HC Deb 04 June 1981 vol 5 cc1063-4
12. Mr. James Lamond

asked the Chancellor of the Exchequer whether, in his reviews of public spending, he has made assessments of the savings from ceasing to index pensions in line with prices.

Mr. Brittan

In the course of their reviews of public spending, the Government naturally always assess the cost of all their policy commitments, including their clear undertaking to maintain, over the lifetime of this Parliament, the value of retirement pensions and those other long term benefits which are uprated in line with them.

Mr. Lamond

Does the right hon. and learned Gentleman recall the speech by the Chancellor of the Exchequer to the National Association of Pension Funds on 7 May when he took a very pessimistic view of the possibility of this Government or future Governments being able to accept their commitments to index-link pensions, particularly the earnings-related segment of retirement pensions?

Mr. Brittan

I recall the speech very well. My right hon. and learned Friend was saying that the burden placed by commitments of the kind I have described is a factor that those who think seriously about these matters should take into account. Over the last 10 years, social security benefits and pensions have increased in volume terms by over 60 per cent. while gross domestic product has risen by only 15 per cent. The result is that the proportion of the gross domestic product absorbed by those benefits and pensions has gone up from 10 per cent. to nearly 15 per cent. in that period. That is something that we, as a nation, have decided to do. My right hon. and learned Friend was right to point out the serious consequences of doing so.

Mr. Bruce-Gardyne

My right hon. and learned Friend has been reported as calling upon the spending Departments to review the prospects of achieving a reduction of 3 per cent. and 5 per cent. in forward programmes for ensuing years. Can he assure the House that the Treasury intends to stick to this objective, which is obviously essential if we are to achieve the scope for reductions in taxation in the concluding years of this Parliament?

Mr. Brittan

I agree that the extent of our ability to secure those reductions in taxation depends very much on what happens to public spending. No decisions have been taken in relation to this year's survey but the customary options exercise, which has happened for some years, is in train.

Mr. Straw

Why does the Chief Secretary now seek to play down what the Chancellor of the Exchequer said at the pensions conference on 7 May when the whole burden of his speech was to raise the most serious worries about the Government's commitment on the indexation of pensions? Will the Chief Secretary say whether his commitment to continue the indexation of retirement pensions for the life of this Parliament extends to the earnings-related supplement of the basic pension under the Social Security Pensions Act 1975?

Mr. Brittan

The extent of the commitment was set out at some length in a letter to the hon. Member for Birmingham, Perry Barr (Mr. Rooker) which I shall draw to the hon. Gentleman's attention.