§ Order for Second Reading read.
§ The Secretary of State for Social Security (Mr. Peter Lilley)
It gives me no pleasure to follow the little debate that was initiated by my old sparring partner, the hon. Member for Dunfermline, East (Mr. Brown), for whom I used to have some respect until he demeaned himself and the Opposition Front Bench by descending into the gutter with the gutter journalists from whom he gained his material. He and they will be judged by the company that they keep.
I beg to move, That the Bill be now read a Second time.
The Bill has two main purposes: first, it introduces a 1 per cent. additional rebate for personal pension holders aged 30 and over, as promised in our manifesto; secondly, it provides for a Treasury grant into the national insurance fund.
Before explaining the detailed provisions in the Bill, it may help if I recall the background on personal pensions. The present arrangements were established by my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) in the Social Security Act 1986, which came into force in 1988.
Critics, not least on the Opposition Benches, predicted that the personal pension scheme would be a flop and that, to the extent that personal pensions caught on, it would be largely at the expense of occupational pensions. In fact, personal pensions have been an enormous success. Nearly 5 million people have taken them out since their introduction in 1988. That is 10 times as many as was originally projected. The 5 million personal pension holders are largely additional to the 11 million members of occupational pensions schemes. Indeed, the number of people covered by occupational schemes has actually risen over the same period. The success of personal pensions has generated a committed flow of funds for investment amounting to £8 billion over the period.
§ Mr. Lilley
That is one of the great strengths of private pensions. They are invariably fully funded, setting savings aside to be invested in industry to build up assets which will pay the pensions in the future.
§ Mr. Lilley
Not to the hon. Gentleman, if that is the correct epithet—[interruption.]—which I trust it is.
§ Mr. Donald Dewar (Glasgow, Garscadden)
On a point of order, Madam Deputy Speaker. The right hon. Gentleman should make a rather more graceful withdrawal than merely to say that he hopes that it is the right epithet. I thought that we were all hon. Members, whatever we may think of each others' opinions.
§ Madam Deputy Speaker (Dame Janet Fookes)
I hope that the House will settle down and that we will extend courtesies to each other. That applies, of course, to both sides.
§ Mr. Lilley
Absolutely. Thank you, Madam Deputy Speaker.
Personal pensions, as I have said, are invariably fully funded.
§ Mr. Dewar
I am not disputing the Chair, as the Secretary of State is suggesting. It is quite an important point. There are proprieties in the House. Sometimes people see them as a little artificial, but most of us see them as important safeguards. In respect of a specific innuendo, if it is said that an hon. Member will never get in on a point of information, because, by implication—indeed, it is explicitly suggested—he is not an honourable Member, that is quite a serious charge and it should be withdrawn.
§ Madam Deputy Speaker
That was not my understanding of the situation that arose. I make it plain to the House that we should observe the highest standards of courtesy, not how much we can get away with.
§ Mr. Lilley
I entirely agree, Madam Deputy Speaker. I assumed that the hon. Member for Glasgow, Garscadden (Mr. Dewar) was criticising his hon. Friends for their use of innuendo.
By contrast, state schemes——
§ Mr. Frank Cook (Stockton, North)
On a point of order, Madam Deputy Speaker. The Chamber heard the Secretary of State refer to an hon. Member as a gentleman, not an hon. Gentleman. He followed that with a comment about whether that was the correct term to use. That is the thrust of what he said. On two counts he has violated the proper standards of conduct in the Chamber and is yet to accept your advice on how to put right that conduct. He does not have the decent grace to do it. I insist that he be brought to order. It is not proper.
§ Madam Deputy Speaker
I have already explained that I do not regard the exchange that has taken place to be of such a kind that it requires an apology. The observation that I have made is that I hope that both sides will observe the highest standards of courtesy. I suggest that we get on with the substance of the Bill.
§ Mr. Lilley
I will adhere to the spirit of that remark, Madam Deputy Speaker.
By contrast, state schemes are pay-as-you-go. This year's contributions are used to pay this year's pensions. Nothing is saved and invested in industry to create assets to pay for future pensions. The success of personal pensions also means that a substantial future burden is lifted from the Exchequer.
Personal pension funds have taken off so well because, for the first time, they give many people, especially those with no access to occupational schemes, an alternative to the state earnings-related pension scheme, and because they offer complete portability when people change jobs, with no loss of pension rights. That is particularly attractive to young people and mobile employees. Personal pension funds give people the chance to make additional provision above the level of the state earnings-related 47 pension scheme. About one and a half million investors have already done just that. Finally, of course, the 2 per cent. incentive of those contracting out of SERPS has succeeded, as was its aim, in getting the new concept off to a flying start.
In 1986, when my right hon. Friend the present Prime Minister was taking the Social Security Bill through the House, he said that the Government wished to extend personal pensions as widely as possible. In Committee my right hon. Friend said:We expect that people of 40 and under will be most attracted to personal pensions".—[Official Report, Standing Committee B; 6 February 1986; c. 44.]His intentions have been amply fulfilled.
It is especially encouraging that so many young people have personal pensions. More than half of personal pension holders are under 30. More than 80 per cent. are under 40. The flat-rate nature of the current rebate arrangements means that the advantages of personal pensions are greater for younger people than for older ones—although I must admit that it is disappointing to discover that the older generation now begins at 30—because the benefits from a personal pension depend, among other things, on the return on investment, accumulating compound. By contrast, entitlements from SERPS are increased in relation to the growth of average earnings, as there is no investment fund.
Historically, the return on investment has outstripped earnings growth. As long as it continues to do so, personal pensions will have an advantage over SERPS for younger people. At the same time, with a flat-rate rebate for contracting out, it becomes advisable for personal pensioners to consider contracting back into SERPS as they get older. Therefore, people in their 20s are more likely to be well advised to contract out of SERPS than people in their 50s. If older personal pension holders decided to contract back into SERPS, that would not merely undermine the healthy development of personal pensions but would increase the financial burden on SERPS and on the Exchequer. That is why we propose to introduce a 1 per cent. addition to the contracting-out rebate for those over 30. It will apply to those who are 30 or over next April, and of course to those who are over 30 before the beginning of any future tax year.
We estimate that about 2 million personal pension holders will benefit. The cost for the first year is estimated to be £165 million. However, the incentive is paid out a year in arrears, so 1994–95 will be the first year in which that cost falls on the national insurance fund. The 1 per cent. additional rebate will ensure that the majority of personal pension holders continue to find it worth while to maintain their pensions in the immediate future. But that is only a temporary measure. In the longer term, as we promised in our manifesto, we will be considering proposals for an age-related rebate structure to replace the temporary 1 per cent. additional rebate from April 1996. I intend to consult fully with all interested parties on the way in which that might be achieved.
The ending of the 2 per cent. incentive will make it all the more important that people are sold only pension arrangements that are appropriate to their circumstances, and at a competitive cost. That requires that full and clear information should be available to potential customers and that pension providers should be firmly and effectively 48 regulated. To improve the availability of information, we will be working closely with interested parties, including the relevant consumer bodies. We would hope to bring out new material that explains the range of pension choice in as simple language as possible. It could highlight the questions to ask and the points to watch.
The Securities and Investments Board has made proposals to improve the transparency of information relating to costs. Those proposals are being considered by the Office of Fair Trading, whose task is to ensure that such rules are not anti-competitive. The office is expected to report to my right hon. Friend the Chancellor shortly, and we look forward to its report. We are also working closely with the regulators to ensure that the regulatory system works effectively for personal pensions, especially in the changed environment from next April.
Officials and Ministers have held a series of meetings with their counterparts in the SIB, the Life Assurance and Unit Trust Regulatory Organisation, the Investment Management Regulatory Organisation, and the Financial Intermediaries, Managers and Brokers Regulatory Association to discuss issues and to share information.
The regulators intend to issue further guidance to pension providers and advisers before next April, which will highlight the categories of people for whom pensions are likely to be suitable and unsuitable. I welcome evidence of the regulators' determination to use disciplinary powers when firms are not giving the best advice, tailored to investors' circumstances.
Our aim, with Parliament's consent, is that the Bill should receive Royal Assent by February. To ensure that the details are considered fully in the time available, we propose to take the Bill in a Committee of the whole House, which will allow time for the Department to explain fully the changes to all involved, and for it to make the necessary adjustments to systems, so that personal pension holders will receive their rebates promptly.
The national insurance fund is the second aspect of the Bill. The balance in the fund depends on the state of the economic cycle. An economic slow-down adversely affects incomings and outgoings. The detailed position is set out in the Government Actuary's report, which was published and placed in the Library last Thursday and—I hope—received by Opposition Members.
In 1993–94, the expenditure from the fund is likely to exceed its income by about £4.8 billion. After taking account of the balance carried forward from 1992–93, the fund is likely to be about £1.2 billion short of its commitments. There is also likely to be a shortfall in future years. Legislation makes no provision for the fund to go into deficit. Without legislation of the sort proposed, it would, therefore, have been necessary to curb entitlement to benefit or to increase contributions.
The House will know that, despite the tight financial position, I announced on 12 November that all benefits are to be uprated in line with inflation. I also announced that we had decided to make no change in employers' or employees' national insurance contributions, except the normal adjustments for inflation. That was warmly welcomed by everyone, except Opposition Members. However, it means that we have to draw on the Exchequer to keep the national insurance fund in balance.
We therefore propose to help the fund by a new grant, to be paid from the Consolidated Fund into the national insurance fund in 1993–94, which will be available—if needed—in future years. It is not a new idea to support the 49 fund through a transfer from the Consolidated Fund. The national insurance fund was originally set up with income from employers, employees and the state.
The former Treasury supplement, which we abolished in 1989, was inflexible. We had to pay it whether or not we needed to, even when the fund was in surplus. The proposed grant is a more sensible mechanism, allowing more prudent management of the fund: it is flexible; it is not automatic; and it will be called on only when it is needed. In that way, we can be more responsive to the cyclical nature of the economy.
Let me turn to the amounts involved. The grant will vary according to the need at the time. The payment that we intend to make in 1993–94 will be up to 20 per cent. of benefit expenditure from the fund—up to £8 billion. That is a high initial amount because of the need to recover ground lost by the fund in 1992–93. For subsequent years, the payment will be made only if the Secretary of State decides that it is needed. We plan to keep a balance of two months' benefit expenditure, using expenditure estimates made by the Government Actuary and published in his report.
The Bill also sets a maximum for subsequent years—17 per cent. of benefit expenditure, or about £7 billion on current forecasts. On each occasion, an order will be made after consultation with the Treasury and with its consent. The order will be subject to the affirmative procedure. The House will be able to debate the issue fully. That gives us maximum flexibility with maximum accountability. The measure represents a transfer of money within the public sector. Therefore, it has no effect on overall public spending. The House will have an opportunity to debate the re-rating proposals when we place the draft order before it in due course.
The measures in the Bill raise questions about what the Opposition would do when faced with similar issues. They have criticised the proposal to introduce the national insurance fund grant. I want to know whether they are still critical of it, or whether they accept the need for it. At the last election they proposed a major increase in national insurance revenues. Indeed, a major plank of their policy was to increase the national insurance burden on a large number of people. That would reduce the need for a grant, but the hon. Member for Dunfermline, East appears to have renounced that policy. We wish to know whether the Opposition will repudiate his renunciation.
The Labour party appears simultaneously to be proposing to consider means-testing pensions and discouraging private pensions. Will the hon. Member for Garscadden therefore confirm that the promise of Its right hon. and learned Friend the Member for Monklands, East (Mr. Smith), that none of the universal benefits would be excluded from his review, still stands? Will he also repudiate the remarks of his predecessor, who said just before the election:The election of a Labour Government will turn the pensions market on its head. The traffic in transfers will be all one way—back into SERPS"?Do they still propose to discourage people from taking out personal pensions, while threatening to means-test state pensions? The House has a reason to seek answers to those questions and this is an excellent occasion for them to be given.
As hon. Members will be aware, today is the eve of the 50th anniversary of the Beveridge report. I believe that the 50 Bill is in keeping with the spirit of that report. Beveridge considered that the state should, in establishing a national minimum, provide room and encouragementfor voluntary action by each individual to provide more than that minimum for himself and his family.Our measures on personal pensions are designed to help to do just that. Our new grant maintains the national insurance fund on a sound basis and is more flexible than previous arrangements. I therefore commend the Bill to the House.
