RESERVE SCHEME CONTRIBUTIONS

HC Deb 09 May 1973 vol 856 cc622-80

Amendment made: No. 84, in page 96, line 4, leave out 'in accordance with this section' and insert: 'or, in Northern Ireland, to the Northern Ireland Ministry'.—[Mr. Dean.]

Sir B. Rhys Williams

I beg to move Amendment No. 180, in page 97, line 13, leave out subsection (7) and insert: '(7) There shall be paid each year into the Reserve Pension Fund out of the National Insurance Fund a sum equal to the amount of tax paid that year by contributors to the reserve scheme which would not have been so paid if payments made as primary contributions under this section attracted the same relief from income tax as payments to a superannuation fund to which section 20S of the Income and Corporation Taxes Act 1970 applies; and such payments into the fund shall be applied to the provision of bonuses under section 78 of this Act.'

Mr. Deputy Speaker

With this we are to take the following:

Amendment No. 85, in page 97, line 13, leave out subsection (7), and new Clause 10:

Tax credits for members of reserve pension scheme

'The Secretary of State shall provide for the payment to be made annually to the Reserve Pension Fund out of the National Insurance Fund of a sum to be added to the account of each member of the reserve pension scheme equal to any difference between the tax relief in respect of his contributions to the reserve scheme to which that member would have been entitled if the full amount of the contributions had been a permissible deduction from income for purposes of calculation of tax at the standard rate and the amount of such relief which he actually obtained in the relevant year.'

Sir B. Rhys Williams

I note that with my amendment we are to take the Government's highly controversial Amendment No. 85, and new Clause 10, which has been selected not for a Division but only for discussion as it is germane to the whole question of the tax treatment of members of the proposed reserve occupational pension scheme.

It will probably not be necessary for the House to proceed to a Division on my amendment, unless there is some unexpected turn in the debate. I say that because the amendment was tabled after I was informed by a member of the Opposition that the Government had decided to table Amendment No. 85, which will have the effect of reversing the decision taken in Committee. Because of the rules of order my amendment has to be taken first, but it is contingent on the outcome of our debates on Amendment No. 85. Nevertheless, it raises a point of real relevance, and I think that at this stage it may help if I say something about the significance of new Clause 10, which has been tabled to try to find a way out of the difficulty in which the House finds itself as a result of the Government's decision to reverse the Committee's vote.

The purpose of the clause is to find a way of making certain that anyone in the reserve scheme, whether or not he is sufficiently well paid to be above the tax horizon, will be able on the analogy of the option mortgage scheme, to receive some recognition of the fact that tax concessions are provided in the private sector and have a considerable value.

It might be advantageous if my right hon. Friend explained his motive in tabling Amendment No. 85, so that the House can judge the situation and learn the Government's intentions. Since I understand that I am in the privileged position of being able to speak again in the debate, I propose, if my right hon. Friend agrees, to ask him to give us the benefit of his views.

9.45 p.m.

Mr. R. A. McCrindle (Billericay)

I stand condemned or commended, depending on one's approach, as one of the two Conservative Members who, because of our votes against the Government in Committee, have been thought to oblige the Government to bring forward Amendment No. 85. I have no expressions of regret for having taken the action I did. If it has done nothing else, it has brought sharply into focus an extremely important, almost a fundamental, aspect of the Bill.

I cannot but be gratified that, from a situation in which two Members voted against and a few of our colleagues abstained, a tiny whimper of protest has grown into a veritable roar in the columns of the Press in the last few days. To that extent also I have no apologies to make. When such diverse organs as The Times, the Sun and the Economist indicate that they are perhaps on our side in this argument, it is gratifying indeed.

But my main purpose tonight is to restate the reasons why I took the line I did in Committee and why I am comparatively unrepentant. The reasons why I and my hon. Friends took the line we did are rather different from those which animated the Opposition in that vote. Nothing will be gained by concealing the fact that we approach this subject from different standpoints.

I believe sincerely that if this provision to give no tax relief under the reserve scheme were to be reinstalled in the Bill it would be an act of discrimination against the people in the reserve scheme. If it were as simple as saying "Only a few people have to be in the State reserve scheme," that would be one thing. But, as the House now realises, many millions of people will, because of the nature of their occupations, have no alternative but to go into the reserve scheme.

The Government have said that they have taken this line because a large number of those who go into the State scheme will not be taxpayers. But that argument does not stand up to close examination. The Government's expectation of membership of the scheme is about 7 million people, and even they have conceded that, of that number, only 2 million do not pay tax. That is very different from saying that the majority are non-taxpayers and that, therefore, the question of tax allowances is not important. That is the first reason why I have taken the line that I have taken against the Government.

The second reason is equally important, if not, from my standpoint, more important. That is that I have a fundamental belief in the superiority of private enterprise in the provision of pensions. I am convinced that with equal tax treatment the occupational pension schemes are able to compete to the point of absorbing and attracting the low earners, whom it is assumed that the occupational pensions movement has chosen to overlook. I say that to my right hon. Friend the Secretary of State in particular.

I speak with some knowledge and experience of the life assurance industry. One has to confess that the life offices do very nicely out of pensions business. For them it is an attractive and profitable line. But there has been an understandable tendency for them to pass over the small saver because administratively he does not always fit well into an occupational pension scheme.

If we can extend this area of competition across the whole board of occupational pension schemes, the life offices will be compelled to provide that competitive situation which will prevent what my right hon. Friends fear; that is, the situation that the State reserve scheme will grow at the expense of the occupational pension schemes. That will happen only if the occupational pension schemes allow it to happen. Starting from a basis of equal competition, that need not happen.

The impression may have been gained, however, from what has been said by my right hon. Friends that they feel that they must take this line because of the need for the life offices to be protected from competition from the State reserve scheme. If anyone has taken that line, he would be interested to hear of a communication that I have received today from the Life Offices Association. Just before my right hon. Friend the Secretary of State intervenes, which he appears to be trying to do, perhaps he would allow me to read the letter.

Sir K. Joseph

I should be grateful if my hon. Friend would allow me to assert, as I think I can, that no right hon. Friend of his or mine would have made such a comment as he imputes to us. If my hon. Friend was suggesting that either myself or any of my right hon. Friends said that our proposal was in order to protect life offices, I hope he will withdraw that, because I do not think it is true.

Mr. McCrindle

If I said anything unfair, I withdraw it. However, I should still like to read the letter. It says: It appears from press comment, for example in the Economist last week, that the life offices might be accused during the course of debate on Report, of being one of the bodies responsible for persuading the Government to put down Amendment No. 85 to the social security bill to omit subsection (7) of Clause 73. We know you might like to know that our view is that the question of whether or not these contributions should qualify for tax relief is a matter solely for political decision and we have communicated this view to the Department of Health and Social Security. If it so happens that the life offices are criticised for bringing pressure to bear on the Government, we would welcome your help in making clear that this is not true. I hope that the position of the life offices has now been made clear by that letter.

I want to see a situation of fair competition between the occupational pension schemes and the Government reserve scheme. If we start from that basis of fair competition it is likely and, indeed, probable that the benefits which will accrue to members of occupational pension schemes will be so attractive that that in itself will be the best antidote to the expansion of the State reserve scheme.

The Government reply to these points by making several reasonable points themselves. I want to emphasise that I do not impute any ill motives to the Government. I am suggesting that they are misguided. They start by saying that it is not unfair because lower contributions will be required from the employee under the State reserve scheme. That logic must be carried through.

If the only thing standing between acceptance of our view and the position that the Government take is that there should be equalisation of contribution if there is equalisation of tax treatment, many of us would go along with that. However, when we make that point the Government come on to their second point that it would lead to considerable administrative difficulties and delay in the implementation of the Bill, which has the broad support of all my right hon. and hon. Friends. I do not accept that a Government which have been prepared to accept the challenge of a vastly changing tax system, on which we have by common consent been moving faster in the last three years than ever before, can plead administrative difficulty in opposing my proposition.

It is said that there is a risk that the State reserve scheme will absorb millions more people than ideally the Government had set their sights upon. That may be so. But it is only so if the occupational world allows it to be so. In this situation of straight competition there is a great deal that can and will be done to provide so much better benefits under occupational pensions. As this whole thing gets under way, trade union bargaining will be directed towards urging employers to go into occupational pension schemes. That is the positive way to advance the strategy which underlines all that the Government have been saying over the last few years.

The Government's fourth point, and it is a valid one, is that if this is carried to its conclusion additional Government expenditure of about £25 million will be involved. That will be so only if the occupational pensions industry shows that it is incapable of attracting into schemes all the people with whom we are now concerned, those we assume will go into the State reserve scheme. These are vital factors in the consideration of this extremely important and fundamental issue.

I conclude by simply addressing myself to my right hon. and hon. Friends. I have taken this line quite consistently because I have felt that good competition was what we should be looking for. But I am making this speech tonight as a member of the Conservative Party. I remind my right hon. and hon. Friends that private enterprise is the animus of the Conservative Party and that competition is the hand-maiden of private enterprise. I suggest to those who are undecided about how they should move in this vital matter that if the time ever comes when the Conservative Party is not prepared to stand up and defend the interests of private enterprise, that will be an unhappy day.

For all these reasons the Government have a powerful case to answer, and I look forward with great interest to listening to what my right hon. Friend has to say.

Several Hon. Members rose—

Mr. Deputy Speaker

Mr. Stewart-Smith.

Mr. George Cunningham

On a point of order, Mr. Deputy Speaker. When the hon. Member for Kensington, South (Sir B. Rhys Williams) sat down, he suggested—I think that the Secretary of State responded to the suggestion—that the Secretary of State should intervene at this stage. I do not know whether I speak for all Members, but certainly I would consider it useful to hear the Secretary of State's views.

Mr. Deputy-Speaker

That is not a matter for a point of order. Mr. Stewart-Smith.

Mr. Geoffrey Stewart-Smith (Belper)

As the wish has been expressed that my right hon. Friend the Secretary of State should speak, I shall be brief. I speak with a certain amount of controlled anger about this matter. The Committee which looked into it for many agreeable weeks clearly and overwhelmingly came to the conclusion that Clause 72(7) should remain in the Bill. There is no getting away from that fact. I am not——

It being Ten o'clock, the debate stood adjourned.

Ordered,

That the Social Security Bill may be proceeded with at this day's Sitting, though opposed, until any hour.—[Mr. Kenneth Clarke.]

Question again proposed, That the amendment be made.

Mr. Stewart-Smith

I am not a wizard, professional pensions man. In this debate I take the view much more of the lower-paid consumer.

We want the subsection that we put into the Bill in Standing Committee. We gave the Government time to think about the matter, but they have made absolutely no concession. They are trying to browbeat us into supporting them on it, and we will not have it.

What is intolerably injust in our opinion is that there is discrimination against the State reserve pension, especially as some workers are, in effect, compelled to enter that scheme precisely because of the nature of their work. They have no free choice. Why is there double taxation not only on the contributions but on the pension? It is intolerable that that should happen in the State scheme but not in the private scheme.

My right hon. Friend the Member for Finchley (Mrs. Thatcher) pointed out in 1965 that long ago, even apparently as far back as the time of Pitt, the principle was laid down that when benefits were taxable contributions should be deductible. That established principle is likely to be violated by the Government tonight. Graduated pension contributions are not deductible, but no tax is paid on receipt of the pension.

In this matter the Opposition and the rebels have the support of the industry. The amount of money concerned is £25 million or even less. Undoubtedly, there would be administrative inconvenience to employers under the Bill, but we are the Government. We govern. The buck stops here tonight, at the next Division.

We must decide where our loyalty lies. Does it depend on administrative convenience? Does it lie with the employers? Or does it He with the recipient, the consumer, the employee?

I ask the House tonight unashamedly and defiantly to keep the Bill as it stands as a result of the deliberations of the Standing Committee.

