§ Mr. PardoeI beg to move Amendment No. 144, in page 50, line 21, leave out' retained their value in relation to the general level of prices' and insert:
'maintained their proportion of average industrial earnings'.
Mr. Deputy SpeakerWith this amendment we are to take also Amendment No. 145, in page 50, line 36, at end insert:
' (c) by how much current rates need to be increased in order to progressively raise the pension for a married couple to 50 per cent.560of the national average of weekly earnings of adult male manual workers in 1980'.
§ 6.45 p.m.
§ Mr. PardoeAmendment No. 144 is coupled with Amendment No. 145, in which we are endeavouring to get the Government to set a standard or at least to consider within their calculation of each annual pension review to what level they are aiming to raise pensions in the long term.
I welcome the Government's conversion to the Liberal policy of a flat-rate State pension with earnings-related occupational schemes topping it up. As the Under-Secretary will know, when he was in opposition I partook in a large number of debates on pensions. In most of them I told the then Opposition that they would eventually come around to this very sensible policy. I was delighted with their conversion when they became the Government.
I am also delighted that the Government are prepared to pay for these flat-rate State pensions by means of earnings-related contributions, but I should prefer a social security tax. Having said that, however, for the flat-rate pension there 561 has to be a long-term target. I wish to discuss this long-term target in this debate.
Even though we now set a pension and even though, as the Government have now said, we say that we shall prop this up in relation to inflation every 12 months, that is not sufficient. It is by no means the end of pension policy.
In periods of rapid inflation there will still be occasions when the pensioner, in the intervening 11 or 12 months, is losing out on his purchasing power. It was this losing-out on purchasing power during the period of two years under the Labour Government which was the major dissatisfaction of the pensions schemes they produced and which they maintained during their period of office. In a period of rapid price inflation, at a rate of perhaps about 8 per cent. a year, a pensioner whose pension has been raised on 1st January, for instance, to the equivalent level of purchasing power 12 months previously can find that it has lost a great deal of purchasing power within six months.
Even by the Government's standards in maintaining the purchasing power of pensions it might be better, rather than having a review every year, to do what is done in some of our European partners' countries and in Sweden. Instead of saying "We shall review pensions in the light of inflation every 12 months", we should say "We shall review pensions automatically when inflation goes above 2 per cent. or 3 per cent." For instance, in Sweden pensions are automatically reviewed when inflation rises above 3 per cent. In Belgium and Italy pensions are automatically raised when prices rise by 2 per cent.
However, that is not really part of my argument. It would be an advantage and a progression from the Government's present policy, but it would not by any means be satisfactory.
We must start from the basic assumption that the present pension level, even when it has been topped up on day 1 and brought up to its previous purchasing value, is too low. One can see that it is too low by the fact that the proportion of old-age pensioners who are having to have recourse to supplementary benefit is constantly increasing. It increased under the Labour Government and it has 562 increased under the Conservative Government. As we accept that supplementary benefit level is the poverty line—I suppose that it is the official poverty line—and as many old-age pensioners are having to have recourse to supplementary benefit, in increasing numbers, it follows that the basic flat-rate pension is not enough.
The first Liberal principle on pension policy is that the basic flat-rate State pension must be enough to live on by the standards of our civilised—or otherwise— society. It is simply not enough for the Government to say "We shall review pensions in the light of the cost of living every 12 months, and are we not good to do that", because the existing standard, even when topped up in relation to inflation, is insufficient.
In any event poverty cannot be strictly related to the cost of living. Poverty is clearly related not to actual price levels but to the surrounding economic level and the surrounding standards of living. If it were not, one would have to say that there was no poverty and that there were no poor in this country, because by the standards of the Calcutta pavements we do not have such poverty or such poor. Nevertheless there is clearly poverty in our society, because a large number of people are slipping too far below what our society calls an acceptable standard. Pensioners form a large part of the brigade of those falling below an acceptable standard.
We must look ahead and say what standard we want. Clearly it cannot be in absolutely monetary terms. It is no good saying that the pension for a married couple should be £12 and that we will maintain that through annual upgradings in the light of price rises. In our view £12 is not enough. But even if it were enough for 1973, would it be enough for 1983 or 1993, even if it had been increased by a cost-of-living factor?
In the long term the minimum standard of pension that a civilised, modern industrial society can tolerate for the married couple pension is one based on half average industrial earnings for the manual male worker. Had this country had the good sense and the good fortune to have a Liberal Government since we first made this proposal in 1963—we said then that we would raise the pension level over a 563 period of 10 years to half average industrial earnings—the position would be much better today—at the end of that decade. That has been Liberal policy for 10 years.
