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Session 2006 - 07 Publications on the internet General Committee Debates Pensions Bill |
Pensions Bill |
The Committee consisted of the following Members:Alan
Sandall, Committee
Clerk
†
attended the Committee
Public Bill CommitteeThursday 25 January 2007(Afternoon)[Mr. Roger Gale in the Chair]Pensions Bill1.30
pm
The
Chairman:
Good afternoon, ladies and gentlemen. Before we
start, the hon. Member for Eastbourne, who is leading for the
Opposition, has raised a point that I should have covered in my opening
remarks.
I have a
standard practice about stand part debates. As far as I am concerned,
it is often convenient to discuss the breadth of a clause at the start
rather than at the end, because it makes other things easier in the
course of debating amendments. I have no problem with that whatsoever.
However, that is all right on the very clear understanding that hon.
Members cannot have two stand part debates. If I let hon. Members go
slightly wider than I otherwise might in debating the amendments, they
should not be surprised when I say at the end that the clause has been
satisfactorily discussed and I am not permitting a stand part debate.
It is in hon. Members’ hands, so they should make up their minds
and decide how they want to play
it.
Mr.
Nigel Waterson (Eastbourne) (Con): Good afternoon,
Mr. Gale. Thank you for your helpful indication. Perhaps it
will be helpful at this stage, although we are dealing with amendment
No. 28, to say that I intend to go quite wide in speaking to the next
group of amendments, which is headed with my amendment No. 1, to
obviate a stand part debate on the link, as it is called in these
circles.
Clause 5Up-rating
of basic pension etc. and standard minimum guarantee by reference to
earnings
Amendment
proposed [this day]: No. 28, in clause 5, page 5, line 26, at end
insert
‘including those
claimed by British citizens living
abroad’.—[Mr.
Laws.]
Question
again proposed, That the amendment be
made.
Mr.
Waterson:
I was in the process of talking about ageing
rock stars, the benefits of retiring to Florida rather than Vancouver
and how one might deal with the costs of a prime ministerial holiday in
one’s mansion. We have already had a lengthy debate this
morning, which has been helpful and important, about frozen pensions
and how those are to be addressed.I was saying that we
Opposition Members have considerable sympathy with the concerns
expressed to us, as well as to the Government and other parties. This
matter will be fed into our general policy review.
The cost of £400
million, to which I want to return in more detail in a moment, could be
spent on this or another deserving cause, because—except in the
twilight zone occupied by the Liberal Democrats—the rest of us
have to make the demands on the public purse fit the financial
envelope, as it is tweely
called.
Mr.
David Laws (Yeovil) (LD): Welcome to the Chair,
Mr. Gale. I am grateful to the hon. Gentleman for giving way
and glad that we are having a constructive debate. Does he acknowledge
that, as I said at the end of my comments, my proposal was not the
£400 million cost that he has cited, but a far more modest
proposal only to uprate the frozen pensions from here on in, which
could be done initially at a much lower cost than he
suggests?
Mr.
Waterson:
Not necessarily. However, I want to deal with
costs and pick up some of the hon. Gentleman’s helpful points. I
hope that he will not take it personally when I say that I was not
entirely convinced by his attempt to chip away at the cost of the
measure. However, we are in the hands of the Minister and his officials
on the matter of the true cost. I have some comments to make, so
perhaps the hon. Gentleman will bear with me. If he feels like
intervening, that would also be helpful.
The Minister answered one of
my questions in December, saying that
the
“cost
of uprating the state pension...is approximately £400
million of which...£320 million represents the cost of
uprating the basic state pension.”—[Official Report, 14
December 2006; Vol. 454,c.
1341W.]
I am not clear what the
other £80 million represents, but perhaps he will tell me later.
To return to an intervention that I made on the hon. Member for Yeovil,
I am interested to know whether any amounts could be netted off against
that. Is it a gross or net figure? I asked the Minister another
question in December,
about
“how
many...Canadian and...Australian pensioners residing in the
UK are in receipt of...pension credit and...other
means-tested benefits; and what the total annual cost
is.”
He
said:
“The
information is not available as nationality data is not collected by
the Department’s administration
systems.”—[Official Report, 8 January 2007; Vol.
455, c. 194W.]
That is bad
news, I suspect, for the policy for a universal citizen’s
pension—but we do not want to go there at the
moment.
That raises
an interesting question, because there is an assumption about which I
think there was an exchange between the hon. Members for Yeovil and for
Northampton, North earlier in the debate. The assumption is that we are
talking about relatively well-to-do people, who have even been
suggested to be more likely to vote Conservative. However, I remember
Norman Tebbit once saying to me that he would like to impose a tax on
people with gravel drives, Volvos and ponies. When I asked why, he said
that those were the kind of people who often voted Liberal
Democrat.
That may not be the
read-across. As the hon. Member for Northampton, North said, we must
also work on the basis that some people move abroad for pressing family
or even health reasons and others perhaps escape to southern Spain
because they will save on their fuel bills, although I understand that
they will still get their winter fuel allowance, which must come in
handy. Likewise, there will be people in that kind of grouping who go
to places like Canada or Australia. They are not getting an uprated
British state pension and will therefore be subject, presumably, to the
relevant means-testing of benefits in those countries, be they the
equivalent of pension credit or
whatever.
There are
some savings to be netted off. The Treasury is already saving money on
the latter group, because not only is it not paying them their uprated
basic state pension, but it is not paying them the means-tested
benefits that they would certainly be claiming if they were still in
this country. I am open to correction by the Minister, but my
understanding is that pension credit, for example, is not payable to a
UK pensioner living overseas. Equally, there must be Australians and
Canadians, for example, living here, in straitened circumstances, with
no uprated pension, who are claiming means-tested benefits at the
moment.
That
£400 million is a suspiciously constant figure—I have a
vague recollection of that being bandied around by Conservative
Ministers when the same issue was raised in correspondence quite a few
years ago. However, it would be nice to know whether that figure was
net or gross and whether it takes into account any of the factors that
I have mentioned. It would certainly be helpful in our Conservative
policy review to know exactly what sum we are talking about, so that we
can look at it
realistically.
John
Penrose (Weston-super-Mare) (Con): Although I am sure that
helping the Conservative party would be a big factor in Government
thinking, in order to give them greater incentive to look into the
netting-off costs surely that set of data is potentially very valuable.
If the data were not available because they are not systematically
collected, the Government might collect them, if not on a universal
basis then on a sample basis—perhaps for groups of people from
some of the countries that my hon. Friend mentioned, representing the
largest numbers of pensioners abroad. Then, if we did go into
reciprocal arrangements for pensioners from such countries, the
Government could workout what the savings would potentially
be. If the£400 million cost was reduced, the Government
would want to burnish their credentials for righting an injustice, just
as anyone else
would.
Mr.
Waterson:
I am grateful to my hon. Friend for that
comment. Indeed, the opportunity may come sooner than we think. It is
not just a matter of copyfor the Conservative party. We
understand thatthe Chancellor is looking for some eye-catching
announcements to make in his first 100 days. Who knows? This could be
one of them—particularly if the figures can be massaged
downwards.
I have a
couple of further points to raise. Perhaps I am not as good at reading
the material as the hon. Member for Yeovil is, but the figure of
£3 billion that
he raised came as a surprise to me. However, he then
spent a considerable amount of time demolishing it. I do not think that
there is anybody out there—who I have had any dealings
with—who is seriously suggesting that the way to deal with the
problem is to compensate all those pensioners and, presumably, any
survivors of those who have gone to glory for what they have lost out
on in the meantime. Apart from the cost, the administrative
difficulties are incredible. Many of them, or at least some of them,
will have attracted means-tested benefits of one kind or another in the
meantime because of the shortfall, and credit will have to be given for
that. I do not agree with the £3 billion figure.
I assume that the Minister
quotes £400 million as the cost of uprating the present pension
in line with prices, not earnings. It would be interesting to know
whether he has the figures for the future cost, assuming that the
legislation is passed by both Houses. The hon. Member for Yeovil might
have touched on the matter, but his speech was so long that I am afraid
I thought that I was going to retire before the end of it and move to a
sunnier clime, preferably one with a reciprocal agreement. If he did
not touch on it, I certainly will. I assume that the cost will be
significantly higher, but no doubt we will hear about that, as the
Minister is paid highly—compared with us—to know such
things. For the moment, the working figure is £400
million.
I am moving
into phase 6 or 7 of my speech—there are another 15 to
go—but I wanted to mention reciprocity. The standard letter that
is dusted off on these occasions by whoever is in power says,
“Well, yes”—I
paraphrase—“we’d love to do this, but of course
those people haven’t got a reciprocal agreement with us, and
that’s terribly unfair. If only they had, we’d be more
than happy to write the cheques.” I asked a question recently; I
am not sure whether to the Department for Work and Pensions or the
Foreign Office. I asked, of all the countries with which we did not
have reciprocal agreements, with how many countries was the UK
currently in negotiation to establish them? The answer seemed to be
none.