Sir K. Joseph

I respond gladly to the invitation of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), to whose zeal and knowledge I yet again pay tribute, to lay before the House the Government's arguments on what is a difficult issue.

I acknowledge that there is unease among my hon. Friends and that, on the face of things, it is not surprising that there should be some anxiety about what the Government have apparently suggested. I hope that hon. Members will allow me a little time, because I hope to lay before the House the reason why the removal of subsection (7) is proper and right, in the interests of the people whom we seek to serve, and central to the Government's strategy in connection with better retirement conditions for wage earners.

The Government believe that the more wage earners there are in recognised occupational pensions schemes, the better for them and the better for the country, but we also recognise that because of the nature of their employments or other personal or employment circumstances, by no means all people will be able to be in recognised occupational pension schemes. We accept the logic of our own strategy, and, although we are a Conservative Government dedicated to the solution of problems wherever practicable by the private enterprise means which my hon. Friend the Member for Billericay (Mr. McCrindle) rightly proclaimed, we accept the need for a State reserve scheme. I do not think that any of my hon. Friends will disagree with that logic which flows from our strategy.

Further, we all agree that it is no fault of the individual wage earner if he happens to land up in the reserve scheme. The decision is taken by the employers, and employers, as I shall come to describe, will take their decision in the light of their own circumstances, which will include, of course, the probable reaction of their employees.

To achieve our strategy it is the Government's purpose, while being fair to those in the reserve scheme, to encourage in the interests of wage earners the maximum practical membership of recognised occupational pension schemes. I do not think that any of my right hon. and hon. Friends will disagree with that purpose.

Mr. Dell

One point immediately arises. The right hon. Gentleman said that it is his strategy to encourage people to go into recognised occupational pension schemes. However, he has emphasised many times that it is likely that many people will move before the period at which their occupational pension entitlement will be preserved and will go temporarily or for a long time into the reserve pension scheme. The right hon. Gentleman recognises that that will happen. What is his intention if his amendment succeeds? Is it his intention that the tax rebate which such people have received on their occupational pension contributions will be lost when they are paid back into the reserve pension scheme?

Sir K. Joseph

That is too technical a question for me to give an immediate answer. I think that the answer is "No." Perhaps I did not understand fully the right hon. Gentleman's question. Is it possible for him to repeat it?

Mr. Dell

Yes, I am very ready to repeat it. The right hon. Gentleman and his hon. Friend the Under-Secretary of State have told us many times that people will be moving from the occupational pension system into the reserve pension system in a period of less than five years and that as a consequence their pensions will not be preserved. When they are in the occupational pension scheme they get a tax rebate on their contributions. They will be paid into the reserve pension system. There are two alternatives. Either they will relinquish the tax rebate they have had on their earlier occupational pension contributions or they will not. If the right hon. Gentleman says that they will not, that is unfair because that means that many people will be in the reserve pension scheme and will have the tax rebate. If they will, it is even more unfair because all sorts of people will be having to pay back taxation. What is the situation? I should have thought that the right hon. Gentleman before moving the amendment, would have found out.

Sir K. Joseph

The right hon. Gentleman put his question in the terms "Will they lose their tax rebate?" I answered "No, they will not." I stand by that opinion. Let us follow the processes. This is a highly technical issue in an occupational pension scheme. Let us suppose that the individual employee is charged 2 per cent. gross. It costs him, if he is a taxpayer, roughly 1.4 per cent. If in due course, but before five years' service, he leaves that employment his employer has the obligation to buy him into the reserve scheme for the equivalent length of service. He has the obligation to pay into the reserve scheme 4 per cent. for the employees aggregate salary during the less than five years' service which he completed with the firm.

To enable the employer to do that, he can recover 1½ per cent. net from the employee in the reserve scheme. The employee will have benefited by more or less tax relief which he will get according to the amount of the contribution which he has paid. He may be entitled to a repayment from the firm although he has made good into the reserve scheme the contributions that would have been paid had he been there.

Mr. O'Malley

In that case, is not the right hon. Gentleman's position already in shreds? Is not the clear implication of what he has said that many members of the reserve pension scheme—this money purchase scheme—will have got tax relief as a result of this kind of procedure on the basis of payments made by the ex-employer when a man changes his job? Not only do we have disparity of treatment between members of occupational schemes and members of the reserve scheme, but disparity of treatment between one member of the reserve scheme and another. The right hon. Gentleman is in great trouble. Does he not think that the Government should change their minds even at this late stage?

Sir K. Joseph

I am afraid that my withers are completely unwrung. Perhaps on reflection I shall find something more in the argument of hon. Members opposite. There is an apparent triumph among the trio of hon. Members opposite who have studied this subject, but I still do not feel in the least embarrassed by what they have evidently drawn out of it.

Mr. George Cunningham

Does not the right hon. Gentleman understand that the reason why he is unable to deal with this point is that he is using a taxation device as an instrument in pension policy? He is not able to deal, from his own knowledge, with the point put by my right hon. Friend the Member for Birkenhead (Mr. Dell). It shows how wrong it is to use taxation policy as a means of shifting people from one kind of scheme to another.

Sir K. Joseph

This is broadening out into a general argument, which is preoccupying hon. Members, from an important but technical point on which I feel not the least embarrassment. The House wants a general explanation from the Government.

Mr. Dell

The point must be made clear. I think that the right hon. Gentleman must now accept that there will be inequities between members of the reserve pension scheme. Some will have had a tax rebate, whatever the fate of the amendment may be, and some will not. The right hon. Gentleman cannot say that that is not an inequitable position.

Sir K. Joseph

I am sorry, but I do not accept that it is in the least inequitable that, as between reserve scheme members, each member, whatever his previous treatment before he came into the reserve scheme, will have 4 per cent. paid into the reserve scheme divided by his employer, whether the current employer or retrospectively by the previous employer in whose employment he has not stayed for five years.

I return to the general argument. It is the Government's purpose, while being fair to those in the reserve scheme, to encourage, in the interests of the wage earners themselves, the maximum membership of recognised occupational schemes. The question whether tax relief should be provided on employees' reserve scheme contributions cannot be decided in isolation. The arrangements proposed by the Government have been devised so as to achieve a balance between encouraging the development of recognised occupational scheme developments and making acceptable provision for employees who are not members of recognised occupational schemes.

As one component, the Government have proposed an uneven split of reserve scheme contributions, whereby the employer pays 2½ per cent. and the employee pays only 1½ per cent., with no tax relief being allowed on the employee's contributions.

It is true that a split in favour of the employees is common in occupational schemes. Some are even non-contributory. I was guilty of a mis-statement in the House, for which I apologise to the hon. Member for Islington, South-West (Mr. George Cunningham). In an interjection in answer to a question I said that the split, which is 5 units on the employer to 3 units on the employee, in the reserve scheme, was better than in private occupational schemes. The fact is that I was wrong, and I apologise. The Government's proposal is roughly 37 per cent. on the employee. The average in occupational schemes is 33 per cent. on the employee. I was wrong, but not grossly wrong.

10.15 p.m.

I should like to correct one point in the speech of my hon. Friend the Member for Belper (Mr. Stewart-Smith). He said that it was outrageous that any contribution should not be tax deductible because, so he said, it is a general rule that what is put aside for pensions is not taxed because what is received in pensions is taxed. He is right about occupational pension contributions. The basic scheme pension contribution is not tax deductible. My hon. Friend put the proposition in general terms, and I am entitled to point that out to him.

I do not want to overstate what I am about to say, but, while it is absolutely true that occupational schemes on the whole on average divide the contributions more heavily on the employer than on the employee, there are two propositions to make about it. First, I think it is correct to say that some of the less generous occupational schemes divide the contributions more nearly 50/50 than 60/40.

Secondly, an occupational scheme as we know it at the moment is a voluntary occupational scheme initiated by an employer as part of the pay of his employees, for his own purposes, at his own discretion, and not under compulsion of law. In these circumstances we must certainly take into account the split of contributions, but we should not regard them as mandatory when we come to consider a different animal; namely, a compulsory occupational pension scheme, which is what the reserve scheme is.

When we compel employers to act not necessarily at their own discretion, not necessarily as they would have liked to act, it is not right—nor did it seem to the Government right—to impose on them in addition a disproportionally heavy—more than half—share in the contribution.

The Government started from the proposition that if there had been tax relief on the employee's contribution the proper distribution of those contributions would have been 50 per cent. employer and 50 per cent. employee, which in a 4 per cent. total contribution scheme would have been 2 per cent. either side.

I know that the House will accept my word, whether hon. Members agree or disagree with the judgment made, when I say that that is the position. That is the chain of reasoning by which the Government arrived at their decision to split the contribution in the reserve scheme unevenly; that is, five units on the employer and three units on the employee.

Mr. George Cunningham

But what difference does it make to the employer whether or not the employee gets tax relief? The employer will have to pay his 2½ per cent., on which he gets tax relief, so that it comes down to 1½ per cent., and when the new corporation tax comes in it will come down to 1.25 per cent. He will pay that anyway, so whether or not the employee gets tax relief makes no difference to the employer. Does the Minister agree that no difference will be made in the cost to the employer if tax relief is given to the employee and no other change is made?

Sir K. Joseph

I should like the hon. Gentleman to carry his thinking one stage further back. I am not suggesting that, whatever the outcome of the decision this evening, we should alter the contribution split. Had the Government decided to provide tax relief on the employee's contribution they would have provided for the split to be even. The employer would then have paid a gross contribution of 2 per cent. and, applying the hon. Gentleman's tax deduction, the net cost to the employer would have been less than it will be now when he is paying gross 2½ per cent.

Mr. Walter Johnson (Derby, South)

The Secretary of State has had to make a number of apologies for mistakes that he has made already in the course of the debate. On this issue, is he not aware that it is a condition of service in many organisations for people to belong to a contributory pension scheme? I am sure that he will wish to correct what he said about that as well.

Sir K. Joseph

I do not deny that some people are obliged to belong to a contributory pension scheme. As for my mistake, for which I apologised, that occurred in the course of an interjection on Second Reading some months ago. The apology was overdue. It might have been made a little earlier. But it is only one apology for one mistake.

The House will want to know the effect of this shift in contribution from the employee to the employer as a result of the Government's proposals. Assuming total contributions for the reserve scheme, on an estimate of 7 million members at any one time, of £300 million a year, the decision to divide the contributions unevenly will mean in effect each year a shift from what the employees would have paid of £40 million off the employees' shoulders on to the employers' shoulders. Let me put the same point another way. Leaving aside the contribution which the employers will be paying anyway, the result of what the Government propose is that for each pound of an employee's contribution he will secure about £1.30 of benefit not by way of tax deduction as in an occupational scheme but by way of extra provided deliberately from the employer.

I pass fairly quickly over the fact to which my hon. Friend the Member for Billericay rightly referred, that a minority of people in the reserve scheme will be on earnings which do not qualify for taxation. Perhaps a third of members of the reserve scheme will not benefit from tax relief if it is provided.

Mr. George Cunningham

How many?

Sir K. Joseph

The calculation is 2 million out of an assumed 7 million members.

Mr. Cunningham

So that we get this right, the Minister's figure to me was between 5 million and 6 million taxpayers. That leaves between 1 million and 2 million non-taxpayers.

Sir K. Joseph

We are dealing with approximations. No one can be sure. The nearest figures that I have been given are 7 million members at any one time with about 2 million who might not be taxpayers.

I ask hon. Members to remember that tax exemption of employees' contributions will not add a penny to their benefits. I hope that none of my hon. Friends has any illusions about this.

The Government's policy depends upon a number of ingredients. I hope that the House will accept that in a carefully worked out plan such as this it is not possible to alter one ingredient without repercussions on the others. We cannot make the reserve scheme less modest without all sorts of other repercussions.

The reserve scheme was designed deliberately for wage earners whose employers faced most difficulty in providing pensions —small employers, employers with constantly changing work forces, and those employing some people on low earnings. They are the people for whom the reserve scheme was deliberately designed. Therefore, there is a limit to the amount of the contributions which can be asked for from this sector of the work force.