§ 5.7 pm
§ Mr. Donald Dewar (Glasgow, Garscadden)
I regret the Secretary of State's petulant opening. I can only assume that he is extremely defensive about the issue raised by my hon. Friend the Member for Dunfermline, East (Mr. Brown). If the Secretary of State is worried about bad manners in the House, perhaps he will read the opening of his speech tomorrow and reflect upon it.
I must comment briefly on the Secretary of State's repeated remarks on the means-testing of the state retirement pension. He knows that he is inventing, and that there is no justification for that charge. I wrote to the right hon. Gentleman on the matter, so he knows where I and the Labour party stand. Of course, we said that the commission on social justice would be open-minded and that it would be prepared to consider all the options. That is different from immediately assuming that one possibility, which is in his mind but no one else's, is about to become reality. It is scaremongering of the cheapest sort and the right hon. Gentleman—I use the words "right hon." because I realise that it is the proper means of approach—knows that.
§ Mr. Lilley
I shall read what the hon. Gentleman said in Hansard tomorrow and consider whether it meets the high standards that he has set for others.
I remind the hon. Gentleman that, in a debate at the Oxford Union, I made remarks similar to those in my speech today. I challenged him to repudiate the suggestion about means-tested pensions. I sat down and waited for him to do so, but he refused and let it stand. If he thinks that I have made a cheap suggestion, why did he not take the even cheaper option of saying then that he would not consider the means-testing of pensions?
§ Mr. Dewar
I have given the right hon. Gentleman that assurance. I am not interested in cheap options. I remember the debate at Oxford extremely well, which was held only a week after the Conservative party conference. Quite properly, I repeatedly asked for the statistical base for the right hon. Gentleman's charge about women who became pregnant to avoid the housing queue. If I remember rightly, the right hon. Gentleman refused to answer that question, and said that that was all sanctimonious rubbish. I must confess that I think that the rubbish came from him, and it does still. I regret that.
§ Mr. David Willetts (Havant)
I must remind the hon. Gentleman that the right hon. and learned Member for Monklands, East (Mr. Smith) referred to the fact that the Labour party commission struck the right balance between universal and selective benefits. In the light of that statement, how can the hon. Gentleman rule out the option of means-testing the pension?
§ Mr. Dewar
All that my right hon. and learned Friend said was that there would be an open-minded approach to 51 the evident problems of the current benefits system. How that claim to such an approach could then be translated into the type of charges made by the Secretary of State—except through malice—passes my imagination. The right hon. Gentleman is guilty of stirring of the lowest and stupidest kind, and I like to think that it will be counter-productive—[HON. MEMBERS: "Rule out means-testing, then."] I have already made it clear that we have no plans to means-test the state pension, and I shall not be shifted from the common sense expressed in previous remarks.
The Bill is significant because it raises a number of important matters about the future of the pensions system. I was interested in the proposal to reinstate tripartite funding of the national insurance fund. The Secretary of State will remember that, when the Government abolished it back in 1989, they did so with considerable pride. They were the Government who believed in good housekeeping; they were the Government who could balance the books. There was no need any longer for any sort of balancing payment from the Exchequer. Of course, that balanced budget approach is now a dream and a mirage.
I was interested by what the Secretary of State said when he referred to the economic cycle. One would have expected a confident Cabinet Minister, who believed what the Chancellor told him, to say that we needed the funding for the national insurance fund this year because of particular difficulties posed by the recession, but that, within three years, those difficulties would represent a bad patch in the past. The right hon. Gentleman was very careful—I can understand why—to say that a continuing subsidy would be required. He said that that subsidy might fluctuate and that at some future date it might not be necessary, but he was quite specific that it would be necessary for some years to come. The right hon. Gentleman's thinking provides an interesting insight into his confidence in the financial management of the Chancellor and the Government.
In 1993–94, the Exchequer grant will represent nearly 20 per cent. of the national insurance fund payments. That is a remarkable figure. In 1988–89, there was a surplus in the national insurance fund of about £3 billion, but in 1993–94 there will be a deficit of nearly £5 billion. That deficit will occur despite the fact that there has been a transfer of responsibility for industrial injury benefits and statutory sick pay and maternity pay, worth about £1.7 billion per year, to the Treasury. The deterioration in the fund has been sharp and significant, and the Government cannot escape the fact that that is a comment on the financial difficulties faced by the country.
I notice that the Government Actuary said in his report of December 1991—not the one that appeared last week, for which we are grateful—that the balance of the fund in 1992–93 would be estimated at 17 per cent. He said that that would be just above the minimum, and that it was obviously.a cause for some concern.
From the Government Actuary's most recent report—no doubt the Secretary of State is very familiar with it—the right hon. Gentleman will note that, in paragraph 24, the figure for 1992–93 is not 17 per cent., as estimated, but 10 per cent. It has fallen well below the recommended minimum. That fall reveals a sad tale; and it is awesome evidence of the way in which the recession has bitten.
52 We all know that unemployment is the ABC of the debate. If 100,000 people are added to the unemployment total, that costs the Department of Social Security about £330 million. If unemployment increases, contributions fall and benefit liabilities increase. I am interested to discover what will happen in the next three years. Perhaps the Minister who will reply to the debate can help us on that matter.
§ Mr. Dewar
The Under-Secretary assures me that she was merely nodding, but she sometimes has a somewhat aggressive manner. I am relieved to have that assurance.
The Under-Secretary will be aware that the Government Actuary, when making forward projections, works on a number of assumptions. They are not assumptions that he picks, because the House will be familiar with paragraph 10 of his report, in which he said:The assumptions I have been instructed to use for the purpose of the above estimates were set out in the following terms … the number of unemployed (Great Britain) averages 2.74 million in 1992–93 and 2.8 million in 1993–94 … the increase in average earnings on a year earlier is … 5 per cent. in 1993–94.Those assumptions are interesting, because it is on that basis that the Government Actuary calculates the balance in the fund, as expressed as a percentage of the pay-out of the national insurance fund in a given year.
We are on common ground, however, because if he is wrong about the unemployment projections, his figures may be in trouble. If he is also wrong about his assumptions on earnings, his figures may be blown out of the water. Perhaps the Under-Secretary can tell us whether the DSS, which has an interest in this matter, expects unemployment in Great Britain to average at 2.8 million people in 1993–94. If she and her Secretary of State do, they are the only people in this country who now expect unemployment to remain at about 2.8 million people.
I do not believe that the Chancellor imagines that that will happen, because, although the autumn statement was noted for the right hon. Gentleman's bullish presentation, if anyone in the House or outside had bothered to read the actual figures, he would see that the Chancellor is suggesting that growth will be 1 per cent. in the coming financial year, or 0.75 per cent. if one excludes activity in the North sea. Certainly, if growth is as low as that, unemployment will rise markedly. I notice that the Society of Business Economists, which was reported extensively on the front page of the Financial Times recently, has suggested that the growth rate may be only half of even the modest figure predicted by the Treasury.
Even if the Chancellor is right—I suppose, by the laws of average and the laws of chance, he is likely to be right sometimes—unemployment will rise. In today's edition of The Guardian—I use it because it provides the latest estimate available to me—the Employment Policy Institute has suggested that, by April 1994, the seasonally adjusted unemployment figure will stand at 3.32 million. If we take the figures in the Government Actuary's report, which suggest that an extra 100,000 people will be in the 53 unemployment queue in 1993–94, that contributory income will be £150 million lower and that expenditure for benefits will increase by £100 million, and apply that to the estimate made by the Employment Policy Institute—having removed Northern Ireland from that estimate—the result is a £450 million-plus drop in expected income to the fund, and an increase in expenditure of £300 million.
I paint that picture because I want the Under-Secretary to give me an assurance—I am sure that she will be glad to do it—that she takes those projections seriously. Mr. Daykin, the Government Actuary, is already estimating that, in 1993–94, there will have to be a £7.5 billion subvention to the fund—the Secretary of State has already mentioned that. He reckons that the Exchequer subvention will be 19.6 per cent. of benefit expenditure. He must keep within 20 per cent. under the Bill, so there is little room to play with between 19.6 per cent. and 20 per cent.
The Under-Secretary argues for considerably less than a 5 per cent. increase in earnings—that is the whole point of the Government's policy—which will also have an adverse effect on the figures and calculation. Given the likely course of events relating to unemployment arid pay, is she saying that she can hold to that 19.6 per cent. and, if not, what will happen?
The Secretary of State showed a remarkable interest in whether we would vote against the Bill. One of the reasons why we shall not vote against it is that we do not dispute the necessity for a Treasury payment to the national insurance fund. It would be silly if we did, because a substantial gap would then have to be met by cutting benefits, which would be unacceptable to us, or raising national insurance contributions.
Given the sad state of the economy and the depth of the recession, as my hon. Friend the Member for Dunfermline, East has made clear, we could not advocate such a course. Clearly, there must be a subvention, but let us leave room for doubt: it is a defeat for the Government and a monument to the failure of their economic policies in the past two or three years.
I am not sure whether I appreciate the full significance of clause 1(3), which is composed somewhat obscurely. I make no complaint, because it is highly technical, but it deals with the reimbursement from the national insurance fund to the Treasury of the small sum of some £6 million—small compared to the right hon. Gentleman's total budget. I am not clear why that is necessary. The Under-Secretary will no doubt make it clear when she sums up the debate.
I tried to take advice on the matter, and found that the detail has passed many people by. Perhaps unauthorised payments that should have been made over a period were not made, and this is therefore a wiping-the-slate-clean exercise because someone has nodded or slept. The Secretary of State will say that such things never happen in a well-run Department and certainly did not happen in his, but we should have an explanation. We may be able to return to the matter later in the proceedings.
The main part of the Bill deals with the incentive and the new 1 per cent. provision. In 1988, a 2 per cent. incentive over and above the contracting-out payment was introduced in an attempt—the Secretary of State makes no bones about it—to encourage people to leave SERF'S and take up personal pensions. The Government are in a good position to discuss prejudice and rigid political views, 54 because, from the very beginning, the Secretary of State's intention has been to sink SERPS, and ultimately to see it off the map altogether.
The contracting-out mechanism is familiar to all hon. Members. National Insurance contributions were reduced this year by 5.8 per cent. and will be reduced by 4.8 per cent. in 1993–94, which is 3 per cent. for the employer and 1.8 per cent. for the employee. The money is then gathered and that percentage is paid to the pension provider. In addition, we get the 2 per cent. incentive to personal pensions and to contract-out money purchase schemes in the occupational sector.
Anyone who has looked even superficially at the matter will recognise that it has been an expensive exercise. According to the National Audit Office, at April 1988 prices cumulatively until the end of 1993—the end of the 2 per cent. period—the cost is some £9.3 billion. That is probably an underestimate. In cash terms, it would clearly be considerably higher—I am advised, more than £12 billion.
The theory is that, when people contract out, SERPS will not need to be paid some 20 or 30 years later. However, the best estimate, endorsed by the National Audit Office, is that savings will be about £3.4 billion, so there is a gap of about £6 billion. It is an expensvie way to encourage private pensions.
It may be worth reminding people who sometimes complain about the amount of money that goes on benefits of other kinds, such as those for people who are in trouble, suffering from illness, unemployment or disability, that there is another form of benefit, of which this is one example, and mortgage interest relief at source—MIRAS—is another. One would not necessarily oppose those, but they should at least be taken into the balance when considering how we run our affairs.
Ultimately, whatever the savings—far short of the cost—in a pay-as-you-go scheme, which we now run in the public sector, revenue forgone is a considerable burden.
§ Mr. Willetts
Having studied the National Audit Office report on the cost of the incentive for people to contract out from SERPS, the hon. Gentleman will recognise that the savings figure of £3.4 billion—which, as he rightly points out, is considerably below the cost of the rebating incentive—is so small only because it assumes that everyone who takes out a personal pension will go back into SERPS in 1993. Does he not recognise that that is an absurd basis on which to cost the incentive for people to take out personal pensions?
