HC Deb 17 June 1969 vol 785 cc383-404

Question again proposed, That the Bill be now read a Second time.

Mr. Fortescue

The Economist calculated that this would cost about £200 million a year as early as 1980. We have no idea from where the money is to come.

What arguments has the Secretary of State advanced in favour of a compulsory earnings-related State pension? They are given in the January White Paper. Careful study shows that they are entirely self-contradictory. In paragraphs 27 and 28 it is pointed out that people hope that their retirement income will be as near as possible to their average earnings, which is a blinding glimpse of the obvious. Then, with a leap in logic worthy of "Spring-heeled Jack" himself, it is concluded that because most of the occupational schemes are earnings-related it is all the more important that the State scheme should be based on the same principle.

Why? Because, according to paragraph 28, If it were to be kept basically flat-rate, retired people would continue to be divided into two nations—those with good occupational superannuation, and those with little or nothing to add to their basic State pension.". While one is still wondering whether this means that in the cause of one nation-hood occupational schemes should be abolished—and some of the new proposals go very far towards that end—one comes to paragraph 45, which points out: As a result of the growth of occupational pension schemes … people will increasingly become entitled to superannuation consisting of two parts. … For them the State scheme will serve as a foundation for the type of provision which occupational schemes are most suited to provide. Paragraph 46 reads: Occupational pension schemes have an important part to play in partnership with the State scheme. … The best foundation for the success of occupational schemes is the existence of a substantial basic compulsory State scheme …". But nothing is said about this State scheme being earnings-related. Therefore, the one argument advanced early in the White Paper in favour of compulsory earnings-related State pensions—that without them retired people would be divided into two nations—is contradicted and demolished later in the White Paper, where it is pointed out, with approval, that these two nations will exist anyway. The Secretary of State looks puzzled but it is his White Paper. If he studies it again, perhaps tomorrow, he will see that there is much substance in what I am saying.

Where has the Secretary of State gone wrong? I believe that he has confused what Beveridge called a subsistence pension—and it will be recalled that Beveridge never planned to provide anything higher than a subsistence pension—and what the right hon. Gentleman calls an "adequate" pension. He argues convincingly that the subsistence pension concept has failed and has led to the present position in which large numbers of pensioners must have their pension supplemented by supplementary benefit.

The right hon. Gentleman says that people must have an adequate pension—I agree with him entirely—and this must be adjusted periodically to take account of the cost of living. He even quatifies this concept. He states that at April, 1968, prices the figure would be £6 12s. a week compared with £4 11s. now, with 1s. for the graduated contribution. But nowhere does he explain why it should be considered the business of the State to provide for a State pensioner any more than that amount.

Mr. Crossman

That what amount?

Mr. Fortescue

Than £6 12s., which is the "adequate" pension which the right hon. Gentleman quotes in his White Paper. One of his basic objectives is that benefits must normally be sufficient to live on without other means.

Why, then, should the State erect this highly complicated machine to give some people—by definition, those best fitted to save for their old age—more than the "adequate pension" defined in the White Paper? What sort of social justice is this? Why should not the pension be paid on a flat rate, adjusted regularly for cost of living changes, and why should not contributions to such a pension be on a graduated or earnings-related basis? This simple and practicable alternative is dismissed in half a sentence at the beginning of paragraph 110 of the White Paper, with no arguments deployed against it.

It is interesting that in our last debate on this subject, when the hon. Member for Cornwall, North (Mr. Pardoe) deployed exactly this argument, the right hon. Member for Sowerby (Mr. Houghton)—whom we have missed very much in this debate—said that this would not be possible. The theory of graduated contributions for flat-rate benefits was not possible because, he said, it would not be acceptable to the trade union movement. Considering what the Government are doing at the moment to discover things which are not acceptable to the trade union movement and to give them legislative force, perhaps the argument does not carry much weight, at least on this side of the House.