I have two
things to say to the Minister. First, if reciprocity is still one of
the main reasons why the Government are not prepared to change their
position, what will they do about it? Is it not worth at least
commencing negotiations with the Governments of Canada and Australia? I
understand anecdotally that the Government of Australia would be quite
keen.
Secondly, an
interesting issue has been raised with me by the Canadian pensioners
through John Markham. Is reciprocity and the existence of a bilateral
treaty actually a prerequisite to making uprated payments? Although
Australia and Canada have said that they would be prepared to enter
into reciprocal arrangements, are those arrangements strictly necessary
to the uprated payments, or is that merely a convenient excuse for not
making them? While I am about it, I ask the Minister to undertake to
review why his Department or the Foreign Office are not engaged in
negotiations, and to indicate whether he has any intention of opening
any such negotiations with those friendly
Governments.
Mr.
Russell Brown (Dumfries and Galloway) (Lab): I thank the
hon. Gentleman for giving way. I suspect that he, like me and many
other Members of this House,
receives e-mails and correspondence from those living overseas,
particularly from Canada. Although such individuals, who were initially
UK citizens, are keen to lobby us, are they also lobbying politicians
in Canada? It is a two-way
process.
Mr.
Waterson:
Ah, but is it? That is an interesting point, and
I confess with great shame that I had not really considered
it.
Mr.
Waterson:
Let me just deal with that point. I assume, as I
mentioned a moment ago, that at least some of those pensioners are
getting payments from their host Government. Nobody in this country
seems to be collecting those statistics. One would think that the
Canadian Government, for example, would have an interest in getting
talks under
way.
1.45
pm
Mr.
Laws:
Is the hon. Gentleman aware that the Governments of
Australia and Canada have expressed a strong view on that matter? They
would like a reciprocal agreement and they are incredibly frustrated at
the persistent refusal of the UK Government to enter into
negotiations.
Mr.
Waterson:
I am grateful for that intervention, and I was
about to go even further than that. According to my informant
Mr. Markham—I have not had a chance to verify this,
which the Minister no doubt can—both Canada and Australia have
started to index exportable pensions unilaterally. They have
putin place their side of any reciprocal arrangement, assuming
that that would be a
pre-requisite.
As
well as undertaking to return to us on that point, on which he might
need to write to the Committee—I am relaxed about
that—will the Minister consider starting such negotiations, if
appropriate, as part of assessing the net cost of the issue to the
taxpayers? While he is about it, will he update the Committee on the
Carson case, which is still waiting its turn at the European Court of
Human Rights? I have not heard much about it recently. Ms Carson lost
her case initially, I believe in the House of Lords, and is now waiting
for a hearing at the ECHR. The Department for Work and Pensions seems
to be spending a lot of time and money in European courts of one sort
or another at the moment, which is good news for the lawyers—so
no complaints
there.
I endorse much
of what the hon. Member for Yeovil said. The issue is perennial, and it
is important for those in Government and those who aspire to Government
to have a somewhat clearer picture of what the obstacles are and what
the real cost of doing something about it will
be.
The
Minister for Pensions Reform (James Purnell):
I thank the
hon. Member for Yeovil for tabling the amendment that has enabled us to
have this important debate. It has been fascinating, and the hon.
Gentleman was both extensive and expensive—a bit
less expensive than normal, I grant. He was obviously stung by
accusations of excessive proposed expenditure on the first day of our
proceedings and is trying to rein himself
in.
There was an
interesting discussion this morning on whether the amendment would gain
the Conservative or Liberal Democrat votes. I am not sure whether the
Tories will be taking Bosnia-Herzegovina, South, at the next election
after the remarks of the hon. Member for
Eastbourne.
I wish to
explain the reasons for the stance of both Conservative and Labour
Governments and answer as many as possible of the questions that have
been asked. As has been explained, we currently uprate state pensions
abroad where we have a legal obligation to do so or a reciprocal
agreement. It is always slightly unfair to point out the effect of
amendments, because Opposition spokespeople do not always have the
access to legal advice that we do. I therefore do not say this in a
heavy-handed way, but I am not sure whether the amendment would do what
the hon. Member for Yeovil intends, unless he really is trying to rein
himself in financially. It would apply only to people with category B,
C or D pensions and therefore only to those who have not contributed to
their pensions through national insurance. I am sure that that was not
the hon. Gentleman’s
intention.
Mr.
Laws:
I am grateful for the opportunity to clarify the
point. If I slipped up at the margin, I am happy to apologise. The
Minister is right about my
intention.
James
Purnell:
I am glad to have clarified that. The cost of
that particular amendment would be only£14 million in
the first year. I think that that includes backdating, but I am not
entirely sure. I shall correct that statement if it was not
right.
The key issue
is what the overall cost of the hon. Gentleman’s suggestion
would be. He was right to say that the figure of £3 billion is
the cost of reinstating what people had before and the figure of
£400 million is the cost of paying everyone at the level of the
basic state pension going forward from now. The hon. Gentleman tried to
say that he did not think that was necessarily what should happen. I
accept that he wants to control the expenditure and see if there is
something that is more affordable. However, he would be creating
another knock-on difficulty by doing so.
The heart of the hon.
Gentleman’s argument is that there is inconsistency between
people in different countries. His proposal would create inconsistency
within countries so that people who had retired in Canada 20 years ago
would stay on the frozen amount and people who moved from Canada after
such a proposal was in place would be uprated. If not, we are back in
the language of £400
million.
Mr.
Laws:
I am sorry to take up so much time, Mr.
Gale, but perhaps it might be helpful if I intervened to ask the
Minister whether he understands the amendment’s intention. It is
a probing amendment so, notwithstanding his comments, I hope that it is
still relevant. The intention would not be to bring people’s
pension up to the existing state pension level, but to
index—with the new index—pensioners
going abroad and those pensioners who are abroad, but only from their
existing level, not from the full basic state
pension.
James
Purnell:
I thought that I was making exactly that point. I
was saying that there would then be an inconsistency. Someone in Canada
would be uprated from the level at which they are now, which is their
frozen level. I was referring to someone who moves there
now.
James
Purnell:
In trying to deal with an inconsistency between
countries, the hon. Gentleman would then be creating an inconsistency
within countries. It is not an insuperable problem, but it pushes us
back to the position whereby, if we wanted a solution that was
completely consistent in his terms, we are looking at the original
cost.
Mr.
Laws:
I half understand the Minister’s point, but
does he not understand that it is completely different to suggest that
someone who is retiring abroad for the first time should do so in the
knowledge that a better indexation regime was in place? Arguably,
thosewho left 20 or 30 years ago and knew what the
circumstances were should not necessarily expect their state pension to
be uprated to the existing level. It is reasonable for them simply to
reinstate the
uprate.
James
Purnell:
The hon. Gentleman is welcome to intervene on me
as often as he wants, given that what he said is exactly the
Government’s point. We make clear through Directgov and the
Pension Service what people will be receiving when they go to different
countries. I am saying that his proposal, which he is trying to make
more modest financially, would still leave inconsistencies between
different individuals in the same
country.
The hon.
Gentleman is trying to limit the immediate impact of the cost. He and
the hon. Member for Eastbourne asked me to estimate the immediate
amount. If the current amount of frozen pension is uprated by prices,
the additional cost would be£30 million. If it were
uprated by earnings, it would be £50 million in 2007-08, the
first year. However, as people move overseas that cost would escalate
over time, so long-term projections are that the costs would rise by
upwards of £2 billion in 2050, based on earnings uprating from
2012.
Mr.
Waterson:
It may be my fault but, given what on the face
of it are quite low figures the Minister referred to, how do we reach
the figure of £400? What is the relationship between the
figures?
James
Purnell:
Let us consider those who moved to Canada in,
say, 1985. They would immediately go from the frozen pension to
today’s level of a pension in the United Kingdom. Obviously,
that is a large uplift. Doing that for all people who live in frozen
pension countries would take us up to £400 million. The figure
of £30 million is, I think, based on the assumption that
whatever they receive now would start to be uprated in line either with
prices or earnings.
Mr.
Laws:
The Minister is being extremely patient, for which I
am grateful. Will he clarify the figure of£30 million
that he has described? It seems to have increased rapidly from the last
parliamentary answer that I received on the issue. Admittedly, that was
at the end of 2005, but I would not have expected it to have varied
hugely. The estimate given by the now Chief Secretary in the
parliamentary answer for the initial uprating cost in the first year
was £20 million. The Minister has given a figure of £30
million. Will he explain the
difference?
James
Purnell:
I am happy to write to the hon. Gentleman. I
would guess that the difference is due to the increase in the number of
people going abroad, to which he referred in his speech.
I accept that the hon.
Gentleman thinks our reasons for not uprating are inconsistent, but the
thrust ofthe policy is clear, as it was under the previous
Government: we have limited resources and we need to prioritise our
spending. Our main priority must be pensioners living here and we want
to ensure that their standard of living continues to increase. Like
both the hon. Gentlemen, I have met Mr. Markham and he makes
an eloquent case. I have tried to explain to him, as have previous
Ministers, that our obligation with limited resources is to people in
this country. We have always made that clear to people when they have
decided to go to other countries. Of course, we must meet our
obligations to pensioners living in the European economic area and in
those countries with which we have a reciprocal agreement.