§ Mr. Dewar
I appreciate that argument. I shall come, in a different context, to the question when, how and whether people should be encouraged to return to SERPS—the hon. Gentleman raises an issue of real significance. But even if he would wish to quarrel with the National Audit Office, he will agree that the overwhelming professional view is that there is a significant gap. I repeat my last point: that the gap is extremely substantial in terms of revenue forgone and the immediate problems of managing the national insurance fund.
In any event, the hon. Gentleman will recognise that we now have a different situation—an incentive of 1 per cent. for people over 30. I should not complain, because it is in the area of propaganda, but the issue was oddly presented in the Tory party manifesto as a major improvement. It was given star billing; but if one read the print carefully, 55 one noticed a coy qualification at the end about the 1 per cent. when existing incentives end. However, most people will have seen it as an important advance for those interested in the private pensions sector.
Will the Under-Secretary say a word or two about whether we are to have another review on that matter? It is important, because it concerns age-related principles applied to the contracting-out sector, which is a matter of acute interest to many people. She will remember that the 2 per cent. was available not only to personal pension funds but also to COMP schemes in the occupational pensions sector. The 1 per cent. scheme is available only for the private personal plan and not for COMP schemes, which are excluded.
That has been a matter of concern to the occupational pension scheme's joint working group, which has been in correspondence with the Secretary of State. I carefully read the bits of that correspondence available to me, and I must confess that I was none the wiser about why that change had been made—[Interruption.] No, I am not even better informed. I recognise that the Secretary of State sees himself as a latter day F. E. Smith, and I shall look out for F. E. Smith jokes later in our exchanges.
I was neither better informed nor wiser, because no obvious or adequate explanation was offered. Perhaps the Secretary of State does not like occupational pension schemes either. I understand the ideological drive to downgrade SERPS, and I think that in a sense it is motivated by malice, but I do not understand why that approach is being extended to occupational pensions—which is clearly happening, given the decision to exclude COMP schemes. There is great anxiety about that among professional bodies.
There must be clarification of the age-related principle. The Leader of the House, when he was Secretary of State for Social Security, said:We intend to examine the scope for the age-related rebates".—[Official Report, 27 February 1992; Vol. 204, c. 1132.]I do not know how much further we have gone down that road, but perhaps the Under-Secretary of State can tell us. She will have seen the front-page story in the Financial Times of 25 November under the byline of Norma Cohen:The Government has announced plans to encourage personal pension holders to stay out of the state pension plan.That is an extremely interesting sentence. I understand that that report is not accurate, and I accept that there has not been a formal announcement. However, given the speculation and the fact that the Government are examining the age-related principle, perhaps the Minister will tell us when there will be a decision. If the Government have plans in that direction, how will the scheme operate?
Am I safe in assuming—it is probably dangerous to assume anything with this Government and this Department—that, within a contracting-out percentage, which has been fixed by the Government Actuary on the current balance of calculation, the distribution to the pension providers would be weighted according to the age of the person in whose name the pension has been taken out? Is it the intention that there should be an increase in the contracting-out percentage or will it remain the same if there is a move towards an age-related scheme?
56 That is probably a misleading term, because the percentage will fall as the scheme matures. Will that be allowed to continue, or will the process be distorted to help with the scheme's introduction? The principle is worth exploring.
My questions are detailed, but I am sure that the Minister will accept that they are important and it would be helpful if he were to answer them. The incentive as presently drawn favours the young. There is cash in the scheme for many years. It has not been anything like as advantageous for those over 40, and I suspect that the 1 per cent. has been dragged out of the Treasury simply to stop people following the self-evident good advice to opt back into SERPS. We need to know more about the Government's intentions.
§ Mr. Corbyn
Is my hon. Friend concerned about the security and viability of any of the personal portable pension schemes? Examinations in the Select Committee of the viability of pension schemes, as opposed to portable pension schemes, showed grounds for concern about their viability to pay out in the long run. Is my hon. Friend concerned about portable schemes? I should have liked to put those questions to the Minister.
§ Mr. Dewar
I should not like anyone to think that I was talking to the Secretary of State. I understand my hon. Friend's frustration. He raises a key issue, which I shall deal with later.
Pensions have been in the news recently, often for the wrong reasons. On Second Reading, I cannot go into detail about occupational pensions. We all await the Goode committee report, and I am sure that the Secretary of State recognises the enormous pressure to move speedily when those recommendations are available.
There is a strong case for saying that pensions are a form of deferred pay, and that there must be a substantial shift in the balance of power among trustees of occupational pension funds. There must be control of surpluses and contribution holidays. As I understand the law, there must be provision for limited price indexing before surpluses can be raided, but contribution holidays do not have even that protection. That underlines the need for early action.
At Question Time, the Under-Secretary of State, the hon. Member for Maidstone (Miss Widdecombe), spoke about the common investment fund and an unallocated £123 million. I hope that she does not think I am being difficult when I say that earnest hopes that the matter will soon be resolved are cold comfort for Maxwell pensioners who are living with anxiety. The Government could play a more forward part in trying to push through a satisfactory ending to this financial labyrinth.
As far as they go, I welcome the Under-Secretary's assurances about deferred pensions, and hope that they implied that the temporary fund set up to allow the continuing payment of pensions while the investigation and gathering of funds continued will be extended for as long as is necessary. I understand from those who are involved with the Maxwell pensioners that they fear that the fund will be exhausted in the spring. The hon. Lady clearly implied that it would be extended if necessary, but perhaps she will put the matter beyond doubt.
I shall now deal with the balance between SERPS and private pension provision. We must not underestimate what SERPS has achieved. It has been responsible for a 57 significant growth in pensioners' incomes. Paragraph 17 of the Government Actuary's report shows that SERPS added about £300 million to benefit expenditure this year compared with last. We should all welcome that, because many of the people who benefit are in low-paid jobs and, for a variety of reasons, would be unable to make private provision and unlikely to be working in an industry with a good occupational scheme. SERPS is a remarkable social measure, and I am sorry that Ministers constantly understate its achievements.
The debate is dominated by the fact that, despite the raid in 1986 when SERPS was damaged by the decision to downgrade the percentage from 25 to 20 and to apply not just the best 20 years' earnings but lifetime earnings, for almost everyone over 30, SERPS is still the best buy. I suspect that the 1 per cent. incentive is an attempt to hide that fact.
§ Mr. David Shaw (Dover)
The hon. Gentleman spoke about surpluses. No doubt he shares the general concern among hon. Members about the way in which surpluses are used. However, how can he reconcile saying that employers cannot utilise surpluses with the problem of what would happen with deficits? If employers have surpluses removed from their control, should they also lose responsibility for deficits? Who would he responsible for deficits in pension funds?
§ Mr. Dewar
I accept that a balance must be found. Not long ago, the hon. Gentleman and I shared a platform on related matters. We were on the same side on that occasion. I hope that, in the technical debate on the Goode report, we shall continue to argue a common cause, even if that separates the hon. Gentleman from some of his right hon. and hon. Friends.
Whatever his view, there is a clear case for getting away from the present system under which contributions holidays can be declared for an employer at his instance and surpluses used, not necessarily for dishonest purposes but certainly in ways which had little to do with the interests of those who at that time or in the future would depend on the pension fund. That must be put right, and that is why the balance of control must be radically altered.
At the moment, there is a good deal of evidence and financial opinion showing that it is sensible to stay in SERPS and not to opt out, despite the 1 per cent. incentive. Hon. Members may have seen an article in The Guardian by Teresa Hunter on 28 November, headed:Beware opting out of state pension scheme".In an interesting article in the Financial Times in July 1992, Mr. Barry Riley pointed out the dangers of assuming that personal pension plans would continue in the 1990s with the same high returns that were achieved during the 1980s. He concluded by saying:Most people who are in good occupational schemes or in Serps should stay there.The danger is that they may be tempted by the blandishment of the I per cent. to act in a way that is not in their best interests. I know that the Secretary of State is always happy to have information, so I shall help him by saying that the only criterion is how we produce the best practical pension system that secures a comprehensive provision that has previously been available only to those who are better off. I believe—this relates to the point made by my hon. Friend 58 the Member for Islington, North (Mr. Corbyn)—that safeguards and standards are the responsibility of Government and are important in that respect.
Independent advice and adequate regulation are also important, and I am glad to hear that there are positive proposals before the Office of Fair Trading. We shall look at them in an open-minded way. I am sorry, Madam Deputy Speaker, I should not have used the phrase "open-minded", because it is viewed with great suspicion. I presume that my use of it will convince the Secretary of State that I shall oppose those proposals. However, I assure him that by "open-minded", I mean what I say; we shall view them on their merits.
§ Mr. Lilley
I assume that, for the first time, "open-minded" means that the Opposition are in favour of competition. That is a great step forward, which we welcome unreservedly.
§ Mr. Dewar
That is a clever point—I use the word "clever" in a pejorative way. The Secretary of State is fond of clever points. We shall see what we shall see when the proposals appear. There must be more effective regulation, if only because while professional ethics are a fine and important thing, if one lives on commission, it is undoubedly sometimes difficult to give advice that one knows is against one's own best interest. Many people do so, but there are cases in which it does not happen and an enforceable code of practice and an explicit statement of the commission that is being charged are important safeguards.
I notice—again because it is so current—that, on "Your Money" page of the The Independent on Sunday of 29 November, there was a feature under the byline of Maria Scott. The paper asked three companies to quote transfer values three years from now on their standard personal pensions contracts. They assumed that the policy was taken out by a 29-year-old man, paying £50 a month and planning to retire at the age of 65. The quotes assumed an investment growth of 10.75 per cent.—rather generous.
All the policies were on the same terms, and the total premiums paid over three years would, in each case, be £1,800. Allied Dunbar quoted a value of £1,140, Norwich Union quoted £1,490 and Friends Provident £1,270. I use this as an example of the remarkably different end product from the same amount paid, and apparently on the same terms and conditions. That rather underlines the need for safeguards. Competition is a useful economic tool in many circumstances, but, as the Secretary of State must realise, there are cases in which it is necessary to have safeguards.
I have taken my due time, but I should not finish without mentioning a couple of points to which we shall return in Committee. We have another day to look at these matters. A guaranteed minimum pension is demanded in certain parts of the occupational sector. There must also be a guarantee of the SERPS equivalent in the COMP schemes—the contracted-out money purchase schemes. We should be considering whether that should be extended into the private sector.
I know that it will run into considerable difficulty with the pension providers, but there are a number of ways to achieve it—for example, by target benefits or by recognising that, if there is high inflation, a ceiling must be imposed on the revaluation of the guaranteed minimum 59 pension. There is a strong case for looking at those matters, and I hope that we shall find ways, perhaps ingenious ways, of doing so during the progress of the Bill.
We said that we would give the Bill a fair passage. I recognise that there are time constraints if the new scheme is to get into place, and we are prepared to co-operate. There is no great room for positive amendment in a spare technical measure. I give the Secretary of State fair warning—I am sure that he will accept it—that there will be a major debate over many months about every sector of the pension world. We intend to pursue the issues that matter, whether in the occupational pension, the private pension or state pension sectors, because there is demonstratably a great deal to be done if there is to be security and peace of mind for those at work and those who have reached retirement age.
§ Mr. Charles Hendry (High Peak)
I listened with interest to the hon. Member for Glasgow, Garscadden (Mr. Dewar). It was the first occasion in my brief time in the House that I have seen an Opposition Front-Bench spokesman empty half the Opposition Benches. There were only four Labour Members here at the beginning to hear him, and now there are only two, so that puts his speech in context.
I welcome the transfer from the Treasury into the national insurance fund. A few years ago, many of us welcomed the abolition of the transfer from the Treasury into the national insurance fund, but we now recognise that we are operating in different circumstances. I see two advantages in the transfer. First, it is a fluctuating grant—this year 20 per cent. is the maximum and, after that, it will be pegged to 17 per cent., so there will not be the overpayments and surpluses that have congregated in the past. Secondly, and most importantly, it avoids, at this time of recession, putting additional pressure on employers and employees when they are least able to afford it.