Further, because it is only right to allow exemption from the reserve scheme to occupational pension schemes which provide on the whole better benefits, any improvement in the benefits in the reserve scheme must be matched by at least proportionate improvements in the benefits laid down in the recognition tests which an occupational scheme has to meet. Any increase in the recognition test benefits will cost employers more and will discourage some marginal employers from having occupational pension schemes. If at this stage we embark upon opening up once more the question of the recognition tests there will be no hope whatever of bringing in this pension scheme, with all its potential for millions of people, in April 1975. That would involve a great loss of impetus in the occupational pension movement.

There is an amendment on the Notice Paper tabled by my hon. Friend the Member for Kensington, South, which would replace tax exemption with a direct tax subsidy to the reserve scheme close to what might have been the cost of tax exemption. All the difficulties I have described would be compounded if instead of tax exemption we went for tax subsidy. There would be the same higher costs for occupational schemes because levels of benefits for recognition would have to be raised, there would be the same discouragement to marginal occupational schemes, and there would be delay.

At this stage, before bringing together all the factors that have been discussed——

Sir B. Rhys Williams

My right hon. Friend suggested that I should not intervene at a point when I was particularly anxious to rise and he appears to be leaving that question now. Unless I am mistaken, it will be possible for private occupational pension schemes to have the same structure of contributions as is proposed in the reserve scheme; namely, 2½ per cent. from the employer and 1½ per cent. from the employee. Should that pattern be decided upon, there will not be any suggestion that in the private schemes the employees should lose the benefit of the tax concession. How can we explain that where a precisely equal structure of contributions operates in the reserve scheme the ultimate beneficiaries will not get the benefit of the tax concession?

Sir K. Joseph

Because, as I explained, there is a substantial difference between a recognised occupational scheme, voluntarily entered into by the employer who is free to divide the contributions as he thinks fit, and a compulsory reserve scheme imposed upon employers where the natural distribution would be half contributions from the employer and half from the employee but which we have altered to favour the employee.

My hon. Friend the Member for Billericay properly asked what the Government understood to be the views of the pensions interests. I have had reported very carefully what those views are. Within the pensions industry differing views are held on whether the Government would be right to withhold tax relief on employees' reserve scheme contribu- tions. I must make it clear that there has been no attempt so far as I am aware by the pensions interests to mount a campaign against the allowing of tax relief.

Indeed, the Life Offices Association has told me specifically—I have the same quotation as my hon. Friend—that it regards this as a matter for political decision and does not consider it appropriate for it to exert pressure on the Government one way or another. Representatives of the National Association of Pension Funds have told me—this is an argument against me, and I emphasise this—that they are in favour of allowing tax relief on reserve contributions. They believe, however, that the balance between the reserve scheme and recognised occupational schemes would be unsettled by allowing tax relief and would only be restored by offering further encouragement to occupational pension schemes to develop.

This is not a group of people selling pension schemes. The National Association represents firms that already have occupational pension schemes. The CIB Society of Pension Consultants has told me that it would regard the Government's acceptance of tax relief as representing so fundamental a change as to constitute a severe setback to the successful implementation of the Government's policy by the due date. There is, therefore, considerable disagreement, but no pressure on the Government whatsoever.

Whatever the views of these organisations on the merits or otherwise of the Government's case, none of them has said anything to upset our belief that amending the Government's original proposal, to allow tax relief, would in practice mean that there were many more, perhaps millions more, reserve scheme members than would otherwise be the case.

This is a complex subject. I am going to bring all the factors which I have raised and which hon. Members have so far raised into focus on the issue before us.

10.30 p.m.

First, will our decision make any difference to the welfare of the wage earners when they are retired? My hon. Friend the Member for Billericay is an expert on the subject, but I am going to venture to question the degree of his realism in some of the judgments he has made. I will explain to him and the House why. Let us, on what is common ground, agree that, whatever we decide tonight, some millions of people will be in the reserve scheme. Let us agree that, whatever we decide tonight, some millions of wage earners will be in recognised occupational schemes. So the issue is how the mobile mass in the centre who are not destined, as it were, inevitably for one or the other will be distributed, as a result of our decision tonight, between the reserve pension scheme and recognised occupational schemes.

Before we can comment on how that distribution will go we have to ask ourselves who will make the decision about scheme membership. It is not we who will make the decisions. It is the innumerable employers, large and small, who will have to make the decisions, not the Government. I put to the House the view that the decision we make tonight will crucially affect the decisions made by myriads of employers. The employers who will be affected above all are those cost-conscious employers who have not at the moment got occupational schemes, or whose occupational schemes do not cover all their workers, or who have an occupational scheme which is not good enough to qualify for recognition. My hon. Friend the Member for Billericay must recognise that those will be relatively, by hypothesis, the hardest group of people to persuade to have recognised occupational schemes. They are the very people who have not so far in general done so.

My hon. Friend the Member for Billericay, with all his expertise, referred to the group who could be taken into the reserve scheme if tax exemption were provided as mainly small employers with small numbers of employees, but I must emphasise that that is the wrong picture. The largest group of employees who would be, as it were, at risk as a result of our decision are the shop floor workers of middle-sized employers or substantial employers. Why is that? I will try to explain. To seek recognition will involve employers—by hypothesis, employers who at the moment have not got very good schemes—in heavy administrative burdens and extra costs. They have to face contributions at 2½ per cent. anyway if they go into the reserve scheme; to satisfy the tests for recognised occupational schemes they will have to pay contributions, I would say in most cases, more than half of probably more than 4 per cent.

My hon. Friend the Member for Kensington, South will assert, correctly, when he replies to the debate that with interest rates at their present level it is possible for the recognition tests to be satisfied by a contribution which at the moment would add up to 4 per cent. or perhaps slightly less. I would ask him and the House to accept that no employer in his senses would depend upon interest rates remaining at this level throughout the period of his occupational pension obligation. We would estimate that with contributions for employer and employee the contribution would be between 4 per cent. and 5 per cent. at least.

Mr. Cunningham

No worse off.

Sir K. Joseph

The hon. Member says he will be no worse off. It depends on the distribution of the contribution. If we leave things as in the original Bill, with no tax relief, an employer with a recognised scheme could divide a contribution of say 4½ per cent. into 2½ per cent. on his shoulders and 2 per cent. on the employee's, which after tax deduction, would be 1½ per cent. This would be about the same as the employee would pay in the reserve scheme. So the employer would be able to say to his employees "You will be better off, because we will provide better benefits and you will pay no more."

If we provide for tax exemption in the reserve scheme—by hypothesis we are talking of employers who are not particularly keen to have occupational pension schemes or, anyway, not to have more than they have to pay for—the cost to the majority of wage earners will be about 1 per cent., and all that the employer in an occupational scheme will be able to put on his employees will be about 1½ per cent., which, after tax deduction, would come down to 1 per cent. Recognition will, therefore, impose on the less-than-enthusiastic employers, or the big employers who have not at the moment got their manual workers in a good occupational scheme, a heavier contribution than they would face in the reserve scheme and perhaps a heavier contribution than they would be willing to face.

I was asked to recognise that the employer will not be alone in thinking that the reserve scheme, with tax exemption, will be very seductive. A lot of employees on the shop floor are interested not in pensions when they retire but in minimising the deduction from their wage packets. Hon. Members on both sides of the House know that. If hon. Members are inclined to pray in aid trade unions, I accept and acknowledge that some trade unions are extremely active in this sphere, but alas they are still a minority.

Many trade unions will back up the majority of their members on the shop floor and say to the employer "If there is this tax exemption in the reserve scheme it will minimise the cost. All you have to do is to go for the reserve scheme and it will cost our members who pay tax only 1 per cent.". But we must bear in mind that the poorest of their members who do not pay tax will still be paying 1½ per cent. They will not get a penny benefit from the amendment moved by my hon. Friend the Member for Kensington, South.

The Government are seeking to be fair to the members of the reserve scheme. I have explained how we arrived at a disproportionately small contribution from employees in recognition of not providing tax relief. The Government are seeking at the same time, in the interests of wage-earners, to maximise the membership of recognised occupational pension schemes.

We must face the fact that the employers whom I have described—those who, in pension terms, are not particularly interested, who are cost-conscious more than pensions-conscious, who have no pressure from the shop floor and rarely any pressure from the trade unions —will tend to surge towards the reserve scheme if we provide tax exemption for contributions into it. [Interruption.] One hon. Gentleman says "So much for private enterprise."

I noticed that my hon. Friend the Member for Billericay seemed to indicate slight disagreement with the last part of my argument. He is a realistic man who has been in the insurance world for some time. Surely he will acknowledge that the task facing those who wish to expand occupational pension schemes will be made substantially harder if tax exemption is given to the reserve scheme with the result that, as he said, many more people—I should say more millions of people—will be in the reserve scheme.

Mr. Dell

May I put one point to the right hon. Gentleman which I hope he will not think is technical? It is agreed that about 5 million of these persons who are in the reserve scheme will be taxpayers and that the amount of tax involved would be about £25 million a year —in other words, on average, £5 per person per year. Is the right hon. Gentleman saying that all these dramatic consequences for his strategy—this great surge towards the reserve scheme, this complete undermining of the whole concept of his strategy for pensions—depend on an average of £5 per person per year?

Sir K. Joseph

Sad though it be to acknowledge that people should be so short-sighted, I assure my hon. Friends that I have evidence for saying that that will be the effect. Providing tax exemption will, in the view of the Government —and I ask my hon. Friends to heed this —deprive millions of wage earners of the likelihood of being in recognised occupational pension schemes and not add a penny of benefit to the pensions of those in the reserve scheme. The reserve scheme will be much increased in numbers.

The reserve scheme is a necessity for those who believe in the strategy that the Government have outlined. Some will have a chance of a second pension only if they are in the reserve scheme, but it was not the Government's object or purpose to enlarge the reserve scheme beyond need by tempting into it people who should be looked after by the private sector in occupational schemes.

Finally, I refer to the cost. If the tax exemption is provided, there will be a loss of £25 million revenue. This will not be taken from the employees' benefits, because of the extra contribution in the reserve scheme that we are providing from employers. It would be very odd if a number of my hon. Friends who are particularly worried about the balance between Government revenue and expenditure were, without realising it, to increase potential financial problems in the future to the tune of £25 million a year.

Mr. George Cunningham

If the right hon. Gentleman's strategy is successful people will be shifted into occupational pension schemes and £25 million tax relief will be given.

Sir K. Joseph

Yes, but it is the substance of my argument that if the House maintains tax exemption the £25 million will be lost and, even more serious, millions of people who could be given improved benefits in recognised occupational pension schemes will not get them.

Mr. McCrindle

Does not my right hon. Friend concede that all that he has been saying presupposes that the occupational pensions industry will not, or cannot, respond in the way that I tried to outline?

Sir K. Joseph

I am sure that it will try to respond, and I admire its capacity to respond, but I think the House will be erecting, perhaps, ironically, with my hon. Friend's support, very difficult barriers.

I have tried to explain why the marginal employer, even the big employer who is hard-headed and cost-conscious, persuaded by his shop floor personnel and trade unions, will be tempted into the reserve scheme. I ask the House, and particularly my hon. Friends, to reflect on our purposes. The Government are making a deliberate attempt simultaneously to be fair to those in the reserve scheme and to encourage, in the interests of wage earners themselves, the maximum membership of recognised occupational pension schemes. It would be extraordinary if, with the best of intentions, my hon. Friends were to deprive several millions of wage earners of the decent, recognised occupational pension schemes for which their jobs are suited, without adding a penny to the benefits of those in the reserve scheme.

I hope very much that the House will not accept my hon. Friend's amendment and that it will accept the amendment eliminating subsection (7).