Had there been a Liberal Government in 1963—as there should have been— undoubtedly there would be pensions for a married couple which would be related to the average industrial wage. They would have been brought up progressively to half the average industrial earnings for a male manual worker, which amount now to £36. That means pensions for married couples at something like £18 a week. We stressed in 1963 that this could not be done immediately. It was clearly a matter of switching resources over a long period of time.
We believed that it was very much easier to finance such a scheme—it was an ambitious scheme—through a social security tax, a percentage payroll tax on firms' payrolls paid both by the employer and by the employee. Since that was related to rising earnings the whole thing would have been dynamic, making it possible to finance such a pension level.
In Amendment No. 145 we clearly accept that because the scheme was not started in 1963 and because it has to start now, we cannot bring it to that level before about 1980 and that it would take about six to seven years to bring it to what we would regard as a satisfactory level. Once at that level, it would be specifically related as a proportion to industrial earnings and would maintain its power in that respect.
In his reply, the Under-Secretary may say that pensions have maintained their value as a proportion of average industrial earnings. The latest issue of Lloyds Bank Review for April 1973 has an article by Professor Thomas Wilson on page 2. It has an extremely helpful colour chart which shows that pensions have maintained their proportion of average gross earnings as, indeed, they have kept ahead of retail prices.
We still have to look ahead and say "Are pensions now the proportion they should be of average industrial earnings? Are they sufficient?" We say that they are not. What is a sufficient level? We say that it must be half for a married couple and a due proportion for single 564 people, and we must bring that standard up over a period of time. We ask that instead of pensions retaining their value in relation to the general level of prices—that is something the Secretary of State will have to consider in his annual review—they should be maintained as a proportion of average industrial earnings. When the Secretary of State is considering what factors to take into account in his annual review, he must consider not only the present but the actual economic conditions of the year that has passed, the price rises and so on. He must look ahead and review the present rates in order progressively to raise pensions to the standard we have set by 1980.
Clearly, if we were to guarantee pensions as I have argued we should, guaranteeing also social security benefits and wages against the food price guarantee, this would be a part of bringing them up. No doubt the Minister will ask how a future Liberal Government will pay for these proposals. [Interruption.] It is no good Labour Members querying this fact. The Liberal Party will be represented in government within the next five years at the very least. We shall be in a position virtually of holding the balance of power and then either Labour or Conservative Members will have to attend to the minimum programmes we shall insist upon. I remind the Labour Party that it is no good shouting and screaming at the idea of Liberals holding power. They will be holding power, and it will take very little more swing for them to do so. Even now there are fewer than two Labour voters for every Liberal voter—
§ Mr. Kenneth Marks (Manchester, Gorton)The hon. Member for Rochdale (Mr. Cyril Smith) has been talking about obeying the Whip. How can the hon. Member for Cornwall, North (Mr. Pardoe) guarantee that his proposals would get through the House?
§ Mr. PardoeThere is obviously a difference between those proposals which are matters for Governments to resign on and other matters. We have always made that clear. We have also made clear that the Whip system which forces Governments to resign on every dot and comma of Government policy is nonsense. However, this is off the point and I was 565 goaded into it only by the interruptions of Labour Members.
§ Mr. O'MalleyIf it is the case, as the hon. Member says, that there will be no Whip system, how will one deal with——
§ Mr. PardoeI should be delighted to go into this matter at another time.
I was suggesting that the Minister would ask how the Liberals would pay for this proposal. We should do so by a social security tax. We would have to accept a redistribution of income from the younger generation to the old, a greater distribution than the Bill envisages. There is one other way in which it would be paid for. We have put forward in our incomes policy—I have deployed this argument before in the House—a proposal for a tax on inflation. It would be a surcharge on the national insurance contributions for those people who obtain excessive wage increases. The money would be paid into a national insurance fund, from which would come the finance for the increased pensions. These two reforms together, therefore, would go a long way—indeed, the whole way—towards paying for the policies which I am setting out.
What I want from the Under-Secretary is not necessarily a refutation of the figures, not necessarily a statement that the Government do not accept the figure of 50 per cent., but at least and at last a statement from them about their long-term target for pensions standards and an assurance that they are prepared to work towards that target. If that was their target, they would be prepared to accept the amendment.
§ 7.0 p.m.