As the hon. Member for
Eastbourne said, our policy has been tested twice in the courts in the
UK, and I can update him on that subject. After the final UK stage, Ms
Carson had six months to decide whether to take the case to the
European Court of Human Rights in Strasbourg. In 2005, we were made
aware that she and 12 others had made an application to the European
Court of Human Rights. We are unlikely to know whether it is successful
until early in the summer of 2007, so the hon. Gentleman has plenty of
time for the policy review group to make its mind
up.
John
Penrose:
I would like to make a point on costs before the
Minister moves on. Given that he has provided us with a series of
updates on costs, which I presume are based on gross costs and do not
include the netting effects to which my hon. Friend the Member for
Eastbourne referred, will he undertake to ask his Department to do some
sampling of individuals who are here from other countries, particularly
countries with which we do not have reciprocal arrangements, so that we
can work out whether those costs estimates would be significantly
reduced? If they would, it might alter the views of his party and
others on the relative importance and feasibility of
uprating.
James
Purnell:
As the hon. Gentleman no doubt knows from his
work on the Select Committee on Work and Pensions, the financial
framework within whichthe DWP operates means that it has to
make fairly significant economies. I therefore cannot commit to a
research exercise that could be expensive, but I am happy to see
whether there is any further information with which we can provide him
before the end of the Committee.
Mr.
Waterson:
An equation that would only cost the Minister a
postage stamp would be for him to ask his opposite numbers in Canada,
Australia, South Africa and so on whether they have any data or are
prepared to spend any of their budgets to find out about the number of
British pensioners receiving means-tested benefits from their
Governments. That is also an important part of the calculation. The
money that he is saving—not personally, but for the British
taxpayer—comes from people who would be entitled to pension
credit, council tax benefit and all the other means-tested benefits had
they stayed in this country. As it is, they are claiming benefits in
another country.
James
Purnell:
I am happy to write to the hon. Gentleman and
other hon. Members with whatever extra information is available. The
point that he is making would only hold if the reciprocal agreement
allowed some netting off of those two factors. Money would not
automatically be saved for the Exchequerif we uprated in other
countries and they had an associated reduction in their means-tested
costs.
2
pm
John
Penrose:
Following on from the suggestion of my hon.
Friend the Member for Eastbourne, I suggest that the Minister should
correspond with his opposite numbers not only in countries with which
we do not have a reciprocal agreements, but with his opposite number in
the US, with which we do. The US Government must have data on the
number of people to whom they are paying pensions over here and we
might even have, on our computer systems, information on the number of
people over there to whom we are paying a state pension. We must have
addresses for those
people.
James
Purnell:
Obviously, we know who we are paying overseas
because we have to pay them but, as I said, we are happy to share with
the Committeeany information that we have before the end of
proceedings.
I want
to put the uprating of state pensions abroad into context and respond
to some of the points made by the hon. Member for Eastbourne about its
extent. He was right to say that more than 1 million people living
overseas are in receipt of a UK state pension, the annual cost of which
is about £2 billion a year. Of that 1 million, about 530,000
live in countries where we do not uprate state pension payments. Those
cost about £820 million a year. I have explained the cost of
changing that on a reciprocal and forward
basis.
In summary,
our position is unchanged from thatof previous
Administrations. It is a long-standing approach. I recognise the
arguments made by Mr. Markham, as well as those made by the
hon. Member for Yeovil, who is trying to find an affordable solution
that addresses some of the inconsistencies. I hope that I have
explained why any solution that gets rid of all inconsistencies will
mount up costs very quickly—£400 million now, but with
the increasing trend towards greater migration, those costs will build
up significantly. So we need to prioritise resources and I have made it
clear that we think that pensioners living here are the priority. That
is why our position is the same as that of the last Conservative
Government.
Mr.
Waterson:
I got the vague idea that the Minister was
reaching his peroration and wanted to make sure that he will deal with
reciprocity—is it necessary at all and will he start
negotiations with any of the countries
concerned?
James
Purnell:
I do not think it would be appropriate to start
negotiations on bilateral, reciprocal agreements when the
Government’s policy has not changed. That would put the cart
slightly before the horse. Of course, it is not legally necessary to
have a reciprocal arrangement before making such payments. Any
Government could do that unilaterally. The question is whether it would
be sensible to do so. We think that it would be inappropriate to make
such a decision without a reciprocal arrangement. However, the key
point, which I have made already, is that we have our priorities, for
which we have set out our reasons. With that, I urge the hon. Member
for Yeovil to withdraw his amendment, but of course it is entirely up
to him whether he does
so.
Mr.
Laws:
I think that we have had a good debate, although I
must be careful in making that claim because I seem to have spoken for
the vast majority of the time that we have spent discussing the
amendment.
To begin
on a positive note, I must say that the tone of the debate has been
non-party political. The arguments on both sides have been more
reasonable and measured than those I have heard on other occasions.
That might be because I did not threaten to press the amendment to a
vote—the approach of the hon. Member for Northampton,
North—or perhaps Mr. Markham and others deserve the
credit for lobbying the Minister and other parties in the House in
order to sell their strong case. Perhaps it is because the Minister and
the hon. Member for Eastbourne accept that there is an extremely strong
moral and intellectual case against the existing pensions set-up,
which, to be frank, we have arrived at for no logical reason, as
successive Ministers have
accepted.
I was
somewhat cheered by the hon. Member for Eastbourne’s speech
because it was a little more positive than the comments made by his
otherwise charming colleague, the hon. Member for Daventry
(Mr. Boswell), who spoke on the issue in a Standing
Committee debate last year, at which the Under-Secretary led for the
Government. The hon. Member for Daventry was very unsympathetic to
taking action, but the attitude of the hon. Member for Eastbourne is
slightly warmer. He indicated that the matter would be part of his
party’s policy review and, helpfully, that he does not have a
closed mind. The issue is finances and affordability, not accepting the
principles of the existing system. I encourage both the Conservative
and Labour parties to accept that there is an irrationality and an
injustice that deserves to be addressed when a Government can find the
money to do so.
I do
not know whether the hon. Gentleman has taken a more friendly line
because he sees the strength of the case and wishes to make the issue a
higher priority, or because he has been strongly lobbied. In
other words, I do not know whether he is serious or whether he is
teasing. Without being party political about it, the Conservative party
has a bigger problem with the issue than the other parties, because it
is committed to the policy of reducing spending as a share of GDP
beyond the level at which the Chancellor of the Exchequer is aiming. No
doubt we will come back to that problem when we discuss the earnings
link. However, I am encouraged by the fact that the hon. Gentleman left
the door open. He accepted that there were many reasons why people move
abroad—sometimes it is owing to personal circumstances, or there
may be some other motivation, but people donot necessarily
have the choice of going to whatever country appears to have suitable
social security uprating arrangements.
The hon. Gentleman started
this afternoon by referring to confusion about cost. I hope that I did
not add to that confusion during my contribution, but that is something
that others are better able to judge. However, the Under-Secretary has
at least provided a more realistic assessment of the costs than other
Ministers have given. In the past, some Ministers have used the figure
of £3 billion, despite the fact that nobody is arguing that all
of the unpaid pension upratings dating back decades should be paid
back. The hon. Member for Eastbourne came to the figure of £400
million. We now have a clear understanding that that figure represents
both the cost of uprating the pension at the appropriate rate, and
uprating the pension to the existing basic state pension rate level.
Therefore, £400 million is not only an uprating cost, but a cost
arising from an increased basic state pension.
2.8
pm
Sitting
suspended for a Division in the House.
2.23
pm
On
resuming—
Mr.
Laws:
When we were interrupted, I was saying how I had
been mildly encouraged by the comments of the hon. Member for
Eastbourne. We will no doubt return to that in due course.
Before I finish I wanted to
say a few things about the Minister’s comments. I was mildly
cheered by their tone and, if his colleague would allow me to say so, I
felt that that they were slightly more consensual—perhaps
influenced by the rest of the pensions debate—than the last time
we debated this subject. The £3 billion figure was not bandied
around too much and we had a sensible debate on the £400 million
figure and other options.
The Minister was kind enough
to say that hehas met Mr. Markham, who represents
many of the disadvantaged pensioners that have had their pensions
frozen. He was kind enough to put it on the record that Mr.
Markham made an eloquent case. I would have liked him to have gone
further and said that it was not only eloquent but persuasive, because
I think that it is. However, the Minister did not slam the door on this
matter quite as decisively as has happened in the past, when the
Department for Work and Pensions has given the impression that it
regards the financial obstacles as impossible to deal with and that,
even if money were
on offer, the proposal would never be a priority. That has been my
impression of their position up to now. I think we reached the point
today at which the Minister had some sympathy for the case that has
been made.