Mr. O'Malley

The House of Commons has been discussing the various aspects of this Social Security Bill since November last year. Throughout the many proceedings on the Bill there have been deep differences of opinion and of principle between the two sides, but when the difference in the treatment of members of the reserve pension scheme and of occupational pension schemes came before the Committee this issue, like so many others, was examined in great detail.

The Minister stood virtually alone, and it was that situation which created the majority which was successful in Committee. As a result, the Government and the Secretary of State have come forward with a proposal to overturn a decision taken by a large majority in Committee. On that occasion there was a genuine extending of hands across and co-operation between the two sides of the Committee. The decision was certainly not a party political one. It was taken by a number of hon. Members in full possession of the facts, who saw their responsibility to the public as providing equity between one citizen and another.

10.45 p.m.

It was only at almost the last point in his speech, almost accidentally, that the right hon. Gentleman brought to the attention of the House one of the factors which have led to his being placed in this difficult position. If any Government were looking for a Minister to put forward an impossible case, the right hon. Gentleman would be among the contenders at any time. He made the best of a very bad case.

Two general considerations should be noted before dealing in detail with the right hon. Gentleman's speech. First, throughout the history of this House there has been a continuous tension, and in many periods a conflict, between the House and the Treasury. Behind the Secretary of State tonight stand the mandarins of the Treasury, who have clearly told him that they will not accept an amendment, although it succeeded in Committee, which would cost the Treasury £25 million in a full year.

Once again, therefore, we must decide how we are to react to the pressure of a decision taken outside the House, within the Treasury, not by a spending Ministry, and certainly not by the House of Commons. It would be a negation of the historical rôle of Members of Parliament if we did not take that factor into account, which was omitted by the right hon. Gentleman. Of course one understands why such things are not said by Ministers, but every hon. Member knows the realities of a situation in which a Government have to come forward with an amendment like this, particularly when there is deep feeling which is shared by their own Members.

The second general consideration is this. The right hon. Gentleman, in a complicated speech detailed the figures supplied by the clerks, accountants and actuaries. Are we, as the House of Commons, always to give priority to the arguments of the actuaries when an issue of equity between one citizen and another is at stake?

Stripped of everything, the issue is simple. If we accept the Government's amendment to take away tax relief on contributions into the reserve shceme, we shall be telling 7 million people that, in providing for an income in retirement and old age, they will not have the tax advantage which another section of the community will have. It is a fundamental principle of tax policy that there should be similarity of treatment between one citizen and another. If the Government's amendment is accepted, there will not be that similarity.

There will be this inequity not not only between members of occupational schemes and members of the State reserve scheme—and we should remember that it is not the employee's decision whether he should be in one or the other —but among members of the reserve scheme themselves. Large numbers of men and women will move in and out of the reserve pension scheme. From the fast ball which my right hon. Friend the Member for Birkenhead (Mr. Dell) bowled to the Secretary of State it became clear that the inequity was not merely between the occupational pensioner and the reserve pensioner; it is even within the reserve pension scheme itself.

Looking at the general position, it is important, too, that if the Government are successful in inflicting this difference of treatment between one citizen and another it will be women who suffer in the majority. Many of the members of the reserve scheme will be the lower-paid in the community—who are women. The Secretary of State shakes his head, but I suggest that he studies his own papers on this subject. I thought that this was a matter of general agreement on both sides of the House. It is certainly not a party-political point. It is in the nature of the wage structure and our kind of economic system. I was merely noting that women will form the majority under the reserve scheme.

Hon. Members should take into account that this is not only an inequity between one citizen and another in difference in tax treatment, it is women who are at the receiving end of this inequity in very large numbers.

Mr. J. R. Kinsey (Birmingham, Perry Barr)

The hon. Gentleman is arguing closely that we get inequities in taxation between the two schemes, but has not this been redressed in the matter or contributions to the schemes?

Mr. O'Malley

I shall deal with that point. The Secretary of State made it one of the lynchpins of his argument. If the hon. Gentleman will excuse me, I shall come to that point later.

The Secretary of State began by expounding a philosophy shared by the whole Conservative Party. I am not attacking that tonight. I am looking at the situation. The Secretary of State said that the Government believed that the more people who were in occupational pension schemes the better it would be for them. Therefore, the Government want to encourage the growth of such schemes. That is the view of the hon. Member for Kensington, South (Sir B. Rhys Williams), the hon. Member for Billericay (Mr. McCrindle) and others who have been very active in these discussions.

The Secretary of State also said that the Government recognised that it would not be every man and woman who would have the opportunity to belong to such a scheme and that it was for that reason, therefore, that the reserve scheme is to be set up. Having said that, however, the right hon. Gentleman said that it was the Government's desire to encourage maximum membership of occupational schemes with the reserve scheme as a fallback scheme. It was implied that if the reserve scheme were given this tax advantage of £25 million a year, that sum would destroy the whole competitiveness of the life offices, insurance companies and the private occupational pension schemes.

The Secretary of State was answered by the hon. Member for Billericay by his quotation of the communication from the life offices about their attitude. They know that they do not need, as a prerequisite for their success, a treatment of the reserve pension scheme as shabby as is proposed by the Government.

I do not need to answer the Secretary of State. The debate cuts across party-political boundaries. It is not a matter of taxation or equity. That part of the right hon. Gentleman's speech was answered even before he made it by his hon. Friend the Member for Billericay. The hon. Member for Billericay said that he was sure—apparently the life offices are sure—that the life offices can compete with the reserve pension scheme.

Before the last General Election the Secretary of State was an arch-disciple of the virtues of competition and the belief that private enterprise could compete with anything. We are not arguing about that. There is no difference between the two sides on that issue because of that difference of philosophy between the parties. The hon. Member for Billericay said that the life offices, the insurance companies and the occupational pension schemes were well able to compete. This is not the time for me to repeat any attacks on the reserve scheme, but let us examine the benefits which will be paid out under the reserve scheme. Any insurance broker would say that it would be relatively easy to provide the type of benefits which would come from the reserve scheme for less than 4 per cent. which the hon. Member was speaking about.

The hon. Member for Kensington, South has indicated that he knew that at least one organisation was able to provide benefits at the minimum level of 3½ per cent. I know the reasons for that, but it makes the point. The first point that the right hon. Gentleman the Secretary of State raised on this general argument of equity must concern every Member of Parliament, whatever his political philosophy. The hon. Member for Billericay put a stick of dynamite under the Secretary of State's first argument. Frankly, the Secretary of State is in an invidious position because he has not got a valid set of arguments to advance and that is why it is obvious that there has been pressure from the Treasury.

The second argument which the Secretary of State used—I am trying to pull out the basic issues and put them into simple terms—was that the employer is paying 2½ per cent. and the employee only 1½ per cent. He said that if there was to be a tax concession there would need to be a change so that it was a 50/50 split. On this issue of the split between employer and employee contributions, I need go no further than the occupation pension scheme which we as Members of Parliament contribute to. It is not untypical of the situation outside. Current practice is not a 50/50 split. Current practice in this country and, as I understand it, in the EEC is that the employer pays a significantly bigger proportion of the contributions than the employee. That is certainly the situation in the case of white-collar workers, and that is important in view of the likely composition of the reserve scheme.

The Secretary of State cannot say, therefore, that if there is to be a tax concession there would have to be a 50/50 split. He cannot say that the reason for the 2½ per cent.—12½ per cent. split in contributions is that there was no tax relief. That is rationalisation after the event. That is an argument dragged after the event, as he well knows. It is not true that the result of this split is that there is a £40 million subsidy from employer to employee. If I were the right hon. Gentleman I should have something harsh to say to the civil servant who gave me that argument to use, because it is simply intolerable.

11.0 p.m.

Sir K. Joseph

I have to assert yet again that the reasoning I gave to the House was not ex post facto rationalisation. It was the chain of reasoning by which the Government arrived at the uneven split that I have described. My speech was very much my own, including that argument.

Mr. O'Malley

I accept that, because we all, on both sides, accept that the right hon. Gentleman is an honourable man, and I am not calling his reputation into question. The issue is far too important for millions of people far into the future for us to become involved in that kind of argument.

Whether it was a rationalisation after the event or not, it is not a starter as an argument. Anybody who knows anything about occupational pensions practice in this country knows that.

The third thing the right hon. Gentleman said was that the contributions for the basic pension were not tax-deductible. But there is equality of treatment in the basic pension; all citizens who make those contributions are treated alike. It will not do to say that setting up an occupational pension scheme is voluntary, whereas membership of a reserve scheme is compulsory, because there is no choice for many millions of men and women. They must be in one or the other. It is the employer who will take the decision, whatever consultations may take place— and they will take place in good firms.

It will be an accident of his employment which type of scheme a man is in, an occupational pension scheme on the one hand or the reserve scheme on the other. As a result of the Bill all members of the community will be a member of one or the other. There is no choice. If they are in recognised pensionable employment they will have to be in an occupational pension scheme or the reserve pension scheme. Therefore, the right hon. Gentleman's third argument falls.

The right hon. Gentleman then asked whether the subsection would benefit wage-earners when they retired. He said that it would not add a penny of benefit to what they received. But it would give them the tax benefits over the whole period in which they were making contributions—perhaps 5 million or 6 million of them out of 7 million. For the whole of their working lives there would be contribution benefits. It is a matter for conjecture as to what would be the final effect on the fund over a long period. But the basic argument is the simple one of equity between one section of the community and the other.

The right hon. Gentleman closed by telling his supporters—he had to draw out a last desperate card; it was a sorry position to be in—that if the Government were defeated on the amendment the Bill could not be brought into effect.

Sir K. Joseph

I only said that if hon. Members tried to inject more money into the reserve scheme and, therefore, we had to change the recognition test, that would put the date into danger.

Mr. O'Malley

That was not the only thing the right hon. Gentleman said. In any case, even if that were so, what we have been arguing continually for five months is that the criteria are minimum criteria, and the effect, if there is to be an effect, would be one of a maximum of £5 a year on the individual.

When we are dealing with pensions subjects, too often a minority of people acquaint themselves with all the complexities. One becomes what a former Secretary of State has described as "pen-sioneers". Other hon. Members, daunted by the complexities and the actuarial and accounting arguments, tend to leave it to the pensioneers. But when we have dealt with all those arguments, we still have a responsibility to the House to decide as individual Members whether there is fairness of treatment between one citizen and another.

As it is manifest that there is not equality of treatment or equity between one citizen and another, I hope that the whole House will defeat the Government. I say that on no party-political basis. I should not try to claim credit for one party if the Government were defeated tonight. If we did that we could hold our heads high as Members, believing that we have fulfilled our traditional and historic rôle in maintaining the interests of all our constituents, of all the citizens of this country, rather than creating one class of citizen with one kind of tax treatment and another with a markedly inferior kind of tax treatment.

Sir Robin Turton (Thirsk and Malton)

I have considerable sympathy with my right hon. Friend in the arguments which he has addressed to the House. However, I was rather disturbed when he attacked my hon. Friend the Member for Belper (Mr. Stewart-Smith) for introducing a tax principle which certainly for 266 years had been immutable—namely, that if a benefit is taxed the contribution is tax deductible. Against that, my right hon. Friend referred to the basic pension, but he and I and the whole of the Conservative Party fought hard against that breach of principle in 1965.

It ill becomes the hon. Member for Rotherham (Mr. O'Malley) and his right hon. and hon. Friends to bring forward the argument that the basic pension treats all alike. This is a vital matter which I hope my right hon. Friend will consider. It must be put right, otherwise I fear that there will be further inroads into the principle when a Labour hon. Member— it will probably not be the hon. Member for Rotherham—becomes Chancellor of the Exchequer. That is why I hope that my right hon. Friend will reconsider his attitude to the amendment.

I am a trustee of the Members' Contributory Pension Fund. The trustees decided that there should be a contribution proportion of five to three. Equally, our contributions are tax deductible. I find it hard to support my right hon. Friend in his argument when my constituents, many of whom are agricultural workers or building workers, will not be allowed to deduct their contributions to the reserve scheme whereas those who are employed by local authorities, or the neighbouring ICI plant, will be able to do so. I suggest to my right hon. Friend that this is a matter that warrants rather more mature reflection.

