PENSIONS

HC Deb 29 July 1975 vol 896 cc1621-42

'The document laid before Parliament by command of Her Majesty in July 1975 "Cmnd. 6151" shall not apply so as to impose restrictions on: ordinary annual contributions by an employer to secure new or improved benefits, under a scheme approved, or provisionally approved, by the Board of Inland Revenue, by way of pensions on retirement, pensions for dependants, lump sum payments on death in service, or pensions payable in the event of illness or disability, provided that such new or improved benefits apply in the case of existing schemes, to all members who are not already eligible for such benefits, and in the case of new schemes to all employees, or to all employees except those under an age not exceeding 26, or who have completed a period of service not exceeding five years'.—[Mr. Richard Wainwright.]

Brought up, and read the First time.

Mr. Richard Wainwright (Colne Valley)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this clause it will be convenient to take the following amendments:

No. 6, in Clause 1, page 2, line 7, at end insert: '(3A) New or improved benefits under occupational pension or death benefit schemes which are tax approved, or under comparable schemes not requiring tax approval, and any reimbursement of a corresponding increase in employee contributions may, unless subsection (3B) below applies, be given outside the pay limit prescribed under this section. (3B) Where a change in a pension scheme has the effect of increasing the pay, net of any pension contribution of a substantial proportion of the group of employees covered by the scheme, that increase counts against the pay limit unless—

1. (a) a revaluation of the scheme, made in accordance with generally accepted principles for such revaluations, has shown a surplus in respect of those receiving the increase, the value of which equal or exceeds the increase; or
2. (b) there has been a corresponding reduction in benefits to those receiving the increase; or
3. (c) the change had been proposed before 1st August 1975.

(3C) New or improved benefits under schemes for payments to workers who leave an em- ployer's service because of redundancy (as defined for the purposes of the Redundancy Payments Act 1965) are outside the pay limit prescribed under this section, as are benefits which become payable after 6 months of incapacity.'. No. 11, in Clause 7, page 5, line 2, after 'includes', insert: '(subject to subsection (3A), (3B) and (3C) of section 1 of this Act)'.

Mr. Wainwright

This is a tightly-drawn clause, which seeks to exempt from the£6 limit two categories, and two only, of employers' expenditure. I refer to employers' expenditure on new or improved benefits and certain strictly defined kinds of pension schemes approved by the Inland Revenue. These types of improvement are strictly defined in the clause as increases in retirement pensions, pensions for dependants, lump sum payments on death in service, or pensions payable in the event of illness or disability. The clause includes no provision for lump sum payments on retirement either being improved or increased. The provision is as tightly drawn as possible and seeks to exclude anything which is suspected of being mildly out of the way in the eyes of organised labour.

The only other category of employers' expenditure which the clause seeks to exempt are new pension schemes where previously there had been no such schemes. The schemes are subject to approval by the Inland Revenue under strict rules, and they are subject to their being non-discriminatory, in that the clause seeks to exempt such schemes which apply to all employees or, if not to all, all those over the age of 26, or those with five years continuous service or more with a company. Those two definitions are lifted straight from the existing legislation on pension schemes. The object is to ensure that the only schemes to gain exemption under the new provisions are those applying to everybody in the work force. We have done our best to cover all forms of pension scheme—no doubt the Government draftsmen could improve upon our wording—which could attract any suspicion among organised labour as being for the benefit of the privileged few or which seek to provide elaborate benefits such as we see advertised in the pages of the financial Press in respect of death duties. Those schemes are out under the clause.

The intention of the clause is to confine the exemption strictly to the two categories mentioned and in no way to open up the gateway to further exemptions. We are confining ourselves to what are known in Inland Revenue terms as retirement benefits, and to such benefits only. We are having no truck with what the Inland Revenue calls "benefits in kind". Indeed, the Liberal attitudes towards benefits in kind are virtually as austere and as strict as those which the Secretary of State holds dear. I could direct him to a passage in a fairly recent Liberal Party publication in drawing attention to the inequity of directors' dining rooms and exclusive executive canteens.

We agreed with what the Secretary of State said last week—that to allow the great bulk of non-wage benefits to escape the limit would destroy the credibility of the Government's policy. That we grant, but we cannot for the life of us see why the most legitimate type of pension benefits should be caught in this net, partly because pension benefits are a form of saving—they assist the process of investment which is so necessary at the present time—and, inasmuch as they are contributory schemes, they serve to reduce the disposable incomes, and therefore the consumption of people currently in favour of benefits eventually.