Although the unemployed and the sick are casualties of society and thus can be said to warrant earnings-related benefits, the fit man of 65 is not such a casualty. The fact that he will retire at that age has been known to him all his working life. If his State pension is adequate for him to live on, without other means, as the White Paper says it should be, it is his responsibility and not that of the State to make arrangements over the years to supplement that pension if he so wishes.

10.7 p.m.

Mr. Marcus Worsley (Chelsea)

I am glad that the Secretary of State has been able to join us again to wind up the debate—partly because the House always welcomes his speeches and hears them with attention and partly because many of us are looking forward to hearing him retract the words which he used in describing my right hon. Friend's scheme some years ago as a "Tory swindle". If he does not withdraw those words, he is himself ten times condemned.

Also—I say this in no critical spirit, because the right hon. Gentleman has, I imagine, been busy on those matters to which my hon. Friend the Member for Liverpool, Garston (Mr. Fortescue) elliptically referred a moment ago—he has missed a great deal of this debate and I hope that he will study very carefully what has been said.

We have had an interesting debate, which has run, as it was bound to do, extremely wide, and has in many ways been a preliminary first canter over the course—for this autumn's major event.

We on this side are not dividing against the Bill, for two reasons. The first is that we realise that pensioners must get some relief after the massive price rises under the Government; and these pension rises—as the right hon. Gentleman has been frank enough to admit—will not do more than the bare minimum, and not enough for his hon. Friend the Member for Manchester, Gorton (Mr. Marks).

I hope that this answers the question of the hon. Member for Rowley Regis and Tipton (Mr. Archer). We support an increase of this kind. We regard it as inevitable and necessary. Also, we have made it clear as a party and it was repeated in what I might call our midterm manifesto last autumn. I will quote only one paragraph: Old-age pensions, sickness, unemployment, widowhood and industrial injuries benefits are paid in return for insurance contributions. There is no question of introducing a means test for them. That is our party policy, and has been made clear many times.

The second reason that we are not dividing tonight is because we all accept that contributions must move from flat-rate to graduated, although, on that general principle and within it, there are qualifications which the Government have not made on this occasion. But, at the same time, when the right hon. Gentleman studies the report of the debate, and from the lement which he has heard, he will be in no doubt about the extent of the criticism from this side, first, of the actual handling of this particular affair.

It was characteristically chivalrous of the right hon. Gentleman to allow his right hon. Friend the Chancellor of the Exchequer to take the credit for the announcement of the increases in the Budget. This was charming, but it would have been better if the right hon. Gentleman had sent along the Bill as well. On the final day of the Budget debate, the Chancellor seemed to think that would be ungentlemanly to be too curious about where this money was coming from. We had to go on asking and we put down a censure Motion before we discovered the total cost, and it was even a month after that before we discovered how the Bill would be worked out. There has never been a precedent in the whole of the National Insurance Scheme for an increase being announced without the method of paying it being announced at the same time. I challenge the right hon. Gentleman to produce such a precedent. I do not believe that he can. I have no doubt that the muddle into which Government business has fallen is a main reason for this event, but it is extremely important that this should not be a precedent to be followed in future.

We have had, as we always have in these debates, a very full discussion about the phrase "the contributory principle".

The basic element in the contributory principle is the simple proposition that the finance of the State pension scheme is kept wholly separate from the general body of Government finance. This is the separation which Sir Paul Chambers would wish to abolish—[Interruption.]—and I was not sure whether some voices below the Gangway on this side of the House would also go that far.

One must draw a distinction between that proposition and the proposition that anybody in the House seriously thinks that the National Insurance Scheme is actuarially sound. It does not follow that because one accepts that this is not an actuarially sound scheme that one wishes to throw overboard the whole contributory principle. This principle, which establishes that money contributed for pensions goes only on pensions, is a concept which must be preserved at all costs. If one muddles this money up with the general sum of Government finance one will cause, first, a serious financial muddle within Government finance and, secondly, a crisis of confidence among those who have contributed in the past and expect to receive pensions.

There is, therefore, this important distinction to be made. What we have is a "pay as you go" scheme. The money that is contributed today does not go into a pension for one's old age, but into a pension that is paid to somebody else today. That is what "pay as you go" means, but it does not follow from this that the contributory principle is not of the greatest importance.