This is a taxing matter and not a pension matter. That is why I have sympathy for my right hon. Friend. He is put in an invidious position. This is the sort of matter which is dealt with in a Finance Bill. Of course, it will be some time before the taxing provisions will take effect.

I have always taken the view that the right way to treat contributions and pensions is the reverse of what we have had in the past. I believe that a working man or woman should not be able to deduct tax from the contributions but should have a pension that is free of tax. To my mind hardship is at present suffered by men and women who after a working life receive a pension and find that their pension, although it is small, is eroded by taxation. No changing of the tax exemption limits can keep up with events.

I received a letter only this morning from a railway pensioner. He receives an annual pension of £583 and an annual railway pension of £267. Yet that man is paying a tax deduction of £1.50 every four weeks, being paid on a four-weekly basis.

I cannot think how in a civilised community we can allow pensioners on low incomes to be taxed in that way. Therefore, I suggest to my right hon. Friend that he should undertake to consult the Chancellor of the Exchequer on the whole question of the principle of the deduction of tax from contributions and on whether contributions or pensions ought to be taxed. The matter could well be considered by a departmental committee in time for the next Budget.

If we could get such an assurance there would be no need for this subsection at present because the matter could be dealt with in a Budget. But I insist that we cannot argue on the five to three basis and say that it should be otherwise, at 50-50, when we, as Members of Parliament, are enjoying the five to three ratio. The principle of this matter is rather more important than the detailed arguments, and I hope, therefore, that my right hon. Friend will reconsider this issue.

Mr. George Cunningham

I confess to mixed feelings in that the seed I sowed in Standing Committee has grown to such a sturdy plant tonight. But I am delighted that the case which, I recall, I had to fight for hard in some quarters—including the rules of the House because it was almost out of order—is now so universally accepted, except by the Government.

The Secretary of State said two conflicting things. First, he said that if my amendment is allowed to remain in the Bill enormous changes will be required throughout the whole strategy.

Sir K. Joseph indicated dissent.

Mr. Cunningham

If the right hon. Gentleman did not say that, it helps my case. He also said that if the Government did not get their way there would be no alteration to the 2½/1½ split. So the issue is narrow. It is whether the employee pays 1½ per cent. and gets tax relief or whether he pays 1½ per cent. and does not get tax relief. It does not affect the employer at all. Whether he gets that tax relief or not, the employer will pay the same either way.

My case is not to the party advantage of the Opposition. The best thing for the Labour Party would be for the Government to get their way tonight and incur all the opprobrium for it, with us getting all the credit. Hon. Members opposite who support our case would not get the credit, but that is life this side of Heaven. The Conservative Party would get the opprobrium and we would get the credit. So, in trying to get the Government to change their minds, we are not acting for our party interest. I hope that that will make it easier for hon. Members opposite to do what they should do.

Sir K. Joseph

In view of the occasions when right hon. and hon. Members opposite make policy commitments for their party without consulting their Leader or the Shadow Cabinet, may we know from the Opposition Front Bench whether there is any firm commitment by the Opposition on the subject? The hon. Member for Rotherham (Mr. O'Malley) said nothing about it.

Mr. Cunningham

The Front Benches must speak for themselves. I only ever speak for myself. But one thing I can promise is that the Opposition Front Bench had better do this when it returns to office or it will get Ten-Minute Rule Bills practically daily on this issue. That much can be promised.

11.15 p.m.

The administrative difficulties that have been advanced have not been made much of tonight, but they were earlier before they were knocked down. The Minister argued that to adjust people's codes to take account of their contributions to the scheme would be administratively difficult, and, of course, it would. But in occupational pension schemes no adjustment of codes is required. The employer is told to knock off the contributions under the net pay arrangement and to apply the tax arrangements to the net pay. There is, therefore, no administrative difficulty for the employer. That has been admitted by the Minister in answer to questions from me.

I stress the comparison with our own pension scheme for Members of Parliament which was mentioned by the Father of the House the right hon. Member for Thirsk and Malton (Sir Robin Turton). The comparison is more direct and compelling than he suggested. When Lord Boyle put forward the change in 1971 from 50/50 to 3/5, he did so by referring, first, to the proposal for the State reserve scheme and, secondly, to normal practice outside. It is not just an accident. The two ratios were tied up from the beginning, but there was no reference then to the possibility that one would attract tax relief and the other would not.

Some play has been made of the fact that the basic scheme and the graduated scheme contributions do not attract tax relief, but in the basic scheme there is a Treasury input of 18 per cent. I agree with the Father of the House that the Labour Government were wrong in 1965 to take away the tax relief. As a quid pro quo they offered an increase in personal allowances, but that was insufficient.

Eighty-one per cent. of the graduated pension contributions go to sickness and unemployment benefits which are not taxable. Therefore, in accordance with the known principle, it is legitimate that contributions should not attract tax relief. When the Conservative Party was in Opposition it was not a few back benchers who enunciated and supported the principle of tax relief on pension contributions. The present Secretary of State put his name to a motion to that effect, and the Under-Secretary of State spoke most eloquently on the subject and said what terrible things the Labour Government were doing. That view was also forcefully expressed by the present Secretary of State for Education and Science, who was then the official spokeswoman for the Opposition.

Given that background, I suggest that it is a matter of simple fair dealing and decency, and in the context of the pension scheme for Members of Parliament a matter of honour. The House should vote in favour of people being treated equally in essentially similar circumstances.

Mr. Geoffrey Finsberg (Hampstead)

I have tried to listen carefully to the arguments, but I remind the hon. Member for Rotherham (Mr. O'Malley), who complained about chattering on the Government Front Bench, that he is equally guilty.

I have not served on the Standing Committee, but I am interested in this subject not because I am connected with pensions but because my instinct from a close involvement in personnel management over more than a decade leads me to believe that employees who were forced into the State reserve scheme because their employers did not wish to operate a new occupational pension scheme would rightly feel themselves prejudiced and hard done by if there were no tax relief on their contributions.

I listened carefully to my right hon. Friend the Secretary of State, but he has not yet convinced me of the force of the Government's argument on this point. However, I do not think that the amendment moved by my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) is one which I can support, because it introduces a different principle. I listened attentively to my right hon. Friend the Member for Thirsk and Malton (Sir Robin Turton). What he said is basically the line which I hope will commend itself to the Government. They ought to think again about this, because there is a fundamental matter of principle involved.

The Bill underwent certain alterations in Committee affecting the terms of tax relief and cutting right across party lines. The principle is a good one that if anyone is made to pay a contribution towards a pension in a State reserve scheme there is no equity in the argument that because he is unfortunate enough to be in a State reserve scheme he cannot get relief, whereas he could if he were in an occupational scheme.

If my memory is right, one of the "outs" in phase 2, apart from the £1 plus 4 per cent., is an improvement in pension terms. I have bargained with trade unions for more than 10 years, and I have a rather higher opinion of their bargaining abilities than the national Press. I am certain that any good trade union which has built up enormous funds in equities, like Municipal and General to name only one, would seize upon this point and say to an employer "Although you may be said to be cost conscious, you know that it is in your interests to have a contented work force by getting your employees into a good occupational scheme, and we believe that as part of this year's bargain you should introduce an occupational scheme." I have negotiated long enough with major trade unions to know how they think. I am certain that this is a line of argument which would appeal to them.

I am not sure that my right hon. Friend the Secretary of State is right when he says that employers would seek to find the cheapest method possible and that the unions would not "encourage" them to do something else. My practical experience does not lead me to share his view.

Where do we go from here? We have to say that the argument falls into two sections. First, there is the section of difficulty. I heard my right hon. Friend say clearly that there would be great administrative difficulties if the Government did not have their way and were not able to delete this provision from the Bill. He did not say that it would make the whole scheme impossible. He said there would be administrative difficulties. A Government who have found it possible to introduce annual upratings of pensions ought not to say that there would be administrative difficulties in doing what they are asked to do.

Mr. George Cunningham

There simply are not any, in any event.

Mr. Finsberg

It would help my argument if I were allowed to complete it. I do not think that the hon. Gentleman is right. There are administrative difficulties, but they are capable of being overcome, given the ingenuity of my right hon. Friend the Secretary of State and that of my right hon. Friend the Chancellor of the Exchequer, who has overcome far more difficult administrative problems.

Speaking for a moment on behalf of a section of the retail trade, I well remember hearing it argued week after week by Treasury spokesmen on behalf of Customs and Excise that it was not possible to establish a general sale or return basis during the period of transfer from purchase tax to VAT. The argument of administrative convenience falls to the ground.

The second argument I put forward is that I believe that this is a fundamental test of Conservative philosophy and principle. In the years during which I have tried to follow such a philosophy I have not believed that it was our policy either to perpetrate or to introduce inequity in taxation. I thought that our whole policy was to get more fairness into taxation. Up to now I do not think that my right hon. Friend has convinced many people that what he is asking us to do would be equitable.

I say to him and my hon. Friend the Member for Kensington, South, that the way out of this dilemma is to follow the suggestion of my right hon. Friend the Member for Thirsk and Malton and for both my right hon. Friend and my hon. Friend to withdraw their amendments. Then, when the Bill proceeds to another place, following consultations, a suitably drafted clause could be introduced. We are always told that Government-drafted clauses are better than priavately-drafted ones, and we accept that.

My right hon. Friend must have sensed the feeling, certainly on these benches, which is pretty strong. None of us would wish to embarrass him because in the context of this magnificent measure this is a small item but it is one which is linked with all the philosophy and principles of Conservatism that I have known.

Sir K. Joseph

I hope that my hon. Friend will give some heed to my strong belief that this is not a small matter in the context of the Bill but will shift millions from occupational schemes, which could be good and improved over the years, into a reserve scheme.

Mr. Finsberg

I naturally pay due attention to what my right hon. Friend says, but I am in this difficulty. I think my right hon. Friend will admit that he is not a pensions expert. I have heard him read out the view of the Life Offices Association, which is contrary to that which he has expressed. This is a genuine dilemma. The argument so far put forward is slightly less convincing than I would have wished. I hope that in the rest of the debate on these amendments the Government will think again and accede to the strong feelings in the House and the country.

Mr. Norman Lamont (Kingston-upon-Thames)

The hon. Member for Islington, South-West (Mr. George Cunningham) said that the issue before the House was a narrow one. It is often the case that the most important issues arise in the narrowest of forms. No one, after the leading article in The Times and the other Press comment of recent days, can doubt that this is an extremely important subject. Although I have listened carefully in Committee and tonight to what the hon. Member has said, I still believe that the Government's policy on this is logical and equitable.

11.30 p.m.

It is generally accepted that it is a legitimate and normal use of the taxation system to give incentives to attract money into what are thought to be socially desirable goals. That is the principle behind tax relief on life insurance premiums and on mortgages. Sometimes also the taxation system discriminates between the private sector and the public sector. There are tax incentives to persuade people to invest more money in Government securities than in other securities. The taxation incentive given in this Bill is designed legitimately to encourage people to put their savings into private occupational schemes.

The question being asked is: why should somebody who, through no fault of his own, finds himself in the State reserve scheme be penalised by having no tax relief? But surely the way in which the contributions are split under the Bill —the considerably smaller contribution for the employee than for the employer— helps to deal with that point. The employee's contribution is below the 50-50 split that one might naturally expect.

The hon. Member for Rotherham (Mr. O'Malley) and some of my hon. Friends question whether the 50-50 split between employer and employee is the natural one and point out that in many occupational schemes the employer pays a much bigger proportion of the total contribution. But one cannot compare the State reserve scheme with an occupational scheme in precisely that way. An occupational scheme is essentially part of a total remuneration package. Whatever an employer decides to give his employee by way of contributions into a pension fund can be balanced against the salary of that person and other fringe benefits he may choose to give him. In that sense contributions to an occupational pension scheme are different from contributions made into the State reserve scheme, many of whose members will move in and out of the scheme and between employments.

