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7.27 pm
Mr. Frank Field (Birkenhead): The Minister was kind enough to give way earlier so that I could ask a question. The reason I wished to do so was so that I and perhaps other hon. Members could be clear on the costs of the orders that we are discussing. The Minister kindly replied that it would be convenient if he answered the question in his winding-up speech. Clearly, it would be convenient to him, but it is not to the rest of us. I shall return if I can--
Mr. Field: If we are going to hear the answer now, that is even better.
Mr. Heald: I am grateful to the hon. Gentleman. I have answered his parliamentary question on that point. The various costs are set out from the year 1997-98--when the cost is £7.7 billion--to 2001-02, when it is £8.1 billion. He should bear it in mind that, if the present system were to continue unchanged, the cost in 1997-98 would be £8 billion, not £7.7 billion, so there is no question of these being extra costs.
Mr. Field: If I understand the Minister aright, he is now saying that he is cutting the cost to the national insurance scheme of introducing age-related rebates. If that is the result of what he has just told us, I should have thought that the industry might have had a few things to say before we reached this debate.
Mr. Heald: The various different categories are set out in the answer, so that the hon. Gentleman can see the way in which the figure of £7.7 billion is calculated. The point that I am making is that, if the system remained as it is at present, the overall cost would be £8 billion, not £7.7 billion.
Mr. Field: I am sorry to appear so thick, but I still do not understand the answer. Are we saying that, if there
were no orders tonight, the cost of the scheme with the existing rebates would be £8 billion, and that with these changes that cost is reduced to £7.7 billion--in other words, some people who are currently getting rebates will get less rebate as a result of the measure because we are substantially rescheduling those rebates towards age-related rebates? I know that I am supposed to be making the speech, but I should be grateful if, at some stage, the Minister could intervene to clarify that point.
Mr. Heald: The point is that, at the moment, the scheme relies upon flat-rate rebates. The point about age-related rebates is that they become larger each year as the person grows older and the amount of money necessary to go into the scheme to replicate SERPS gets larger. Therefore, there is an effect of compensating some people more than previously and under-compensating others in comparison, so that one ends up with a taper rather than a flat-rate charge.
Mr. Field: If I interpret that intervention correctly, it means that the scheme now is weighting the subsidy towards older rather than younger workers--[Interruption.] If that is not the case, I fail to comprehend what the order is about. As I understood it, the Government needed to make substantial concessions to older workers who are contracted out of the scheme to ensure that they remained outside.
I tabled a question asking what would be the cost specifically of the new age-related rebates. The answer was given and the Minister included it in his speech. The Minister is now saying that the total cost to the national insurance scheme of the subsidy package is marginally less than what it would have been had the old orders remained in place.
Mr. Heald:
If one looks at the overall figures, the overall reduction is £0.3 billion. The significant part of that concerns salary-related schemes rather than the age-related rebate part. As far as that is concerned, there is no significant reduction in the overall amount, but there is a change in the taper as a result of the introduction of age-related rebates rather than a flat-rate scheme.
Mr. Field:
I am grateful for that. I shall not ask the Minister to intervene on that point again, but I shall return to it in a moment.
I have one other question for the Minister, which he might be able to answer when he replies to the debate. Perhaps, understandably, the Minister kept carefully to his brief when introducing the orders to the House. No doubt most of us in his position would have done the same. He continued at some pace when he was covering the question of charges for those who have undertaken private pension arrangements. What I could not quite grasp, because I was trying to hear him and understand the parliamentary answer that he read into his speech, was whether he thought that the charges would be reduced because of the power that the Government had over whether people would be able to claim their rebates, or whether the Government had the power to set the charges throughout the private sector for the servicing of personal pensions.
I shall try to keep my second point going for long enough to enable the Minister to answer that point before we end. Will the Minister use mere suasion to force down charges or, in the background, do the Government have the power if they wish not only to set charges on personal pensions in respect of the rebate, but more generally? That was the question which crossed my mind listening to him.
Mr. Heald:
As the hon. Gentleman will know, the new rules that have been brought in on disclosure, coupled with competition and setting the rebates at a level that reflects the position of the best providers with the most efficient levels of charges, should mean that those who are purchasing personal pensions have the best possible deal. There is no doubt that those measures, working together, providing an element of transparency and competition, are creating the right circumstances for the best arrangements to be made.
There is a power, as the hon. Gentleman will know, which the Government are entitled to exercise by statute, to restrict the level of charges, but that is not something which has been done, and it is certainly competition and the element of transparency on which the Government rely.
Mr. Field:
I am grateful for that, because it will be news to most hon. Members that the Government have always had the power to set the level of charges in the private sector in respect of servicing pensions, despite all the evidence that we have had about the size of those charges. The Government are now saying that, because of disclosure and growing competition, charges will be pushed down. If, in fact, after a period the Minister's faith in competition pushing down charges is not fulfilled, will the Government move against the industry and against some of the levels of charges that my hon. Friend the Member for Southampton, Itchen (Mr. Denham) described in his opening comments?
Secondly, I wish to move back to the question of costs. I am pleased to see the Secretary of State for Social Security on the Treasury Bench. He is adept in the public debate at saying to anyone who comes up with proposals for reform that costs must clearly be attached to such reforms and that we should be certain about what those costs are, and even consider what the rate of tax would be to implement those reforms.
What I thought was interesting about the parliamentary answer that I was given earlier today was that we have the cost of maintaining the Minister's strategy. The cost of the rebates during the next five years is the equivalent of 5p on the standard rate of income tax. If the Minister wants to join in the debate that the Opposition are beginning, on opening up the options of how social security might develop in the next Parliament, I hope that he will bring to it a clear declaration that his policy is not without costs and that, for each of the next five years, his policy is costing every working taxpayer the equivalent of an additional 5p on his standard rate of income tax.
The "Lilley package", if one can call it that, does not come without a price tag. The price tag was disclosed in the parliamentary answer this afternoon and it is a significant one. It helps to open up the debate on the Opposition Benches. The status quo will have that cost, so should we think of changing the status quo, we know that we shall be starting with 5p on the standard rate of income tax as the cost of the Government's current strategy. That was the point that I wished to make in the debate.
I am also pleased about the clarification that we heard earlier. While the debate was raging in the country over the appalling level of charges that some companies were making for those who had bought the Government's package, had gone private and had contracted out of SERPS, when figures were being produced showing that some people would have charges that wiped out the whole of their savings, the Government kept quiet about the fact that they had the reserve powers to direct what those charges should be.
Mr. Heald:
With the leave of the House, I shall reply to the debate. The hon. Member for Birkenhead (Mr. Field) raised a number of issues. I dealt with most of them in interventions that he kindly let me make.
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