyd's members. In future, the amount of reinsurance to close can be properly scrutinised by the tax inspector to ensure that tax deductions are not excessive. At the same time, the 51 proposal takes full account of the unique characteristics of Lloyd's and reinsurance to close, which I accept cannot be equated with provisions made by insurance companies.

I referred earlier to the oil industry provisions in clause 80. Clause 101 contains a series of amendments to the oil taxation provisions in the Finance Act 1987, mainly affecting the petroleum revenue tax "nomination scheme", which we introduced in section 61 and schedule 10 of that Act. Many of the amendments are directed at detailed difficulties that emerged during the continuing discussion with the industry of the provisions in the 1987 Act and are designed to make life simpler for the taxpayers who are affected.

Rather than leave the amendments over until the spring Bill, we felt that oil companies, which will soon be making their first returns under the nomination scheme, would find it helpful if we proposed the necessary legislation now. In addition to these detailed changes, clause 101 and schedule 8 introduce a measure to counter certain practices that could be used to circumvent the nomination scheme. Unlike the nomination scheme itself, this will not take effect at once. It will be on the statute book only to be triggered by Treasury order should evidence of abuse arise.

One cannot avoid mentioning the changes in inheritance tax legislation. We have liberalised inheritance tax in that we have allowed transfers to interest-in-possession trusts to count as potentially exempt transfers, provided that they meet the normal qualifying conditions of potentially exempt transfers. This measure will help businesses that are often held in interest-in-possession trusts. It will also help our heritage when many of our great houses and works of art are held in interest-in-possession trusts. I again make it clear that, although we have given this exemption for transfers into interest-in-possession trusts, we intend to draw the line there and do not intend to extend this to other forms of trust such as discretionary trusts.

We had some discussions about acceptance of property in lieu of tax and the Bill now contains some important alterations about the way in which interest is calculated. The donor of the property or the painting can now calculate the interest either to the point at which the item is offered instead of tax or to the point at which it is accepted — depending on which is more advantageous from the point of view of the taxpayer. We hope that this will encourage more of our heritage to remain in Britain. Hon. Members may recall that under these arrangements we were enabled to acquire Constable's "Stratford Mill". We hope that the new optional arrangements will provide further encouragement for the continued use of the facility.

I should also mention the provisions on stamp duty. Clauses 99 and 100 are stamp duty clauses and correct anomalies which would otherwise inhibit the smooth working of the securities market. Clause 99 makes minor amendments to section 50 of the Finance Act 1987. Section 50 extended the stamp duty exemptions for gilt-edged securities to options to acquire such stock, such as "call options". Clause 99 extends the scope of section 50 exemption options to "put options" as well.

Clause 100 deals with two problems that have been encountered following the introduction of the reserve tax when shares have been sold to the public on the occasion of a listing. The clause removes charges to the reserve tax 52 that occur when an issuing house stands as principal between the company and the vendor shareholders on the one hand and the public on the other. It also removes the double charge to stamp duty and the reserve tax that can arise in certain circumstances when a member of the public receives initially a renounceable document of title. The clause will enable the new issues market to operate more smoothly to the benefit of companies bringing their shares to the market and also to new investors.

§ Mr. Tim Smith

Has my right hon. Friend noticed that, since the rate of stamp duty was substantially cut, the yield from stamp duty from stock exchange transactions has risen? Does he think that there is any connection between those two things and, if so, what lessons should we draw?

§ Mr. Lamont

My hon. Friend makes an extremely interesting point. [Interruption.] That sedentary interrup-tion is wrong. I know the answer all too well. If the House wishes we can debate for a considerable time the increased revenue that results from many areas when we cut taxes. That is a lesson that the Opposition have yet to learn and it is why so much of their argument that one can only afford more public services by increasing taxes is wrong. We can sometimes get better public services by cutting taxes.

Lastly, I should like to speak about what is perhaps the most important part of the Bill, the part which is undoubtedly a considerable innovation — profit-related pay. I am sorry that the Opposition persist in the view that the purpose of profit-related pay is to produce a low-wage economy. That is quite wrong. The purpose of profit-related pay is to produce pay that is affordable. Such pay has been wanted and pursued by Chancellors of the Exchequer in both Conservative and Labour Governments. It is very different from saying that we want a low-wage economy.

If we can have pay that is affordable, in the long run we shall have high wages and a prosperous economy. The new relief for profit-related pay is only one of several measures produced by the Government to encourage flexibility and to help create jobs by improving the supply performance of the economy. Profit-related pay means flexible pay. That means flexible upwards as well as downwards, in line with the commercial success of a business. Anyone who thinks that this necessarily means lower pay takes a much more pessimistic view of our business prospects than I or the markets do. We all want to see business success and higher remuneration and the Government are pursuing policies to those ends.

One could make the point that industrial production is at its highest ever level. Since 1979 we have seen dramatic growth in productivity and in profits. The idea of linking employees' pay to the commercial success of their business does not inevitably imply lower remuneration; quite the contrary. I make no apology for a measure that will encourage flexible pay. That is the direction in which we need to move, because although Britain's economy is making progress that would have seemed unbelievable 10 years ago, it is still hampered by rigidities and inefficiencies in its markets. That applies most of all to the labour market and to its pay system.

We have seen record falls in unemployment but we need more jobs and PRP can help here. Of course it is not a panacea, but I firmly believe that, if there were more profit-related pay schemes covering a significant part of 53 the earnings of a large number of employees, that in itself would be a major step down the road on which we have set out towards higher output, productivity and employment. The hon. Member for Sedgefield said that he and his party opposed the general principle of profit-related pay. Presumably that means that they believe in pay that is not related to profits. I wonder where they think that the money to pay employees comes from.

§ Mr. Blair

I do not think that I ever said that I am against the principle of profit-related pay. I said that people were perfectly free to enter into profit-related pay bargains if they wanted to. What I am against is this provision which builds in an incentive for a specific type of incentive-based pay. That is altogether a different proposition.

§ Mr. Lamont

I am grateful to the hon. Gentleman for making that clear. Certainly some of his hon. Friends have shown opposition to the concept. They do not like the idea of pay being related to what is affordable by a company. I am glad that the hon. Gentleman departs from them on that.

The clauses that provide tax relief are designed to encourage the spread of PRP schemes. The same principle underlay the income tax relief for share schemes which were introduced in 1978 which we have turned into a great success. In the year to June 1987, a further 210 all-employee share schemes were approved under the legislation, as improved since 1978, bringing the total to over 1,300. If Opposition Members had at that time shown the same miserliness with tax relief as they now show to the clauses that encourage the spread of PRP schemes, I wonder whether we would ever have had the success that we have seen with share schemes. Profit-related pay complements the various existing share schemes, and those who support income tax relief for one should support it for the other.