If it is that important, it is so because there is, in the public mind, a sense of relationship between the cost of pensions It is, therefore, essential that when the Government wish to increase the pension scheme they should state the cost at the same time. If they do not do this they are themselves attacking the contributory principle.

We should preserve this principle for the simple reason that it restricts the demand on the National Insurance Fund to what is reasonable in a politically sensitive area. If we do anything to blur this distinction, as the Government have done, we will be setting a serious precedent. We are, therefore, critical of the Government in this respect.

The debate has ranged wide. I was particularly sorry to miss—I had to leave the Chamber at the time—the speech of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), but I assure him that I shall study the OFFICIAL REPORT of his speech with interest because, as the hon. Member for Cornwall, North (Mr. Pardoe) said, my hon. Friend's remarks are always stimulating. I will keep my remarks within bounds and will range less wide than some hon. Members, for I wish to relate my comments as closely to the Bill as possible.

Before coming to the details of the Bill, however, I must comment on the muddle into which national insurance finance has got. It is clear, not only from the Government Actuary's Report but from past reports, that the Government have consistently got their sums wrong in respect of national insurance finance since they came to office. That must evoke in our minds the greatest concern.

Last year we had the Public Expenditure and Receipts Act, the contents of which were as bizarre as the Measure's name. We had an increase in contributions without any increase in benefits. This followed not long after the 1965 increase, which, again, was a bigger increase in contributions than in the benefits then demanded. Then we had a raid on the Reserve Fund of the National Insurance Scheme. In the debates of last year we did not have a warning from the Government that yet another increase was just around the corner, in addition to the amount needed to increase benefits.

I am not suggesting that the Government Actuary has been making mistakes in his predictions. I am sure that he has not. Nevertheless, the fact remains that the Government, with all the advantages of his advice, have been unable to estimate correctly from year to year how the finances of the fund will work out.

I accept, of course, what the Minister said, that relatively small movements make relatively large differences. How- ever, I draw two conclusions from this. The first is that all the figures in the White Paper, Command 3883, are now out of date, almost before the ink on them is dry, and that the assumptions on which they are based are also out of date. The second—and this is the nub of the matter—is that it has been shown that the Government, with all their resources and reliance on the Actuary, cannot foretell the movement of national insurance finance in detail more than a year or two ahead.

Does it not follow that we should not lay on future generations burdens the extent of which we cannot determine? Command 3883 commits our children to enormous and precise burdens linked to the concept of the average wage, a concept which, in itself, may look very different in 20 years' time. We are committing them to burdens for which, as my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) said, we are making no precise provision.

These burdens, if the precedent of the last year or two is anything to go by, will increase enormously in weight. They may prove insupportable but—this follows what my hon. Friend the Member for Garston said—they may also prove unnecessary because we do not know anything about the society in which our children will live, except that whatever it is like it will be widely and enormously different from our own. The lesson I draw for the future from the terrifying miscalculations of today is that we should be a little more modest in our projections for the future and let future generations decide much more how they want the scheme to be expanded, if they so decide and believe such expansion is needed.

I come to the matter of the Bill, the exact method which the Government have chosen to meet the current deficit. It is by confession a stop-gap and when the party opposite leaves office shortly, as it will, it will leave in operation a scheme confessedly in a muddle and on the Statute Book pie in the sky. Even accepting the Government's decision to put a third of this cost on to flat-rate and two-thirds on to graduated, it is both characteristic and alarming to see what actually has been done. The Government have put on to the £18–£30 bracket a graduated contribution without the right to opt out. My right hon. Friend the Member for Kingston-upon-Thames rightly made this area of the Bill the main burden of his speech.