To that extent, approved pension schemes are very much in furtherance of the Government's present economic policy, but there is a special reason for allowing these to escape at the present time, and that is to be found in the social security and pensions legislation currently passing through this House, which may well become law in a few days.

9.15 p.m.

There are known to be many employers who—understandably, in the light of the many abortive pension Bills which have failed in this House in recent years—have made it known that until the present proposals become law they will not address themselves to negotiating with their employees benefits adidtional to their present pension schemes, and therefore such employers get no benefit at all from the exemption announced last week by the Secretary of State, when he said that employers who could prove that they had been negotiating improved pension schemes before 1st July could go ahead. The date of 1st July is not a helpful one for many employers who are waiting for the Royal Assent to legislation still going through Parliament.

But, of course, the essential part of that legislation, as everybody in this House knows, is that most employers' pensions schemes, private occupation schemes, will have to be substantially upgraded if they are to qualify for the contracting-out procedure provided for in the Bill.

If the Bill is to clamp down on all those intended improvements to current occupational schemes for at least a year, employers will find themselves up against a very tight—probably an impossibly tight—time limit with regard to the date for finally qualifying to contract out, which has been noised abroad as April 1977, and may eventually be determined to be April 1978.

The whole history of attempts to upgrade pension schemes suggests that a period of many months, certainly more than 12, is necessary to enable all the various bureaucratic processes to be gone through, and if we are not granted something on the lines of this new clause there will be chaos and—particularly for those approaching retirement in their companies—a good deal of unfairness and loss of prospective benefits.

Finally, if the Secretary of State takes the line that what I have been arguing in the last moment or two is reasonable, but only to the extent that employers ought to be permitted to go ahead with improvements to their present schemes or the introduction of new schemes up to the limit required to allow them to contract out, I hope he will say he is prepared to bring forward a clause which will let employers at any rate go to the extent of bringing their schemes up to the limit which entitles them to contract out under the legislation which is currently being considered.

In conclusion, I repeat that it is no part of our purpose by this clause to open the flood gates to the admission of other non-wage benefits or benefits in kind under this legislation. We are at one with the Government in seeing that that would scupper their policy, which we do not want to see. But we believe that there is a case for these tightly-drawn categories of pension schemes, and I hope that the Secretary of State will have something to say on the subject.

Mr. David Price (Eastleigh)

I give my strong support to the arguments pressed on the Government by the hon. Member for Colne Valley (Mr. Wainwright), and those deployed by my hon. Friend the Member for Somerset, North (Mr. Dean) at an earlier stage.

Without going into the rights and wrongs of the Government's total strategy, I remind the House that, when I spoke during the debate on the White Paper on Monday, I asked some questions about the policy which were unanswered. I shall not repeat my questions tonight, but in the context of the policy which the Government have set themselves, the question of pensions is special and sui generic.

In the course of an earlier debate, the Secretary of State said: The arrangements of the pensions schemes established before 11th July will continue unaffected by the pay limit. It is only new or improved schemes that are affected by the pay limit, subject to what I said yesterday. New schemes will be affected, but existing schemes will be protected. I am delighted that the right hon. Gentleman made his earlier concession. We all want to sec existing pensioners getting pensions which to the maximum extent possible accommodate a form of indexing so that they do not get hurt more than is necessary by inflation. There is no quarrel between us about that.

I take issue with the Secretary of State about what he said later in that same speech. These were his words: But I repeat that if we were to go further, and abandon the proposition that improvements in non-wage benefits should be counted against the£6, we would destroy the credibility of the£6 limit."—[Official Report, 24th July 1975; Vol. 896, c. 876–7.] The hon. Member for Colne Valley was on the same point. I believe that pensions are entirely different in character from other non-financial benefits like extra holidays which are currently consumed, the purpose being not a social one, but an economic one to restrain inflation.

As I interpret this clause, it is for people who are not yet retired, who are at work and who cover the whole of the age spectrum of those at work in an approved scheme. Their ages, therefore, will range from 18 to 60 or 64. This means that money spent on improving their future pension entitlements, towards which they and their employers will be contributing, are savings. I am sure that this is a matter that the whole House will wish to encourage in a counter-inflation policy.