The details of the proposed tax relief have been criticised for their complexity, and I would be the first to agree that the clauses have a complex appearance in parts, but that does not mean that a PRP scheme registered in accordance with this legislation would have to be complex. It could be simple and easy for employees to understand. We have gone to great lengths to allow employers to be able to choose from a great range of options what form their simple schemes should take. It is this freedom and flexibility that gives the Bill the appearance of complexity.

The Inland Revenue will be issuing guidance notes in September to assist employers. It is an encouraging sign of the widespread interest that our proposals have attracted that already over 21,000 employers have asked in advance for copies of that guidance, and in that number are 120 of the top 250 companies. I hope that they will turn their interest into action without delay. They will need to be thinking now about how to construct a scheme if they are to he registered to operate tax relief on it in time for the next profit year. Some will prefer to negotiate introduction next year and begin the tax relief in the year afterwards. Our costings anticipate a gradual take-up but I shall clarify that. A high take-up in 1988–89 would not produce the full annual cost in that year. Our estimate of a £50 million cost in 1988–89 could thus be consistent with over 1 million employees being covered by registered schemes in that year, which would produce higher costs in later years. I am sure that take-up will grow over time.

54 As tax relief could be very valuable — up to the equivalent of 4p off the basic rate to a man on average earnings—it will have a significant cost. I am not sure that it will ever cost £1 billion a year, which was the figure produced at one stage in the debate on the assumption that practically everyone who could be eligible will be covered by a registered scheme. A figure of several hundreds of millions a year is not unlikely, however, if the initiative has wide appeal. If it were to cover every potentially eligible employee, however, no one would be happier than the Government. That would indicate a radical change for the better and would ease our labour markets, which is something which we need very much to do. This would be a worthwhile return to the taxpayer.

The hon. Member for Sedgefield has said repeatedly that he could find better things to do with such large amounts of money. I think that we know what Opposition Members mean when they talk about better things that they would do with the money. There is probably no need to enlarge on that. They are extremely good at finding ways of spending large sums, sums larger by far than what is at stake with the proposed tax relief, and they would be able quickly to spend them. The difference is that the proposed tax relief will be a constructive contribution to making the economy work better. It will be a way of getting us away from the rigidities that have bedevilled our performance in the past. That is why it is essential that the House should support it as a way of helping businesses to do better. It will help employees to earn higher living standards and help our economy to grow and prosper in response to the challenges of competitive world markets.

In successive Budgets, the Government have held steady to the objectives of cutting taxes and simplifying the tax system to reduce distortion and lighten the administrative burden. Tax reform and reduction is a vital part of our overall strategy. We want to see a society in which enterprise is rewarded and where individuals are allowed to keep more of their money to spend or save as they wish. We want to provide greater incentives for individuals and their families. The pre-election legislation implemented vital measures to enable us to pursue these objectives. Overall, taxes were reduced by over £2.6 billion, the basic rate was cut by two percentage points to 27 per cent., inheritance tax was reformed and there was a package of measures to reduce the burden of VAT on small businesses.

The record is clear. Personal tax rates have been reduced and we have introduced reforms in business taxation that are being copied in other parts of the world. We have a system of business taxation that rightly rewards enterprise by allowing companies to retain more of the profits that they have made to spend as they wish, rather than the old self-defeating system that gave tax subsidies to encourage investment but taxed away the incentive to invest properly.

The Bill continues the process of reform and imaginative proposals, especially those relating to pensions and profit-related pay, which I predict will bring about significant change.

I commend the Bill to the House.

§ Mr. Tony Blair (Sedgefield)

First, I thank the Financial Secretary to the Treasury for his kind remarks, his courtesy, his good will throughout the course of our consideration of the Bill. and for what was the most 55 detailed explanation that I have ever heard on the Third Reading of a Finance Bill. I welcome the two Ministers who have participated in the proceedings of the Finance Bill for the first time, the Economic Secretary—it is a pleasure to welcome him to our deliberations—and the Chief Secretary, who spoke on Second Reading. Since Second Reading, the Chief Secretary has stayed in the background — no doubt he has been preoccupied in trying to square the Government's pre-election promises with the realities of public expenditure.

I wish to join in the praise of the hon. Member for Kensington (Sir B. Rhys Williams), whose knowledge of pensions brought expertise to our debates. To make an understatement, that expertise is not always present. The hon. Gentleman must have thought that Heaven had arrived on earth when, after years of containment no doubt by the Government Whips, he was given licence to advance a pretty well unlimited expansion of his arguments this afternoon. We are grateful to the hon. Gentleman for his contributions to our debates. If I may say so, it is greatly to his credit that he made a detailed speech in moving new clause 1 and was never once in danger of straying outwith the bounds of order. When he dies, I think that "transferability" will be found written on his heart.

I shall confine myself carefully to the contents of the Bill. It is the rump of a previous measure but it contains two especially important measures, those on profit-related pay and pensions. Though not necessarily headline-catching, these are measures that could be extremely far-reaching in their effect. On pensions, many of the measures flowed from the Social Security Act 1986, but this Bill included provisions on lump sum payments and the right to make additional voluntary contributions.

I wish to expresss one note of hesitation about the pensions legislation. The benefits of personal pension schemes are now considerable, especially in terms of accelerated rights of accrual. I hope that occupational pension schemes are able to keep up with personal schemes and that they will not become second-class schemes for those who cannot put together a decent personal pension scheme. The benefits of both need to be understood clearly and explained.

The Opposition found themselves unconvinced about profit-related pay and the claims that it would lead to lower unemployment and have beneficial effects on the relationship between workers and management of a sort that other incentive-based schemes have lacked. I do not say that profit-related pay is bad, and that is not the issue that we have to consider. We have to decide whether it was right to introduce this form of fiscal incentive to encourage PRP. The dilemma is that if the eventual costs of PRP are small because it has been little used, it will have failed because PRP, if it is to have any impact on the broader economy, must be widely used.

If profit-related pay succeeds in catching on and becomes expensive, the extravagant claims made for it will be subject to even greater scrutiny. If its costs run to hundreds of millions of pounds, as is possible — the Financial Secretary did not hotly dispute this—and its benefits prove to be vague or even illusory, we shall have made a very expensive mistake. Opposition Members felt that we could not support it for that reason.

§ Mr. Tony Marlow (Northampton, North)

The hon. Gentleman seems to be worried about the scheme suggested in the Bill being a success. If it is a success because companies make a lot of profits and therefore people pay less tax, because they are in the scheme for profit-related pay, is it not the case that as the company itself makes more profit it will be paying more tax so the cost of the scheme would be counterbalanced by the additional income from the company?