The only
argument the Minister made against the proposal was a financial one. He
commented on the potentially anomalous position and whether that could
be easily improved by other changes, namely indexing from now on only
for new pensioners and for those who have already moved abroad based on
their existing state pension level. He said that doing so would create
some anomalies, presumably because in his mind somebody who has gone
abroad as a new pensioner would have a higher state pension, but the
same level of indexing as someone who had already been in the country
for 10 or 20 years, who would have the frozen level of the basic state
pension and only have the indexing on top of that. Under the proposal
that I am floating, there would be that gap. It is inevitable if the
measure is to be implemented affordably at some stage. Our aim was to
offer ways of delivering the policy change in a way that would be
financially
viable.
Mark
Pritchard (The Wrekin) (Con): Is the hon. Gentleman
suggesting having reciprocal arrangements with every country on the
planet with which we do not currently have such arrangements? If so,
how has he calculated that into his vague cost projections, taking into
account the record emigration that he has
mentioned?
Mr.
Laws:
I am proposing neither reciprocal arrangements with
the British overseas territories, because we would be negotiating with
ourselves, nor huge, prolonged negotiations with countries where there
are no British pensioners. I would want reciprocal arrangements between
the United Kingdom andthe big four countries with the largest
number of pensioners, which the hon. Gentleman knows that we are really
talking about: Australia, Canada, South Africa and New Zealand. That
would be sensible. The hon. Member for Weston-super-Mare made an
excellent point when he said that, if we are to talk about this matter
sensibly in relation to the cost, we need to understand how reciprocal
arrangements would impact on the costings. It would be absurd for any
UK Government to say that they would not seek to achieve a reciprocal
arrangement as part of a deal on the issue. I do not imagine that any
of the parties represented in the Committee would want to do that. As I
said, we ended up with a more sensible debate about costings.
I accept that, in the scenario
that I have outlined, there would be British pensioners living abroad
in the same country with different pensions, depending on whether they
retired there 30 years ago or now. I merely say that no pensioner in
either category would not be in a better situation than now and would
not welcome that change, even if they wanted to seek moreover
time.
Some
disagreement remains on the costings. There was disagreement about the
base cost in the first year of linking to the retail prices index,
which the Minister’s predecessor said would have been
about£20 million about a year or so ago. Now the
Minister has come up with a new figure of £30 million. He is
right to say that more British pensioners are moving overseas, but there
certainly has not been that proportionate increase in the past year or
so. Unless a vast number of people are fleeing life under this
Government to go to other countries, an increase of such proportion is
not justified. It would be interesting to hear where that figure comes
from.
The Minister
helpfully gave us some indication, which we needed, as the hon. Member
for Eastbourne said, of what the additional cost would be now that we
have to earnings-link rather than RPI-link in future. I think that the
Minister mentioned £50 million, compared with £30
million. I hope that he will write to clarify some of these points and
clarify the costs for the out years, where the expenditure rises. I
accept that it rises; if it did not, it would hardly be such a big
issue.
John
Penrose:
Going back to differentials between pensioners in
various countries whose pensions are frozen because they have arrived
at different points in the past, I presume that that must be the case
already, with people who arrived 10 years ago having their pensions
frozen at a different level from someone who arrived last year. If I
understand it correctly, if those people took up the hon.
Gentleman’s proposal, the differential between those pensioners
in those countries will be no more or less unfair. Is that
correct?
2.30
pm
Mr.
Laws:
The hon. Gentleman is quite right. I do not think
that the majority of pensioners living abroad in those circumstances
would regard my proposals as a step backwards. In my view, they would
most certainly see them as a step forward, although not large enough.
As I said, in
conversations with some of the pensioner groups concerned I have
spelled out that I do not believe that any UK Government elected in the
foreseeable future would consider making the issue such a priority that
they would be prepared to accept the £400 million—or
£600 or £700 million—up-front cost. I have made it
clear that we need to consider how to make the change affordably.
However, it would be much less unjust than the existing system. Of
course, over time, it would mean that the stock of pensioners living
overseas, if I can put it in such crude economic terms, would be living
in an acceptable situation rather than in the existing unacceptable
situation.
The hon.
Member for Weston-super-Mare raised an extremely interesting point
about whether the costings include relevant nettings off that might be
appropriate in the circumstances. He asked particularly about offset
arrangements and what assumptions might be made. It would be useful to
know. I understand that the Minister would be undertaking a very large
task indeed if he asked his officials to come up with reliable figures
spelling out to the last decimal place the essential implication, as it
would be highly uncertain, but it would be interesting to have it
confirmed that there is an assumption of no offset agreement in the
existing figures and to have advice on any orders of magnitude that he
might sensibly give as to what those offset agreements could be
worth.
There is a wider economic
issue, which I will not even attempt to explore in this debate or we
will be here the entire day. That issue is what the cost is of UK
pensioners moving abroad. In certain cases, not only might they pay
less tax than they would if they had stayed here, but they would not
make the same claims that they would have made on the national health
service and other services. That is a much more complex economic case,
which could be studied only as part of a much wider review, rather than
the sort of thing that we are asking the Minister to
do.
After all that,
we have come to the point where even the Minister is willing to accept
that we could be talking about much lower cost figures if we chose to
manage the transition differently. That is extremely helpful. Despite
the lack of priority that the Government believe they should give
pensioners living abroad rather than in this country—he finished
with the point that the Government’s real duty was to look after
pensioners in the United Kingdom rather than abroad—I would
gently point out that under his proposals, he will give to pensioners
in unfrozen countries almost 50 per cent. of the benefit not only of
the existing RPI uprating but of the earnings uprating.
What the Minister
did not put on the record, which would be interesting to hear now or
when he writes us his lengthy letter on the subject, is how much he
will now fork out in addition to the RPI costs for funding an uprating
with the earnings link the pensions of UK citizens living abroad in
countries where the pensions are not frozen. My guess is that that
figure must be quite significant. It is interesting that the Government
are trying to defend their present position by maintaining that they
will focus only on pensioners living in Britain, because they are
actually quite happy to fork out a huge amount of money to
earnings-uprate the pensions of UK citizens living in the unfrozen
countries. He did not mention it, but presumably they did not consider
before introducing the Bill the interesting issue of whether there
should be an earnings uprating for those pensioners, or whether they
would keep it at prices or share some of the potential proceeds of
uprating one lot at earnings to uprate some other lot closer to prices,
rather than freezing them. That is a big
anomaly.
I hope that
behind his ministerial front and the inevitable “no” that
all Ministers have to give to potential changes in policy until they
say “yes”, the Minister is even more persuaded by
Mr. Markham than by this debate that there is a very
powerful intellectual and moral case against the existing uprating
policy. If the only case for it is financial, the Government should be
seeking to commission reports into precisely the economic issues that
we have discussed to see whether the fundamental injusticecan
be remedied. I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 29, in page 5, line 38, at end
insert
‘; or by a percentage not less
than the percentage by which the general level of prices is greater at
the end of the period than it was at the beginning, whichever is the
higher.’.
No.
2, in page 5, leave out lines 39 to
41.
No. 31, in
page 5, line 41, at end
insert—
‘(3A) The general
level of earnings shall be defined as the Average Earnings
Index.
(3B) The general level
of prices shall be defined as the Retail Prices
Index.’.
No.
3, in page 5, leave out lines 42 to
44.
No. 4, in
page 6, line 13, leave out from
‘shall’ to end of line 14 and insert
‘determine the general level of
earnings as set out in subsections (8A) and
(8B).
(8A) If the average earnings index
(including bonuses) for the whole economy for September in any year is
higher than the index for the previous September, the Secretary of
State shall as soon as practicable make an order in relation to each
sum mentioned in subsection (1), increasing each sum, if the new index
is higher, by the same percentage as the amount of the increase of the
index.
(8B) In making the
calculation required by subsection (8A), the Secretary of State shall
in the case of the sums set out in subsections (1)(a) to (1)(d)
inclusive, round up the result to the nearest 10
pence.’.
No.
33, in page 6, line 14, leave out
‘he thinks fit’ and insert
‘may be approved by resolution of
each House of
Parliament’.
No.
5, in page 7, line 3, at end
insert—
‘(6A) The Secretary
of State must, within six months of the beginning of the Parliament
referred to in subsection (6), inform Parliament by means of an oral
statement of the date at which the provision set out in this section
could be
afforded.’.
No.
78, in page 7, line 3, at end
insert—
‘(6A) The Secretary
if State must, on or before 5th April 2009, announce his decision as to
the date from which he will implement the provision set out in this
section.’.
I
have already indicated that I am prepared to allow a wide-ranging
debate on this group of amendments on the understanding that it is at
the core of the clause, so I do not envisage any call for a stand part
debate
thereafter.
Mr.
Waterson:
Thank you, Mr. Gale—that is
very helpful. The clause is extremely important and therefore deserves
a full debate. I hope that all the issues that we wish to raise can be
fitted into it with a modest amount of indulgence from the Chair. I
shall first summarise some of the amendments and then discuss the
background to them.
I
hope that amendments Nos. 1, 2, 3 and 4 are fairly straightforward.
