Q127 Grant
Shapps: You mentioned previously you have
the leaflets with you.
Mr Hutton:
Someone has got them.
Q128 Grant
Shapps: Perhaps whilst I am asking some
other questions Christopher can find out about them. Which of these
leaflets actually warn members that the scheme needs to be at the minimum
funding requirement savings level to be protected? Perhaps you can find the
reference in these leaflets.
Mr Evans:
Yes.
Q129 Grant
Shapps: If I carry on and perhaps someone
can have a look at that.
Mr Evans:
Yes.
Q130 Grant
Shapps: Great. In 1997 the chancellor
famously raided the pensions funds by abolishing the tax credit for
dividends income. That has been repeated every year and there has been a
resultant loss in liquidity in the stock market. So to quite a large degree
the government is responsible for a lot of these private pension losses, are
they not?
Mr Hutton:
No.
Q131 Grant
Shapps: You cannot take money out of
something, reduce liquidity and then say there is no responsibility for it.
Mr Hutton:
No. I think the tax changes to dividends,
tax credits, which you are referring to were part of a package, if you
remember, which were welcomed by business at the time because they
incorporated other reductions in corporation tax. Now you can frown if you
like, I am just telling you the facts.
Q132 Grant
Shapps: Because business is one thing, a
business might welcome something because you reduce corporation tax, as you
say, that does not help their pension position. What we are talking about
here is pensions. There is no doubt – I do not think you can realistically
say this or tell me if you are – that by abolishing tax credit on dividends
income did not reduce the pot of money available for pensions.
Mr Hutton:
No, I think that is true. The significant
impact for pension funds would not be changes to dividend tax credits but
the reassessment of liabilities in the light of increased longevity and the
undisputed fall in the value of equities which took place over this period.
Q133 Grant
Shapps: What I am trying to suggest to
you, I suppose, is that the two are linked. If you take liquidity out of the
stock market, five billion pounds over nine years, you will argue it is a
little bit less than five billion because of the technicalities of the way
that abolishing tax credit works but let us say for the sake of argument it
is 30 or 40 billion pounds, you take that out of the stock market, the stock
market goes down, pension funds, which are largely invested in the stock
market, have less cash, you have helped to create this problem.
Mr Hutton:
No, we have not helped to create the
problem in the way that you suggest. Presumably if you felt that was the
case we would have heard a commitment from your party to reverse those ---
Q134 Grant
Shapps: Hold on a second. We are here as
a Committee and I am making this point to try and understand the background
to the situation that we are now in. I am not trying to make it as a party
political point at all. I think you have admitted this already, if you take
money out of the system then it means there is less in the pot to pay out in
pensions, and I think you have already conceded that point. I am trying to
make the further link that by taking the money out of the liquidity of the
stock market when pensions themselves invest in the stock market that
further reduces the value of people’s pension funds.
Mr Hutton:
No.
Q135 Grant
Shapps: It does not increase it, does it?
Mr Hutton:
What we are talking about today are
insolvent employers who are not able to meet their liabilities under the
legislation that your Government enacted. That is the issue that we are
discussing here. I do not believe that the tax changes have anything to do
whatsoever with that fundamental issue before the Committee today.
Q136 Grant
Shapps: Hold on a minute. What we are
talking about here today is what the Committee wants to question you on.
What the Committee wants to find out is the extent to which the Government
might have been responsible for maladministration. The Ombudsman, as we
have heard, says the Government is 100 per cent responsible for that
maladministration. I am putting it to you that the reason the Government is
in such a hole, in other words that these pension funds are not worth what
they should be, is partly to do with the Government’s own position.
Mr Hutton:
No, I do not accept that.
Q137 Grant
Shapps: Who then, tell me, made the
decision to ignore the ruling of the Ombudsman about maladministration: you,
the Prime Minister or perhaps the Chancellor?
Mr Hutton:
It was a collective decision of ministers.
Q138 Grant
Shapps: So it was not, as we might assume,
the Secretary of State of the DWP?
Mr Hutton:
Of course I was involved in that decision
because this primarily affects my Department’s responsibilities but this
was, as I said again, a collective decision of ministers.
Q139 Grant
Shapps: That is quite interesting. Was it
a Cabinet decision? Was it discussed in the Cabinet?