§ Mr. Blair

Obviously, that is the hope expressed by the proponents of this scheme. However, the argument that profit-related pay will help to reduce unemployment rests on a case posited at a time of recession. It is argued that in a recession there will be less incentive to sack workers but the profits will be reduced. I am not saying that profit-related pay is about cutting wages but rather that the case for profit-related pay, as against other incentive schemes, has not been made out.

The scheme may succeed in the sense that many people use it, but it will succeed in justifying the claims made for it only if it has a favourable impact on the broader economy.

We have also discussed various minor matters, such as the corporation tax changes which allow for automatic penalties. Those introduced some of the matters recommended by the Keith committee. I repeat the warning that, without a power of mitigation, the penalties could work great injustice, and in value added tax terms they have certainly done so.

The Government have changed their mind on at least three matters. They changed their mind on the treatment of the reinsurance to close premium in relation to Lloyd's in clause 70 and on the life assurance companies, where the treatment of capital gains on policies is to remain the same pending a review of the whole question of the tax treatment of life assurance companies. The Government changed their mind, too, on clause 80 and the taxation of oil companies in relation to roll-over relief in the farming out of licences. On that, the Minister agreed to consider some form of relief at the exploration phase when no profit is made.

Clauses 62 and 80 introduce retrospective legislation. The first concerns partnerships resident abroad and the second deals with roll-over relief for oil licences. We were right to draw attention to those two clauses on the basis of retrospection alone and to restate, as a matter of general principle, the fact that we dislike and distrust retrospective legislation, except in very special circumstances. There was a measure of common agreement that retrospection should be permitted only when it restored a general understanding of the law and when the tax loss resulting from the anomaly is very substantial.

During our debates, I was never convinced of the wisdom of the way in which the Government have proceeded in these clauses. When a tax case is taken to the commissioners or to appeal, the taxpayer wins and the Revenue introduces legislation to close the loophole, the legislation usually provides—and does so in the clauses — for the original taxpayer to be put into a unique category and thus secure the benefits resulting from his appeal. That is a very strange state of affairs, especially when many other cases may have been hanging fire pending the outcome of the original case.

The Finance Bill contains 104 clauses and nine schedules. Given that I have served on three Finance Bill 57 Committees and that I am now moving on to other things, perhaps I may be permitted a moment of reflection. There are two enduring characteristics of Finance Bills. First, much of what they contain is highly technical, although non-controversial. When complexity is combined with lack of controversy in specialised matters such as taxation, there is a strong case for consideration by a Committee specifically formed to examine such matters. A Front Bencher, or indeed a Back Bencher — particularly in Opposition—will find that most of his time is devoted to understanding the legislation, let alone interpreting it or amending it sensibly.

Secondly, many of the clauses affect taxation of certain sectors or interests in a limited but profound way. The Government found with the clauses dealing with Lloyd's and life assurance companies that they benefited from a period of consultation. That period was forced upon them by the general election. However, in many cases the advantage of surprise on Budget day is negligible compared with the highly significant disadvantage of introducing measures without adequate consultation with those most closely affected.

At its best, this Bill is a typical Conservative measure. The Government are caring to a fault in considering the tax efficiency of foreign-controlled companies. They are painstaking in their study of detail when debating the future of inheritance tax, interests in possession or the plight of the wealthy. They welcome with open arms the slightest representation from Lloyd's. However, when it comes to hearing the voice of the under-privileged, the pleas for help of the unemployed or the cry for action on behalf of the 10 million or so people who are living below the poverty line, the Government fall strangely deaf. Their attitude becomes dismissive and their purse stays tight shut.

It is for that reason above all others—not because of the minutiae of the Finance Bill but because it affects the nature of our society — that we shall oppose the Bill tonight.

§ Mr. Andrew Mitchell (Gedling)

I rise to address the House for the first time in a spirit of great humility—deeply honoured to represent my constituency in this place.

I am particularly pleased to have caught your eye relatively early in the Session, Madam Deputy Speaker, so that I may pay tribute to my predecessor, Sir Philip Holland. Philip's love and knowledge of this place and his service to his constituency was well known and well respected—as much in Gedling as in this House.

I mean no disrespect to Acton when I say that Philip graduated from that seat, from 1959 to 1964, to Carlton, which he went on to represent for 21 years—latterly as the constituency of Gedling, following the Boundary Commission's most recent review.

Any hon. Member who chairs the Committee of Selection and yet remains so well liked and respected by hon. Members on both sides of the House must be endowed with the greatest of skills. Only time will tell whether any of my hon. Friends will take up Sir Philip's mantle as a great hunter of quangos. I have been left in no doubt over the past few weeks that Philip's many friends on both sides of the House will join me in wishing him and Lady Jo Holland a long and happy retirement.

58 The House may be aware that I am not the first member of my family to have taken his seat in this House; indeed, I am at least the fourth to have done so. Nevertheless, over the past three weeks I have come to the confident conclusion that not since Lloyd George have so many people known my father.

I beg to suggest that the constituency of Gedling is insufficiently well known outside Nottinghamshire. The rural deanery of Gedling, which gave its name to the refashioned seat of Carlton in 1983, is far more compact than its predecessor, having lost all the land south of the River Trent. My constituency stands at the crossroads of England, with a foot in the north, a foot in the south, but its heart in the Midlands.

Many hon. Members wax lyrical about the rural or urban nature of their constituencies and their agricultural or commercial interests. The great delight and at traction of the Gedling constituency lies in the exciting cross-section of the great variety of our national life that it provides. From the rural beauty and farming lands at the northern end to the more industrial areas of Netherfield and Colwick, my constituency includes the prime residential areas of Carlton, Woodthorpe and Arnold, perched either side of a hilly ridge. It also contains the attractive villages of Gedling, Burton Joyce and Stoke Bardolph, which include two of the most beautiful churches in the country which date from Saxon times. The Gedling colliery is achieving record productivity. It has been recruiting new members to the industry over the past six months and is an important feature of my constituency.

The quality of life enjoyed by my constituents is, by and large, excellent. We are particularly well served by the fine health facilities in Nottinghamshire which have seen a 30 per cent. decrease in waiting lists over the past four years. My constituents profit from living under the benign sway of the Gedling borough council, which is continuously singled out for praise by the Audit Commission for its standards of efficiency and service provision. Indeed, the council had its own version of the right to buy before the Government introduced their Housing Bill in 1980. We receive national and international delegations to inspect our housing schemes for the elderly and the frail elderly.