I cannot see why the Treasury Bench cannot accept this approach, given what it means to a number of the trade unions dealing with the higher paid and the£6 limit—and I think that the Secretary of state acknowledges that it is difficult to defend the£6 against the 10 per cent. proposal which would be more acceptable to the higher paid. But here is an opportunity to make an exception which would make the so-called voluntary policy more workable. By going for improved pension benefits, because they are in the future, they will engender a higher level of current saving than will otherwise take place. Surely this is a matter about which we can all agree in our discussions of counter-inflation measures. There is much about which we disagree. But if we can raise the level of voluntary savings coming from the people, we shall assist the Government in their proper purpose of trying to reduce the rate of inflation.

I cannot see why the Secretary of State is not prepared to treat pensions separately from other non-wage benefits which are current consumption, such as improved holidays. I have heard nothing in the right hon. Gentleman's earlier speeches which leads me to change my view that what is proposed in this amendment is not only in the spirit of what the Government want but is positively promoting the cause of counter-inflation.

That is my short point. I believe that both my hon. Friend the Member for Somerset, North and the hon. Member for Colne Valley are on the same basic point. I shall not go into the details, because I do not think they are relevant. To make an exception for improved pension arrangements would, I believe, be acceptable to the trade unions and the TUC. Moreover it is not against the Government's policy but positively and actively promotes it. Therefore, it gives me great pleasure to support the hon. Member for Colne Valley.

Mr. Paul Dean (Somerset, North)

I am glad that on this occasion we are having a separate debate on pensions and that it is possible to put the spotlight on the pension prospects of millions of people, both those who are pensioners already and those who will become pensioners in the future.

I begin from the simple proposition that a pay policy should not restrict either pensions in payment or pensions in prospect. In my view it is bad to restrict pensions. It is bad from the social service point of view because inflation hits pensioners perhaps harder than any other section of the community. Moreover, in many cases people suffer a drop in income when they retire. I also believe that such a policy weakens rather than strengthens a pay policy. A freeze on pension improvements in my view is aiming at the wrong target.

When the Secretary of State discussed this matter in Committee last Thursday he said that he would look carefully at the points which had been made. I hope that having had the opportunity over the last few days to do that, he has been impressed by the powerful arguments which were put forward on that occasion from both sides of the House. I hope that on this occasion he will be able to concede the points which were then made.

I do not want to repeat at any length the detailed questions which I and other right hon. and hon. Members put to the Secretary of State last Thursday. However, I must briefly refer to them because I think the right hon. Gentleman will admit that he was unable to answer those detailed questions at that time. He has now had adequate notice. It is important to those who will be concerned outside that these points should be clarified. In putting the questions again I declare my interest in pensions matters.

I should like to deal first with the existing pension arrangements. The right hon. Gentleman told us last Thursday that existing pension arrangements established before 11th July would be unaffected. This is reassuring so far as it goes. However, there are some specific questions which we put on the previous occasion and to which we have not yet had answers. I shall briefly refer to them. First, it is obvious from what the right hon. Gentleman said that the Civil Service and other schemes of this type which had an automatic inflation factor built into them will be able to continue with the present arrangements. What is not clear is whether those schemes which had ad hoc arrangements to try to protect the pensioner from inflation will be able, under the definition that the right hon. Gentleman has given, to increase their pensions. They certainly should be able to do so. Otherwise there will be discrimination in favour of those with automatic increases built into their rules and others will be in an unfavourable position.

9.30 p.m.

The second question concerns occupational pensioners who work. We all wish to encourage occupational pensioners to go on doing some work. They need to know whether any increases in pay which they receive will count against the£6 increase.

The third question concerns the precise effect of the£8,500 limit. We need clear answers for those who are retired now as to how they will be affected.

There are those who will retire or become redundant during the period of the pay policy. This matter is of critical importance for two reasons. First, no one in this House would wish to create a favourable law for Members of Parliament and civil servants in their pension rights and an unfavourable law for everybody else. The concept of basing pensions on notional pay is questionable, to put it no higher than that. But if, in the special circumstances, we are to do this for some sections of the community, surely it is only right to do it for others.

Secondly, if this group of people suffers in its pension rights because those rights are linked to pay which is being restricted under the pay policy, that can affect the pension rights of these people for all the years in which they are in retirement.

The Secretary of State was reassuring in some of his remarks regarding people who retire during the period of the pay policy, but many important questions are still left unanswered. I should like to mention some of them.