Conservative Members are most able to appreciate that point because we are aware of the commitment made by the two major Opposition parties during the general election campaign that they would be raising national insurance contributions. It is not now clear where the Labour party stands on this issue. Shortly after the election, the right hon. and learned Member for Monklands, East (Mr. Smith) said:I am prepared to defend … the principle … that National Insurance should be taken from everyone on the same basis.He seemed, not unreasonably, to be defending the platform on which the Labour party had fought the election. However, within six months, the hon. Member for Dunfermline, East (Mr. Brown) was saying:The situation has so deteriorated … that we are not prepared to raise NIC or income tax at this stage.Perhaps the Labour party would do the House the honour of telling us where it now stands. Does it believe that national insurance contributions should be raised to help us out of recession—Conservative Members would consider that to be barking mad—or would it raise national insurance contributions only when we have come out of the recession, thereby penalising people for dedication, hard work and eventual success?
60 I agree with the three objectives that lie behind the Bill. First, we must support those who have been hit most by the recession. Secondly, we should be targeting additional support on those most in need. Thirdly, we should be keeping our election pledges, and the pledges made before the election, to the elderly, the families and others most in need.
In common with my colleagues, I shall never forget the faces of Labour Members during the autumn statement and the uprating statement. They had been sitting there, willing the announcement of cuts. There was ever-greater dismay on their faces and an ever-growing sense of frustration when those cuts did not materialise and they gradually realised that the scare stories that they had used so brutally to worry the elderly, the sick, the disabled and others were being put into a well-deserved political grave.
§ Mr. Corbyn
Before the hon. Gentleman completes his litany of alleged misdemeanours by Opposition Members, can he confirm that, since the Conservative Government came to power in 1979, all pensioners have been robbed of £15 per week by the break of the link with earnings that was made in 1980, and the substitution, instead, of the link with the retail prices index?
§ Mr. Hendry
Of course, that is the greatest fraud of all perpetrated by the Labour party. The reason why the Labour Government increased pensions in line not with the retail prices index but with incomes was that prices were increasing faster than incomes. Therefore, the Labour Government were cheating pensioners when they were in office.
§ Mr. Patrick Nicholls (Teignbridge)
Does my hon. Friend recall that the former Secretary of State for Social Security, Lord Ennals, when asked why his Government had passed legislation and then promptly broken it, said that it is the Government's responsibility to take such matters into consideration, but it is not their responsibility to get it right.
§ Mr. Hendry
My hon. Friend has reminded the House of an important contribution—one which the Labour party would do well to remember.
§ Mr. Hendry
I shall not give way—the hon. Member for Islington, North (Mr. Corbyn) tried to make his point, but failed, as did many of the Labour Government's policies.
§ Mr. Corbyn
On a point of order, Madam Deputy Speaker. The hon. Gentleman referred to the policies of the last Labour Government. He was incorrect; the Social Security Pensions Act 1975 arranged that pensions should be increased each year in line with either the increase in earnings or the retail prices index.
§ Madam Deputy Speaker
The accuracy of observations made in debates are not a matter for the Chair—thank goodness!
§ Mr. Hendry
When we hear such scare stories it is hard to realise the sheer magnitude of the social security budget. Next year the social security budget will go through the £80 billion barrier, the £83 billion barrier the year after and the £87 billion barrier the year after that. When I was a special adviser in the Department of Social Security, £1 billion a week was spent on benefits. We now spend £1.5 billion a week on the most needy in our society. That is the 61 clearest possible demonstration of the Government's determination to look after those who are in need. We are right to increase all those benefits, which should be uprated in line with inflation by the retail prices index figure of 3.6 per cent.
In recession it is only right that those in work should make some sacrifices for those who are not in work. Those who have lost their jobs, often through no fault of their own, those who are unable to work and those who are retired need to be protected during the hard times. It is only reasonable that those of us who at least have a secure income and some job security should make our contribution towards that protection.
I recognise that life is not easy for many of those who are employed, but in difficult times we must recognise our responsibilities. In that context, I still cannot believe that more than 100 Labour Members trooped into the Division Lobby last week, suggesting that, with incomes of £31,000, they constituted a special case and were in special need.
I remember a Labour party conference about 10 years ago. I was not at the conference, but I well remember its coverage. At that conference one of the trade union leaders, Clive Jenkins, made a speech.
§ Mr. Hendry
It is relevant to the debate and the attitude that the Labour party has taken. If the hon. Member for Birkenhead (Mr. Field) had been present a few minutes ago, he would have heard me talking about the importance, under the Bill, of people who are in work making their sacrifice for those who are out of work. It relates directly to the transfer of money into the national insurance fund from the Treasury. Had the hon. Gentleman been present at the outset, he would have understood that.
During his speech at the Labour party conference 10 years ago, Clive Jenkins referred to people in the union movement having their snouts in the trough. Ten years later, it seems that the snouts of Opposition Members are snorting around after truffles as eagerly as they were all those years ago. I hope that that is a lesson that the people outside will take to heart.
§ Mr. Hendry
If the hon. Member for Islington, North would like me to forward his curriculum vitae to any companies, I shall gladly pass it on so that they will be aware of his credentials.
§ Mr. Corbyn
I shall not forward my curriculum vitae to the hon. Gentleman. I am not looking for alternative employment; neither do I think that any other hon. Members should do so. Being a Member of Parliament should be a full-time job and hon. Members should not receive private income from any other source—unlike the vast majority of Conservative Members.
§ Mr. Hendry
I have not given way; I am still on my feet.
The Bill and the Treasury transfer mean that we can do much more to help those who have been hit by the recession. It means that we can focus more help on those 62 who are in need. We can target an extra £300 million to the least well-off pensioners, as was done recently. The measure accurately reflects and recognises the difficulties that many older pensioners face. Although nine out of 10 pensioners have income from savings, occupational pensions or personal pensions, that is not the case for all of them. Indeed, 78 per cent. of recently retired pensioners have income from savings; 69 per cent. have income from occupational pensions; and 71 per cent. of current employees have occupational pensions or personal pensions.
We need to target help—the Government have rightly done so—at older pensioners who never had the opportunity to build up resources while they were in employment. Perhaps occupational pensions did not exist when they were in employment, or savings were eroded during the probationary period. That makes it so much harder to understand why some political parties have a continual hatred of personal pensions, which make such a vital contribution to the living standards of so many older people. When the Government cut interest rates, which obviously helps the economy, the Opposition say that that is never enough. Perhaps Opposition Members will also spare a thought for pensioners who say that their savings, and the income from savings, are important contributions to their living standards. Although we want interest rates to be lowered, it is important to recognise the income that people derive from savings.
Through the Bill we will be able to give another boost of £700 million to people who live on income support, when the council tax comes into play next year. Those who currently pay 20 per cent. of their poll tax will not pay any contribution to the council tax. It would have been possible to claw back from them the money that they had been given to pay the poll tax. I welcome the fact that the Government have chosen not to do that but have allowed people to keep the income so that they could have a better standard of living.
Contrary to the scare stories that we have heard so often in the Chamber and outside, the Government have a uniquely impressive record on social security. Pensioners' incomes, which went up by a measly 3 per cent. in the five years of the last Labour Government, have increased by a third—34 per cent. Over the past 13 years social security spending on families, which fell by 8 per cent. under the Labour Government, has increased by 65 per cent. under this Government. Spending on the long-term sick and disabled has gone up by 173 per cent. in real terms or an extra £14 billion.
In this Bill and through our other work in social security, we are giving people more control over their lives and the opportunity to take responsibility for their lives and the issues which affect them most. I believe that 13 years ago we started by setting free those people who were itching for an opportunity. We simply lifted off the lid and people went out and took advantage of that. It was not a small proportion of the population. For a small incentive such as that given on personal pensions and share incentives, a more important group was also willing to take the step and become part of the opportunity society.
That leaves a large number of people who have never taken a risk in their lives because they are frightened of taking such risks. I refer to people who cling, understandably, to the benefits that they receive. It has been suggested that, if the tree of benefits is shaken, people will fall off like ripe apples. However, they will not fall off 63 trees like ripe apples—the benefit system is the only thing which those people know, and they cling more tightly to the tree to preserve their security.
We are trying to lead people gradually to a position in which they have more confidence and in which they find it easier to make their own decisions. I welcome the Bill as an important contribution to that process.
§ 6 pm
§ Mr. Malcolm Wicks (Croydon, North-West)
An important part of the Bill relates to the national insurance fund, about which I shall speak exclusively. To bring in again an Exchequer contribution to the fund must raise questions about the future of national insurance, and the importance of national insurance remains. According to the public expenditure White Paper, contributory benefits account for about half of total expenditure on social security. By 1993–94, it is estimated that £40 billion will be spent through the national insurance fund. It is clear that national insurance is still a major part of our national insurance system.
The Secretary of State mentioned the historical occasion tomorrow of the 50th anniversary of the Beveridge plan. It is worth reminding the House of what William Beveridge had to say about national insurance and the contributory principle. When explaining these matters in his plan, he asserted that a key view was that benefits should be gained in return for contributions rather than as free allowances from the state. He took the view that that is what the people of Britain desired. Towards the end of my remarks, I shall raise questions about the future of national insurance and whether—I am open-minded about this—it has a future in Britain as we approach the year 2000.
We can all agree, I think, that since the time of Beveridge there have been major social and employment changes. These have made Britain in 1992, 50 years on, a very different country from the one of 1942 when the great plan was first published. The Secretary of State said that his proposals were in the spirit of the Beveridge plan, and I welcome that. I recall—I was not present at the time—that the then Prime Minister, Winston Churchill, was rather more cagey and hesitant before accepting the plan.
Things have changed, and we must ask ourselves whether national insurance today is relevant and matches the needs and changes that we have seen. For example, Beveridge assumed a world in which, despite the different circumstances and experiences of war time, a woman's place was in the home and a man's income was a bread-winning wage. He concluded that social security should be built around those assumptions.
I suppose that he would have looked back to the census of 1931, social statistician that he was, and noted that, in those days, only 10 per cent. of married women were in employment. In 1961, the percentage had increased threefold to 30 per cent. In 1991, it was 59 per cent. Against that background, we must ask ourselves whether the fund, which we seek to reform, is relevant to the changing needs of our world, and especially to the needs of those who are in part-time work.
Many married women with children work part-time. In fact, they are engaged in full-time work—part-time at home and part-time at the workplace. They pay national 64 insurance contributions, but what are they paying for? Will they receive decent benefits in future? How do our proposals take account of the major social insecurity problem of the strong association between women and poverty? Many of our poor people are women, and the national insurance debate is relevant to that.
Since the time of the Beveridge plan, we have seen develop—he considered this in part, but he could not make a full estimate for the future—a rapid increase in family breakdown. We have witnessed the rise of the one-parent family, and with it a growth in poverty that has been caused by the accompanying social circumstances. This is important.
It was 50 years ago that Beveridge toyed with the idea that marital breakdown, because of its association with poverty, might be an insurable risk. For reasons that perhaps we can understand, he shied away from making marital breakdown such a risk in his social insurance plan. Perhaps he was wrong to do so, and hon. Members may have views about that.
Today, 37 per cent. of recent marriages are at risk of divorce. There has been a rapid increase in the number of children living in one-parent families. We know that all too often—in about seven out of 10 cases—those one-parent families depend on social security in the form of non-contributory income support benefits, not on contributory benefits.
Another major change has been the aging of our population. Beveridge considered the pension implications of aging and welcomed the idea of a national health service for the future, but if we were thinking now about a modern national insurance fund and the risks that we might wish to insure against, we would consider care in old age as well as income.
More and more of us, despite experiences in the House, may live to a ripe old age; we may continue into our 80s and 90s. Many of us will become frail and in need of care. We shall not need full medical treatment and the full technology of a modern hospital, but we shall need to be looked after because of frailty, which means care in the community.
The answers are manifold, and perhaps they lie with other parts of the social security budget and not with national insurance. If Beveridge was producing his plan today and the Secretary of State was responding to it, Beveridge might say that one of the insurable risks in a modern society should be the need for care. That should be on our agenda as we reflect on the national insurance fund while considering the Bill.