Of great significance is the fact that Gedling lies alongside the city of Nottingham. We know only too well that what happens in Nottingham today affects us in Gedling tomorrow. Gedling's wealth and success are inextricably linked to the future of Nottingham city. As I try to follow that rocky pathway which is the lot of a Government Back Bencher, travelling as it does between toadyism and revolt, I shall be hoping, Madam Deputy Speaker, to catch your eye in the future when the Government's bold plans to tackle the problems of our inner city come under discussion. We have much to be proud of in Gedling, and I am pleased to have been able to tell the House briefly some of those things.

Many of my constituents have followed the passage of this Bill with keen interest. The measures which passed into law before the election were widely welcomed. The help for business in dealing with VAT and in reducing small companies' corporation tax was warmly supported, as was the further help for the blind and the elderly. Above all, we have had the welcome reduction in income tax. Today we are asked to give a Third Reading to this Bill. the greater part of which reintroduces proposals for tax relief for profit-related pay, as well as extending the 59 accessibility and flexibility of personal pension schemes. I warmly welcome both measures. As my right hon. Friend the Chief Secretary said on Second Reading: The working of the labour market remains one of the greatest weaknesses in this country." —[Official Report, 8 July 1987; Vol. 119, c. 356.] There is common cause on both sides of the House that the level of unemployment remains appallingly high.

I hope that I am being equally uncontroversial when I say that it is the supply side of our economy that must particularly command our attention and the Bill, with these two principal measures, makes a direct contribution on that front. In spite of significant progress on the supply side, there remain real restrictions on job mobility, occasioned by the lack of private rented accommodation and immobility within the council housing system.

The problems within education and training are well rehearsed, but the results are that we do not always turn out children equipped to compete in today's industries or win tomorrow's jobs. There are still problems within the labour market which hinder productivity along with our industrial performance. Above all, there is the absurdity of a system whose rigidities can attribute greater value to being unemployed than to working.

Tax relief for profit-related pay will ecourage the widespread adoption of such schemes and will help to dispel any vestige of that bizarre myth which was prevalent during the days of our economic decline in some parts of the private sector —that pay is somehow not in reality always directly linked to profitability.

These measures will help further to eradicate the them-and-us sentiments which for so long have dogged British industry. They will extend and enhance a community of interest between employee, employer and shareholder and secure a more motivated and committed work force. Above all, who can doubt that such measures, when implemented, will act to cut unemployment by ensuring less risk for an employer contemplating taking on labour as well as acting as an alternative to redundancy when times are bad?

I believe that the clauses which relate to private pensions will secure an equally warm welcome. They improve the lot of the early leaver, and perhaps I should declare an interest at this point. It is a sad fact that many who have changed careers during their working life are particularly disadvantaged in respect of their pension entitlements. The relevant clauses in the Bill will not only increase the freedom to choose in pension planning but free another rigidity in the labour market over the long term.

The Bill's provisions join the many other economic measures taken by the Government to improve choice and freedom for millions of our fellow citizens. Such measures also extend personal responsibility greatly within society. It is the extent to which these opportunities and responsibilities have been grasped throughout society which is truly remarkable. Many of these measures have been practical methods to improve the commercial operation of our economy, but they are part of a shift in opinions and ideas, and expression of a new consensus which has sprung up. They mark a sea change in public opinion. It may be that the Falklands factor disguised the extent of support for this new reality, but the 1987 third election victory is a message which cannot be ignored on 60 the Opposition Benches. Indeed, the right hon. Member for Plymouth, Devonport (Dr. Owen) acknowledges these truths in his books and in his more recent speech in the debate on the Loyal Address. I dare to suggest that even the hon. Member for Dagenham (Mr. Gould) has shown an awareness of these new realities and aspirations over the past few weeks.

It was a Conservative Prime Minister returning to office in 1951 who reflected in the House that the nation required time to allow certain Socialist legislation to reach its full fruition. Although the positions are not comparable, I hope that the Opposition will accept how great has been the revolution in the spread of choice and ownership within society as well as in personal responsibilities keenly grasped. It is time for the Opposition to embrace these verities.

§ Mr. Andrew Smith (Oxford, East)

I, too, am rising for the first time to speak in the House and I should like first to congratulate the hon. Member for Gedling (Mr. Mitchell) on his speech, which I found eloquent and confident and which taught me a great deal about his constituency. It is a double pleasure to congratulate him because, last week, I had the misfortune to lose my identity pass and the hon. Member was, first, observant enough to find it and, secondly, kind enough to return it to me personally.

It is an honour to have been elected to represent the people of Oxford, East. I sincerely thank them for the privilege that they have afforded me. That Labour gained the seat with an increase in our vote of more than 20 per cent. on 1983 is a real tribute to the Labour party members and supporters in our constituency and beyond who worked hard and long to secure victory. It is a tribute, too, to the standing which Labour has built up in our community over the years. The result was proof that Labour can win new seats in southern England. I am sure that it will be followed by other similar southern successes in the next election.

It is not as though my predecessor, Steve Norris, and the local Conservative association were any pushover. Indeed. I should like to express the thanks of the constituency, as I did on election night, for his service, especially his assiduous work on behalf of individual constituents. I thank him also for his stance on issues such as freedom of information and sanctions against apartheid. As many hon. Members will know, Steve Norris is a man of very considerable ability and persuasiveness. I do not want to damage his chances by saying this, but if the Conservative party has any sense, it will forgive his achievement in securing last year the title of The Guardian Back Bencher of the year and get him back in the House by finding bluer waters for him to swim in next time.

For those who do not know our constituency, Oxford, East is not the Oxford of "dreaming spires" or colleges but the Oxford of the people who built them, who work in them and who are rightly proud of the city's heritage, for it is their heritage—a heritage which also takes in the Oxford of motor manufacture, very fine hospitals and a polytechnic which is second to none. It is a compact and yet varied constituency in which the pride, the sense of community and the very diversity of the parts bring something greater to the whole.

61 I especially place on record my gratitude to the people of Blackbird Leys estate, where I live, for their invaluable advice and support over the years I have had the privilege of representing them on the city council.

I also record my personal appreciation of the contribution of the ethnic minorities to the community life of our constituency and pledge to continue here the work to eliminate the evils of racism whereby ethnic minorities are seen as a problem rather than as an opportunity for a genuine multi-cultural society based on equality, mutual respect, and full and fair opportunities for all.

Ours is a constituency which has escaped the very worst ravages of monetarism and recession. By present national standards, the Oxford area is a prosperous one; yet we have in our midst pockets of bad unemployment, serious poverty, one of the worst housing crises in Britain and shortages of funds for health and education that are drastically undermining services held in the highest regard by all in the area. Across our constituency, people of all backgrounds and political persuasion have come to demand and expect quality in public service provision that can only be secured by harnessing to the dedication of the work force adequate resources efficiently managed and applied in an economic and political environment that backs up their collective efforts and provides a democratic framework within which the individual and the family— not just a few of them, but every individual and family —can make the most of their lives. The Government's programme, the Finance Bill and the Budget that preceded it contain nothing to enable our people to do that. It is such a waste of the potential of my constituency, as it is of Britain as a whole.