The Government are creating an ungainly system of a sandwich of which the lowest slice is the flat rate with no contracting-out, the top slice is graduated with no contracting-out, and the jam in the middle is subject to the contracting-out provisions of the 1961 Act. The important point in this context is that, taking the scheme as a whole, the contracted-out element is very much less proportionately than it was after my right hon. Friend had introduced his scheme which became operative in 1961. In 1961, for instance, the proportionate key figure contribution of a contracted out individual and one who had not contracted out was 79.9 per cent. From November, that proportion will be, in the case of a £15 a week man, 88 per cent. and, for a £30 a week man, 84 per cent. In other words, the Government have whittled away the rôle of the contracted out element of the occupational schemes in the provisions of pensions.

This is a very alarming precedent, not only because of the right hon. Gentleman's record and what he said on this subject in the past about his general hostility towards the occupational schemes—[HON. MEMBERS: "Oh!"] Yes, indeed.

Mr. Crossman

I should be grateful if the quotations could now be given.

Mr. Worsley

The right hon. Gentleman must know that in every debate on this subject we have produced the quotations against him.

Mr. Crossman

Never.

Mr. Worsley

The right hon. Gentleman has said, for instance, that he would produce a scheme which would be very hard to get out of. That was before he got into office. I challenge him to deny this.

There is not only this, but those of us who have studied what has happened on the Continent have found that where schemes have been introduced, no doubt with the best of intentions, with a substantial contracting-out element, just this sort of difficulty arose as the fund became short of finance.

The first thing that happened was that the contracting-out arrangements were whittled away and then abolished. This has happened in Belgium and Germany, two countries which had contracting-out arrangements and have now abolished them, I understand. Therefore, since we have seen in Britain with the present Government, confronted with a financial crisis, a tendency to whittle away the contracted out element of the scheme, this is a very serious precedent and raises the gravest doubts about the rôle of private and occupational pension schemes in any scheme devised by the right hon. Gentleman.

Apart from the actual content of the Bill, there is side by side with it the proposal in the White Paper which has been widely referred to, though fortunately not in the jargon term of dynamising the bricks, whereby the actual terms of contracting-out in the 1961 scheme are proposed to be altered retrospectively.

Taking the two things together—what is in the Bill and what is proposed in the White Paper—we find confirmation of our original concern. This was the prime reason why, on a reasoned Amendment, we voted against the White Paper, because we fear that occupational schemes, the only sort of pension provisions which produce savings, are likely to be whittled away under any scheme put forward by the Government. We shall look with very special care at anything that is suggested in the future.

I have no doubt that for the general population what will be noted is not so much the subtleties of contracting-out as what is likely to happen in the future. It will not be long-term prospects, but current burdens. The Government have doubled the money taken annually in tax generally. The hon. Member for Rowley Regis and Tipton chided my noble Friend and asked what S.E.T. had to do with the Bill. What counts for the individual is the total burden of tax. Whether it is tax raised for this subject or for another is much less important than the total burden. Just taking the direct charges through the National Insurance Fund alone, under this Government the increase on the individual is between 50 per cent. and 70 per cent., according to income.

I said earlier that we accept the general principle of a graduated contribution, but we would accept it only as part of a general rearrangement of taxation which would give back incentives to the individual. This increase in graduated contribution is on top of a rate of direct tax which is biting increasingly hard, first, as a result of past Government action, and, secondly, and increasingly, through present inflation. This increase in the Bills adds to the disincentive effect of our total tax package, because it comes on top of these other direct taxes. It is yet a further discouragement to the man who seeks to do better.

I hope that the Secretary of State will say something about the relationship between national insurance contributions and income tax. Originally, as I understand, national insurance contributions were intended to be chargeable against income tax. It was only for administrative convenience that they ceased to be so allowable in return for an adjustment to the allowances to compensate. Once graduation is introduced, as the right hon. Gentleman is introducing it in the Bill, the compensation given in allowances is no longer effective. Has the Secretary of State considered this matter?

We believe that this graduated tax, in addition to the already excessive tax burden imposed by the Government, has such a severely disincentive effect that it needs careful Government attention.

10.30 p.m.