Mr. George Cunningham

Any pension contribution by an employer is part of the remuneration of the employee and is part of the cost of the operation falling on the employer. But the hon. Gentleman tended to skate over what is, as he said, natural. Will he agree that, as a matter of fact—and I can give him copies of the Minister's letter to me because the full facts are not in the actuary's report—it is not just a question that in some or many occupational schemes the employer pays more. The aggregate of the contributory schemes in the private sector is that the employee pays 33.6 per cent. of the total, which is far below what is proposed in the State reserve scheme.

Mr. Lamont

I take that point, and I accept that the hon. Gentleman's facts are accurate. But there is a clear difference in principle in a voluntary decision to set up an occupational pension scheme, which demands costs and management time from an employer. It is an essentially different decision to allow an employee to join a fallback reserve scheme. The hon. Gentleman disputes whether the 50-50 split is the natural split, but it was, I suspect for similar reasons, decided upon in the Crossman pension scheme. That scheme came down in favour of a 50-50 split in contributions between employer and employee.

If it comes to a choice between a 50-50 split between an employer's contribution and an employee's contribution with tax relief and, as in the Bill, a 62½–37½ split without tax relief, one might ask: what is the difference? They add up to much the same thing. Is the difference purely cosmetic? I do not think so. There are genuine positive advantages in having the provisions in the Bill. They will help the low-paid worker who will not benefit from tax relief. We are told that it is only up to 2 million out of 7 million people in the reserve scheme who will benefit from this. By my mathematics that is some 28 per cent. of the people in the State reserve scheme. That, to my mind, is not an insignificant amount, and I believe the arrangement in the Bill to be of real benefit to them. That is not to be ignored.

Sir B. Rhys Williams

Would it not be best to adopt something on the lines of my new Clause 10?

Mr. Lamont

I was hoping my hon. Friend would not divert me to that subject. If he accepts the principle of his amendment he cannot very well disagree with the principle I have stated and what is incorporated in this part of the Bill.

The argument has been put that not to give tax relief somehow means that the reserve pension scheme is being deprived of money, that it is £25 million underweight, but, as the Secretary of State made clear, we ought to emphasise that to give tax relief will not result in any more money going into the State reserve scheme.

One has also to remember that in framing this strategy the Government seek to achieve a balance between the State reserve scheme and occupational pension schemes. Tax relief is not the only factor in that balance. The level of contributions is one, and the level of benefits is another. The relationship between the 4 per cent. contribution requirement in the State basic scheme has to be compared with the 5 per cent. contribution rate in private money purchase schemes. We can argue about that 4 per cent. and about how it ought to be made up between employer and employee, but the balance between the 4 per cent. figure and the 5 per cent. minimum standard for private money purchase scheme cannot be disturbed without undermining the whole basis of the Government's strategy.

The object of the Bill is to ensure the maximum possible development of occupational pension schemes, and that is an aim of which I certainly heartily approve. It is very easy to underestimate the difficulties which confront employers in deciding whether to set up occupational schemes by 1975. That is not so far away for those who have no experience of setting up occupational pension schemes. The power of inertia is very great, and it is only necessary for employers not to do anything and at the end of the day all employees will automatically be in the State reserve scheme. To set up an occupational pension scheme demands an investment of management time, an actuary's report, collecting data for employees, and extra administrative costs. To take away the advantage of tax relief which the occupational schemes will enjoy, as the Government envisage, would tip this balance the other way.

I am supported in that opinion by many employers. I know it is the opinion of the CBI because, like other Members on the Standing Committee, I received copies of correspondence between the Confederation and the Secretary of State's Department. I know it is the CBI's opinion that if tax relief is given to the State reserve scheme many employers will not think it worth while to develop occupational schemes.

I had this morning also a letter from the National Federation of Building Trades Employers saying very much what the CBI said. It said: If the large number of employers in building arc to be encouraged to adopt occupational schemes instead of the State reserve scheme a careful balance must be maintained between the costs of the two schemes. The proposals in the Bill, as originally drafted, meant that there was very fair balance and in consequence a good chance of persuading employers to pay the small extra amount necessary to set up occupational schemes better suited to their own requirements. The National Federation goes on to say that if tax relief is given for the State reserve scheme it will strongly influence employers in the industry against the setting up of occupational schemes.

Dr. Tom Stuttaford (Norwich, South)

Does my hon. Friend agree that the CBI said that it appreciated the difficulty of arguing against the logic that the reserve scheme contribution should be treated on the same footing, so far as tax is concerned, as occupational pension scheme contributions and that this is much the same as what the Norwich Union, a reputable firm, told me yesterday—namely, that, although it may cause administrative difficulties, the firm could see no moral justification for having two schemes: one where the poor person had no tax relief and the other where the richer got tax relief? It is a sort of Robin Hood in reverse: penalising the poor and giving advantages to the rich.

Mr. Lamont

My hon. Friend cannot expect me to comment upon what the Norwich Union told him. That is beyond me. [HON. MEMBERS: "The CBI."] Everything in good time. My hon. Friend cannot expect me to comment on what the Norwich Union told him, as I was not present. I do not believe that what I said about the CBI's letter misrepresented its opinion in any way. When I received this letter I rang the CBI's Director of Social Security to confirm that this was the CBI's opinion, and I know that it feels very strongly about this matter.

I believe that it matters whether the State reserve scheme has 7 million or 9 million employees in it. I leave aside the question of the difficulties of running such a large State reserve scheme and the problems that that may pose for our economy as a whole, though they were recognised by hon. Members on both sides in Committee.

I will explain why I believe that we should keep the State reserve scheme small. In the past we have all seen how difficult it is to persuade Governments with national insurance schemes to improve their conditions. We are always up against political problems and the situation that an increase in contributions will have an inflationary effect across the whole of industry and of industry's costs. But I suspect that what it is difficult for a Government to do it will be easier in future for individual employers to do. If we can get the Bill through and get the trade unions to take a greater interest in occupational pension schemes than they have in the past, I believe that we shall be able to apply much greater and more successful pressure for the development of a proper level of pension.

I believe that the reasons for withdrawing tax relief from the State reserve scheme, although intricate and easily misrepresented, are logical, equitable and necessary.

Mr. Nicholas Edwards

Unlike my hon. Friend the Member for Billericay (Mr. McCrindle), I cannot claim an act of gallantry in Committee. Unfortunately, I was absent from the Committee for most of the debate. I returned just before the Division and felt it right to cast my vote for the Government.

Since then I have studied the debate with care and listened to the arguments with interest. But I must tell the House that I am not convinced that the right solution has been found either in the wording of the clause as it emerged from Committee or in the form now proposed by the Government. The clause is at fault because it would reduce to too low a level the contribution of the employee and throw out of balance the relationship between the private and the reserve schemes. The Government, on the other hand, seek to achieve a wholly desirable objective by a method which I believe to be wrong on grounds of fundamental principle.

11.45 p.m.

I share the view of my right hon. Friend that the interests of the majority of pensioners are best served by encouraging the development of private schemes tailored to their individual needs, capable of improvement in a competitive atmosphere and subject to all the negotiating pressure by trade unions, which I hope and trust will increasingly develop. Just because a reserve scheme, by its very nature, will tend to provide minimum rather than maximum benefits, I want to see plenty of stimulus to the development of private schemes, and I want no excuse for short-sighted employees or idle or mean employers to take what may be at the start the easier way out in terms of both cost and administrative burdens.

It would be gravely damaging to large numbers of employees if we were to finish up with a Bill which, for reasons of short-term economy, tended to push them into the reserve scheme. My right hon. Friend and I are at one on the objectives.

I also completely accept—here I differ from some of the arguments that have been put forward this evening—that there are valid reasons for selecting the level of contributions for the reserve scheme which the Government arrived at before making an adjustment to compensate for loss of tax relief. It has been argued that they are arbitrary—I have argued it myself—but I now accept that that is wrong. A decision on the level of contributions has to be arrived at by balancing a variety of economic and social considerations—on the one hand a reasonable level of benefits, and on the other a contribution level that does not add initially an excessive burden to industrial costs, and also the other factors referred to by my right hon. Friend.

Of course, there is nothing sacred about a 50-50 balance between employer and employee contributions—we have heard that it would be the exception rather than the rule—but there are perfectly cogent arguments for arriving at a 50-50 balance in this case. I am happy to defend the Government for doing so. What I am unable to defend is the decision to reduce the employee contribution instead of allowing tax relief.

Unfortunately, the decision is based upon what I consider a fallacy that the 50-50 balance has some relevance to the question of tax relief. The truth is that, first, the 50-50 balance has no continuing validity at all. It is the product of a number of variables. It may continue to be right, or it may not. Whether it does or not is irrelevant, because no one will subsequently say "Of course, I know that the Minister looked at the facts and arrived at that conclusion. I know that 50-50 is and must be right." No one subsequently will even consider the Minister's decision or the reasons which might have led him to take it.

What they will do instead is to compare the two things that retain a constant relationship and are therefore capable of comparison, and those are the purchasing powers of equal contributions—the one paid into a private scheme, and the other to the reserve scheme. What matters must be the purchasing power of the level of contributions, and I find it difficult to escape the conclusion that by removing the tax advantages of the one, what the Government are doing is loading one contribution against the other. Surely it cannot be relevant whether one puts up the employer contribution against the employee contribution by £40 million or any other figure. Additional compensation from an employer surely cannot be proper compensation for the failure of the State to give tax relief. The State does not meet its obligations by getting someone else to pay them.

Contributions, whether from employer or employee, form part of the remuneration package. In the one case the contribution is paid direct; in the other it is paid first into the pocket of the employee, from which it is taken to be put into the pension scheme. Both represent pay, current or deferred, to the employee. That is accepted by the Government. Indeed, in the debate yesterday, the Under-Secretary said: … what we say in this Bill is that we have now reached a point at which pension rights should be regarded as deferred pay to which men or women are entitled in the same way as they are entitled to their monthly salary or their weekly wages."—[OFFICIAL REPORT, 8th May, 1973; Vol. 856, c. 347.] If that concept is correct—it is widely accepted—it cannot conceivably be right that the pay of one group of employees should qualify for tax relief while that of the other does not.

The inequity becomes worse when the group of employees that does not get the tax relief contains a high proportion who are among the lower-paid but still above the tax threshold but, because of the nature of their employment, have no option, no choice at all, but to go into the reserve scheme.

I accept that it was the Government's intention that the employees should be fully compensated for the loss of their reliefs. Parliamentary scrutiny has unmistakably revealed a central flaw in their proposals and a fundamental weakness in their method. It would be a profound mistake for the Government to damage the integrity and the future success of what is otherwise a great piece of reforming legislation.

There is no need for that. The method that the Government have chosen is not the only method. It happens to be the one they chose but it is not essential to their success. They could, for example, leave the Bill as it stands and table, here or in another place, an amendment to increase the employee's contributions to what they would otherwise have been. I considered tabling such an amendment myself, but I considered that it should come from the Government, since some other changes may be required to maintain the balance between the private sector and the reserve scheme. Failing such an amendment, there is the proposal of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) which we are discussing.

My right hon. Friend can reasonably complain to his critics on this side that these criticisms have been raised at a very late stage. I accept that I and others should have realised earlier what is involved. But irritating though that must be, it is not a shelter behind which my right hon. Friend can hide. The parliamentary process is designed to reveal flaws in legislation, and this is too far-reaching and long-lasting a piece of legislation for the flaw to be left, once exposed.

My right hon. Friend has argued tonight that a change would cause delay, which could have uncomfortable consequences. I found that part of his speech perhaps its most persuasive section. I accept that there will have to be some delay, but this is an argument which can be overplayed. It is very hard to believe that the options were not carefully examined long ago and that, with determination, the necessary amendments cannot be produced.