I should like to make two comments and one suggestion about the fiscal incentives for profit-related pay in the Bill. My comments are, first, that if those provisions have any merit, which I think is doubtful, in any case there is nothing whatever in them for Austin Rover workers, local authority workers, hospital workers and the many others in Oxford, East working in the public sector, as clause 6 of the Bill specifically excludes them from the scheme and further relegates them to the status of second-class citizens. If there is benefit to be had, they lose out twice. They lose out by not being eligible and, to add insult to injury, they will be paying through their taxes for any benefits that others may enjoy.

My second comment is that, if we are to provide fiscal incentives for pay to be linked to profits, any sense of natural justice would require that this be conditional upon rights to information and, indeed, bargaining on the part of employees as to how those profits are determined. The absence of any such rights destroys any benign purpose that this part of the Bill may have had.

My suggestion is that if the Government are not merely engaged in a wage-cutting exercise, as the Financial Secretary said, if they are genuinely convinced of the merits of taxpayers subsidising linked pay and profits, they could best demonstrate their conviction by going the whole hog—by applying the thing the other way round and providing the same incentives for linking distributed profits to wage levels. We could have wage-related profits. That way, shareholders would benefit only where managements succeeded in getting wages up—a true harmony of interest, to my mind. However, I fear that that is not altogether what the Government have in mind.

Hon. Members on both sides in Committee referred to Austin Rover workers and others under the control of the 62 Crown being excluded from the profit-related pay provisions of the Bill. Even more disturbing was the response on behalf of the Government to the effect that this way was all okay because public sector activities would be covered when they were transferred to the private sector. This can only add to the anxieties that afflict the future of our car industry.

The Oxford area has seen 11,500 jobs in the car industry destroyed in the past 10 years. We have seen car workers wages' tumbling down the pay ladder not because of any lack of effort on the part of the work force; workers are working harder than ever before. It is not because of any resistance to new technology; some of the most advanced robotics in Britain are at Cowley. It is because the Government have signally failed to provide the market conditions for the success of the domestic car industry. Worse than that, they have heaped on top of the high exchange and high interest regimes that all but crippled the industry all the uncertainties about the future ownership of Austin Rover. Last year's Ford sell-off talks and the forced disclosure of commercial secrets to Ford dealt a body blow to the company at the very time when all the efforts of the work force and the completion of the new model range were starting to turn the company around.

I would hope to stay within the conventions on controversy in maiden speeches and have the support of Conservative Members when I say that the future of the car industry depends, first, on keeping Austin Rover in the ownership of the British people; secondly, on assuring investment for the models for the future; and, thirdly, on creating the market conditions in which the products the workers are so keen to produce can be sold. Long-term planning is needed to ensure the success of this key industry, not just for the sake of those directly employed and those in components manufacture who, together with dependants, total around 1 million people, but for the sake of the future of other key industries — steel, robotics, plastics, electronics and glass industries, all of which have a future linked closely to the success of our car industry.

There would be no clearer sign that Britain is the first undeveloping country than to further dismember and dispose of the only bits of the car industry in British hands. It would be a catastrophe not just for my constituency but for the country as a whole—a catastrophe of such an order that I sincerely hope that even the present Government will shrink from the prospect and instead now provide the support for the industry that its efforts and contribution to the economy so richly deserve. That way, our key manufacturing industries might generate profits for investment and profits from which workers can take a share. It is fair shares and fair opportunities for all that the Oxford, East voters and Labour Members are looking for. It is a tragedy and a great pity that those fair shares and those fair opportunities are not reflected in the Bill any more than they are in the Government's programme.

§ Mr. Tony Marlow (Northampton, North)

It is a great pleasure and a privilege to follow two such charming and eloquent maiden speeches. I am pleased to be able to do so. I say to my hon. Friend the Member for Gedling (Mr. Mitchell) that I hesitate to make remarks about chips off old blocks, but such was his eloquence and the content of his speech, of which we hope to hear many more in the future, that it may well be said before too long that father 63 is a chip off the new block. I was pleased to hear the remarks he made about his predecessor, Sir Philip Holland, who was well respected and loved by those of us here. He had the wonderful knack of making sure that one got on the Committees that one wanted to get on and that one did not get on to those that one did not want to get on.

I liked the caution about treading the narrow path between toadyism and revolt. I understand that Private Eve has a competition for what I think could be described in the Chamber as the excrement of the year. It may well be that at some stage Private Eye will set up a competition for the revolting toady of the year. I am quite confident that it will not be me or my hon. Friend.

The hon. Member for Oxford, East (Mr. Smith) also showed great promise for the future and we all enjoyed his speech. He made some kind remarks about his predecessor, Steve Norris. It is one of the sad and savage paradoxes, one of the harsh ironies of politics, that "the good die young", as it were. I am sure that we all agree that Steve Norris was one of the outstanding Members in the previous Conservative intake. He had great ability, personality and charm and, as the hon. Gentleman has said, great concern for the unfortunate. The hon. Gentleman suggested that if we were wise we should hope to see him back here again. We are indeed wise and we hope to see him back before long. The hon. Member for Oxford, East also referred to the importance of the motor industry and spoke with concern and affection about his constituency. Conservative Members, too, are deeply concerned about the fortunes of the motor industry and we are pleased that reports from Austin Rover are positive. We wish the hon. Gentleman and his constituents well.

This Finance Bill has been described as a hangover from the last Parliament—the controversial bits that we could not get through before the general election—but what was controversial then is perhaps less so now. Many of the controversialists before the election now sing a very different tune. The hon. Member for Oldham, West (Mr. Meacher) is convinced now that Conservative Finance Bills in the past few years have led to growth in the economy. The right hon. Member for Plymouth, Devonport (Dr. Owen), who is much respected among my colleagues, also believes that the economy is in good fettle. The perhaps less respected right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was filled with foreboding about the state of the economy, but having seen that his dire predictions are not to come to pass, he has removed himself from Treasury affairs and returned to where he was some four years ago.

Tunes have changed and from the Opposition's treatment of the Finance Bill in the past few days it seems that it is no longer a controversial hangover from the last Parliament. The hon. Member for Sedgefield (Mr. Blair) seemed almost to welcome many of the provisions. He was not sure whether this was the best way to do things, although he suggested no alternative, but he seemed to imply that many of the measures might have his support, if not today at least when they prove successful, as they surely will.