The first relates to people retiring through age whose pension rights are not fully funded. They may have been told some time ago that they could have a lump sum to purchase an annuity. I hope that the right hon. Gentleman will assure us that these arrangements can stand and be honoured.

Secondly, there are those who will be retiring early through ill health. Often in such circumstances, particularly in insured schemes, the level of benefit provided is relatively modest and the employer may wish to augment the pension or to provide a lump sum for the individual concerned who becomes disabled. I hope that the Secretary of State will assure us that these arrangements can stand and be honoured.

Thirdly, there are those who may be in the course of changing or losing their jobs. Alas, there will be many people in that category in the coming months. If a firm wishes to improve its redundancy arrangements, will they be allowable? In this connection there is the question of the refund of pension contributions which is often available under existing arrangements for the preservation requirements of the 1973 Act. Will the refund which is available in the scheme of rules be honoured? I hope that the Secretary of State will be able to assure the House on these important points for those who are affected.

Finally, there is the group of people who come in the category of new or improved pension arrangements. Last Thursday the right hon. Gentleman told the Committee that, in effect, there is to be a freeze on new or improved arrangements unless negotiations on specific proposals have taken place in the three months before 1st July 1975. The unsatisfactory nature of the date and time chosen has already been pointed out. I believe that this aspect, above all, is totally unacceptable for several reasons.

Improvement in pension arrangements is counter-inflationary. It is money being saved and taken out of consumption. It provides the seed corn for future prosperity and is a buttress to the Bill we are now considering.

Many women will receive pay increases under the equal pay legislation and improved pension rights will follow in many cases. If the improved arrangements in the clause and amendment are not to be allowed, we shall have one Bill which says that the arrangements cannot be allowed and another piece of legislation saying that they should be allowed.

The same sort of contradiction is raised in the Social Security Pensions Bill. Many of us have laboured to try to get an agreed Bill with an effective partnership between the State scheme and occupational schemes. If this partnership is to work—and it will be difficult enough in present economic circumstances—it will need an improvement in occupational pension schemes so that they can measure up to the conditions laid down for contracting-out. Here again, there is a conflict between two pieces of legislation. More delay and uncertainty would hold up the progress we hope to see in the development of occupational pension schemes.

If the Secretary of State persists in his policy, the well-heeled protected pensioners will not suffer. They are effectively covered already. The people who will suffer will be widows, shopfloor workers and women. If the right hon. Gentleman persists in his policy he is saying that, as the Bill stands, the gaps in existing occupational pension schemes cannot be filled.

One of the disadvantages of a pay policy which lays down a rigid figure, like the£6, is that there is very little left on which to negotiate. Would it not be wise for the right hon. Gentleman in his rôle as Secretary of State for Employment to leave an area here on which negotiations could take place? I realise that he is worried about possible abuse. He mentioned on Thursday that nothing should be done to destroy the credibility of the£6 limit and that any possible loopholes should be blocked. We have heard much about loopholes during the passage of this Bill, but I suggest the problem is not likely to arise under the arrangements I have suggested. Amendment No. 6 in the name of some hon. and right hon. Friends and myself has been drawn tightly to make abuse unlikely. We can fairly claim, that it has stood the test of practice. It is in precisely the same form as the arrangements for excluding pension rights from the Conservative Government's counter-inflation policy. In subsection (3A) we have specifically provided that arrangements must be subject to tax approval.

In other words all the Inland Revenue control arrangements will operate under this proposals. We have provided specifically in subsection (3B) that where a change in a pension scheme has the effect of increasing the pay…that increase counts against the pay limit. Equally, under subsection (3C) we have been careful to draw the definition of redundancy according to the Redundancy Payments Act 1965. There are therefore ample safeguards in Amendment No. 6.

New Clause 3 seeks to tie down rather too rigidly things which are best left for discussion and negotiation between employer and employee. However the general principle is right and I hope that the right hon. Gentleman will accept it. If he does not, I, for one, will gladly vote for the clause.

The Government must avoid causing any unnecessary damage to savings through occupational schemes or blighting the pension prospects of millions of people. They must take care not to inflict hardship on individuals who during the operation of the pay policy retire through age or disability, or who become redundant. The pay policy should protect these vulnerable people, not hit them.

9.45 p.m.