We must carefully consider the national insurance fund in the context of the Bill and employment assumptions. Underlining the Beveridge plan was the clear assumption of full employment. Undermining social security now is the reality, not the assumption, of unemployment.
We are discussing the Bill in part because economic recession and rising unemployment are putting pressures on the national insurance fund, and these call for the reinstatement of an Exchequer contribution. That, in part, is what the Bill is all about. It is fair, therefore, to ask Ministers to set out their employment or unemployment assumptions. If they are saying that about a 20 per cent. contribution is more or less right, what are their estimates of unemployment in the financial year 1993–94 and in the years beyond that?
Actuarily speaking, what assumptions are being made about unemployment? I do not understand how the 65 House, on Second Reading or in Committee, can consider the adequacy of the percentage proposal without being given some insight into the Government's projections on unemployment.
More importantly in the longer term, we must know whether we are in a society in which we accept unemployment as a phenomenon to which our social security system adjusts. If so, is the fund adequate to meet that task, or do we as a society still have a goal of full employment? What is the Government's view? Is it that we must return to an attack on mass unemployment?
I note the Secretary of State's remarks on what is so nearly the golden anniversary of the Beveridge plan. He claimed that the proposals in the Bill are in the spirit of Beveridge, and I welcome that, but I am slightly sceptical. Beveridge waxed lyrical about social security, in a language which we seldom capture today in the technicalities and jargon of social security benefits. He talked about five giant evils that we needed to attack in the post-war period-want, disease, ignorance, squalor and idleness. The last evil, idleness, is a rather old-fashioned term now, but not a bad one. Beveridge meant unemployment.
William Beveridge said that idleness was the largest and fiercest of the five giant evils, and the most important to attack. He added, in words that are more relevant:in 1992 than in 1942, that unless we attack the giant of idleness, all our aims of post-war reconstruction will be out of reach.
I ask the Under-Secretary of State whether she agrees that idleness is the largest and fiercest of the giants. If she does, how will the Government attack it? What are the implications for social security, the Bill, employment training and many other things? We must know about the Government's unemployment—or, I hope, employment—assumptions before we can fully master the Bill and debate it adequately.
Sadly, national insurance—if we use the term properly—does not work for many families and others in society. It is right that on this historic occasion we should remember that Beveridge was clear that there was a role for income support—it was called public assistance in his day. However, he envisaged it as only a minority role. He thought that, with full employment and national insurance at a decent level, only relatively few people would, from time to time, need public assistance. He said in his report:The proposals in this Report … will make the permanent scope of assistance much less than that of public assistance and of the Assistance Board at present.He said "much less"—not the same, and certainly not more. What is the reality today?
The hon. Gentleman accurately reports Beveridge's observations, but he must accept that Beveridge's claim that the level of national assistance would reduce in significance was not supported by the figures and analyses in his report. There was nothing in it to show how contributory benefits would be of greater value than national assistance. Beveridge's assertion was not supported by his calculations.
§ Mr. Wicks
Others read the Sunday newspapers; the hon. Gentleman and I obviously spent the weekend re-reading the Beveridge report.
I take his point, but if we think about Beveridge's ambitions rather than simply the details in his report, we see that he envisaged means-tested benefits playing only a minor role. He was anxious to promote jobs and national 66 insurance. The detailed arithmetic in the report was done in the midst of war in 1942, when the Nazi threat was ever present—more difficult circumstances than we face today—so immediate implementation of his social security plan might not have been possible.
In 1948, shortly after the war and when the legislation was beginning to take effect, only one in 33 people were dependent on means-tested public assistance. In 1990, the figure was one in eight. Whatever else has happened to the Beveridge plan and to the social security system, we have not attacked means-testing and dependence on public assistance. More of our citizens, including too many of our children, depend on means-tested income support than was the case during the period of the Beveridge plan.
I am reminded of what Gandhi said when he first visited this country many years ago. He was in his native costume, surrounded by Fleet street's finest, when he was asked by a reporter from one of what we would now call the tabloids, "Mr. Gandhi, this is your first visit to England—what did you think of English civilisation?" Mr. Gandhi replied, "I think it would be a good idea." Perhaps today we should say that the Beveridge plan would be a good idea—especially if we think of the term "social security" as something with a real meaning rather than a technicality.
I want to discuss the insurance principle because, in part, we are today discussing the national insurance fund. I hope that, at some stage, hon. Members on both sides of the House will more fundamentally debate the fund and its future. I am open-minded on the matter and I have no hidden agenda. Indeed, I have not made up my mind on this important matter. Should we consider abandoning national insurance and the idea of contributions and benefits, or should we consider revitalising the national insurance system?
The last test of public opinion on that matter was during the 1985 social security reviews. Perhaps hon. Members will correct me if there has been a more recent test. During those reviews, people were asked what they thought about national insurance contributions, which were then a matter of political controversy. Some 35 per cent. said that they thought that they were just like income tax. However, 52 per cent. thought that they were very different—that they were contributions, in return for which people received pensions and other benefits.
I wonder what public opinion would be today. Public attitudes to how we contribute to the Exchequer—whether through income tax, VAT, council tax or national insurance—are important to the acceptability of taxation.
We need to re-evaluate the national insurance concept and to consider key questions. We need to examine the current nature of social insecurity in the Britain of 1992 and up to the year 2000 and compare it with the past. Like Beveridge, we must question the risks that people face during their life cycles.
I have mentioned the new challenge of the care of the elderly. We must compare the new risks with those of the past. We must question which risks should be insurable and how that can be achieved. There may be a difference of opinion on the role of the public and private sectors and on the right mix. On the other hand, we must also question which risks should be covered by non-contributory benefits.
There might be a need for a reinvigorated social insurance system, although I am not absolutely sure about that. However, such a proposal would not come to the House through a technical Bill on a quiet Monday 67 afternoon. If that were to be the way of the future, it would be the subject of a new Beveridge-type plan, which would arouse the public excitement and public debate which, although it may seem surprising today, met the original Beveridge plan.
We are 50 years on from Beveridge, and it is a golden anniversary—and "golden" is an appropriate word for that historical figure. I believe that there is a real opportunity for the House to debate a new Beveridge-style plan.
§ Mr. David Willetts (Havant)
Thank you for calling me to speak in the debate, Mr. Deputy Speaker, which is especially apposite as it takes place on the eve of the 50th anniversary of the Beveridge report. I congratulate whichever powers in Mr. Speaker's Office or the usual channels managed to arrange for the debate to take place at such an apposite time—[Laughter.] Labour Members have a surprisingly cynical view of the workings of the House.
The origins of both features of the Bill—the national insurance fund top-up from the Treasury and the opting-out procedures for personal pensions—can be traced back to the Beveridge report. It is not often understood, although I am sure that the hon. Member for Croydon, North-West (Mr. Wicks) understands, that William Beveridge took the insurance principle seriously. Indeed, he took it so seriously that his original proposal was for benefits at a fixed rate—there was no additional second pension in his scheme—and contributions at a fixed amount. Indeed, at one point in his report he refers to the contributions as being by way of a poll tax. In all the arguments about poll tax during the last few years, it is surprising that no one pointed out that most of our social security budget from the late 1940s to 1961 was financed by precisely such a tax.
The structure of a fixed sum contribution—analogous with paying fire insurance, for example—and fixed benefits severely constrained how much could be raised. It was manifest that as national insurance contributions were to be a fixed amount, there would be considerable constraints upon what people were prepared to pay. That led to two crucial features of the social security system introduced after the Beveridge report. Beveridge himself acknowledged—though his figures were even more dramatic than his prose—that a hefty Treasury contribution would always be necessary to finance insurance benefits. On Beveridge's figures, by 1965 about 50 per cent. of all expenditure on national insurance benefits was to come from the Treasury. That so-called tripartite system was in fact heavily slanted towards the taxpayer, with employer and employee contributions between them being much more modest.
§ Mr. Frank Field
Was not the figure 67 per cent.—I do not have the table, but I am sure that the hon. Gentleman will find it if I intervene long enough—and did not Beveridge realise that if a poll tax was to be introduced, it must be covered with an enormous coating of sugar? Did not the former right hon. Member for Finchley learn that lesson when she introduced another poll tax?
§ Mr. Willetts
I do not have time to identify the source of the hon. Gentleman's figure of 67 per cent. but I am happy to bow to the experience and knowledge of the hon. Gentleman, on whose Select Committee I am honoured to serve.
The structure of national insurance as envisaged by Beveridge had two consequences. A hefty Treasury contribution was necessary. We must debate its exact size, but it was certainly more than 50 per cent. Also, pressure rapidly built up to change the system so that contributions would no longer be at a fixed rate but progressive, as a percentage of income between the upper and lower earnings limit.
Within a few years, the Treasury started asking, "Why can't we have a progressive tax structured in this way, so that we can raise more money from national insurance?" The consequence in turn of that argument was that it was thought that a progressive contribution rate would have to be matched by benefits that similarly rose as people paid in more. In other words, we were driven to a second, top-up, contributory pension not because of enormous desire for one but because that was the only way of legitimising the financial pressure to have a progressive, not fixed, national insurance contribution scheme.
Beveridge left us with a system heavily dependent on Treasury finance, and the only way of escaping that was to introduce progressive contributions—which in turn meant a second, top-up pension. It is therefore ironic that, on the eve of the 50th anniversary of Beveridge, the proposal for a Treasury grant to cover some of the costs of the national insurance fund is in many ways taking the fund a tiny step back to the sort of model that Beveridge envisaged.
As my right hon. Friend the Secretary of State explained, the origins lie in the effects of the economic cycle, with both the expenses of the fund rising in recession and contribution income falling. The Government have held national insurance contribution rates constant since 1983. One might ask why the option of changing them has not been pursued. On reflection, clearly it is undesirable to increase contributions in a recession if that can possibly be avoided. I am sure also that during the boom years of the late 1980s, Ministers felt that it would be undesirable to cut contribution rates having gone through the political trial of increasing them in the first place.
We are therefore left with a Government policy that can be described only as purposeful immobilism. There is no intention to move contribution rates either up or down, and as a result it is the Treasury contribution which must be adjusted. That will be done in accordance with the economic cycle, and I personally welcome the extra flexibility in the new system of Treasury grants, which is far superior to the rigid formula on which the old Treasury supplement was calculated.
The Treasury contribution that we may expect next year is in the order of £8 billion, which places in context the figure for the extra incentive for people to take out personal pensions—the 1 per cent. proposed in the Bill, which the Government Actuary tells us will add up to about £165 million. We heard briefly from the hon. Member for Glasgow, Garscadden (Mr. Dewar) the standard rigmarole of criticisms of the incentives offered to those who contract out of SERPS and subscribe to a personal pension. It is worth re-examining the figures, because so much mischief and misleading information has been generated on the basis of bogus calculations.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
How much does the hon. Gentleman think will be saved?
§ Mr. Willetts
The National Audit Office set out calculations on a basis that I find difficult to accept, and I will return to that point later.
The contract-out rebate of 5.8 per cent. is available to all who contract out of SERPS—it does not matter whether they are new to a personal pension, have subscribed to a personal pension for some time, or are members of an occupational pension scheme. Over the five years from 1988 to 1993, that rebate adds up to £6.9 billion. The 2 per cent. incentive that aroused such controversy when it was introduced adds only £2.4 billion, to make a grand total of £9.3 billion.
We are all familiar—the hon. Member for Garscadden mentioned this—with the argument that the rebate is a grotesque subsidy that is way out of line with the savings accruing to the Exchequer. It ought to be remembered that, over that five-year period, total national insurance receipts ran to about £220 billion, so as a proportion of the fund's total income the rebate is rather paltry—some 4 per cent.
The National Audit Office says that the savings accrued to the Exchequer by people leaving SERPS and thereby reducing the Government's future liability were merely £3.4 billion. Those calculations were set out on a very precise basis, and one that seemed to be ignored when the Opposition started making hay with the figures. The assumption was that everyone who opted out of SERPS would return to it in 1993—that the policy had only a short-term effect, and that in 1993 the 5 million people who had so successfully been encouraged to leave the state scheme would re-enter it.