The Secretary of State for Social Services (Mr. Richard Crossman)

I must, first, thank hon. Members, particularly on the opposite side of the House, for their courtesy in accepting the fact that I had to be absent from the House for some time, not of my own free will, but because I had to be in some other place. To reply to the hon. Member for Chelsea (Mr. Worsley), I shall study HANSARD with the greatest care and learn all that I can from it. I will try to reply to all the points raised—my hon. Friends have been making notes of those raised when I was absent.

I have studied, as the hon. Member asked me, the impact of raising this large sum and I am staggered by its smallness, not by its size. True, some hon. Members have complained about the delay between the announcement of the benefit and the contributions. Those who have studied the Bill and the balance we have achieved will see that we spent our two months very well, in achieving a scheme which has come through the House virtually unscathed. There has not been a single speech to suggest that the balance in paying for the contributions is unfair or improper. This required a great deal of negotiation and discussion with interested parties.

The hon. Member for Chelsea said that the burden was very heavy, if added to the existing taxes. There is this to be considered about the National Insurance contributions—every penny of it goes to paying for benefits. If he says the contributions are too heavy, he must mean that the benefits are too heavy, because they exactly match. It is astonishing that there has been this argument. Does the hon. Member mean that he would not have made the 10s. increase in the basic rates? Does it mean, as I suspect that the new earnings-related sickness and unemployment benefit, with the substantial increases, are wasteful or extravagant?

When hon. Gentlemen opposite talk about the heaviness of the burden they never say which expenditure they would cut. We have entirely failed to get this out of them. If they say that the benefit increase is right and just and if they sometimes give the impression that they would make even more generous benefits, they have either to increase contribution levels or taxation. There is no other way to pay for these benefits except the reliance on private insurance.

I was grateful to the hon. Member for Chelsea when he talked about the principle, although he defiled that a little later by talking about taxation, but that was the mere fallback into Kensingtonian language. For contributory fans like myself and the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) the only content of the contributory principle is one's belief in it. It is a striking fact that these questions whether a thing is a tax or a contribution is largely a matter of what a person feels about it.

If one feels strongly about something as a tax it is turned into a tax and then wages are forced up to achieve and destroy it. There is a great deal in the question of the public consensus. If the public consensus is that something is a tax it becomes a tax and we have that now. The hon. Member for Kensington South (Sir B. Rhys-Williams) made, I am told, a long speech—I think it was his usual speech about his passion for taxation. He wants no fine differences. They are all taxes. I suspect that he is an addict of the negative income tax. We may even have another long speech on the virtues of negative income tax.

All the evidence goes to show that people in this country regard contributions as quite different from taxation, and they recognise the relationship between contribution and benefit. I quote the example of the Bill that we have before us. If, instead of raising this amount of money in contributions, we had sought to raise it by increasing income tax, I suspect that the public reaction would have been quite different and much more hostile. I would ask hon. Members to consider this carefully.

The Liberal case was that there is no difference at all—

Mr. Pardoe

The right hon. Gentleman was here when I made my speech. I thought that I made it clear. I am in favour of a distinctive tax for social security purposes—not income tax, but a payroll tax, and quite separate.

Mr. Crossman

It occurs to me to wonder whether he would have a graduated tax and a flat-rate benefit. However, I am now dealing with whether contribution and tax are the same.

In this country, people react differently to them, although the principle of contributions has been greatly undermined during the past 10 or 12 years. The main object of our scheme will be to restore the contributory principle and make people see how intimately related the benefit, however received, is to the contribution that they pay. This is more possible with a graduated scheme.

Sir B. Rhys Williams

The right hon. Gentleman still has not studied my speech, so I must make it again. The essence of what he has not yet understood is that it is possible to turn income tax into a contribution, and, under his leadership, the public would learn to see it that way.

Mr. Crossman

Let me put a simple thought to the hon. Gentleman on the distinction which the public and I make between contribution and tax. By a contribution, I mean something I pay in and thereby acquire an entitlement to a benefit related in value to it. I pay the contribution and, in return, I get a benefit related to the contribution. If I paid taxes and got a return on my taxes related to the tax, I would be very happy. But I do not.