They are designed to remove the almost complete carte blanche that is
being given to the Secretary of State to determine how uprating is
undertaken. It might seem slightly churlish to raise the matter when,
after years of campaigning by all sorts of outside groups, not least
the National Pensioners Convention, the Government have decided to
restore the link with average earnings. However, the clause is
incredibly vague about how that is to
happen.
Proposed new
section 150A(8) in clause 5 states
that
“the Secretary of
State shall estimate the general level of earnings in such manner as he
thinks fit.”
I am sure
that there is no intention that he will toss a coin or use a pin, but
paragraph 149 of the explanatory notes summarises the situation as
follows:
“In
practice this means the Secretary of State will be able to decide which
measure or index of earnings growth should be used for the purposes of
earnings uprating.”
That
is not quite good enough. Having won the prize of the restoration of
the link, we should have a little more clarity about the basis on which
the Government are going to approach the
issue.
Paragraph 3.24
of the White Paper states, baldly, that during the next Parliament the
Government will
“re-link
the uprating of the basic State Pension to average
earnings.”
Their
commitment to that is perfectly clear apart from the issue of its
timing, which I shall come on to. The amendments would provide greater
certainty about how this important element of the Government’s
package of reforms is
implemented.
I should
concede, before somebody else says it—particularly the
Minister—that there is a precedent for the sort of wording that
appears in the clause: I believe that it is in the Social Security
Administration Act 1992, which was introduced under the previous
Conservative Government. However, there is also a more recent precedent
for a much tighter drafting of such uprating legislation in section 34
of the Employment Relations Act 1999. It is used to uprate, among other
things, the maximum week’s pay that is used for calculating
statutory redundancy pay in line with the movements of prices measured
by the retail prices
index.
I cannot for
the life of me understand why the Government should be unwilling to
state in the Bill exactly how they will approach the issue of the link.
Amendments Nos. 1, 2 and 3 are all consequential upon amendment No. 4,
which makes it clear in the Bill that the Secretary of State will take
the average earnings index—including bonuses—for the
whole economy in September in any given year and use that as the
basis.
You may
wonder whether there is any substance to this point, Mr.
Gale. The concern is that there are a number of different measures that
can be used but this seemed the most obvious and fairest one to put in
place.
In addition to
the strange provision that the Secretary of State can decide
“in such manner as he thinks
fit”
proposed subsection
(3) does not require
“the Secretary of State to
provide for an increase in any case if it appears to him that the
amount of the increase would be
inconsiderable.”
Again,
that seems a bit odd. If there is an increase, it should be acted upon.
It would be nice to know how this Minister would define the word
“inconsiderable”.
We
had one concern with proposed subsection (4) which is about
adjusting
“the amount
of the increase so as to round the sum in question up or down to such
extent as he thinks
appropriate.”
Our fear
on this side is that it would be more appropriate to round up in every
case. However, there may be some good accounting reason for the
Minister taking that view. We will listen to what he has to say with
great interest.
If the hon.
Member for Yeovil will forgive me, I will deal briefly with the Liberal
Democrats’ amendments Nos. 29, 31 and 33. I am keen to hear them
develop their case for those. Amendment No. 29 seeks to put in an
alternative, namely prices versus earnings, which has been provoked by
the recent shock increase in inflation. It would be interesting to hear
the arguments for and against. I am delighted to see that great minds
think alike and in amendment No. 31, they have reached a similar view
on the right index to use, namely the average earnings index—I
assume that they mean the one that includes bonuses. However, they may
have some technical reasons for taking a different
view.
Mr.
Laws:
Obviously, I will be able to make my own speech in
my own time, but on the important issue of whether the uprating will be
at prices or inflation—whether there will be inflation
underpinning to make sure that if earnings are below inflation people
do not end up with a real cut in their pension; I think I am right in
saying that that was the 1970s formulation—since that is a
fairly clear cut issue, is the hon. Gentleman not minded to give rather
stronger support to our amendment than he has done so
far?
Mr.
Waterson:
In fairness, I have said that I am keen to hear
the hon. Gentleman develop his argument. He talks about a 1970s
formulation but we are not in the 1970s. We will discuss the history of
the link and some of the mythology that has grown up around it, but it
is important to remember what the 1970s were like in terms of public
finances, roaring inflation and so on.
Thanks to the golden legacy
that this Chancellor inherited and which has stood him in relatively
good stead until recently, we have lived in a low inflation world.
However, I will listen to what the hon. Gentleman says and will not
rule it out entirely. Nevertheless after all these battles over many
years to restore the link with earnings, it seems slightly odd to be
returning to the alternative of prices, but I will return to that if I
may.
I was not going
to speak to amendment No. 5 because amendment No. 78 actually
represents second thoughts on this matter and is a slightly preferable
way of approaching the same point. I regard amendment No. 78 as the
most important. Basically, it is about the timing of the decision. The
Chancellor has been through a long personal odyssey in respect of
restoring the link. As part of building up a
reputation—justified or otherwise—for financial prudence,
he always argued that restoring the link could never happen. I shall
deal with that in a bit more detail when I consider the history of the
arguments about restoring the link.
2.45
pm
We all know
that the Chancellor’s initial reaction to the Turner report was
grudging, to put it mildly;the Treasury made a significant
attempt to sabotagethe whole affair. In the meantime, the
Chancellor has obviously had a lightning conversion. Even so, the
furthest that this legislation goes is to say that the link will be
restored in 2012, or 2015 at the latest. The Minister will no doubt
correct me, but I assume that that is still subject to the
affordability criteria that the Chancellor set out a while
ago.
What strikes me as odd from a
political point of view—unless an eye-catching announcement is
to pop up in the Chancellor’s first 100 days as Prime
Minister—is that I assume that the Chancellor is saying that we
would go through the entire next general election campaign without
knowing whether the change would happen. Let me be straightforward: I
have drafted amendment No. 78 for that precise reason. It would require
the Chancellor—he may then be Prime Minister—to announce
the decision before the likely date of the next election.
At the moment, all that
hard-pressed pensioners have from the Chancellor is an IOU—he
will or might link pensions to earnings in 2012 or 2015. As I said,
even then he has made it clear that that is subject to whether it is
affordable at the time. The amendment would call on the Chancellor to
announce the decision on uprating the state pension and inform
Parliament of that decision on or before 5 April
2009.
Mr.
Laws:
I understand the purpose of the amendment. Although
he has picked out that date, is it the hon. Gentleman’s strong
view that it should be before the next general election? Will he give
the same commitment on behalf of his own party? Will it be able to
state before the next general election the timing that it would
propose?
Mr.
Waterson:
As I have said in a different context, we are
still engaged in a policy review. The hon. Gentleman has reminded me of
a point on one of his amendments that I failed to deal with and will
come back to in a minute. The answer to his question is that it seems
unreal that under present Government policy, we would go through the
next election campaign without a commitment on the
issue.
James
Purnell:
I suspect that the hon. Gentleman’s
intention at some point is to tease my party about whether our policy
is agreed, and rehearse all of that. He will be glad to hear that it is
completely agreed—and, indeed, in the legislation. Is not the
answer to the question that he was just asked not that his party will
come to a view on the issue in time, but that it has answered it
already? In our Second Reading debate, the shadow Secretary of State
said:
“We
believe, however, that restoring the earnings link to provide that
stability is affordable now.”—[Official
Report,
16 January 2007; Vol. 455, c.
673.]
It is not that
our policy is unclear, but that his is; he is disagreeing with his own
shadow Secretary of
State.
Mr.
Waterson:
No, I am not disagreeing with anyone, except
possibly the Chancellor. I am trying to tease from the Minister when
the restoration of the link will happen and why it is inherent in the
Bill that we would have to sit quietly through an election campaign
with no commitment. That is a perfectly simple
point.
Mr.
Waterson:
Before I give way to the Minister again, as I am
happy to, I remind him that if the Conservatives had won the last
election, we would already be implementing the restoration of the
link.
James
Purnell:
Perhaps the hon. Gentleman should have saved that
answer for this question. Is his policy that the link should be
restored now? Or will the Conservative party review that issue and
decide
later?
Mr.
Waterson:
Our policy is clear and is basedon
being the current Opposition. We await the comprehensive spending
review in the summer. We are trying to extract from the
Minister—although it is a bit like drawing teeth—what
precisely the commitment to the new policy is. I have made the point
that the decision could come as late as 2015, or not at all if there is
an affordability problem.
I was explaining why we had
chosen 5 April. I appreciate that one school of thought says that there
might be a general election later this year, but if we discount that,
the most likely date is May 2009. The Government cannot get away with
going through that campaign without coming clean on such a crucial
decision. There are 2 million pensioners living in poverty who deserve
an answer. If the Chancellor and the Minister, as one of his potential
acolytes, cannot give that assurance, that suggests that they know more
about the future problems of the British economy than they have
admitted
to.
Mark
Pritchard:
My hon. Friend is absolutely right to ask why
there is a mystery about the vagueness from the Government on the
issue. Despite the Minister’s distraction strategy, which we
heard a moment ago, they are the Government and we are the Opposition.