That was a manifestly absurd assumption. It is not correct to assume that people who were given the incentive to leave SERPS would all pile back into it straight away. As soon as one accepts that many would remain out of the state scheme much longer, the savings to the Exchequer from the Government's incentive scheme become more considerable.
§ Mr. Kirkwood
I am closely following the development of the hon. Gentleman's argument, and he touches on a most important point. If he thinks that the National Audit Office calculations were wrong, will he venture a figure himself as to the likely savings and a cost-benefit analysis of that expenditure?
§ Mr. Willetts
I asked the Institute of Fiscal Studies but it has not made any calculations on its own basis. The National Audit Office appears to be the only body in a position to make such calculations, because it has access to information on 1 per cent. of all those who opted out of SERPS. The NAO is the only organisation that has the hard, empirical data on which to draw, because it knows the characteristics of the people concerned. As far as I am aware, the NAO has only made its calculations on the one assumption that I mentioned, and I much regret that it has not been commissioned by the Public Accounts Committee or anyone else to examine the figures on another basis.
Even if one accepts the extraordinary assumption that people who were given a 2 per cent. incentive to leave SERPS would all pile back into it in 1993, that seems a good argument in favour of continuing the incentive so that they do not do so. It points to the need to continue the 70 incentive, and I welcome the proposal in the Bill for a further 1 per cent. incentive for those who stay out of SERPS over the next five years.
During the past few years there have been many arguments about the future of the state earnings-related pensions scheme. I regret that they have focused so much on cost. I shall turn away, therefore, from cost arguments to other arguments for encouraging people to contract out of SERPS. The Government have relied too heavily on the cost argument and insufficiently on a variety of other arguments that point towards encouraging as many people as possible to leave SERPS.
There are four arguments that I shall put before the House. First, SERPS is, in effect, a negatively means-tested benefit. It is worth more to people on higher earnings—those between the lower and the upper earnings limit. It is not sensible for the state to run an enormous second pension scheme which, in effect, mimics what the commercial sector would do anyway.
As I tried to point out in my observations on the Beveridge report, we ended up with such a structure for the second pension because it was the only way that Ministers and officials in the 1950s and early 1960s thought that they could justify the shift from a flat-rate contribution to a progressive contribution. It is not right for the state to run such an enormous scheme. After the conclusion of the social security review, I understand the reasons which led my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler) to decide that complete abolition was not possible, but it makes sense to encourage as many people as possible to make provision for their own pension rather than to be trapped within a negative means test.
My second argument, which is unashamedly ideological in its nature and not one which I expect Opposition Members to accept, is to examine the way in which people, currently of working age, are to make their claims on resources when they retire. There is no way in which those resources can now be set aside: we are talking about legal mechanisms whereby people who are working now can have a claim on the output of the economy in 2010 or 2020.
If we look at the way in which those claims on future resources should be levied, I unashamedly believe that as many of those claims as possible should be in the nature of private sector contracts and that as few as possible should rest on the state's future power to tax. It is good for the economy and it is good for people's sense of having a personal stake in the economy that as many as possible of those claims should be through assets—such as share dividends and income from property. That is the most flexible and sophisticated way in which future pensioners can have a claim on future assets. That is far better than a system that rests on the state's power to tax.
The third argument, to which insufficient attention has been given, is that although people have debated the future of SERPS they have ignored the extraordinary position of occupational pension schemes. Many more pensioners now retire with an occupational pension—and a good thing, too. I salute the performance of occupational pension schemes. However, we are so preoccupied with the increasing number of pensioners who retire with occupational pensions that we ignore the fact that there has been no increase since the mid-1960s in the net number of employees who are members of occupational pension schemes.
Having reached 50 per cent. of the work force, they got stuck at 50 per cent. of the work force. An increasing 71 number of people were employed in the public sector, but the number of members of occupational pension schemes who were employed in the private sector went down. The explanation appears to be that, although occupational pensions do a very good job for certain categories of future pensioners, there are others for whom they do not appear to be well suited. They do not appear to be well suited to women or part-time workers; they do not seem to be well suited to small firms; they do not appear to cover many employees in the services sector. Therefore, we must look increasingly at the provision of personal pensions to cover people in those employment categories who cannot enjoy the benefit of occupational pension schemes, which have remained static while the number of such employees has risen.
The fourth argument for encouraging personal pensions and for encouraging people to opt out of SERPS is a crude, simple, political argument: that if one conducts any research into what people want, one finds that they want a personal pension. One only has to look at the results of opinion polls. The hon. Member for Croydon, North-West (Mr. Wicks) referred to the research carried out for the Fowler review in the mid-1980s.
If people are asked what sort of pension they would like, they say that they would like a pension that gave them a personal, direct stake in it. The Government are undoubtedly going with the grain of human nature. They are meeting the aspirations of the majority of our fellow citizens. Therefore, I welcome the 2 per cent. incentive for personal pensions during the first five years of the policy between 1988 and 1993. I welcome also the 1 per cent. incentive that will be in place from 1993. When the Minister replies to the debate I hope that she will address certain questions that I shall put to her regarding various aspects of the Bill.
The hon. Member for Garscadden was not alone when he asked why this incentive applies only to personal pensions. He was wrong when he implied that it should apply to all occupational pensions, but it is odd that it does not apply to contracted out money-purchase schemes, unlike the current 2 per cent. incentive, and that it does not apply to group-run personal pensions. I should be grateful if the Minister could explain the Government's thinking about a provision which, on the face of it, is a little odd.
Secondly, I support the Government's clear commitment to moving, in the longer term, to more age relating of the structure of incentives for people leaving SERPS. Although it is rational that people in their twenties or thirties should opt out of SERPS into personal pensions, there is a cross-over date. Learned experts may differ, but it is probably when people are in their mid-forties that it becomes rational for them to go back into SERPS. That is not a sensible basis upon which to plan pensions. I hope that the Minister will set out in more detail how the Government intend to improve the sensitivity of the rebate system and relate it to the age of the person involved.
Thirdly, I am slightly concerned about the role of the Occupational Pensions Board. Several hon. Members have asked about the future security of personal pensions. I very much hope that the 5 million people who have taken out personal pensions will continue to contribute to them and will enjoy the benefits of their personal pensions in retirement. The Occupational Pensions Board, however, is 72 under a clear responsibility to supervise and monitor personal pension schemes to the highest possible standards. Some people in the personal pensions industry take the view that too many people on the Occupational Pensions Board are Department of Social Security officials who were moved to the board and that they do not have a feel for the way in which the personal pensions market operates, or a feel for how the pensions industry is changing. I hope that the Minister will deal with that point in her speech.
My final point is that it is always difficult to strike a balance between wishing to encourage personal pensions but not wishing to do anything to deter employers from contributing to their own occupational pension schemes. Some people with grandiose plans for forcing employers to do this or for obliging them to do that ignore the fact that many employers will at some point say, "This is too much trouble; I'm not going to carry on with this. I'll close down my occupational pension scheme." Every person who has an interest in pensions policy must bear that crucial point in mind.
Nevertheless, is it not possible to think of additional ways by which employers could be encouraged to make contributions to personal pensions as well as to occupational pensions? Is it impossible to expect employers to make contributions to personal pensions if they are in any case making a much larger contribution to occupational pension schemes? If we believe in personal pensions—all my hon. Friends strongly believe in them—we must ensure that by their behaviour employers do not provide a disincentive to people who wish to take out personal pensions.
The Beveridge report, to which the hon. Member for Croydon, North-West referred, is fascinating reading. I did not reread my copy last weekend, but it has melancholy traces of sun tan cream on it—I shall not name the sun tan cream involved—which remind me of the happy days of the summer. One brief passage sets out a philosophy for social security, which I am sure would command the support of the majority of hon. Members, and certainly Conservative Members. Beveridge said:The State in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.I believe that the Bill is a modest contribution to achieving the objectives that Beveridge set out.
§ Mr. Archy Kirkwood (Roxburgh and Berwickshire)
I begin by apologising to the Minister and the hon. Member for Glasgow, Garscadden (Mr. Dewar) for not being able to listen to their words of wisdom, because I was attending an important meeting elsewhere in the House.
I was impressed by the speeches of the hon. Members for Croydon, North-West (Mr. Wicks) and for Havant (Mr. Willetts) who, despite being new Members, brought new and welcome experience and knowledge to the subject. I can now claim to be the longest serving social security spokesman of the major parties, but it is always good to see fresh faces, who no doubt have fresh ideas. I look forward to their contributions, to the remaining proceedings on the Bill and to other debates on this important subject.
73 The Bill mentions the new Treasury grant. I hope that, in future uprating and autumn statements, greater care will be taken to dampen speculation—of both kinds. I see that the Under-Secretary is raising her eyebrows and hands in horror, but despite the ethic of secrecy that suffuses Departments to a ridiculous extent, it must be possible to be more open about the options in a way that will quell some of the speculation. I hope that the Government will try to be more objective in press announcements made before statements.
The Bill offers us the opportunity—the hon. Members for Croydon North-West and for Havant referred to it—of considering the principle of national insurance contributions. For some years, Liberal Democrats have been considering abolishing it. I accept that it would require much public discussion, because it would be a fundamental step, but there is a prima facie case for abolishing it. The national insurance contribution system is now so shot through with anomalies and piecemeal reforms that we should start from scratch.
There is an argument, on which we have been trying to work for the past few years, for integrating the tax and benefits system. Such a proposal would require careful thought, but we must bear in mind the fact that it costs £1.2 billion to administer the national insurance system. The Bill proposes extra administrative costs of about £1 million, which is not a lot in the context of the sums that we are debating, but the panoply of bureaucracy that we are employing to deliver national insurance contributions and means-tested benefits is a cause of concern. The more often we debate how we deal with such sums and systems the better it will be in the future.
The Bill deals with the future provision of pensions. I remain convinced that the most urgent problem facing the Government is dealing with pensioners who are in pension today but who have to rely for most or all of their income on state provision. My father receives a small occupational pension from his career on the railway that takes him out of eligibility for means-tested or other benefit. Although he and his generation continue to enjoy the twilight years of their lives, they are under much financial pressure.
The Government will say that recent measures have attempted to target benefit—I accept and welcome that; it would be churlish not to acknowledge it—but between now and the end of the century that group of pensioners will face continuing adversity unless the difference between increases in prices and average earnings is addressed. The Social Security Advisory Committee—some years ago, admittedly—expressed its opinion on that, but the Government do not accept it. Although the Government have done something recently, they must do more.
Statistics issued by the Office of Population Censuses and Surveys have caused me some concern. Its 1991 general household survey covering the proportion of people in employment by type of pension scheme showed that about 13 per cent. of the total work force were not in occupational or personal pension schemes. That hides, as the hon. Member for Havant said, the fact that 8 per cent. of men but as much as 20 per cent. of women have no cover.
In addition, 12 per cent. of men and 27 per cent. of women have no occupational pension scheme available to them or are not in a personal pension plan. As the hon. Member for Havant said, at the beginning of the next century, when those who fall in the self-employed categories move into retirement, they will not be able to 74 have the kind of protection that we would all like. The Bill does not do enough to address that problem, but the Government will have to do something about it.
I listened carefully to what the hon. Member for Havant said about the cost-benefit analysis of incentives offered now to make savings in the future. I have always been fairly relaxed about incentives, and I am sure that the hon. Member for Havant is only too well aware of the dangers with personal pensions that arise from the 1986 Act. They are more unpredictable than final salary schemes. We should not run away with the idea that personal pensions are a panacea, although they have a role to play.
I come back to the question how much we are spending and for what return in terms of the long-term savings to the state earnings-related pension scheme. I am also concerned about the National Audit Office figures. The hon. Member for Havant, who has obviously studied the matter, as one would expect, was honest enough to say that the answer to the question is unknown in a sensible, statistical way. The hon. Gentleman and I are in agreement on the matter, and I am sure that other hon. Members also want an answer to the question.
The Government should set in train some more objective research into what the assumptions were and what the assumptions should be so that we can try to come to an objective view about what we are saving from the future costs in SERPS. I shall return to that subject in Committee. If some thought can be given to the question between Second Reading and Committee, I shall welcome a Government statement giving more details, if that is possible.