Mr. John Davies (Knutsford)

I do not wish to repeat what has already been said by the hon. Member for Colne Valley (Mr. Wainwright) or my hon. Friends the Members for Somerset, North (Mr. Dean) or Eastleigh (Mr. Price). I wish to reinforce their arguments in support of Amendment No. 6 in particular and, like my hon. Friend the Member for Somerset, North, I shall gladly go into the Division Lobby in support of the Liberal new clause.

I wish to deal with the development of pension funds and schemes generally. I have an interest to declare, in that I am a member of a concern involved in the development and administration of pension schemes. Up to 10 years ago this country led the world in the development of occupational pension funds. What was done here was a blueprint of what has since been effectively done elsewhere. Since then, however, the development of such schemes in this country has fallen under the blight of uncertainty. Many different proposals put forward by suc- cessive Governments have been rehearsed and carried to near completion, but each time the final decision has been frustrated. The result has been growing uncertainty and an increasing lack of confidence in the formulation and development of such schemes.

One can remember the extreme complexity of the schemes proposed by Richard Crossman when he was Secretary of State for Social Security, which caused a hiatus in the development of private schemes for a long period. This was followed by the schemes put forward by the previous Conservative Government, which created, again, a complete rethink of the pension arrangements which were being considered. Those were once more thrown into the melting pot, and the whole thing was revised in different terms by the present Secretary of State for Social Security.

There has been this debilitating period of 10 years, from which our pensions system gravely suffers. I am exceedingly anxious that within a reasonable time, as the hon. Member for Colne Valley said, there should be a degree of certainty about which schemes could go forward. To throw the whole thing once again into uncertainty would be positive madness. I strongly plead with the Government Front Bench to make the necessary adjustments to ensure that that does not happen.

In addition to what my hon. Friend the Member for Somerset, North has said, it is the most incredible injustice that people who happen to retire during the course of this oncoming period, during which there is severe restraint, should be faced with the proposition that, through pure chance, they will be precluded for life from enjoying the benefits which they should and do look forward to. That is totally unjust, and I plead with the Secretary of State to do what he can to ensure that that injustice does not take place.

Mr. Robert Boscawen (Wells)

I support new Clause 3 in the name of the hon. Member for Colne Valley (Mr. Wainwright) and associate myself with the principle behind it.

It is extremely disappointing that after the prolonged debate we had on Thursday night on this issue, the Government have not come forward with a central proposal to exclude improvement in pensions from the provisions of the Bill.

They are wrong, first, because it is wrong to penalise pensions that will be paid to individuals long after there is need for restraint. Individuals will be affected for a long time to come, if they have the ill luck to be caught in this period. It is wrong to prevent a number of individuals having the opportunity of ever being included in an occupational scheme, because, as the Secretary of State should know, the pensions industry, which is in a particularly delicate and crucial period at present, is trying to prepare for the new pensions arrangements introduced by the Government.

It is a difficult time for firms to decide whether to stay or contract out of the Government's scheme, or to take the benefits of the new Social Security Pensions Bill which will shortly become an Act.

Therefore, it is likely that as a result of this exclusion from the Bill tonight a number of firms will decide to contract out. Their employees will then lose the benefit of being in a good occupational scheme.

Finally, it seems totally wrong to fight inflation by penalising the efforts of people who try to improve their savings. On that issue I shall certainly support the hon. Member for Colne Valley if he decides to force the issue to a vote.

Mr. R. A. McCrindle (Brentwood and Ongar)

I wish to make three general points in supporting the new clause proposed by the hon. Member for Colne Valley (Mr. Wainwright). First, does the Secretary of State understand what he is giving up by not accepting this new clause? I have heard him and other Government Ministers bemoan the lack of investment in British industry. I have heard him and his colleagues say that, if only investment in industry could increase, the number of jobs would increase and that the worrying rate of unemployment could perhaps be brought under greater control.

In my view no other way so readily gives the Government an opportunity to increase that investment in British industry than by increasing the amount of money available from the pension funds so to do. In their own interests I wonder whether the Government have thought this matter through sufficiently. I hope that the Secretary of State—I am sure that I do not need to remind him that he is Secretary of State for Employment—will particularly turn his attention to the opportunities that the investment of pension funds may bring about.

Secondly, I draw the right hon. Gentleman's attention to the fact that if the Government are saying to themselves "It does not matter if for one year we force pension schemes to take a backward step because, after all, that can always be made un later", it is presupposing that we are having the one and only stage of a counter-inflation policy. If the Secretary of State thinks that, it has not been obvious from some of the recent speeches made by himself or those of his colleagues. I ask him to speculate on the situation that will occur if, not this year but, conceivably, next year or the following year, this continued distortion in pension provisions is allowed to continue. What will happen is that the earnings-related pension provision upon which both major parties are embarked will simply not be possible of achievement. I wonder whether the right hon. Gentleman realises just what he is doing to all the aspirations put forward by his own Government.