That has been the Government's history in the past eight years. They and their policies have been criticised, castigated and damned by the Opposition, but eventually 64 their measures have been seen, if not in Socialist eyes as the right measures, as effective and popular measures respected by the British people. Socialist candidates are learning what to say when they knock on the door of a person who has bought his council house, his car and shares in British Gas. There was a time when it was felt that we were all Socialists. I believe that now we are all becoming Conservatives.

§ Mr. Nicholas Soames (Crawley)

We all are Conservatives.

§ Mr. Marlow

My hon. Friend is certainly a robust follower of that persuasion.

This Finance Bill is one of a long line of Conservative Finance Bills which have regenerated and transformed the British economy. One loses count, but this must be about the seventh year of uninterrupted growth, with an average of 3 per cent., which is the fastest of any economy in western Europe. We used to be the sick man of Europe, but now we are the fit man of Europe. As a result of the Government's economic policy, manufacturing productivity has increased by a massive 43 per cent. since 1980 —again, a greater increase than in any other advanced industrial country. That magnificent achievement is in part due to Bills such as this, but the majority of the credit must go to the British people, who have grasped with both hands the opportunity presented to them.

The Opposition always seem to give statistics about manufacturing industry, choosing one little slice of the economy and comparing it with, from their point of view, favourable figures from some past time in history. Manufacturing industry, the extractive industries and the construction industries are all creating wealth—doing things, building things and making things— and when they are all added together one sees that there has been a massive increase in output since 1979. For some reason —I think that I know why—the Opposition choose only manufacturing industry.

I see the hon. Member for Stockton, North (Mr. Cook) on the Opposition Front Bench looking at me intently. Let us take British Airways as an example. There are people who drive aeroplanes, people who build hangars and transit facilities, people who operate those facilities, people who sell holidays and people who maintain the aircraft. There are also people who manufacture aircraft, but an airline needs all those things and all generate wealth and provide a service that people want.

Of course manufacturing industry is important, but one must consider the whole cake and not just a slice of it. Moreover, if the Opposition are still worried about manufacturing industry, the news is good. Productivity has increased by 43 per cent. and output is set to increase by 4 per cent. this year, as is manufacturing investment.

Conservative Members welcome the specific measures in the Finance Bill. I am pleased to see further action on profit-related pay. I have always been very keen on the idea of co-operatives. I cannot see why it is regarded as a Labour party idea, because the Labour party that we know—and perhaps love—has always believed in central control, believing that the party knows best and wanting to tell people what to do. In a co-operative, control is not from the top down but from the bottom up. It is about cooperation and working together for a common cause.

Profit-related pay is halfway between a normal firm and a co-operative. As with a co-operative, the better the firm 65 does, the better those who work in it will do, but a co-operative goes a stage further and those who work in it have an equity stake as well. As my hon. Friend the Minister and others have said, this is part of our policy of building up incentives and commitment at the workplace. The better the firm does, the better the workers will do. The greater the co-operation between workers and management, the greater the benefit. To my mind, that is a very Conservative philosophy.

I am not the only person to take that view. There has been massive interest in the scheme proposed by the Government. I understand that some 20,000 employers have requested further details because they are thinking of introducing it in their workplace. Nearly half the 250 largest companies in this country are interested to see whether they can make profit-related pay work in their enterprises. Opposition Members have said that it may well work. I am sure that it will work. I am sure that we will all be pleased by the result. It is a great step forward and it is an imaginative scheme.

One of the main issues in the Finance Bill is the broadening of pensions—the freedom and the flexibility of pension schemes that are going to be available to people. In future, people will be able to make their own pension arrangements. I, like many other people, worked for a company with a company pension scheme. I dare say that, when I retire at the age of 65, I shall get an extra two shillings and sixpence per week for five years' work. Had that pension scheme been transferable or had I been able to have my own private pension scheme and transfer that into my later pension schemes as I changed jobs later on, as people do, of course it would be worth a great deal more money to me. This is a long overdue improvement that should be welcomed.

My right hon. Friend said that it should encourage job mobility. My right hon. Friend, as we know, was a man of Industry and Energy. Now he has gone to the Treasury. Job mobility affects Ministers, and it is a good thing that it does affect Ministers. They get experience on one part and move on to another job. Perhaps my right hon. Friend will move on to become Secretary of State for Scotland or Wales after the next stage. We shall have to wait and see. For many people, moving from one job to another— career development—is valuable. I was in the services for 11 years. We used to get postings for two years, two and a half years or three years. We would do one job in one part of the services and then go on to another one. It was that build-up of experience of different jobs that helped to build up a total career and an understanding of the total operation. The change in pension schemes will be valuable in assisting job mobility. As my hon. Friend the Member for Beaconsfield (Mr. Smith) said, there is nothing worse tahn someone seeing out his time to retirement because otherwise he will lose his pension rights. That is again a much overdue change.

I said to my right hon. Friend in regard to a previous amendment that there is one area within the pensionable population that we should do something about. That is, those who have already retired—there is nothing that they can do about it any more — and have limited occupational pensions. They are not on supplementary benefit, they cannot get any other provisions that the state provides, and they have got only a limited occupational pension and limited savings. For those who are on the basic pension and supplementary benefit, and receive rate rebates, various other allowances are made. Those who 66 have large company pension schemes are better off than they have ever been before. Those who have built up big savings, as people have been able to do over the past eight years of the Government, are better off than they have ever been before. I put it to my right hon. Friend that we should introduce measures to help that group of people whom we have all found during the election campaign.

My right hon. Friend said—I think accurately at the time—that the way to deal with that is to deal with the age allowance. I make another plea to my right hon. Friend that, when we are considering the Budget, with the great success of the economy, with increased tax revenues, with the increased buoyancy of the economy, one of the things that we should be able to do above all during the next Budget is to help that group of people who have saved, been prudent, looked forward to tomorrow and to their old age and yet, at this stage, are not enjoying the benefits of the increased prosperity of the country. Let us see if we can do something really dramatic for them with the age allowance when it comes up in the next Budget.

There is one other point that I put to my right hon. Friend before I finish. One of the first political experiences I was ever exposed to — it was very formative — was going to a public meeting somewhere in Oxfordshire. It was a Conservative meeting and it was being addressed by my right hon. Friend the Chancellor of the Exchequer in a previous incarnation. I think that he was a prospective candidate at that stage; it was quite some time ago. It was the then policy of the Conservative party to go for something called the inheritance tax. We had something called capital transfer tax, we had something called death duties, and we have now got something called inheritance tax.