The Government should support the amendment, because my hon. Friend is
absolutely right. There are2 million pensioners who want to
know whether the restoration will really happen. That strong
caveat—subject to affordability—is worrying for many of
the pensioners whom I represent. I hope that they can get more clarity
today, as a result of the Government’s supporting such a
sensible amendment.
Mr.
Laws:
I support the hon. Gentleman in his call for more
transparency from the Government on the issue, but I am a bit confused
about what the Conservative party’s policy is. To give the hon.
Gentleman credit, his party said before the previous general election
that the earnings link in the basic state pension should be restored in
this Parliament. I would have assumed that he would now be in favour of
that, but he seems to be saying that he is not sure that the link
should be restored immediately. I cannot understand when, between now
and the general election, the Conservative party changed its mind on
the
issue.
Mr.
Waterson:
The short answer is that we did not change our
mind, but the electorate did not choose us. It is clear—I was
just refreshing my memory from the document—that we promised to
restore the link with earnings at the previous election. If a
Conservative Government were in power now, we would no doubt be on the
way to implementing that. That is the first point.
The second point is
yes, we still believe in restoring the link with earnings. The
Chancellor is being cautious about when he would do that, based on the
finances presided over by the Government. In a minute
I shall say something about the Government
considering whether the date can be brought forward. We would need to
see the comprehensive spending review, as well as the financial
landscape that we would inherit as the Government, but that is a
different point. The question that I am putting—I am determined
not to be shaken from it—is: why can we not say in the Bill that
the decision should be announced before the likely start of the next
election campaign?
In
a sense, I am trying to be helpful to the Chancellor, who will
presumably be the Labourleader and the Prime Minister by then.
I know thatthe Minister is itching to intervene again, but
surely the Labour party will not fight the next election on the basis
of not having a policy on when the Government are going to uprate the
state pension with earnings rather than with prices. Why not put that
in the Bill? Does the Minister want to
intervene?
Mr.
Waterson:
The Minister just tensed for a moment—the
question will have to remain a rhetorical one for now, although I shall
return to the
detail.
On a smaller
point, I am reminded that I failed to deal with amendment No. 33, which
the hon. Member for Yeovil tabled. As I read it, it seems to say that
instead of being up to the Secretary of State, the decision would have
to be approved by a resolution of each House of Parliament. I am not
entirely sure that we would go along with that. We believe that the
Secretary of State of whatever party should makethe decision.
The important thing is to nail down the approach that he should take in
the Bill. Presumably, there will be an uprating debate every year in
both Houses of Parliament. However, I do not want to draw the hon.
Gentleman on that issue before he has had a chance to develop his own
case.
I come now to
some of the broader issues raised by the clause. There is a mythology
about restoring the link. It is helpful to refer to the Library
briefing on the matter, although it may be thought a bit of a sissy
thing to do. It is rather a good brief on this occasion, so I shall do
so. There is a myth that there was a long golden age when there was a
link between earnings and the basic state pension. That is simply not
true; it is a bit like the golden age of British Rail before it was
privatised. I do not remember it being a haven of good service, edible
food and timely arrivals and departures. In the same way, there is a
myth about the earnings link.
The Labour Government elected
in February 1974 introduced social security legislation and a National
Insurance Act 1974, which provided for all long-term benefits to be
increased in line with earnings or prices, whichever were more
favourable, reflecting the 1970s point that the hon. Member for Yeovil
raised a moment ago. There was a brief period when there was a link.
The Conservative Government elected in 1979 was committed to
controlling inflation. Patrick Jenkin, the new Secretary of State for
Social Services, made it clear that what he called the ratchet effect
of the increase in pensions could not be sustained given the state of
the economy. Therefore, in 1980 the link was
broken.
It is worth
pointing out that it has not necessarily been a bad thing in every year
since then that pensions have been linked to prices not earnings. The
hon.
Member for Yeovil may be developing that point in his arguments in his
own way. It is important to remember how ghastly the situation was in
the late 1970s; probably the worst British Government in modern history
had to go cap in hand to the IMF, there was the winter of discontent
and so on. It was incumbent on the incoming Conservative Government, in
trying to bring public finances into some sort of order and to bring
down inflation, to do something on those lines. However, it is a
powerful
mythology.
Ms
Angela C. Smith (Sheffield, Hillsborough) (Lab): In 1980,
the basic state pension was worth 25 per cent. of average earnings. By
2006 that figure had fallen to 16 per cent. I suggest, therefore, that
the break with earnings has had a real impact on pensioner prosperity,
despite real-terms increases in the pension over that
period.
Mr.
Waterson:
I do not disagree with much of what the hon.
Lady said. That is one reason why my party, before the last election,
fixed on the policy of restoring the link. It was not an easy thing to
do; we were the only party to go into the last election with that
promise. Not even the Liberal Democrats made such a promise, which must
have been an oversight. It was, and remains, an expensive thing to do
and we took a lot of trouble to work out
costings.
3
pm
Mr.
Laws:
I shall not make a partisan response to the hon.
Gentleman’s latest comment. Does he accept that there was a bit
more to it than financial constraints when the link was broken under a
Conservative Government getting on for a decade later? The link was
broken not only because of the affordability issue, but because the
Conservative Government’s philosophy did not favour an
earnings-linked basic state pension. At that time, there was a rather
different approach, including by some of the other parties that are
represented here
today.
Mr.
Waterson:
I agree with the hon. Gentleman thus far: the
then Conservative Government gave enormous priority to encouraging and
building up private and occupational pension provisions. Hence the
comments of the right hon. Member for Birkenhead (Mr. Field)
that, when Labour took office, we had the strongest pension provision
in Europe and now we have one of the weakest. Towards the end of the
last Conservative Government, we had more assets in pension funds in
this country than the whole of the rest of Europe put together. That
proud achievement of our Government has been much unpicked by this
Government.
We start
from the mythology that the wicked Tories put paid to something that
had been in place for many years, whereas it had in fact only a brief
history under a Government who eventually collapsed under the weight of
their own financial incompetence. At the last election, we painfully
worked out a policy that would allow us to restore the earnings link in
this Parliament. Why did we do that? There were three reasons. First,
it was the right thing to do.
The second reason was that it
is the most reliable way of getting help to the pensioners who need it
most. When we debate new clause 2, we will have a longer discussion of
the great means-testing controversy. We will not have the benefit of
oral evidence, sadly, so I shall have to do the best that I can. Some
1.5 million people do not claim their pension credit, and other
benefits, such as council tax benefit, have very low take-up
rates.
The third
reason, which will also become more relevant later in the context of
the delivery of property and personal accounts, is about providing a
decent platform upon which people can build their own pension provision
during their working lives. As I said, I do not want to get too much
into the means-testing argument.
For years, post-1980, all of
us politicians would address meetings of pensioners at which someone
would be guaranteed to say, “What about Maggie scrapping the
earnings link in 1980?” I am not sure what I was doing in
1980—oh, I had just fought my first seat in 1979. I do not know
what the Minister was doing; I would not even
speculate.
Mr.
Waterson:
It was a very long time ago, but it remains a
powerful image for many pensionerswith long memories. I have a
vivid recollection of announcing to a pensioners parliament at the
National Pensioners Convention in Blackpool our policy of restoring the
link. I even got some boos from people who could not bear the thought
that it was the Tories, and only the Tories, who were proposing that. I
told them to get over
it.
This issue has
been a running sore for a long time. What happened when Labour won the
election in 1997—nearly 10 years ago? Did they rush to do
anything about it? Of course, they did not, and the Chancellor has had
some hard-edged things to say about it. In 2000, he
said:
“We
can’t go back to the earnings link. What we must do is help the
poorest pensioners and people on modest
incomes.”
In 2003, he
said:
“I have
to tell the House that to revert to the pre-1980 position—an
earnings link with pensions—would, by the end of the period,
raise deficits by 3 per cent. a year just to cover this one item, with
the long-term sustainability of the public finances
undermined.”—[Official Report, 10 December 2003;
Vol. 415,c. 1063.]
James
Purnell:
Of course, the Chancellor was making the point
that to restore the link in isolation without ways to pay for it in the
long term would have been unaffordable. The hon. Gentleman may want to
confirm that his policy was not to restore the earnings link for ever,
but to do so for just one Parliament. He did not have a policy for
making it affordable in the long
term.
Mr.
Waterson:
With all due respect to the Minister, it is a
bit of a cheek to tell us that our policy was for only one Parliament
when he is telling us that the Government will not restore the link for
another Parliament.
To return
to the Chancellor, just as revealing is what he said when the Turner
report was published. He said
that
“there is no issue
of principle about the pension being linked to earnings. The question
is this one that Lord Turner himself has acknowledged today, an eight
billion pounds cost...Tony Blair and I are totally
agreed”—
that is
a first—
“about
the importance of dealing with this affordability
question.”
As
for off-the-record comments, the Financial Times reported that
the Chancellor had written to Adair Turner—or Lord Turner, as he
now is—telling him that he should not assume that the current
link of the means-tested pension credit benefit to earnings would
continue beyond 2008. The same source—the Financial Times
is usually quite accurate on these matters—said that the
Treasury was “apoplectic” about the proposals
and
“doing everything it
can to undermine
them.”