It is on the question of other members of his Government that I wish to touch next. There is a serious conflict between the Department of Employment and the Department of Health and Social Security. I should like to say how surprised I am that in this important debate on pensions there is not even a junior Minister from the Department of Health and Social Security listening in. I also want to draw the attention of the House to the fact that the Government back benches are not exactly over-populated at present, when we are discussing other people's pensions, whereas I am told that in the early hours of one morning last week, when we were discussing Members' pensions, there was a considerable number of back benchers in attendance.

As I said, there is a conflict between the Department of Health and Social Security and the Department of Employment. If the Government do not accept the new clause, in many ways their Social Security Pensions Bill, which is now very close to becoming law, will become something of a nonsense. What is more, the partnership that, on the Government's wish, is supposed to flow from that Bill will become something of a sham.

For those reasons, therefore, perhaps I may ask the Secretary of State at this very late hour to reconsider this matter with the greatest possible care. I believe that, far from this being an occasion on which occupational pensions have to take a backward step, it could in many ways be the beginning of a great fillip for occupational pensions, if only we were to accept that although we cannot have increased wages there is no reason why we should not generate increased savings, with all the benefits I have tried to describe.

It is for those reasons that I hope that the Secretary of State, if he does not accept the new clause, will at least consider it possible to give a far better indication that the Government understand the spirit of what Opposition Members have been trying to press upon them.

Mr. Foot

I certainly acknowledge that anyone who listened to the debate today or the debate we had the other night fully appreciates the strong feelings of hon. Members on both sides of the House about this matter. We certainly wish to find the best solution to the problem, from the point of view of pension policy and the policy in the White Paper for dealing with the economic situation. We have to take steps to try to balance those considerations. That is what we have sought to do.

I assure hon. Members who spoke in the previous debate and moved amendments then that I have taken account of what they said. I listened carefully to what they said and I have considered it carefully. Although I am not proposing to accept their amendments or the amendment to which the hon. Member for Somerset, North (Mr. Dean) spoke, or the new clause, I hope that what I say will be helpful to them when I answer the questions they have put and deal with the whole situation. It is in that spirit that I have approached the matter and have sought to see how we could deal with the whole situation. It has presented us with difficulties, because we do not want to undermine the policy, but we want to ensure that we do not inflict injustice on individuals, and to ensure that we sustain a sensible pensions policy.

Much has been said about the treatment of occupational pensions arrangements under the new policy. There has been some over-emphasis on the difficulty of interpreting the policy in the White Paper, and it has been suggested that the policy will seriously impede the development of occupational pensions schemes. I hope that hon. Members on both sides of the House will agree with the approach that I suggest.

I have been asked a number of questions on the first point, the details of the application of the policy. The answer lies in the clarification which I tried to give on Second Reading, and which I shall try to amplify now. I think that I can deal with most of the questions asked by the hon. Member for Somerset, North about the lump sum, ill health and refunds. The arrangements for payments to pensioners under existing schemes may continue unchanged—[Horn. MEMBERS: "Hear, hear."] This is not something fresh. The hon. Gentleman appreciates—I see that my right hon. Friend the Secretary of State for Social Services has joined me on the Front Bench, and now I understand the cheers. My only surprise is that they were not even more rousing.

The arrangements for payments to pensioners under existing schemes may continue unchanged, and the pay limits do not apply whether existing schemes provide for keeping pace with the cost of living or ad hoc payments are made as a matter of practice. These payments do not count against the pay limit.

The same is true about any pension increases under existing schemes to pensioners working part-time and the refund of pension contributions to those who change or lose their jobs. Increases in pay under the Equal Pay Act will in many cases lead to increased contributions to pension schemes by employees and employers, and if these result from the terms of an existing scheme the increases will also be separate from the pay limit.

The hon. Gentleman asked me about redundancy pay arrangements. They do not apply against the pay limit either.