To take the example of schools, we pay graduated taxes and get the same education. We do not get a better education if we are in a higher income tax bracket. We get the same education. That is the difference between a tax which pays for a service and a contribution which gives an entitlement to a certain relevant pension.

I am glad that the hon. Gentleman gave me the opportunity to spell out the difference which the hon. Member for Chelsea spelt out, and I watched the chagrin below their Gangway at the fact that the two Front Benches were in accord on the difference between contributions and taxation, which is not the same as that which the hon. Member for Kensington, South makes.

Mr. John Nott (St. Ives)

I think that the right hon. Gentleman is saying that the contributor will get out of the pension scheme in 1990 what he pays in earnings-related contributions today.

Mr. Crossman

If the hon. Gentleman had been here to listen to more of the debate, he would know that that is not what I or anyone else said.

I come to the question raised by both hon. Gentlemen on the Front Bench opposite, what was described as the contributions "muddle", or the claim that we should have been able to avoid the deficit in the National Insurance Fund.

I can only repeat here what I said before. First, my hon. Friend in his first speech gave us a wise reminder. We are dealing with very large sums, and a 1 per cent. miscalculation gives a difference of £50 million a year. Demography in this country is still in its infancy for accuracy. As the right hon. Member for Kingston-upon-Thames knows, the miscalculation about childbirth which dogged the Conservative régime for years was a miscalculation of the demographers.

If we have to rely on demographical calculations, as we must, and find that we have under-estimated the growth in the number of old-age pensioners and the years they will live, yes, we plead guilty, but Governments have to rely on the best calculations they can get, and they will be wise not to try to look too far ahead. Two or three years is a wise estimate of the length of time for which it is possible to say that one knows how the calculations will go. This is what the right hon. Member for Kingston-upon-Thames asked me about when he referred to the Government Actuary's report.

Mr. Boyd-Carpenter

rose—

Mr. Crossman

Perhaps the right hon. Gentleman will reply to me when I have first replied to him. I will reply to the question he asked.

The right hon. Gentleman wanted to know whether the Government Actuary was directed to limit his report to the period up to 1972. The answer is that he was not, and, if he had been, he would have said so in his report. He explains in paragraph 6 of his report that he does not think it is necessary to produce long-term projections. Of course, the Government knew of his intention to project to 1972, and thought that was wholly sensible. What would be the point of doing a long-term projection on a scheme which will be wound up in 1972 and for which a new scheme will be substituted? The answer is that he did so, we thought sensibly, but he did it because he thought that it was sensible and not because we told him to.

The Government Actuary thought it sensible that we should not project our calculations too far because we may not be right either about the number of the old or about the number of unemployed and sick. I will not go through it all over again, but in each of those years there were considerable differences which had to be made up.

The hon. Member for Chelsea asked whether we should commit our children on such a large scale in view of the impossibility of calculation. He made the point very well and cogently. My personal view on this is that we are committing our children in a very modest way. When we introduce the new pension scheme in 1972 the net effect will be in the course of 20 years to transfer 2 per cent. of expenditure from those who work to those in retirement. Over a period of 20 years there will be a redistribution between tthe retired and working population of 2 per cent.

Is that a fantastic burden to impose? It seems to me extremely modest. We are beginning in a modest, cautious way to redress the greatest social scandal of our period, which is the neglect of the old and the denial to the old of their fair share of prosperity. Our calculations are not over-bold. The calculations have been cautious and realistic in the knowledge that people must accept this. I believe that with greater education over the years people will accept it more readily and will look back at our period and see it as fantastically harsh towards the old.

When they look back and see what living conditions we set for millions of old people, it will look to them in 20 years' time as Dickens's novels look to us. They will be deeply shocked by what we did, and will be pleased that we made some effort and transferred 2 per cent. over 20 years. It will be a revelation of how steel hard the nation's conscience was in that period.

Mr. Fortescue

Could the right hon. Gentleman say a little more about the 2 per cent.? Two per cent. of what to whom and how?

Mr. Crossman

If the hon. Gentleman will look at the economic appendix of the White Paper, which obviously he has not bothered to look at, he will see the figure there. It is 2 per cent. of the expenditure of those at work transferred to the total amount of expenditure of those in retirement. If he will look at the last page, he will see that, having been contributed by economists, it is very readable.