Apoplexy is
something that the Chancellor does very well. BBC News Online reported
that
“the chancellor
plans to ‘shelve’ a key part of the Turner
report.”
So this Labour
Government were not bouncing into office in 1997, determined to put
right a massive injustice that had been going on since
1980.
Ms
Smith:
Does the hon. Gentleman acknowledge that, from 1979
to 1997, the net income of the poorest 20 per cent. of pensioners grew
by 28 per cent., but that the net income of the richest 20 per cent. of
pensioners grew by 76 per cent.? Does that not show that means-testing
in relation to the pension credit was the important thing to do to
address pensioner
poverty?
Mr.
Waterson:
I shall say two things about that. The
statistics on the rise in pensioner incomes in the 1980s and 1990s are
very much affected by those who had occupational and private pensions
and those who did not. I forget the exact figures, but there was a very
impressive increase in pensioner incomes for those who were entitled to
occupational pensions. Of course, it was a centrepiece of our policy to
try to get more and more people into such schemes, and I think that we
had a lot of success in doing so. That was
important.
On pension
credit, there are two schools of thought on the Government Benches.
There are those who say—I think that the right hon. Member for
Birkenhead, for example, has come around to this viewpoint—that
pension credit was always or should always have been a temporary
expedient that solved a particular problem over a short term of years,
although 2 million pensioners are still living in poverty. Then there
are those, such as the Chancellor, who may feel that it does not matter
too much if such a high and rising proportion of the population is
subject to means-testing. It gives the state that control on which the
Chancellor is so
keen.
Ms
Smith:
All the evidence shows that the pension credit has
addressed some of the extremities of pensioner wealth and prosperity.
It has built part of the foundation for the pension settlement that we
are discussing here
today.
I was saying that the
Government came to power in May 1997 determined, one would have
thought, to right this particular wrong, but not a bit of it. Then, of
course, there was the famous 75p increase in the state pension. Ever
since, until very recently, and through many of the latter years of
opposition, the basic attitude of the Government was that restoring the
earnings link was unaffordable. In fact, that word was thrown at us
when it became our policy before the last election—we were told
that it was unaffordable. So there has clearly been a sea change in the
Government’s attitude, which I welcome. The Minister is tensing
again, but that may just be because this is a
Thursday.
As we are
not to have a clause stand part debate, I think it right to make it
clear where we are in terms of the history of the earnings link. Labour
politicians— including the Chancellor, no doubt—have
often been quite cynical in portraying us as the wicked Tories
responsible for breaking the link to earnings. I stress again that it
was something that happened over a short period. The economy collapsed
because of the failure of the pre-1979 Labour Government. In 1980,
based on public finances and roaring inflation, we made absolutely the
right decision. Until relatively recently, the Labour party had no
plans to restore the link. The initial reaction to the Turner report
was apoplectic, as we have heard. Indeed, I recall—it is coming
back to me—that the Government got very narked because they felt
that it was not even part of Turner’s terms of reference to
consider the state pension in the first
place.
The
Parliamentary Under-Secretary of State for Work and Pensions
(Mr. James Plaskitt):
I have listened carefully
to the hon. Gentleman recounting the history and to his efforts to
explode the mythology that he says surrounds the previous Conservative
Government’s decision to break that link in 1980. As I
understand it, his argument turns on the issue of affordability. He
refers to the state of public finances and to inflation, and he prays
those in aid of the reasons why that Government decided to break the
link. Is he sayingthat the link to earnings remains contingent
on low inflation? If a future Conservative Government were to restore
the link and then lose control of the economy, as they did before, and
we returned to high inflation, is it likely that the link to earnings
would be broken
again?
Mr.
Waterson:
That was not just one hypothetical question, but
a series of them—piled one on top of another. I am sure that the
Under-Secretary was not involved, but it was a Labour Government who
lost control of inflation and the economy and had to go cap in hand to
the IMF prior to 1979. No one should forget that. If fault is to be
apportioned, it was their fault that the link had to be broken in 1980.
I make no apology for saying that.
The Under-Secretary asks me to
commenton whether a hypothetical future Conservative
Government would lose control of the economy and inflation. We have no
intention of doing so. It is this Government who seem to be losing
control of inflation. We have the highest rate of inflation for how
many years? I forget off the top of my head—I think that it is
17 years. It is up to 3 per cent. Perhaps he would like to explain that
to pensioners.
As the
Under-Secretary has got me started, may I remind him of recent research
showing that the real rate of inflation for pensioners is more like 9
per cent? Why is that? It is because council tax bills have doubled
under this Government. Any help that the Government were going to give
came only in election years—surprising that! Energy prices are
also to blame, and the Government have failed to work out a proper
energy policy. We are not talking about 3 per cent.—worrying
though that is—but 9 per cent. for the very people that the Bill
is supposed to
help.
Mr.
Adrian Bailey (West Bromwich, West) (Lab/Co-op): Probably
the only advantage of my longevity is that I remember the situation
from 1979 to 1980. If my memory serves me right, one of the great
disappointments when the Labour party lost power in 1979 was that they
missed out on the huge bonanza of North sea oil and gas, which the
Conservative Government enjoyed and squandered in tax cuts. How does
the hon. Gentleman factor that in to the debate on the affordability of
pensions at that
time?
3.15
pm
The
Chairman:
Order. I am beginning to regret saying anything.
I indicated that I would allow a degree of flexibility, but there is
flexibility and flexibility. It would be quite helpful if we began to
concentrate on one or two of the matters slightly closer to the
amendments.
Mr.
Waterson:
Yes. I will not even begin to deal with whether
Callaghan should have gone to the country in
1978—
Mr.
Waterson:
There is a phrase—something about church
and waiting. Where was I? North Sea oil—it is our oil, no it is
their oil.
Let me
conclude by looking at some of the comments from outside bodies about
the decision and its timing. Help the Aged
said:
“Taken
together the reform package must inspire a momentum of change in
people’s behaviour, helping to re-shape attitudes to and
confidence in savings for pension provision, as well as counter-acting
the disincentive to saving created by the current regime of
means-tested
benefits.”
Help
the Aged make the point that, under the projections, the total cost of
the state pension, state second pension and pension
credit—currently 5.2 per cent. of GDP—will still be 5.2
per cent. of GDP by 2020, and that it will be 6.7 per cent. of GDP by
2050. On the face of it, that looks like quite a healthy increase.
However, over that period, the briefing goes on to
say:
“the older
population will be increasing dramatically, and this30 per
cent. increase in GDP spend will be spread around an older population
which will then be 50 per cent.
larger.”
Referring to
pensioner poverty, it then
says:
“some two million
older people are living below the official poverty line (60 per cent.
of median income)”,
but
roughly 1 million of them are
living
“below 50 per
cent. of median
income”.
Help the Aged
says that
“this Bill
does nothing to help today’s older people”.
The National Pensioners
Convention talk about the 2012
date:
“Pensioners’
incomes relative to the wider population will continue to fall for up
to 6 years...3 million of today’s pensioners will not live
to see the link
restored”,
and
“the
basic state pension will have fallen to just £75 a week in
current terms or 12 per cent. of average
earnings.”
One
demand, which may be unrealistic, is the restoration of the link
between the state pension and average earnings or prices, whichever is
greater, and which should happen from April 2007. After what we heard
about the computer on Tuesday, that sounds a little unlikely, unless it
can all be done
manually.
The Equal
Opportunities Commission, which has been extremely helpful,
particularly in briefings on carers and women,
says:
“It is
also regrettable that today’s pensioners are not given a stake
in the package until the basic state pension’s link to average
earnings is restored—2012 at the earliest, by which time the BSP
will have depreciated still further in
value.”
3.18
pm
Sitting
suspended for Divisions in the
House.
3.47
pm
On
resuming—
Mr.
Waterson:
I want to deal finally, as I move into section 4
of my speech, with the views of outside bodies. There has not exactly
been a chorus of undiluted pleasure at this part of the Bill’s
package. The Occupational Pensioners Alliance
states:
“the Bill does
nothing to address the significant issues faced by today’s
pensioners...the Government proposes to introduce the link to
earning in 2012 at the earliest. This is at least two years later than
the recommendations of the Pension Commission. Consequently, millions
of pensioners will become poorer because of the slower rate of RPI
increases as compared to the buoyancy of
earnings.”
Help the Aged
supports my amendments Nos. 1, 2, 3 and
4:
“We believe
it is vital that the introduction of the earnings link is not a false
promise. We believe it will be helpful to pin down the definition of
earnings and remove the proposed flexibility for the Chancellor to
decide on how earnings should be
calculated.”
Finally,
Age Concern
says:
“current
pensioners will not benefit from the important reforms contained in the
Bill”,
and refers to the
Chancellor’s escape clause
that
“the link will be
made in 2012 subject to ‘affordability and the fiscal
position’”.