I come to the anxiety expressed by a number of hon. Members that the application of the policy to pensions might impede the development of the occupational pension scheme. That was the principal point emphasised by the hon. Member for Come Valley (Mr. Wainwright). I naturally understand his concern. If I did not, I am sure that I could answer many of the accusations by Opposition Members by saying that my right hon. Friend the Secretary of State for Social Services would have expressed her concern. She has discussed the whole matter with me.

It is not our wish to impose a moratorium on the negotiations on pension improvements designed to meet the Government's own legislation. I have stated the circumstances in which improvements will not count against the pay limits. In any case, the Government intend that employers and unions may continue to discuss and negotiate pension improvements for implementation from dates from 31st July 1976, provided they do no more than to meet the minimum statutory requirements for contracting out under the Social Security Pensions Bill. The Government naturally hope that employers and unions will continue such discussions over the next 12 months.

Let me explain, partly in reply to what was said by one or two Conservative Members who claimed that they did not appreciate why we should have this provision—

Mr. Paul Dean

I am grateful to the right hon. Gentleman for the valuable information he has given us. He has referred to discussions—

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

Ordered, That the Remuneration, Charges and Grants Bill may be proceeded with at this day's Sitting, though opposed, until any hour.—[Mr. Thomas Cox.]

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

Mr. Dean

The right hon. Gentleman has referred to discussions with regard to improvements so that schemes may qualify for contracting-out. Did I understand him to say that if employers and employees agree to improvements to meet the conditions, these improvements, or new schemes if they be new schemes, are outside the pay limits?

Mr. Foot

After 31st July 1976. The hon Gentleman's proposal was referring to what might happen this year. Let me explain why we have not been able to approach this matter in the way in which some hon. Members have suggested, namely with pension improvements introduced quite separately from the£6 limit over the next 12 months. I have been surprised that many hon. Members who have spoken on this—hon. Members who speak with authority on industrial matters and other questions—have made no reference to the fact that increased employer contributions to pension schemes are an addition to labour costs. Employers meet at least half the cost of enhanced contributions plus the cost of dynamism to keep up the real value of the pension.

Conservative Members have shown little recognition of that fact in most of their contributions. Many have persistently claimed that labour costs increases are the sources of all our inflationary troubles. I have never accepted that doctrine and I do not accept it now. Some hon. Members have made that claim. I do not say that they have done so in this context. They have sought to develop a different argument today. In some other context they have sought to claim that labour costs are the source of our inflationary troubles. I do not do so. I accept, like the TUC, that wage increases are at present playing a considerable part in price increases.

If we are serious about the attack on inflation we must give overriding priority to containing increases in labour costs over the next 12 months by the means which the TUC has suggested and which we have endorsed. If that were not an overriding priority there would be a strong case for permitting pension improvements separately from the£6 limit. If we permitted a general exclusion of this kind, there would be a great temptation, while pay increases are voluntarily limited, for employers and unions to commit industry to increased labour costs which we could not avoid. The policy contained in the White Paper to keep down prices and industrial costs for the purpose of getting price inflation down to single figures has to be applied rigorously across the board to wage and non-wage benefits. That was why that provision figured in the guidelines in the White Paper. That is the weakness of the case being advanced for total exemption of improvements to occupational pension schemes.

Mr. John Davies

The right hon. Gentleman will realise that the incidence of those costs is very much related to the funding arrangements undertaken by the individual employer. It is not, therefore, by any means necessarily the case that what he says is precisely borne out in practice.

Mr. Foot

There may be discussion about that but I would have thought that the general argument has some application and I would have thought that hon. Gentlemen would, at any rate, however they wish to solve the dilemma, have appreciated that the dilemma exists. That is the weakness of their case when they ask for the total exemption of improvements to occupational pension schemes.

It is no answer to claim that such arrangements and pension schemes were exempted in stage 3 of the Conservative Government's statutory policy. I recall that it did not exempt them from the five-month standstill when they introduced the policy. They did not even manage to get such schemes into stage 2 which ran for the next six months. Whatever else stage 3 might have been, it was hardly an anti-inflationary policy. Indeed, it helped considerably to contribute to the difficulties with which we had to contend.

We seek to remedy the situation. This Bill is one of the major contributions in seeking that result. That is why we must strike a balance between the requirements of the attack on inflation in the short term and the longer-term considerations, which favour the development of occupational pension schemes, and upon which emphasis was placed by the Opposition, whereas earlier the Government placed emphasis on our pension schemes which we are eager to protect and to see advanced.