§ Mr. DeanThe hon. Member for Cornwall, North (Mr. Pardoe) began by welcoming what he called the Government's conversion to earnings-related contributions and a flat-rate pension. It would not be out of order for me to ask who has been converting whom on this. But perhaps we could jointly help to convert the Labour Party, which does not yet appear to have recognised the value of having a basic pension and then a second pension run in a different way, and that the only fair way in which this could 566 be financed when the number of pensioners in the population is growing, and will continue to grow, is through an earnings-related contribution.
The hon. Member went on to state his long-term target for pensioners in this country. Our long-term target is also to raise the level of pensions. I entirely accept the point that the hon. Member made when he said that their relationship to earnings had shown very little change over the last 25 years or so, and we are all anxious to see that position altered. It is the combination of the basic pension, plus the second pension, which is a feature of the Bill, plus savings that individuals make in other ways, which is more likely to assist us to achieve this objective.
It is a mistake to concentrate in the long term, as the hon. Member does in his amendment, purely on the basic pension. It is a combination of the basic pension, providing a firm base, and the ability of people, along with their jobs, to raise their own standards through the second pension that I believe will achieve the sort of long-term objectives to which he has alluded.
§ Mr. O'MalleyThe Under-Secretary might be able to get away with the statement that the Government's long-term policy is to bring up the basic level of the pension with Members of the Liberal Party whose attendance in pensions debates on the Bill began only today. They were not represented on the Committee stage. He cannot get away with it with Members of the Labour Party, however. We made a close examination of the Bill in Committee, when it emerged quite clearly—we had the evidence of the Government Actuary's report—that on all the bases proposed by the Government in the Bill there is no possibility of putting up the pension in real terms compared with national average earnings in this country.
§ Mr. DeanThe hon. Member is wrong in what he says. He has said it before, and I repeat my answer yet again. Through the firm financial base that it provides by way of the earnings-related contributions, the Bill is one of the most effective ways in which we shall be able to raise real standards for pensioners for present and future generations. One of the inhibiting factors in earlier years has been the flat-rate contributions, which have meant 567 inevitably that, unless the burden on the lower-paid was going to be at an intolerable level, the possibility of improving the real standards of pensioners would be held down.
What we can now say is that, as we move over to an earnings-related contribution, not only will the cost be more fairly spread on a pay-as-you-go basis amongst the working generation, but there will also be buoyancy in the scheme, because as earnings rise so will contributions rise. I share, therefore, the hon. Member's long-term objectives here about raising standards, but I emphasise that it must be done through a combination of the basic pension providing a firm base on which people, with the help of their employers, can provide a second pension for themselves. Occupational pension schemes are already responding to the Bill by improving their arrangements. Now that we are laying down minimum standards they realise how much more they should nowadays be doing to improve the pension arrangements not only for the men but also for the women who work for them, including the women who will eventually become widows.
The hon. Gentleman spoke of the erosion of the value of the pension after the award. That is inevitable in days of inflation, but the annual review, the guarantee that pensioners now have that the level of pension will be examined once a year before the onset of winter, at least gives a guarantee that pensioners have not had before. Although the erosion will certainly take place almost from the day when the pension is awarded, they know that within 12 months that will be put right and that the pension will be increased by at least enough to compensate for the rise in prices during the previous 12 months, and we hope to do better.
There has been a modest improvement in the buying power of the pension in the upratings of 1971 and 1972, and I can say confidently that there will be a real improvement in its purchasing power as a result of the uprating already announced of £1 per single person and £1.60 for a married couple, which is due to come into operation on 1st October. That has gone quite a long way to deal with that aspect.
568 The hon. Gentleman then said that the basic pension was not enough to live on, and that the aim must be to raise it to a level which will be enough to live on. He stated his own target, but, even on his own definition of adequacy, that target, expensive as it would be, would still not be enough to live on for pensioners who had inadequate other resources or who had to pay high rents or rates. Even with the fairly ambitious target that the hon. Gentleman has set, he will not achieve his objective of lifting everybody above the basic level of supplementary benefit.
The hon. Gentleman knows very well the dilemma—certainly this side of tax credit, which will help in this area— if we raised the level of the basic pension and tried to get people off supplementary benefits. We could raise the level of the basic pension and hold down the level of the supplementary benefits. That is one way in which we could get people off supplementary benefit, but it is not a way that any hon. Member would like, because it would be at the expense of the worst-off, those who are most dependent on the supplementary benefit level being raised as well. By putting in more money and holding down the level of supplementary benefit, one would ensure that the additional money went to the better-off pensioner and not the worst-off, those who need it most.