The age-related provisions of the Bill are rather crude. I understand that there are difficulties, and I know that the Government do not want to make things too complicated. However, the Institute for Fiscal Studies took the opposite view, pointing out that other elements of the pension industry already have sophisticated age-related mechanisms which are perfectly workable and which are well understood by the people who operate them. My criticism of the age-related aspect of the Bill is that it is not sophisticated enough. There are mechanisms that we could have adopted which are not contained in the Bill.
Like the hon. Member for Havant, I have serious reservations about whether the state should be in an earnings-related pension scheme, for the reasons that the hon. Gentleman rehearsed—I will not repeat them, because he argued his case succinctly. However, we should think about that matter. I am not persuaded, in spite of the fact that the 1986 changes took some money out of the costs of SERPS, that the sums add up. I believe that, in the long term, the SERPS provisions cannot be afforded. Of course, we cannot withdraw any entitlement accrued to date, but I should be interested to consider how we could redeploy some of the resources freed by any change to deal with the problem faced by the existing generation of pensioners who are struggling so hard.
The new Treasury grant is an interesting device. The former Secretary of State for Social Security, now Leader of the House, used always to start our debates by saying that national insurance debates dealt with enormous sums and that no one paid any attention to the fact that the House was dealing with a new Treasury grant of, for example, £8 billion. He said that we had arguments over £5 million here and £2 million there, although we were dealing with huge sums. It is worrying that we may be 75 having such a discussion here and that we are not giving the matter more thought. I look forward to the Committee, when we may be able to give the matter more thought.
I repeat my apology for not having been able to be present for the opening speeches. I am certain that my next point was raised then. I believe that there is a bias in the Bill against occupational pension schemes, such as group pensions and contracted-out money purchase schemes, or COMPs. The industry is worried about that bias. I do not understand why the Government have not produced a level playing field. All I can make of the Government's reasoning is that they believe that all the provisions are temporary because there is going to be a review, so they do not need to worry too much. If that is the Government's reasoning, it is not acceptable. I have no doubt that the Minister will expand on that point.
I see no justification for the differentiation between the two systems. I understand that it is not possible to get a level playing field for occupational pensions in some respects, but it is perfectly possible to make the provisions on group pension schemes and COMPs equitable in terms of personal pension plans and occupational schemes. That is the one improvement that I should like to see included in the Bill in its remaining stages. I hope that the Minister will say a word about that when she sums up.
§ Mr. Patrick Nicholls (Teignbridge)
I declare my interest in the Waterfront Partnership.
I very much enjoyed the speech by the hon. Member for Glasgow, Garscadden (Mr. Dewar). I have debated social security matters in the House several times. I have sometimes felt that the voices from the Opposition Front Bench induced hyperbole fatigue. That has its advantages at times, because if a debate comes across in that way, it makes it easier to avoid any points that one might want to avoid.
I did not agree with all the hon. Gentleman's conclusions, which I am sure is as much a comfort to him as it is to me, but I very much valued the way in which he set out the stall. I accept that he has identified the way in which we need to approach the Bill. He made a fair point in saying that the key was the additional 1 per cent. rebate and what the motives might have been for introducing it. He also said that our debate takes place in a wider context, which I am sure is right.
It is fair to say that the hon. Member for Garscadden doubted our motives for the additional 1 per cent. rebate. It is not up to me to speak for Treasury Ministers, but I will say that it seemed to me that the motive behind it was either to encourage people to take out their own pensions or to stop them going back into the scheme. That was a perfectly proper thing to want to do.
The hon. Member for Garscadden also said that the whole debate had to take place in a far wider context. As the Bill is rather narrow and specific, the debate so far has not concentrated on the wider aspects. It is worth while taking a moment or two to dwell on those aspects.
We have heard how much the Department of Social Security budget is per week. I do not know whether it is a tribute to the uncertainty of Government spending or the fact that the Secretary of State's research is more 76 up-to-date than mine. I was minded to say that I understood that the Department of Social Security budget was running in excess of £1 billion a week. My right hon. Friend was able to say with some confidence that it was running at £1.5 billion a week. I am happy to adopt that figure.
The figure forms part of the totality of projected Government spending for 1992–93 of £2445 billion, which is a pretty dramatic sum. The Department of Social Security budget is close on £80 billion. In a rough and ready way, one can say that one third of what the state spends is spent on social security, which is a dramatic sum. One can make the point—which, in different ways, would come as a comfort to all hon. Members and to many of our pensioners—that the sum represents an increase of 50 per cent. in real terms since 1979. In any event, it is a pretty massive commitment.
The question then immediately posed, as it was by the hon. Member for Garscadden, is whether such a level of commitment can be sustained. We must be prepared to consider that question. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) touched on an important point in questioning the continuing role of national insurance contributions. The difficulty with national insurance contributions is that there are some rather odd ideas out there about what national insurance contributions really are, as one learns if one talks to people.
We might consider the Albert Tatlock syndrome. Devotees of "Coronation Street" over the years will remember that Albert Tatlock was a man of advanced years. In fact, he made Dixon of Dock Green look like a newcomer. Albert's great line was that he had spent three years going through muck and bullets in the first world war, and that meant that he was entitled to everything free for life and subsidised pints of beer down at the Rover's Return.
If Mr. Tatlock had been asked what he felt about his national insurance contributions, he would have said that having been through muck and bullets and returned to a land fit for heroes to live in, he had paid his dues, and that gave him the right to a decent pension. It is all very well to say that the world owes one a living—many people fairly make that claim. However, the difficulty is that the world has a nasty way of showing that it will not come up with the swag.
The difficulty with national insurance contributions is that they are not a funded scheme. Many members of the public will say, "What's a funded scheme? And anyway, who cares?" When we participate in a private scheme, we make a judgment for better or for worse about the scheme into which we intend to contribute. The success of that scheme rises or falls in relation to the country's economic prosperity, the worth of the scheme and the professional judgment of those who manage the scheme.
The private scheme is a funded scheme. The money one contributes is invested and, at the end of the day, one receives a pension, annuity or contribution. The national insurance scheme is not funded. The scheme reflects one's moral right to be supported by future generations. In a sense, it gives a legal right for one to be supported by those generations.
One can pay one's dues whether one is Albert Tatlock or a Member of this place, but whether one obtains a pension from the state which will sustain one—or, as was said earlier, would sustain our parents in a state in which 77 we would want them to be sustained—depends not on one's own contributions but on the ability of future generations to meet the moral obligations that one has in mind.
It is relevant to consider the number of people who will be available to make those contributions. In 1990, there were 10.3 million over the state pension age. By 2030—many of us, with some confidence and perhaps a little hope, expect to be alive then—there will be 14.1 million people over the state pension age. That is an increase of 40 per cent. It is good news. It shows that people are living longer and can write more letters of complaint to their Members of Parliament.
Although I do not have the precise figures, I am sure that the Minister will be able to confirm that the number of congratulatory telegrams sent by Her Majesty the Queen has increased dramatically over recent years. Although I cannot find the figures now, I recall that at the beginning of Her Majesty's reign she sent about 100 telegrams a year. I understand that she now sends well over 1,000. That is absolutely tremendous. However, those people must be supported.
Between 1990 and 2030, the number of pensioners over state pension age will increase by 40 per cent. Who will support them? In 1990, there were 34.4 million people of working age. By 2030, that figure will have decreased to 33.6 million. To make the point as succinctly as I can, in 1990 3.4 workers supported a pensioner. By 2030, only 2.4 workers will be supporting a pensioner. We must consider the consequences of that.
The question that underpins the SERPS debate is whether our children and grandchildren will be prepared to look after 40 per cent. more pensioners in a state to which they are likely to have become accustomed and to which they believe that their dues have, over the years, entitled them. I believe that our children and grandchildren probably will not be prepared to do that. Therefore, the Government are strongly encouraging people to make private arrangements, so that the burden—be it a tax burden or whatever—that the state imposes on people in the early decades of the next century will not be intolerable.
The problem exists not simply in the United Kingdom, but throughout Europe. We are a member of the European Community. Some of us greet that with more enthusiasm than others. Some of us greet it with no enthusiasm at all, but recognise that it is something that we must tolerate. France reduced its pension age to 60 in the early 1980s, but the demographic trends in France have led the Government to publish a White Paper which reopens the debate.
Italy faces a 35 per cent. increase in its elderly population by 2040. The Italian Government are proposing to raise the pension age from 60 for men and 55 for women to 65 for both. Germany is equalising its pension age at 61 to replace the current minimum pension age of 60 for women and 63 for men. The standard common pension age in the United States is 65, and that is to be raised to 67 for both sexes by 2027.
It seems that, in due course, all things Japanese come to us. Japan's rate of demographic change has been faster than that of anywhere else in the developed world. The proportion of people over 65 in Japan will rise from 9.1 per cent. in 1980 to 27.7 per cent. in 2040. That is a hell of a lot of Hondas.
78 Holland's budget deficit is directly related to its social security expenditure, and that will have to be cut by ending the earnings-related part of social security provision. Belgium, Germany, France and Denmark all face other problems.
Debates in this House about the equalisation of pension ages are often presented in terms of equality between the sexes. That is a somewhat difficult area for Government Members to broach. If I tell a 59-year-old woman who has worked all her working life in my constituency that I have great news for her in the equality stakes and that she will now have to work five years longer than she had intended, that message would not be particularly well received. Therefore, we talk about equalisation in a fiscally neutral way at about 64 years of age.
While we talk about the matter in terms of equality between the sexes and then, to some extent, shy away from the electoral consequences, many European countries believe that something must be done about the matter in order to discover a way to cope with the burden which would otherwise be supported by the state.
§ Mr. Wicks
I do not intend to undermine what the hon. Member has said about demographic ratios because they are very important, but if we are not careful, we may verge on demographic panic. The hon. Gentleman was projecting beyond the year 2000 and 2020. If we can produce hundreds of motor cars in that time—let us be optimistic and suppose that we will still produce motor cars in this country then—simply through technology and by using robots, without any workers, surely we will still be producing wealth.
That wealth can help future pensioners even if the ratio between the number of workers and elderly people appears to be poor. I do not dismiss the hon. Gentleman's point, but I believe that national wealth, and not necessarily ratios, is the key ingredient.
§ Mr. Nicholls
One man's panic is another man's foresight. Inevitably, the truth lies somewhere in the middle. The hon. Member for Croydon, North-West (Mr. Wicks) made a fair point when he said that the wealth of the nation is important. Ultimately, the wealth of the nation is reflected in tax revenue. That makes it possible to pay pensions. If fewer people produce that tax, and there are more people to live off it, there would be a problem that must be addressed.
I cannot say precisely what the position will be in 2030, but we can make projections and it is clear that we will have to have some regard to the consequences. While I have tried to set the matter in the overall context, this is not 2030 but 1992, and I want to examine some of the consequences for our current pensioner community.
During the election campaign, I received a visitation from a new political party called the Pensioners Protection party. I am delighted to say that it did not stand in Teignbridge; it stood in Thurrock, and it obtained a perfectly respectable result. I should like to think that its results will always be respectable but perhaps no more than that. The interesting point about that political party is that it was first suggested in a BBC Radio Cornwall programme. Its literature states:Despite what they say, all the existing political parties, whether of the right, left or centre are just not interested in pensioners, treat us as second class citizens, who are powerless and unable to improve our situation.79 It continues in a similar vein. I do not share that analysis, but I can certainly understand why pensioners will sometimes come to that conclusion.
In an area such as Teignbridge, the averages that we can talk about in relation to pensioners are not particularly reflected on the ground. For example, the Pensioners Protection party quoted Hansard in its pamphlet, and it is worth mentioning. I suspect that it would no longer be entirely accurate. It is a 1989 statistic which the party produced to show that 58 per cent. of pensioner households depend on state pensions and benefits for at least 75 per cent. of their income. I suspect that the position has changed for the better, but that illustrates an interesting point.
The Under-Secretary will correct me if I am wrong, but I believe that nearly nine out of 10 pensioners have some secondary form of income other than the state pension. That is good, and it is an improvement—the problem is, not around Teignbridge, they don't. There is no way in which one could expect the Minister to come up with Teignbridge-specific figures any more than one could come up with Birkenhead-specific figures, although if she has them I shall be impressed and thank her for them. One of the joys of being a constituency Member is that one develops a feeling about one's area which one cannot quantify in terms of hard statistics. One develops a feeling for the way in which a situation applies on the ground.