I do not accept that the line we are taking will do great harm to the development of pension schemes or to the continuance of existing schemes. New and improved schemes agreed before 1st July, or in negotiation before then on terms which I have indicated, can go ahead separately from the£6 limit. In addition, employers and unions are free to continue to discuss and negotiate the details of schemes for future implementation when the policy allows. New and improved schemes designed to meet the minimum requirements for contracting out under the Social Security Pensions Bill will be allowed to go ahead from dates from 31st July 1976.

I do not think therefore that this measure can be described as contradicting what we sought to achieve through the social security pensions legislation. It represents a reasonable balance between our objective on price inflation and our desire in the longer term to foster pensions schemes.

Mr. A. J. Beith (Berwick-upon-Tweed)

There will be uncertainty as to the effect of the incomes policy after 31st July 1976. Does the Minister agree that this uncertainty will detract from attempts to negotiate pension schemes to be implemented after that date? Is not that uncertainty destroying the Government's pension legislation?

Mr. Foot

It has removed a great deal of the uncertainty which prevailed before.

In moving the new clause the hon. Member for Colne Valley raised a serious question. He expressed the anxiety of many of those who were concerned with the occupational pension schemes and with how the policy and the situation would be affected by my recent statement. I hope that the House will accept that my remarks this evening contain an elaboration of my recent statement and will be helpful in removing most of the fears and anxieties expressed by hon. Members on that occasion.

Mr. David Howell (Guildford)

The Minister met some of the points raised by members of the Opposition parties. However, his defence of his main argument why pension improvements cannot be separated from the pay limit was odd. He read from his brief as though it concerned only labour costs, but later he dissociated himself from that position. He has taken neither a convincing nor an heroic stand on this issue.

The Minister met the point about ad hoc increases, although there was some small print dealing with the question whether it was the usual practice, at which the Government will want to look again. The Minister is right when he says that the scheme can start again on 31st July 1976. That will raise problems of re-entry. However, it is difficult to show how it will fit in with the far-reaching schemes elaborated by Ministers at their Press conference, when they waxed enthusiastic about pay limits and wage policies being developed far into the future. There will be problems after that, although it is better than nothing.

However, the Minister left blank the year in between, when the Social Security Pensions Bill is supposed to be implemented and the occupational schemes propped up, so that people may contract out. The Minister left that in limbo. He has left it in such a way that tens of thousands of people will not know their prospects, or whether there is a possibility of the topping up of occupational schemes.

If the right hon. Gentleman could meet the problem to the extent he did on implementation and ad hoc increases, I do not see why he could not go all the way and accept Amendment No. 6 or the clause. I prefer Amendment No. 6, although the clause covers the broader aspects very thoroughly.

At the end of the day we are left with yet another aspect of the policy on which we do not know what is in the Secretary of State's mind. The purpose of tabling the amendments was to find out more precisely the rules under which people are to operate. We want an open policy, openly and clearly arrived at. But in this area, as in others, we are left in obscurity and muddle, and I advise my hon. Friends to support any intentions which the Liberal Party may have of pressing the clause to a vote.

Mr. Richard Wainwright

With the leave of the House, Mr. Speaker, I should like to reply.

I am bound to express disappointment that the Secretary of State has not moved on the substance of the clause. True, he has cleared up some peripheral matters, very usefully no doubt to those who are particularly involved, but regrettably he has done nothing to prevent a complete stoppage of the momentum of the pensions movement during the next 12 months. The date of 31st July 1976 may seem credible to some sophisticated hon. Members but it will not carry conviction in the world outside which has become extremely sceptical of dates announced from the Government Front Bench.

Therefore, the chronic state of uncertainty to which the right hon. Member for Knutsford (Mr. Davies) referred so convincingly, which has hobbled the pensions movement for the last eight or nine years and which was about to be removed, assuming that the measure introduced by the Secretary of State for Health and Social Services soon becomes law, will continue for at least another 12 months. We must not forget the reforms which some employers have in mind for improving their pension schemes during the next few months. All those will be frustrated because of what I can only describe as the Minister's obstinacy.

The Secretary of State has not addressed himself to the point so forcefully made from the Opposition benches that pensions contributions add greatly to savings and investment and, in certain circumstances, take money out of immediate consumption. Therefore, I shall advise my hon. and right hon. Friends, with such other support as can be mustered, to divide the House.

Question put, That the clause be read a Second time:—

The House divided: Ayes 245, Noes 266.

[For Division List 309 see col. 1775.]