My opposition tonight is not hasty or fractious. It is with regret that I have to criticise at this stage what I consider to be a profoundly important and valuable piece of legislation. My right hon. Friend knows that I have considered all his arguments. At the end of the day, it is because I believe that his amendment could cast a blight on the success of the Bill by raising a question mark over its fairness that it I find it necessary to make a stand.

Like my hon. Friend the Member for Billericay, I am involved in the pensions industry. As much as my right hon. Friend the Secretary of State, I want it to succeed in the challenge with which we are now presenting it. But I want it to do so on its own merits and not at the expense of one important group of pensioners.

The voices on the Government side of the House raised against the Government's proposals are precisely the voices most anxious for the Bill to succeed. They are precisely the voices which my right hon. Friend should wish to have in his support. Even at this late stage, I beg him to think again.

Mr. Boscawen

As one of the Members who helped to bring about this debate in Committee, I feel it right to give the reasons why I could not support the Government in Committee and why I am still so worried nearing the end of this debate.

The first reason was that I believed it to be right that the House as a whole should discuss this important matter. The second reason was that it seemed to me extremely unfair that there should be this tax differential between two classes of employees. The third reason was that it was obvious to me that the methods used by my right hon. Friend the Secretary of State to give an incentive to those firms which today have minimal occupational schemes, or no schemes, to undertake an occupational scheme as opposed to going into the reserve scheme, was likely to be widely misunderstood, to such an extent that it would militate against the whole central strategy which we and the Secretary of State support to the full. The debate emphasises that it has been widely misunderstood even in the House.

My right hon. Friend has not given sufficient attention to the alternative to giving tax relief as an incentive to encourage those particular firms to have occupational schemes. I am sorry that he dismissed out of hand the alternative put forward by my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams). This at least gave an opportunity of overcoming some of the hurdles about which there is so much worry. It gave the opportunity of overcoming the hurdle that those firms which were doubtful about occupational schemes would go for the reserve scheme simply because it offered the lowest possible contributions to their employees. That hurdle would be overcome by my hon. Friend's scheme because there would be no change in the contribution by the employee to the reserve scheme.

The hurdle of the administrative difficulties for those firms which would be in the reserve scheme perhaps having to pay into the basic pension scheme at the same time would be overcome by my hon. Friend's idea of paying a lump sum tax relief—not a subsidy—to the State reserve scheme in lieu of personal tax relief to individuals in the reserve scheme. Furthermore, it would overcome the unfairness because it would bring about tax relief to those who, through no fault or choice of their own, are forced to go into the reserve scheme. It would also be of assistance to those below the tax level in the reserve scheme in that they would partake in the benefit of that lump sum tax relief which would be going into the fund and would be working towards the improvement of their pension at the end of the road.

12 midnight.

For these reasons I very much support my hon. Friend's amendment, I am distressed that it was dismissed out of hand and that it might be thought by employers that the State was subsidising the State reserve scheme against their interests. But a tax relief is not a subsidy, and I am sure that the Conservative Party has always taken that view in these matters. Tax relief to the State reserve scheme in lump sum form would be no different from the tax relief given individually to those in occupational schemes.

I ask my right hon. Friend the Secretary of State to reconsider his dismissal of my hon. Friend's proposals out of hand, because I believe that there is an alternative to the present situation. I therefore support what my hon. Friend the Member for Hampstead (Mr. Geoffrey Fins-berg) said, and I hope that my right hon. Friend the Secretary of State will take the Bill back and have a look at it to see whether he can produce an alternative form when it comes before another place.

Mr. Marcus Worsley (Chelsea)

My remarks will be short because I do not claim great expertise in this subject. Obviously, like everyone interested in the social services I have been listening intently to the arguments in the discussion. One thing which strikes me clearly is that it involves a value judgment between those who take one view and those who take the other. No one knows what will happen, and the real question is whether the balance is right, whether the Bill should be in its present form or in its pre-Committee form.

Having listened to this a great deal and having taken the whole argument together, I conclude that it is not only a matter of tax relief or no tax relief, it is not only a matter of the split in the contribution; it is all sorts of other things like transferability that arise as a result of the tax relief scheme. The decision is for the employer. I employ a small number of people, and I understand how easy it is for the employer to take the easy course and slide into the reserve scheme. My employees have not had the benefit of an occupational scheme.

It is important that the balance should be got right. If the House goes to the extreme position, and it is an extreme position, of accepting what the Bill said when it came back from Committee it will tilt the balance in favour of the reserve scheme. I ask my hon. Friends to consider carefully what they are doing in that respect. If the reserve scheme takes a markedly larger share of the market than is intended by the Government the consequences and the dangers for the whole philosophy upon which our party is based will be incalculable. The result could be that there would be a gigantic fund which would be subject to political pressures. However attempts were made to buttress the scheme through trustees and the rest, political pressures would be applied.

My hon. Friends should consider what it would mean to tilt the whole balance of the argument in favour of the reserve scheme. They should envisage the situation if the reserve scheme begins to eat up a large share of the market and the effect this would have if we were unlucky enough to have another Labour Government. That must be considered.

I say this with no great happiness. In a sense I share a great deal of the unease of my hon. Friends. I do not believe that to shift the balance as the Committee shifted it makes sense. The right thing to do is to give the Government their way in the matter, and at the same time ask them to look at it again in the light of the debate, to see whether they have got it quite right.

I beg the House, and particularly my hon. Friends, not so to alter the balance between the occupational schemes and the reserve scheme as to give the latter an advantage that I believe my hon. Friends do not really wish.

Sir B. Rhys Williams

The House is anxious to divide, so I shall be very brief. There are many points that I should like to make, but they have already been made so much better than I could make them by my hon. Friends, whose courage and outspokenness I admire. I also admire my right hon. Friend's heroism in pressing on with the Government amendment in spite of the objections of the Press, the obvious reserve of the professional organisations concerned, and the consciences of his colleagues on his own side—for the most part—who have given the matter the most study.

Obviously, what my right hon. Friend is doing will be unpopular. An estimated 7 million people will receive lower pensions, for the same net contributions, than luckier earners whose employers have decided to run private schemes. I understand that for a man who spends all his working career in the reserve scheme on £20 a week over £1 a week will be lost in terms of pension, at today's money values; and for a man earning more, the loss of pension will be greater still.

Sir K. Joseph

I should like to contradict that forcibly. That is not a figure that I could possibly corroborate.

Sir B. Rhys Williams

I am surprised at my right hon. Friend. I think he will agree that if 15 per cent. is deducted from the tables published by his own Department in the Explanatory Memorandum he will find that my arithmetic is not too far out.

Because I admire him so much, I regret very much what my right hon. Friend has said tonight. It seems to me that his speech will be criticised by experts, and will be seen as entirely out of character. My right hon. Friend is acting out of character in pressing an amendment that will reduce the incomes of the poor in pursuit of a concealed subsidy for free enterprise.

But a man who never made a mistake never made anything, and even now I implore my right hon. Friend to realise that he has made a mistake and that he should withdraw his Amendment No. 85.

As far as the attitude of the professional bodies is concerned, Mr. Michael Pilch, who was acting until recently as the official negotiator on behalf of the National Association of Pension Funds, wrote on 17th April in the Financial Times that: The logic and justice of allowing tax relief on employee contributions to the State reserve scheme has never been in question. My right hon. Friend should pay attention to comments of that kind in the national Press.

I know that my right hon. Friend is thinking about the cost-conscious employers—what I suppose will now be called the £5-employers—but how would it benefit the employees to belong to rock-bottom occupational schemes? I do not think that it has been denied that offers are being made of 3½ per cent. schemes. Of course, my right hon. Friend is right in saying that if interest rates significantly decline those offers will disappear, and employers will find that their contributions go up. But at that point they will simply wind up their schemes, if they are really cost-conscious, and tip their employees into the reserve scheme. So my right hon. Friend's plan will have achieved nothing.

My right hon. Friend is merely catering for employers who want to do the minimum for their employees. He made the point that private schemes are not compulsory but, of course, private schemes have been compulsory since the Boyd-Carpenter Act. It has been necessary for employers to have occupational schemes of a kind, either the official scheme or private schemes, since that time. The same will apply under the Bill. If an employer does not join the reserve scheme he will have to set up a private scheme. Thus a private scheme will become statutory. That is the whole point of the Bill.

Therefore, there is no distinction between the reserve scheme and the private occupational schemes. In fact, the reserve scheme has been constituted on lines which are precisely the same as private schemes. There will be no Government subsidies. The funds will be invested through the market in conventional assets, no doubt, which will be managed in the same way as a private scheme. There is no logic or justice in discriminating against the reserve scheme through the tax system.

The analogy of subsidies for home owners does not stand up because reserve scheme members will probably have had no choice. Nor, in many cases, will their employers. It is not a question of guiding people in the direction which the Government think right. Many millions of people will have to be in the reserve scheme because there is no other.

The suggestion that the money is coming from the employers falls down because in private schemes with the same contributions there is no suggestion of loss of tax relief. There are other points which I could make in that regard, but I shall consider only the effect on the total remuneration package. If £25 million a year is removed from the reserve scheme, it will be the beneficiaries who suffer.

I do not think that what my right hon. Friend is doing is wise. It will leave clouds of battle and all the old uncertainties over the future of my right hon. Friend's Bill. It is not necessary, because there are other ways in which he could achieve the same object which would not cause offence to right hon. and hon. Members on both sides of the House, and it cannot be right to perpetuate the "two nations" in retirement and to introduce one law for the poor and one law for the rich.

Nor will what my right hon. Friend is doing fit the strategy of the Bill. He wants to increase the flow of savings and to increase ultimate pensions. But to take £25 million out of the reserve scheme will reduce the flow of money to the capital market. What he is doing will in the end result in lower pensions.

This is a deplorable strategem, and the House should reject it. I shall vote against the Government on Amendment No. 85. I think it will be good for the Department if the Government are defeated on this matter. They should never have advised Ministers to go forward into a moral defeat. I am sure that a Government defeat will be good for the Conservative Party, because by defeating the Government over this amendment we shall ensure that the Bill does not contain a genuinely objectionable feature. We want the Bill to be a milestone, not a millstone. It will also be good for the reputation of this House, if we show that we are not prepared to allow the tax system to be used in a way that will damage the interests of the poor.

Sir K. Joseph

I shall ask my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), with a number of whose remarks I do not agree, to pick up his Notice Paper and consider whether he will co-operate with the Government to the extent of withdrawing Amendment No. 180 to give the House the opportunity to have a straight vote on the issue raised by Amendment No. 85. I ask him to do so because Amendment No. 180 is just not liveable-with. The Government could not live with it because of its implications for the recognition tests. We have not the chance in another place to interfere with anything to do with taxation. This is the last opportunity which we shall have to touch it.

If my hon. Friend will be content to have a decision taken by the House on the main issue, which is whether to leave in the subsection which was put in in Committee, I shall address myself to that issue only whilst reserving the right to make a few last comments. Will my hon. Friend agree to that?

Sir B. Rhys Williams

Amendment No. 180 and new Clause 10 were intended as olive branches, but Amendment No. 85 is the point at issue. I entirely agree with my right hon. Friend.

12.15 a.m.

Sir K. Joseph

I am grateful to my hon. Friend. I think that at the appropriate time he will be willing to withdraw Amendment No. 180 so that we can have a vote on Amendment No. 85. That saves me from the need to argue with my hon. Friend, for whom I have the greatest respect, about the implications of Amendment No. 180.

I would very much like on behalf of the Government to accept the constructive approach offered by my right hon. Friend the Father of the House. He said that, since what lies behind the main issue is a tax matter, it would be sensible for the Government to take that tax matter away and consider it between now and the next Finance Bill. But he knows that I cannot make an undertaking at short notice on behalf of my right hon. Friend the Chancellor of the Exchequer and that I have no reason to believe that he would be willing to consider such an undertaking. Therefore, delighted though I would be to carry my right hon. Friend the Member for Thirsk and Malton (Sir Robin Turton) with me. I cannot take advantage of his constructive offer. Although I shall certainly consider it, I cannot offer any undertaking based on it.