Age
Concern went on:
“it is
imperative that the date for the reinstatement is on the statute rather
than remaining subject to the vagaries of the political
environment.”
I would
agree with that. It is the whole point behind amendment No.
78.
To sum up, the
first issue in my amendments is the crucial one of how the Secretary of
State should approach the calculation of the rise in earnings over the
previous 12 months. We think that it should be on the face of the Bill.
The Minister might have some perfectly good technical arguments against
that, and I
am happy to listen to them, but it seems strange that that provision is
not in the Bill in such an important context.
There is also the wider issue
of restoring the link. We agree with the Government about restoring the
link with average earnings—more accurately, they agree with us
because we got there first—and the earlier the better, all other
things being equal. We agree, too, that it is a question of
affordability. We are just surprised that there seemed to be a problem
with announcing prior to the next election when that will happen.
Otherwise, it is just an amorphous promise about something that will
happen one day or perhaps never, and is costing the Chancellor
nothing.
James
Purnell:
The hon. Gentleman says that the Conservative
party got there first. I hope he will agree that its policy was
slightly different. It was to stop the crawl of new rights under the
state second pension. It was to increase for one term the basic state
pension in line with earnings, but to pay for it by taking money away
from people who contributed into S2P. That is not the policy that we
are
following.
Mr.
Waterson:
I am not suggesting that the policies are on all
fours in every detail. Indeed, we were not proposing to increase the
state pension age at that stage, but we shall debate that matter
another time. I am happy to concede the Minister’s
point.
There is
common ground between us—the Government and the
Government-in-waiting—but affordability is key. As long as the
Government are the Government, they are the ones who should be able to
tell us about affordability. It puts too high a strain on our credulity
for the Government to say that they will not know whether the policy is
possible and affordable until the beginning of the next Parliament at
the earliest. They should be able to say that in 2009. Unless the
Minister comes up with a blinder of an explanation, I certainly intend
to invite the Committee to press amendment No. 78 to a
Division.
If the
Government are not in a position to explain matters, the economy will
be in deep trouble and even 2012 and 2015 as target dates will come
into question. My present inclination is that I wish to secure
Divisions on amendment No. 78 and amendment No.
4.
Mr.
Laws:
We have already spent a considerable time on clause
5. It would therefore be tempting to rush through some of the issues to
avoid being detained any longer. However, we are discussing one of the
most important clauses in the Bill, so it is necessary to spend a full
and proper amount of time scrutinising it. Speaking for myself, I am
confident that we shall catch up time over the next few days in respect
of our initial
aspirations.
The
clause is important for two reasons. It is the most immediate,
politically resonant and economically significant part of the Bill. It
is not changing the state pension age in 20 years or so, which to many
people seems extremely distant. That is perhaps why not many of our
constituents have written to us to complain about the changes. It is
not about the hideous intricacies of the state second pension, which is
not discussed widely in pubs throughout the land.
The clause is the most
interesting resonant political part of the Bill because it will impact
on people’s standards of living in several years’ time.
Furthermore, I must say in fairness—our debate so far reflects
this—that it has been one of the big, sensitive issues in
pensions policies since the 1970s. It is an interesting matter for
people because it will make a difference to them in the near future. It
is something that everyone can understand, not only here but in the pub
at Yeovil and
elsewhere.
There is a
third reason that the clause and the amendments are particularly
important, and not only for the short term. They are all about
different aspects of the Bill’s uncertainty. I shall not go back
over all the history that we have debated already. My
knowledgeis not as extensive as that of the hon.
Memberfor Eastbourne who has had more experience.
Unfortunately, my knowledge is not as time-limited as that of the
Minister who is younger than me. All I can conclude from the comments
of the hon. Member for Eastbourne about the historical environment is
thatthe United Kingdom pensions policy has been characterised
for a long time by great uncertainty and
change.
We had great
aspirations in the 1970s about what the pension system would look like.
That was discussed on Second Reading. There was unity among the three
parties at the time. Matters were not pressed to a Division. Then came
the changes a few years down the track. They have been extremely
damaging to what all parties should aspire to deliver, which is a state
pension system that is stable over time and gives people the certainty
that they need to make their own decisions to save for retirement. We
know that planning for retirement is a long-term issue. In the Tea Room
a few hours ago, my colleagues and I were discussing the fact that many
people do not think about planning for retirement until retirement is
close, and that they are dissuaded from doing so by the sense that
policy shifts frequently under different Governments and there is no
stability.
I have
received comments from many groups, including the Engineering Employers
Federation and its deputy director of employment, Mr. David
Yeandle, who has many years of pension policy experience. They all want
the Bill to provide them with some certainty about our future state
pension system so that people can make their own plans for retirement.
The Government must want that, too.
The hon. Member for Eastbourne
mentioned some reasons why the pensions system has been unstable over
the past three decades, and he included affordability, which will
always be an issue for any Government. In doing so, however, he
underplayed the shifts over time in the different parties’
attitudes to what the system should look like.
There have been big shifts in
philosophy. Initially, the idea was that we should have a very high
basic state pension, and that the state should provide a second-tier
pension. There was then a shift under the Conservative Government to a
view that the basic state pension should be a much more limited
guarantee for everybody, and that there should be encouragement to save
with a modest safety net. In some senses, the current Chancellor and
several Secretaries of State continued the logic of that policy by
focusing money
on means-tested benefits to target those at the
bottom, rather than by guaranteeing a decent state pension for
everybody.
Now the
different parties for different reasons of affordability and philosophy
have come to a new consensus about how the pension system should look
in the future. We do not know how long the consensus will last, and
those people outside this place who are currently thinking about it
will wonder how reliable and certain this consensus is, and whether it
will last, or whether it is just the same old stuff that we have had
from politicians for 30 or 40 years in Britain—more than in any
other developed country—where every15 years the
pensions system shifts and changes. Inevitably, there will be changes
of Government during the next few decades, and each will have their own
priorities and financial constraints.
Ms
Smith:
Does that mean that the Liberal Democrats are
committed to keeping the earnings link in place
permanently?
Mr.
Laws:
Yes, that is certainly what we would like. It would
be misleading of any party to suggest otherwise. If they do, how on
earth will people know what state pension system there will be in 20,
30 or 40 years when they retire? People want certainty so that they can
say, “Thank goodness for that. We now know roughly what is going
on. We will make our own arrangements.” Until they have that
certainty, the Government cannot deliver the second part of their
pensions proposals: the encouragement of people to save for themselves
in personal accounts. Nobody can possibly guess their basic state
pension, how much they will rely on means-testing and their incentives
to save, but those issues have run through many of our
debates.
Eliminating
uncertainty is not only about the politics of pensions, party
statements at the next general election and whether people will receive
uprating in 2008, 2012 or 2015. It is about how stable the architecture
will be in the future. Given that any Government could overturn the
legislation in the future—that is a principle on which our
parliamentary democracy is based—it would be fair to say that
there is nothing to eliminate entirely the uncertainty about future
state pensions policy. That is true, and I do not think there is
anything we can do about it, although certain individuals within the
pension policy debate have sought to reduce that degree of uncertainty
by increasing the amount of funded pensions in the system, including
the state pension architecture. The more we eliminate the uncertainty,
the more chance there will be that people can have confidence in the
future.
4
pm
We are
considering a large group of amendments, some of which were tabled by
the Conservatives and some by the Liberal Democrats, but they all deal
with three elements of uncertainty. I shall focus on two of those. The
first is whether any Government will uprate the basic state pension by
earnings. If they did, what measure of earnings would that be, and in
what circumstances might they not do so? Why is there wiggle room, if I
can put it that way, in the Bill?
The second element of
uncertainty, which it is vital to discuss, is whether the guarantee
that we are offering people means that they will get an earnings
uprating or, as we discussed earlier when I intervened on the hon.
Member for Eastbourne, whether we guaranteeing that we will give them
whichever uprating is greater, earnings or prices. That is a vital
issue and we must consider the circumstances—they are not likely
to occur often, but they are not impossible—in which the
earnings index is below the retail prices index. Interestingly, as the
hon. Gentleman and the Minister will know, we have just had a set of
RPI data, which I think I am right in saying, even though it only
covers a month or so, puts the RPI above the average earnings index. If
we were unlucky enough to have this great new policy introduced at the
wrong time, pensioners could suddenly discover that rather than getting
a step up, they have suffered a step down. We need to contemplate
whether we are willing to see the future basic state pension reduced in
real terms in relation to
prices.
The third
element of uncertainty, which the hon. Member for Eastbourne spoke
about extensively, is the timing of the earnings link, on which there
has been a huge amount of debate. It is difficult to understand why the
Government have decided to delay and create uncertainty about whether
2012 or 2015 is to be chosen. If you do not mind, Mr. Gale,
and I am sure you will not, I shall not deal with that third element of
uncertainty in this speech because you will have noticed, perhaps with
a heavy heart, that the group of amendments including amendment No. 32
deals extensively with that issue. No doubt at that point we will have
a debate that is as long as hon. Members wish to make it. They will
make their arguments at that time, and I shall make mine.
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