Mr Hutton:
It was discussed by ministers in the
normal way through correspondence.
Q140 Grant
Shapps: Yes, but “ministers” could just
mean you and your junior ministers. I am trying to understand at what point
in Government this was discussed.
Mr Hutton:
It was a cross government decision
involving ministers from other departments in a way that normally decisions
are made in government.
Q141 Grant
Shapps: It would have included then the
Treasury and the Chancellor?
Mr Hutton:
Of course.
Q142 Grant
Shapps: The Chancellor who has, in my
view, helped to create a position whereby there is insufficient liquidity in
the stock market and, therefore, a problem with pensions leading to the
accusation of the Ombudsman of maladministration is also involved in
deciding that the accusation of maladministration is, in fact, entirely
unfounded?
Mr Hutton:
That is a proper exercise of ministerial
responsibilities.
Q143 Grant
Shapps: I am just trying to link up the
way here that the Chancellor in particular in this particular case is linked
in the whole circle of this with both helping to create the problem along
with a lot of other things, like people’s longevity, which is a good thing I
think we probably assume, and other factors, but in the mix here is the fall
in value of equities and the raid on the pension funds themselves which has
created a problem which the Ombudsman says is maladministration in terms of
the way that has been dealt with and the Chancellor has a hand in saying
“No, no, no, it is not maladministration, this is absolutely fine. We are
going to ignore those findings”.
Mr Hutton:
I do not think there is a connection
between any of those points. In relation to the wider issue about
ministerial responsibility, this is how governments make decisions. They
consult and they make sure that ministers are in agreement.
Q144 Grant
Shapps: How can you say there is no
connection between these points? If the amount of funds in pension benefits
has reduced you cannot say that is not connected to the fact that there is a
problem with the amount of money available to pay out in pension funds.
Mr Hutton:
In the first instance we are talking about
employer insolvency, this is the root of the problems that we are discussing
here. The changes to dividend tax credits did not create employer
insolvency.
Q145 Grant
Shapps: It is not just employer
insolvency, is it, because in particular the minimum funding requirement
makes it seem that as long as you are at 100 per cent of MFR then you are
effectively pretty much protected. As we have heard through the cases in
Cardiff and elsewhere that has not always been the case, even when the
employer is not insolvent people are having these problems. I wonder how we
are doing on the first question?
Mr Evans:
I think the main relevant booklet was one
produced by the Occupational Pensions Regulatory Authority in 1999 which was
specifically a guide to the minimum funding requirement. I think your
question was where is it explained in the leaflets.
Q146 Grant
Shapps: Yes, I want to know which of these
leaflets warns scheme members that they need to be at the minimum funding
requirement in order to have the same protection. I do not see it clearly
stated in the information that went out.
Mr Evans:
This was a guide booklet essentially for
trustees and their advisers. It says that a scheme which complies with the
MFR will either already be funded to at least the minimum level required by
the law or will be aiming to have that level of funding within certain time
limits. It goes on to say this will not necessarily ensure that all of the
schemes liabilities can be met fully if the scheme were to be wound up.
However, the MFR sets a benchmark against which the trustees must measure
the funding level of the scheme.
Q147 Grant
Shapps: So the trustees are told this
information but actually anybody ---
Mr Evans:
It is available.
Q148 Grant
Shapps: It is going to trustees rather
than members of the funds.
Mr Evans:
It would not have been distributed
automatically by the government to all members of schemes but it was
available.
Q149 Grant
Shapps: It was intended for the trustees.
Mr Evans:
Yes.
Q150 Grant
Shapps: Is it not a strange omission that
it was not mentioned in the leaflets which were intended for the individual
participants of such schemes?
Mr Hutton:
I think this comes back to a discussion we
had some time ago about what the purpose and intent of those leaflets was. I
have tried to explain what the purpose and intention of those was.
Q151 Grant
Shapps: The picture that is gathering in
my mind here as I listen to all the evidence this afternoon is a crisis in
pensions which has, in part with other issues to do with people living for
longer and what have you, been created by this Chancellor who makes a single
decision which continues to have ramifications for years to come about
abolishing tax credit for dividend income. That creates a situation of not
only less money directly in the pension funds because they are having their
cash taken out in a different way but also a lack of liquidity in the stock
market which creates a problem where millions are affected. I would be
interested to ask you how many people you think are affected by this
particular pension crisis that we are talking about. Do you have a number
for us?