There is a clear issue before the House. Are my hon. Friends the Members for Billericay (Mr. McCrindle) and Pembroke (Mr. Nicholas Edwards) correct in sweeping aside the deliberate effort made by the Government to recompense the employee in the reserve scheme by a higher contribution than would otherwise have been paid by the employer? Despite all the temptations, which my hon. Friend the Member for Kingston-upon-Thames (Mr. Norman Lamont), in a very excellent speech, emphasised, to go for the soft option of the reserve scheme, despite the power of inertia, despite the fact that many employers have not now got occupational pension schemes, nevertheless the reserve scheme can still remain about 7 million people strong at any one time and recognised occupational schemes flourish.

The fact that my hon. Friends in particular have to face is much more sobering. It is that the experience brought to me in the form of advice, not just from civil servants—valuable though their advice is—but from the total range of employers is that if, with the best of motives, they vote into the Bill tax exemption on the reserve scheme the result will be twofold.

First, the reserve scheme will be flooded with several million people who could be, are suitable to be and should be in recognised occupational pension schemes. Secondly, by so doing my hon. Friends will be contradicting their objective, which is the objective of the Government, and will not be achieving one penny improvement in the pension of those in the reserve scheme.

The debate has been long and serious, and I am content to put the issue to the vote. I ask hon. Members to do what my hon. Friend the Member for Chelsea (Mr. Worsley) rightly advised—take the whole argument together and consider in the light of our philosophy and on behalf of the welfare in retirement of several millions of wage earners where their vote should be placed.

Sir B. Rhys Williams

I beg to ask leave to withdraw Amendment No. 180.

Amendment, by leave, withdrawn.

Amendment proposed: No. 85, in page 97 line 13, leave out subsection (7)—[Sir K. Joseph.]

Question put, That the Amendment be made:—

The House divided:Ayes 130, Noes 126.

Division No. 132.]	AYES	[12.19 a.m.
Adley, Robert	Grieve, Percy	Neave, Airey
Allason, James (Hemel Hempstead)	Gummer, J. Selwyn	Nott, John
Archer, Jeffrey (Louth)	Gurden, Harold	Osborn, John
Atkins, Humphrey	Hall, John (Wycombe)	Page, Rt. Hn. Graham (Crosby)
Baker, Kenneth (St. Marylebone)	Harnnam, John (Exeter)	Percival, Ian
Bell, Ronald	Harrison, Col, Sir Harwood (Eye)	Price, David (Eastleigh)
Benyon, W.	Haselhurst, Alan	Pym, Rt. Hn. Francis
Biggs-Davison, John	Hastings, Stephen	Redmond. Robert
Boardman, Tom (Leicester, S.W.)	Hawkins, Paul	Rees, Peter (Dover)
Body, Richard	Hayhoe, Barney	Ridley, Hn. Nicholas
Bowden, Andrew	Holland, Philip	Ridsdale, Julian
Brocklebank-Fowler, Christopher	Hordern, Peter	Roberts, Wyn (Conway)
Brown, Sir Edward (Bath)	Hornsby-Smith,Rt.Hn.Dame Patricia	Rossi, Hugh (Hornsey)
Bryan, Sir Paul	Howe, Rt. Hn. Sir Geoffrey	Scott, Nicholas
Butler, Adam (Bosworth)	Howell David (Guildford)	Shaw, Michael (Sc'b'gh & Whitby)
Chapman, Sydney	Howell Ralph (Norfolk N.)	Shelton, William (Clapham)
Chichester-Clark, R.	Hunt, John	Shersby, Michael
Churchill, W. S.	James, David	Skeet, T. H. H.
Clark, William (Surrey, E.)	Jenkin, Petrick	Soref, Harold
Cockeram, Eric	Johnson Smith, G. (E. Grinstead)	Speed, Keith
Cooke, Robert	Jopling, Michael	Spence, John
Coombs, Derek	Joseph, Rt. Hn. Sir Keith	Sutcliffe, John
Corfield, Rt. Hn. Sir Frederick	Kellett-Bowman, Mrs. Elaine	Taylor, Edward M.(G'gow,Cathcart)
Cormack, Patrick	King, Evelyn (Dorset, S.)	Taylor, Frank (Moss Side)
Crowder, F P.	Knox, David	Tebbit, Norman
Dean, Paul	Lament, Norman	Temple, John M.
Dixon, Piers	Lane, David	Thomas, John Stradling (Monmouth)
Drayson, G. B.	Langford-Hold, Sir john	Trew, Peter
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Le Marchant, Spencer	Tugendhat, Christopher
Eyre, Reginald
Farr, John	Lewis, Kenneth (Rutland)	van Straubenzee, W. R.
Fell, Anthony	MacArthur, Ian	Vaughan, Dr. Gerard
	McLaren, Martin	Waddington, David
Fenner, Mrs. peggy	Maclean, Sir Fitzroy	Walder, David (Ciitheroe)
Fidler, Michael	McNair-Wilson, Michael	Ward, Dame Irene
Fortescue, Tim	Mather, Carol	Warren, Kenneth
Fowler, Norman	Maude, Angus	Wells, John (Maldstone)
Fox, Marcus	Maxwell-Hyslop, R. J.	White, Roger (Gravesend)
Fraser,Rt.Hn.Hugh(St'fford & Stone)	Meyer, Sir Anthony	Winterton, Nicholas
Gardner, Edward	Mills, Stratton (Belfast, N.)	Wolrige-Gordon, Patrick
Gibson-Watt, David	Miscampbell, Norman	Woodhouse, Hn. Christopher
Gilmour, Sir John (File, E.)	Mitchell, David (Basingstoke)	Worsley, Marcus
Goodhew, Victor	Molyneaux. James
Grant, Anthony (Harrow, C.)	Morrison, Charles	TELLERS FOR THE AYES:
Gray, Hamish	Murton, Oscar	Mr. Bernard Weatherill and
Green, Alan		Mr. Kenneth Clarke.
NOES
Ashton, Joe	Doig, Peter	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Atkinson, Norman	Dormand, J. D.	Jones, T. Alec (Rhondda, W.)
Barnes, Michael	Douglas-Mann, Bruce	Kaufman, Gerald
Barnett, Guy (Greenwich)	Duffy, A. E. P.	Kelley, Richard
Barnett, Joel (Heywood and Royton)	Edwards, Nicholas (Pembroke)	Kinsey, J. R.
Bennett, James(Glasgow, Bridgeton)	Ewing, Harry	Lamborn, Harry
Bishop, E. S.	Fernyhough, Rt. Hn. E.	Lamond, James
Booth, Albert	Finsberg, Geoffrey (Hampstead)	Latham, Arthur
Boyden, James (Bishop Auckland)	Fitch, Alan (Wigan)	Lawson, George
Bradley, Tom	Fletcher, Tad (Darlington)	McCrindle, R. A.
Carter, Ray (Birmingh'm, Northfield)	Foot, Michael	McGuire, Michael
Castle, Rt. Hn. Barbara	Ford, Ben	Mackenzie Gregor
Clark, David (Coine Valley)	Fraser, John (Norwood)	Mackie, John
Coleman, Donald	Gilbert, Dr. John	Mackintosh, John P.
Concannon, J. D.
Conlan, Bernard	Ginsburg, David (Dewsbury)	Maclennan, Robert
	Grant, John D. (Islington	McNamara, J. Kevin
Cox, Thomas (Wandsworth, C.)	Hamilton, James (Bothwell)	Marks, Kenneth
Crosland, Rt. Hn. Anthony	Hamling, William	Marquand, David
Cunningham, G. (Islington, S.W.)	Hardy, Peter	Meacher, Michael
Cunningham, Dr. J. A. (Whitehaven)	Harrison, Walter	Mellish, Rt. Hn Robert
Dalyell Tam	Harrison, Walter (Wakefield)	Mendelson, John
Davidson, Arthur	Hard, Rt. Judith	Mikardo, Ian
Davies, Denzil (Lianelly)	Hughes, Mark (Durham)	Millan, Bruce
Davies, G. Elfed (Rhondda, E.)	Janner, Greville	Mitchell, R. C. (S'hampton, lichen)
Davies, Ifor (Gower)	Jenkins, Hugh (Putney)	Morris, Charles R. (Openshaw)
Davis, Clinton (Hackney, C.)	Jenkins, Rt. Hn. Roy (Stechford)	Moyle, Roland
Davis, Terry (Bromsgrove)	John, Brynmor	O'Malley, Brian
de Freitas, Rt. Hn. Sir Geoffrey	Johnson, Walter (Derby, S.)	Oram, Bert
Dell, Rt. Hn. Edmund	Jones, Den (Burnley)	Orme, Stanley
Owen, Dr. David (Plymouth, Sutton)	Sandelson, Neville	Varley, Eric G.
Palmer, Arthur	Sheldon, Robert (Ashton-under-Lyne)	Wainwright, Edwin
Pardoe, John	Silkin, Rt. Hn. John (Deptford)	Walker, Harold (Doncaster)
Parker, John (Dagenham)	Silkin, Hn. S. C. (Dulwich)	Wallace, George
Pendry, Tom	Skinner, Dennis	Wells, William (Walsall, N.)
Perry, Ernest G.	Stallard, A. W.	Whitehead, Phillip
Price, William (Rugby)	Steel, David	Whitlock, William
Radice, Giles	Stewart-Smith, Geoffrey (Belper)	Williams, Alan (Swansea, W.)
Reed, D. (Sedgefield)	Strang, Gavin	Williams, Mrs Shirley (Hitchin)
Rhys Williams, Sir Brandon	Stuttaford, Dr. Tom	Wilson, Rt. Hn. Harold (Huyton)
Roberts,Rt.Hn.Goronwy(Caernarvon)	Summerskill, Hn. Dr. Shirley
Roderick, Caerwyn E.(Brc'n&R'dnor)	Swain, Thomas	TELLERS FOR THE NOES.
Ross, Rt. Hn. William (Kilmarnock)	Thomas, Jeffrey (Abertillery)	Mr. Ernest Armstrong and
Rowlands, Ted	Turton, Rt. Hn. Sir Robin	Mr. James A. Dunn.

Question accordingly agreed to.

Mr. O'Malley

On a point of order, Mr. Deputy Speaker. In view of the fact that, despite the whipping efforts of the Conservative Party, this House has demonstrated its views very clearly, and seeing that the Government have suffered a moral defeat, may I ask whether—

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Order. This is not a point of order for me to answer.

12.30 a.m.

Mr. Harold Wilson (Huyton)

I do not see my opposite number here. Surely it is in accordance with precedent, of which many could be quoted, that this question can be put and that the Government should be asked to state their intentions in this matter.

Mr. Deputy Speaker

It is hardly a point of order for me. I am sure the right hon. Gentleman will agree with that.

Sir K. Joseph

The right hon. Gentleman has asked what are the Government's intentions. There has been a three-hour debate. All those who wanted to take part have had the chance to do so. The Government's views were put, the views of those who disagreed with the Government were put, and the House has come to a decision. The Government will carry on with the legislation, of course.

Mr. Gerald Kaufman (Manchester, Ardwick)

On a point of order, Mr. Deputy Speaker. This is a matter for you and is a genuine point of order. Since the House has been debating a matter of intense importance to all those interested in democratic rights, could the Serjeant at Arms be asked to make a search for the hon. and learned Member for Lincoln (Mr. Taverne)?

Mr. Deputy Speaker

I have no power to ask the Serjeant at Arms to search for any hon. Member. If hon. Members wish to vote, they vote. If they do not wish to vote, they do not vote. Neither the Serjeant at Arms nor I has any jurisdiction in those matters.