I turn to the speeches of my hon. Friends the Member for Rhondda, West (Mr. Alec Jones) and the Member for Rowley Regis and Tipton (Mr. Archer). I am glad to say that they noticed the small concession on death grant because, although small, it is human and humane and will be greatly appreciated. I am glad that they mentioned it.

One of them referred to the earnings rule. It is true that we have raised the income limit, but I would remind the House of an extraordinary fact. One hears a great deal of talk about the earnings rule and retirement, but the staggering fact is how very few people are affected by it. I have the figures. We have 7 million or so retired pensioners. We have 1½ million people in the one band in that position, and only 16,000 of them are at any one time affected by the earnings rule. It is an interesting fact because, although the earnings rule is enormously important psychologically, it does not bite very hard. But every time it bites a person, he does not forget it and tells his neighbour.

The right hon. Member for Kingston-upon-Thames asked me about supplementary benefit. I am sure that with all his experience as a previous Minister he knows exactly what happened. He well knows what I and my hon. Friend meant by explaining that the instalment for the people drawing supplementary benefit last year meant that they were not entitled to 10s. this year, unless every second year we were prepared to raise the level of supplementary benefit as against the level of the national insurance pension.

This brings me to a point that I have to consider seriously. There would be one way to avoid this awkward leapfrogging with its sense of injustice. That would be to make the biennial review into an annual review. With an annual review the two could be kept in line with each other. It is because the Supplementary Benefit Commission rightly thought that it was not a matter of assessing a pension, but a matter of assessing actual need, that there had to be the leapfrogging. That would be avoided if there were an annual review, but an annual review would cost a lot more money.

We are beginning the scheme on a cautious note. I would not be surprised if pressure developed leading people to think of the advantages of an annual review.

Mr. Boyd-Carpenter

The Secretary of State may have misunderstood my point. The point I was making was not that he was now doing anything wrong, but that in 1958, when his predecessor did precisely what he is doing, the right hon. Gentleman described it as a swindle. I was congratulating him on his belated conversion to probity.

Mr. Crossman

Then this is another occasion for saying that I am grateful to the right hon. Gentleman for his education of me in probity.

The right hon. Gentleman also asked me for a thorough survey. We did a very thorough survey in the White Paper, and I do not think that we want any more researches or facts. We had better have some decisions. The House will prefer it if next Session we present it with a Bill over which it can argue and see whether it is right, rather than to have a long and detailed survey of what is going on.

I come to the position of the dynamists. I thought the hon. Gentleman who made the first attack was a little ungenerous to me. He described this proposal to revalue the credit element—the Boyd-Carpenter pensions—as meretricious. He gave the impression that it was only somebody like a Labour politician, or even an intellectual socialist politician, who could dream of doing such a thing. He said, "Look, the Economist is against you."

I have here a list of the people who wrote and asked me to do this. This letter comes from Imperial Chemical House, Millbank—not a domain of the Socialist intellectuals. The gentlemen who urged this as the course of common justice were the managing director of the British Petroleum Company, the personnel director of Courtaulds, the deputy chairman of I.C.I., the vice-chairman of Shell-Mex, the director of the Imperial Tobacco Group, the managing director of Shell, and the vice-chairman of Unilever. Looking through this batch of names, meretricious intellectualism is not the description that I should give to all these respectable gentlemen.

These gentlemen wrote to me when the White Paper was published saying that in it I had done an unconscious but outrageous injustice to their workers. They said that I was proposing to uprate every two years all flat-rate pensions, all the old and all the new pensions, and that the only thing I was going to leave unuprated was this little graded element which millions of loyal workers paid to the Government in exchange for a pension. They asked how I could leave that bit out when I uprated all the old flat-rate pensions and all the new graded pensions. They asked how I could leave Boyd-Carpenter out of the upgrading; how I could fail to make an honest man of him, to use a phrase often related to women.