This inheritance tax is a whole lot different from that suggested by my right hon. Friend in those days—that which was Conservative party policy in those days. In those days, we would tax the amount that each recipient got rather than the amount that the donor passed on. There is a great deal of benefit in that. It encourages the spread of wealth. Also, there are those who are concerned about spoilt young men getting too much money too early in their lives. If on the one hand there is one spoilt young man with 10 rich uncles and they all leave their money to him, and on the other there is one parent, no uncles and 10 sons, it makes sense to introduce a real inheritance tax if it can be arranged. I understand that it would be difficult. I ask my right hon. Friend to think about it when he is thinking about inheritance tax. Let us see whether we can put the tax effectively on the recipient. It was party policy once rather in the way that we have got it now.

It is with great pleasure that I have studied the Bill, and it is with great pleasure that I have listened to two excellent maiden speeches. I hope that the Bill will be passed by the House this evening.

§ Mr. Malcolm Bruce (Gordon)

I shall make a brief contribution to what I hope will be a relatively crisp debate, although I am not convinced that it will be. The Bill has been before the House, counting Second Reading, on five full days and has been described as the tidying-up operation of what was not in the mark 1 Finance Bill. The debate has provided a good opportunity for, so far, two maiden speeches. Maybe there will be a few more. I join in the tributes that were paid to the hon. Members for Gedling (Mr. Mitchell) and for Oxford, East (Mr. Smith) 67 on their maiden speeches, one made after the other. Their speeches had a difference of character which, I think the House will agree, shows that we have two hon. Members who will make distinctive contributions. The hon. Member for Gedling claimed to be the fourth generation and, therefore, a member of a well-established dynasty. No doubt the hon. Member for Oxford, East hopes to be the first of a dynasty to represent his area.

My colleagues supported Second Reading and will support the Bill again tonight because of the main issues of which we have long been advocates. I say to the hon. Member for Northampton, North (Mr. Marlow), after his usually robust knock-about that we have heard, that it is true that many economic indicators are moving upwards. But I do not think that the House should forget that we are climbing out of a pit that was substantially dug by the first two years of Conservative party monetarist policy. The House should welcome the fact that we are climbing out of the pit, but some of us are a little less than effusive about giving all credit to the Government who helped to put us into the mess in the first place.

The Government make unqualified claims about inflation. It is worth looking at countries such as West Germany, which has a negative rate of inflation. The difference between its rate of inflation and ours is about 7 per cent. After all, it is our major competitor within the Economic Community. The Government should not argue that there is any cause for complacency about achievements in regard to inflation, particularly since many pressures are working through the economy at the moment and are pushing it in the opposite direction.

Two main measures in the Bill relate to personal pension schemes and profit-related pay, most of which are necessary and which I support. I shall make a comment on pensions, take up something that the hon. Member for Sedgefield (Mr. Blair) said and, maybe, develop it slightly further. The flexibility and portability that are developed in the Bill are welcome and essential to the way in which the economy will develop in future. It is right to be careful not to undermine the occupational pensions of those who are dependent on them. At the very least, we must ensure that everybody in society has an equal chance of making proper provision for their retirement.

It is time that the Government addressed what we should do about people who are in no occupational pension scheme, have worked all their lives, yet have made no provision for their retirement. In some cases, they should not be criticised, as they sometimes are by Conservative Members, when they reach the end of their working lives and find themselves dependent on the old-age pension and nothing else and, very often, are forced to apply for social security benefits. Many of those people have been misled by Governments of both complexions into believing that pensions would be kept at an adequate level on which to live. On several occasions, Governments have promised earnings-related provisions, but they have never been delivered.

The debate should go on from the Bill to consider how we can ensure that everyone makes proper provision for his retirement and recognises that, although the state will, rightly, provide the base, the old-age pension, most people will find life much more comfortable when they retire if they have an adequate means of topping-up the state pension. They should enjoy their retirement instead of 68 moving from a reasonably comfortable working life to abject poverty in retirement. Far too many people face the latter, and we should tackle the problem head-on.

I prefer the expression "profit sharing" to "profit-related pay" because it creates the climate within a company which the idea properly underpins. Profit sharing implies that the work force is being treated as part of the whole enterprise and that the provision is not simply a mechanism for topping up pay. Profit sharing detracts from the suggestion that has been made by some Labour Members that profit-related pay is a means of imposing backdoor pay cuts. Although there may be pay cuts, which the Minister does not deny, it is wholly malicious of Labour Members to suggest that that is the prime motivation for profit-related pay. Some Labour Members are clearly totally opposed to the concept in principle. The Liberal party has long favoured the idea of profit sharing and profit-related pay and managed to persuade one Labour Government to introduce such measures. Therefore, I support their extension and would have gone further than the Government have done and given generous tax relief to ensure that the provision would be of greater benefit to companies and individuals to build up the significant profit-sharing proportion of pay.

I was interested to hear the Minister's suggestion that the take-up may be substantially more than the £50 million forecast. I turn that round in the negative sense: if it is not more than that, the Bill will have been a failure. If the measures are at all beneficial, one would hope to see a take-up of hundreds of millions of pounds, and I hope that it will be developed even further in future Bills.

However, as someone who represents a party which is enthusiastic about the principle of profit-related pay, may I sound a note of caution? The enterprise which is creating profit must operate properly and fairly in a genuine free-enterprise economy and in a proper competitive market. During the past two to three years, the Government's enthusiasm for privatisation has got them into a bind. They have created some monolithic monopolies, and the Minister will not have to think hard to realise that, in some circumstances, the management and work force of a private monopoly such as British Telecom or British Gas may be more than happy to get together with a generous tax-funded profit-sharing deal, knowing that they have a monopoly with which they can rip off the consumer to fund that deal. I hope that the Minister is mindful of the need to ensure that the wider issues are taken on board and that we must have a proper, clearly directed competition policy. The enthusiasm of the hon. Member for Northampton, North for British Airways should be tempered by the fact that it appears to be following the same road — or it will if the takeover of British Caledonian goes through. I hope that it will not.

Despite the qualifications that I have mentioned and my anxiety that the proposals should be developed more fully and thoughtfully, I believe that the two main measures in the Bill are a valuable, important and essential step forward. I regret the fact that the Labour party will force a Division on the Bill. Labour Members are out of touch with reality, and it is difficult to justify their opposition when one examines the details of the Bill. I and my colleagues will vote in favour of the Bill.

§ Mr. Keith Mans (Wyre)

I rise to make my first speech in the House with a mixture of pride and hesitancy— 69 pride because of the honour that has been bestowed on me by my constituents to represent them here, and hesitancy because of the many excellent speeches that have gone before, especially the two maiden speeches this afternoon from the hon. Member for Oxford, East (Mr. Smith) and my hon. Friend the Member for Gedling (Mr. Mitchell). Indeed, I was beginning to get a little worried. If I had listened to many more excellent speeches like those, I would have become so nervous that I would have been unable to rise.