Mr Hutton:
No, and I think again, with great respect
to you, you are making an unsustainable leap of logic, if I can use that
expression in a different context. If you want to focus on the decision
taken then to change the regulations around how we treated for tax purposes
dividends in this context I think you have got to look at the wider impact
of what has happened in the economy as well. In that period we have had 2½
million more jobs and that is a factor as well that has to be taken into
account. I simply do not accept your fundamental argument that it was either
maladministrative or in any way contributed to employers going insolvent
which is the root of the problem that we are discussing today, that the
Government made changes to dividend tax credits in 1997 or whenever it was.
Q152 Grant
Shapps: Yes, but my question was how many
people have been affected by this?
Mr Hutton:
Are we talking about in the context of the
Parliamentary Commissioner’s report or what?
Q153 Grant
Shapps: Yes in the context of exactly what
we are discussing.
Mr Hutton:
I thought we had agreed figures. It was
about 125,000 people. I thought there was no argument about that.
Q154 Grant
Shapps: I am not sure that is the case but
others might want to return to it. It seems to me that we have a circular
situation here. What happened was the Ombudsman reports saying that there
is maladministration. We now know that ministers, we are not sure which but
certainly the Chancellor of the Exchequer, were involved in deciding whether
there was maladministration. You did not like what the Ombudsman said so
effectively you just ignored it.
Mr Hutton:
I tried to set out very clearly at the
beginning of my remarks how we approached this issue. We gave full and
proper consideration to the report. We looked at it very carefully in the
run-up to publication. My officials spent a very great deal of time looking
at it and we always want to discharge our responsibilities in these matters
with proper respect for the authority of the Parliamentary Commissioner.
Q155 Grant
Shapps: Yes, but you have not though.
Mr Hutton:
In this case we were not able to accept
her findings of maladministration. As I said, again in the context of some
previous examples, some involving Conservative governments, some involving
Labour governments, that has happened in the past. Now we have done it with
very great regret and we have tried, notwithstanding the fact that we have
not accepted her principal findings to look at extending the financial
assistance that is available for people who are caught up in this
situation. Again, with great respect, Grant, I think that is the
responsible course of action for Government to take. We have not kicked
this into the long grass, that is completely inappropriate.
Q156 Grant
Shapps: Sorry to interrupt, John, you are
doing a great job of answering the question that I have not asked you, now
we are leading on to something else. What I am trying to understand is how
it was that you ignored the Ombudsman. Parliament sets up a system, that
system is the Ombudsman. The Ombudsman decides there is maladministration.
That is the job of the Ombudsman to decide upon it. I think the Chairman
pretty clearly established in the opening remarks that you ignoring that
maladministration was not the same as has happened in other cases, and you
would like to refer back to this Government and other governments taking
decisions on it, and I thought that was quite clearly demonstrated in the
earlier evidence. Then you decide to ignore the findings. This is just
simply kicking Parliament in the face.
Mr Hutton:
No, it is certainly not doing that. Let me
just remind you what I said. I was quoting from Nicholas Ridley - I think it
is probably the first time I have ever done this in my life - “I want to
make it clear that the Government do not accept the Parliamentary
Commissioner’s main findings nor are the Government legally liable.” That
was in the context of the Barlow Clowes affair. It is true, of course, that
the Government went on to consider an ex gratia compensation payment
without accepting liability. What I am saying is very similar, we are not
able to accept the Parliamentary Commissioner’s main findings on this
occasion, with regret and reluctance, but we have gone on to look at how
much further financial assistance we can provide for people who are caught
in this very, very difficult situation.
Q157 Grant
Shapps: I would accept that governments
usually are not responsible for things which happen in private marketplaces
and the thing which makes this different is you have not just accepted the
wide, broad parameters within which pensions now operate, you actually
effectively raided those pensions, reduced liquidity, created the problem
and then walked away, even when the Ombudsman tells you it is
maladministration, and say “It is nothing to do with us”.
Mr Hutton:
No, I just do not accept that is true or
accurate or a proper reflection of what has happened in these particular
cases.
.