Lord Balniel

The right hon. Gentleman is introducing inflation-proofing for those who are still contracted into the State scheme. He is, however, not making any financial provision for this. I should like to ask him a simple question. How much will it cost, for example, in five or 10 years? The right hon. Gentleman is making no financial provision for it. He is not, however, inflation-proofing those who have contracted out. In January, 1969, in his White Paper, he said that this would be quite unfair. What has made the right hon. Gentleman change his mind?

Mr. Crossman

That is a long question, but I was just coming on to explain that. When we brought out the White Paper, all these gentlemen wrote to me, on behalf of the millions who were inside the scheme, and said that it was unfair on them. Frankly, I had not thought of doing it beforehand. The hon. Gentleman will see from the White Paper that we thought that we could not touch it. It may be that with my malicious attitude towards Boyd-Carpenterism. I thought that I would leave it to wither away in its Boyd-Carpenter pristine purity as a non-upgraded piece of sixpence worth nothing in 30 years' time. I thought that it would be nice to watch it wither.

But the moment that these gentlemen wrote to me I saw that there was an injustice. I realised that we had a choice between helping the 14 millions in the scheme or the 5 million out of it. Anybody who had contracted out would resent anybody inside the scheme getting a fair deal. This is human nature. So I had to look at it very carefully and say to myself: what case is there? I read this powerful argument, because these are powerful gentlemen. They said, "We were loyal. We stayed by the Government scheme and, as a result, we got very poor value for our members, whereas the people who contracted out had large sums, which would have gone in contribution to the Government scheme, available for investment in equities."

I was told that during these last eight years the equity market has been healthy—

Lord Balniel

rose—

Mr. Crossman

I should like to finish the argument. The time to correct me is when I have finished it.

I was told that if I looked at the last eight years I should see that the people who took the money instead of contributing to the Government scheme and put it in equities on behalf of their members were the far-sighted stewards with their talents, because the equities swelled and grew so that the members of those pension schemes did very well. Therefore, we had a broad picture of the people in the Government scheme—the frozen Boyd-Carpenter scheme—acquiring small value for their contributions while those outside were acquiring rich, bounteous value for the money that they were not contributing to the Government.

I admit that there were people outside who squandered their talents, who did not invest them on behalf of their members. Those members have not done quite as well. But I know that pension trustees are wise and provident men, and generally the investments were in portfolios, and I have no doubt that those outside did better than those inside. Therefore, I was finally convinced that as a last farewell move as we wound up the scheme in 1972 we would revalue the bricks.

I do not deny that there are difficulties for some who have contracted out, for some of the nationalised industries, and so on, but, on balance, I thought that the case was fair, and it was greatly strengthened by the need to increase reliance in the graded element by an increase from ½ per cent. to 3¼ per cent. If we had not done that, and left it with the kind of Boyd-Carpenter value that we had, there would have been a grievance about it, so we had to say to the people who had contracted in or out, "You will all become contributors to the Boyd-Carpenter graduated scheme, and all benefit by having your Boyd-Carpenter bricks revalued every two years".

That was a modest proposal, and I am glad that it has excited interest, but it was natural that hon. Gentlemen would want me to explain it, and I have explained it with my usual candour and good sense.

Sir B. Rhys Williams

The right hon. Gentleman is being unfair to the Life Offices Association by giving only one side of the case. Will he explain what he will do about people in integrated schemes?

Mr. Crossman

The Life Offices Association presented its side of the case. It opposed what I did. The C.B.I. supported it. The T.U.C. urged me to do it. The National Association of Pension Funds, representing the overwhelming number of trustee pension funds, committed itself in favour. It was after a careful assessment of where the big battalions lay that I finally decided on a bold and courageous course.

I hope that it is crystal clear that this has nothing to do with the Bill, strictly speaking, because it is concerned with the next Bill to be introduced next Session, but it was an important part of the package, and since it was the first modification of the White Paper I should like to remind the House again that the White Paper was full of green edges. I hope that these green edges will stimulate people into improving our first thoughts, and seeing that our second thoughts are of benefit to them.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).