If one believes the media, I am a rare breed of person —a Conservative Member of Parliament from the north of England. But we are not nearly as rare as some Opposition Members would have us believe. In Lancashire, where my constituency is situated, there are no fewer than 13 Conservatives out of the total of 16 Members of Parliament.

Wyre is one of those constituencies which the Boundary Commission decided, in its wisdom or otherwise, to rename and, in the process, to consign to obscurity. During the general election campaign, one person came up to me and said, "Mr. Mans, will you please put us back on the map," clearly showing that the Boundary Commission had removed us from it. That statement was a little uncharitable because my predecessor, Sir Walter Clegg, certainly put his constituency on the map and kept it there for the 21 years during which he represented the people of the area. Indeed, I find it much easier to tell people that I am Sir Walter Clegg's successor instead of the Member for Wyre.

Sir Walter was a great Member of Parliament, much loved by his constituents, and a great parliamentarian much respected on both sides of the House, as I have already begun to appreciate in the short time that I have been here. He was a born-and-bred Lancastrian who lived in the area that he represented for most of his life. He understood his constituents and they respected his judgment and wisdom, as I have done since I have got to know him. He has a shrewd legal mind, which made him a keen scrutineer of legislation and a person who could intervene effectively when it mattered. Probably much more surprising, he was a much-liked party Whip in the Conservative Administration of the early 1970s.

Many hon. Members will know that Sir Walter has not been well of late. However, I am delighted to say that he is now out of hospital and making a good recovery. He wishes all his former colleagues well.

To most people, my constituency, with its major town of Fleetwood, means fishing. But the cod war round Iceland dealt the townsfolk a cruel blow and, sadly, the industry is only a fraction of its former self. But a small revival is taking place, led not by the established fishing companies of old, but by enterprising young skippers who are buying shares in boats, going out to fish and returning to sell their catch through the excellent shore facilities that still exist at Fleetwood. With a little loosening of the red tape — especially the Brussels variety — in terms of licences and quotas, while at the same time maintaining equal treatment in terms of policing for all boats of member states, there is a fair chance that this small revival will turn into something bigger. I am certain that this is something that all hon. Members would welcome.

The decline in the fishing industry has meant that ICI, with its large chemical works alongside the River Wyre, is now the main employer in the area. In my constituency we must fight for investment against the many other areas 70 that have assisted area status. It is a hard battle, which we do not always win. To those two industries should be added an expanding retail and tourist sector, a dairy farming sector and a high retirement population. My constituency is one of many contrasts and huge variety. Certainly there is enough in it to keep me occupied—I hope—for many years.

Wyre has one more characteristic which, I am sure you will be pleased to hear, Madam Deputy Speaker, brings me a little closer to the subject that we are debating today. Wyre is already a property-owning democracy. In fact, it has one of the highest levels of owner-occupation in the country. That figure is over 80 per cent., in a county that itself has a high level. In the past, Lancashire led the textile revolution. Today, Lancashire leads the revolution towards a property-owning democracy. The housing in my constituency is not the type that one finds in the leafy groves of Sussex or in the better suburbs of London. It is made up largely of small semis and of even smaller terraced housing. However, the people who live in and own those houses are proud of doing so and want nothing to do with a life that is dependent on institutionalised housing. That is probably the main reason why I am standing here this afternoon.

I am certain that it will not surprise at least some hon. Members to know that the borough council in Wyre is highly efficent. well run, and has a massive Conservative majority. Indeed, I could say that the benefits which it is hoped that the community charge will bestow elsewhere in the country have already been achieved in Wyre because of the high level of owner-occupation. I should add that I am not for one minute suggesting that, because we already have such a high level of accountability in Wyre, we should be exempted from the community charge.

Alongside property ownership goes the capital-owning democracy. More specifically, profit-related pay, share ownership and share ownership by employees represent an integral part of that. However, like property ownership in my constituency, profit-related pay is not new. Indeed, it is the main reason why I am speaking in today's debate. For the past 10 years I have been a member—perhaps I should say a partner—in the largest worker co-operative in the country, the John Lewis Partnership. That company has had a system of profit-related pay and of share ownership since before the second world war. I can say that profit-related pay and share ownership are successful. They work and are to be commended to other companies. I am not suggesting that all companies should have the same system. Indeed, there should be a variety of schemes, and I sincerely hope that any future Government measures are not too rigid so that decisions on the schemes can be taken by the participating firms. However, I believe that the concept itself is correct.

Unlike the hon. Member for Sedgefield (Mr. Blair), I believe that such schemes are an excellent use of Government money, because they encourage the private sector to take part in such schemes which, for many reasons, are good for everyone. Such schemes foster better communication between all levels of management and employed people in a company. They result in a greater commitment towards the objective that the company has set itself. They mean greater productivity, as I can vouch for in the firm in which I work. To date, I have not seen any evidence that profit-related pay means lower wages. Indeed, I suggest that Opposition Members should study carefully the wage levels of the companies that already 71 have such schemes and compare them with those that have not. I am certain that if they do so, they will discover that the firms in the former category have higher rather than lower wage levels, without the addition of profit-related pay put in as a bargain counter.

Finally, and something that should appeal to all hon. Members, profit-related pay and share ownership mean greater job security. I have seen it myself and I am certain that it will be truer in the future if more companies adopt such schemes. I have the sneaking suspicion that if they were given half a chance, many hon. Members of the Opposition parties would support, not oppose, this proposal. From my own experience in industry, I know that the concept of profit-related pay and share ownership works and that it will work even better in the future, provided that the proposals in the Bill become law. Therefore, I thoroughly recommend them to every hon. Member.

§ Mr. James Arbuthnot (Wanstead and Woodford)

It is with some nervousness that I say that I am grateful, Madam Deputy Speaker, for the fact that I have caught your eye. My constituency has not had many Members of Parliament. In fact, since 1924—nearly 30 years before I was born—it has had only two. Hon. Members will understand my difficulty in finishing this maiden speech within the bounds of propriety, or even by the end of the week, when I say that those two were Patrick Jenkin and Sir Winston Churchill. Whoever coined the phrase, "Follow that if you can", had it easy compared with me.

As one would expect, my constituents are exceptionally proud of their former Members of Parliament. However, I should like to speak first about my constituency, which is a residential suburb in the north-east of London, on the borders of Essex and London. My constituents were so proud of their former member, Sir Winston Churchill, that they put up a statue to him on Epping forest land, at Woodford Green. That is one of the more attractive parts of my constituency. One of the less attractive parts, which hon. Members may know rather