It is for that reason that Governments of all political colours—I suspect that a Liberal Government would have taken the same attitude in the circumstances— have felt obliged to go on raising the level of the supplementary benefits broadly in parallel with the level of the pension. That has meant that a growing proportion of pensioners have relied on the supplementary pension to increase their basic pensions. Tax credit will make a substantial improvement, although it will not entirely solve the problem.
The hon. Gentleman then mentioned cost. He was very right to do so, because we are speaking about considerable figures. He said that the answer is to have a social security tax to meet the substantial additional bill. But, whatever we call it and however we raise the money, the fact is that that bill must be met partly by industry and commerce. 569 and, therefore, the increase will be reflected in costs and prices. It must also be met partly through the contributions of individual people, and the higher those contributions are, the greater the pressure for wage increases. Then we are into the dreary round of both price and cost inflation, which has been the curse of the pensioners for so many years. There is no panacea here. A social security tax would not deal with the basic problems of costs and wage claims.
When one is understandably criticising the level of the pension, the other factor to be taken into account is that the proportion of elderly people in our community continues to grow. The pattern will continue until the 1980s. As a result, a greater burden must be borne by each wage-earner. The community accepts that; it is our return for the way in which the pensioner generation has built up the prosperity of the country. But we cannot ignore the effect that that will have on wages and prices.
There is no easy answer in the way that the hon. Gentleman proposes. Therefore, I cannot advise the House to accept his proposal. I think that he put it forward more for a debate to air the subject than for any other reason.
The Government are committed, through the annual review of the basic pension, to ensure that that pension is not eroded, and that if possible its real value is increased. Over and above that, we are committed through the Bill to the concept of a second pension, an earnings-related pension that goes with the job. We believe that a combination of those two things will improve the standards and prospects for present pensioners, but, above all, for the next generation of pensioners.
§ Mr. David Steel (Roxburgh, Selkirk and Peebles)The Under-Secretary ended by suggesting that our proposal in a sense threatened the very prosperity of the country. He must surely accept that several of our European neighbours manage at the same time to have a higher level of prosperity than we have and to pay much higher pensions.
Although we have listened with close attention to the hon. Gentleman's speech, we remain divided from him on two basic principles. First, he is unwilling to have 570 written into the Bill any form of progressive or elevating targets. The review specified in Clause 38 still takes as its starting point the current rates as fixed and then makes adjustments. We should like to see written into our pensions legislation an obligation on the Government to move forward from levels determined in the past and try to raise their objectives for the flat-rate pension. That is the first and major difference between us.
The second is on the question of the yardsticks to use in moving towards the targets. The emphasis in subsection (3) is very much on using the general level of prices as a target. Only lower down in the subsection is there a reference to the general standard of living of the country.
We have asked, and will continue to ask, for pensions increases to be related to average earnings rather than movements in prices, because, as the Government have kept saying in other contexts in recent months, earnings have risen faster than prices. We are anxious to secure that the pensioner takes a share in the increased prosperity, in the increase in general living standards, rather than being pegged down—although that is an extraordinary analogy to use—to the increase in prices when earnings are increasing faster. Obviously, we shall have to pursue the argument on other occasions.
We have noted the concern of the Opposition spokesman, the hon. Member for Rotherham (Mr. O'Malley) about there being no Liberal representation on the Committee that considered the Bill, and in view of that concern we look forward to an offer of a place from the Opposition allocation the next time a similar Bill is introduced. It would give us a much greater opportunity.
In the meantime, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 7.15 p.m.
§ Mr. DeanI beg to move Amendment No. 41, in page 53, line 2, at end insert:
'and where the Secretary of State determines that he is not required by subsection (4) above to lay a draft order, and also determines not to lay a draft order in pursuance of subsection (11), he shall lay before each House of Parliament, with his report under subsection (10), a 571 copy of a report by the Government Actuary on the consequences for the Fund which may, in the Actuary's opinion, follow from those determinations'.This amendment deals with the benefit equivalent of Amendment No. 14, which dealt with contribution reviews. It follows from a point made by the Opposition in Committee and introduces a requirement for a report by the Government Actuary if, following his review of benefits in any particular year, the Secretary of State decides to make no proposals for benefit increases. As the Bill stands, a Government Actuary report is not required in these circumstances.
§ Amendment agreed to