Many pensioners in Teignbridge have worked hard all their lives—sometimes perhaps in not desperately exciting jobs, and certainly not in particularly well-paid jobs. They did so at a time when, under previous regimes, such savings as they had were ravaged by inflation. Now, they are at a stage in their lives when, having worked hard, they have not been around for occupational pensions and the like, and are more or less dependent on state-related benefits.
The Pensioners Protection party suggested—I do not say this lightly, because its suggestion is very brave, and I have never seen it before—"Why don't you pay us a pension on which we would pay income tax? There would be no question of our receiving means-tested benefits as such." That party made the point that its membersare entitled to proper pensions, not means-tested handouts.Their idea is that, if their pensions could be increased, losing means-tested handouts and having to pay tax as well are things that they would be prepared to take on board. When I put it to them that that would mean they would not be able to have free television licences, which is sometimes a rallying cry in the House, the pensioners said, "Okay, if we don't get free television licences, at least we will have a choice about whether to have them or not."
It was interesting that, when the delegation came to see me, I was not expecting to receive a delegation of like-minded people who just popped in to tell me that the Government's track record on retirement pensions was first rate, that they would not detain me—they just wanted me to tell everybody else that. My perception was entirely correct. They made the point that they had examined the matter and were concerned about trying to highlight the group of people who are not properly reflected in the idea that nine out of 10 people receive some secondary income. That group is becoming smaller, and it will continue to become smaller over the years.
80 In due course, the average statistic, even if it is not a reflection of the position in Teignbridge, will come to pass that ultimately almost 10 out of 10 people will have some form of income other than their retirement pension. That is extremely healthy, for all the reasons that my hon. Friend the Member for Havant (Mr. Willetts) mentioned, and for the reasons that I mentioned about the burden that would otherwise be represented on the state.
In our social security policies and judgments about available resources, we have to bear in mind the fact that looking after those who ultimately are not in a position to look after themselves is one of the first responsibilities of the state. There is no doubt that the Government have a good track record on that. The state retirement pension has been fully proofed against inflation since 1979. In a particularly amicable debate—let us try to keep it that way—I will not dwell at great length on the history of earnings and incomes matters of that sort, but, behind the averages, one must consider some specific problems.
In our desire to look forward, to understand that there is a limit to what the state can be responsible for, and to understand the implications of an increasing pensioner population and a decreasing tax-paying base, we should not lose sight of another section of society which, in the nature of things, will dwindle. If we can understand the needs of people such as members of the Pensioners Protection party in the context of a global view, we will be doing the right thing.
§ Mr. Frank Field (Birkenhead)
It is clear that the Pensioners Protection party won many votes in the west country. The hon. Members for Teignbridge (Mr. Nicholls) made a bold bid both for its votes——
§ Mr. Field
As my hon. Friend says, he made a bold bid for the leadership of that party.
I apologise to my hon. Friend the Member for Teignbridge—I call him hon. Friend this evening because we are members of the Social Security Select Committee—as I shall not immediately pick up his points. I apologise also for not being present for the opening speeches, because I wanted to compliment both spokesmen not on their performances in the House today but on their performances on another day, as the Bill is a consequence of the autumn statement. The autumn statement was a success for the Secretary of State. When questions are asked it is difficult to put on the record the extent of one's feelings and the extent of that success. [Interruption.] That attitude makes it difficult to make constructive points.
The Secretary of State said that we whipped up fears about cuts and so on. He did himself an injustice. He did a brilliant job of engendering such stories and then swept into the House to show us that our fears could be put to one side at a time when the public sector borrowing requirement will probably grow to about £50 billion. It was a success that the Secretary of State was able to protect his budget. Whether hon. Members will cheer him quite so loudly a year or so hence when the effect of the public sector borrowing requirement comes to roost is another matter, but this evening we should not quibble; we should pay him a compliment.
My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) must have found the Secretary of State's 81 speech one of the most difficult to respond to. I was delighted with the skill and finesse with which he dealt with it.
The hon. Member for Havant (Mr. Willetts) said that when we are considering pension provisions or welfare provision generally we should emphasise the successes that have occurred and should be keen about spreading successes. I am reminded of a comment by a first world war poet in a footnote to his first poem. He said that, if the British were promoted from inferno to paradise, they would still gather around and talk about the good old days. Something in the British culture wallows in failure and despises success. All three parties need to encourage success when it is there.
The hon. Gentleman asked why there appears to be a glass ceiling on the membership of occupational pension schemes. In the post-war period, the extension of occupational schemes has been one of the big successes, linked to the size of the pensions that they are providing to an increasing number of our constituents.
Some storm clouds are gathering over the occupational pension scheme and I shall relate them to the Bill. The hon. Member for Havant said that we must be careful when we advocate reforms of occupational pension schemes and perhaps of the legal framework in which they operate, because there is no compulsion on employers to provide such schemes. If one goes about reform hamfistedly, an increasing number of employers will wind them up and go into money-purchase schemes. That is already happening.
I think that one of the changes that will be evident from the reports of the Select Committee on Social Security this Session—as opposed to those during the previous Session—is that Committee members will be more mindful of the difficulties facing employers when meeting occupational pension requirements. There have been changes in economic growth. We face a decade of sluggish growth, and the assets of pension funds will not grow as they have done; nor will funds get the income that they had in the past decade. Employers will take that factor into account when they decide whether to continue an occupational scheme, let alone extend it.
There are worries about how the Barber judgment will be enforced on occupational pension schemes, and about the other non-discrimination decisions that the European Court is about to make. That time bomb is waiting to explode on the finances of all occupational schemes.
During the recent past, surpluses in funds have been run down. The difficulties associated with sluggish economic growth and the enormous cost of implementing the Barber judgments, and others, will come at a time when pension schemes have less surplus than they had a decade ago.
We should not consider pension reform unimaginatively. I am sure that the Goode committee will take that into consideration when it deals with any reforms of the legal framework and with whether we should try to enshrine people's expectations of their occupational schemes into legislation. If we move too fast on that front, there will be a mass exodus of employers from the provision of occupational schemes and that will be a bad move.
The second storm cloud is one that the Government have made for themselves. They worked themselves and the House up into a frenzy and tried to get the country to share their worries about financing SERPS. Perhaps they were right to have that debate. However, we cannot now 82 guarantee that if people remain in SERPS they will draw a pension adequate to lift them free of means-tested assistance.
§ Mr. Field
I shall give way in a moment. I might answer the hon. Gentleman's question. The fact that we cannot guarantee that adequate pension must be taken into account when we consider the bribes or incentives—whatever we want to call them—that the Government are offering to people to leave SERPS and to make private arrangements. One of the disadvantages of the personal schemes that people are contracting into is that they also cannot guarantee the sort of income that pensioners will have.
I am worried that we are building up a new army of pensioners who will not receive the sort of income from the private sector that people who have recently retired—or will do so shortly—get from occupational schemes. It is not right to think that the success of occupational pension schemes will be writ large, either from SERPS or from the private pension arrangements that the Government are encouraging and we are debating.
§ Mr. Nicholls
Is the hon. Gentleman saying that it is safer for pensioners to be part of a huge state pension scheme than to be in a private occupational pension scheme? If so, he must consider that there will be a smaller number of people to supply the funds.
§ Mr. Field
Both the hon. Members for Teignbridge and for Havant have put the case—or the incentive or bribe—more effectively than any Treasury Minister or Minister on the Treasury Bench, that at least if one takes out a personal pension one knows that one will have a nest egg, whatever the amount.
When we are pensioners, we will be the majority of the electorate and we will be trying to enforce a contract on workers, who will be the minority. Pensioners will have the majority of votes and therefore it will be much easier to sway candidates—whether in Teignbridge or Birkenhead, and whether there are pension action groups or not—to support that majority view.
The working population will be able to get back at the pensioner majority by behaving in a way which will engender inflation. The majority might be able to win through the legislative reforms to gain pension increases, but the minority will get their own back in an inflationary society by redistributing the gains that the majority have enforced on them.
§ Mr. Nicholls
The hon. Gentleman is right, as is so often the case. Is it not even worse than that? Experience and sheer common sense show that if taxpayers feel that their burdens are unfair they will evade tax. They always have done and they always will do. If the working population know that they cannot win in a vote and if too much money is being taken away from them by the majority, they will evade tax, revenue will decrease and that will exacerbate the problem.
§ Mr. Field
Perhaps, or they might ensure that the Government have inflationary policies, so that the real gains for pensioners are wiped away by rising prices, but they—being in the labour market—could protect their living standards by successfully negotiating wage and salary increases. We might have to face those politics.
83 The hon. Members for Havant and for Teignbridge made a case for the incentive or bribe more effectively than the Treasury Bench, because if the form of political struggle that I have described takes place, at least people with assets in personal pensions will be able to realise them in a way that those who remain members of SERPS will not. That is the most powerful argument that I have heard for personal pensions. I do not agree with it, but it is more powerful than the arguments that I have heard from the Treasury Bench.
Another storm cloud over the future shape of pension politics is the fact that a new army of poor pensioners is already coming on to the rolls. That is not because an increasing number of people are going into schemes which might not provide them with an adequate pension. All constituencies now contain a large number of elderly constituents, who are below retirement age but are unemployed and have been pushed on to disability benefits. We are disguising part of our unemployment problem by so categorising them and they are not building up pension entitlements.
It is wrong to think that the frail and elderly are the only poor pensioners, as my hon. Friend the Member for Croydon, North-West (Mr. Wicks) commented. As they die, a new group of poor elderly will come along—those constituents who do not have a job and have been classified as sick or long-term disabled, who are not building up entitlements and will be totally dependent on the minimum state pension and on income support.
Five years ago one might have thought that the spread of occupational pensions and the generosity of some of the schemes would guarantee that an increasing number of pensioners would be lifted free of poverty in old age. That will happen to some of us but not, sad to say, to all of our constituents.
§ Mr. Willetts
If, in the future, we have groups of poorer pensioners, who are not just old pensioners, and if we have a greater diversity of income between pensioners, does not it follow that an uprating, an increase in the real value of the basic pension, above inflation, would be a particularly inefficient way in which to help the very people to whom the hon. Gentleman has referred? Has not he made the case for the poorer-pensioner package which John Moore introduced and the subsequent poorer-pensioner package that was introduced in 1990?
§ Mr. Field
I hope that I would do more than what has been achieved by those limited measures, welcome though they are to the people in receipt of additional benefits. That intervention takes me on to the other part of my speech, which relates to imagining what contribution Beveridge would make to our debate today. That will make up the second and shorter half of my speech.
§ Mr. Field
I am about to embark on my actuary-unsound contribution.
I am sure that Beveridge would draw enormous pleasure from the real successes that his report has ensured for many groups in our society. However, I do not believe that he would commend to us the idea that he came down 84 from Mount Sinai with that report, that everything was written on tablets of stone and that nothing should be changed.
The House underestimates the current Secretary of State for Social Security if it does not believe that, at some stage, he will bring forward some radical plans to reshape our welfare state. The Labour party is committed to a debate, at least, about such a reform. I wish to keep alive the rumour that we will establish a social justice commission, which will think radically about what should be done.
§ Mr. Ralph Howell (Norfolk, North)
Is the hon. Gentleman implying that we are likely to make some changes to the welfare system in the near future, but that he would insist on everything carrying on as before? If not, would he mind telling us what changes he would like to see?
§ Mr. Field
I am suggesting that if we do not think very radically, we will drift into our fifth election defeat and we will deserve that. I am seeking to keep alive the rumour that we are going to think radically. I want to propose one or two ideas and to suggest the atmosphere in which that debate should take place.
If there is to be a debate on such changes and if one is to contribute to it, one might be persuaded by other people's views. We should therefore encourage people to give their ideas even if, by the time we draw conclusions from that debate, we may have changed our minds three or four times. One should encourage different contributions, rather than score points off people who may behave inconsistently.
My first suggestion has already been put by my hon. Friend the Member for Croydon, North-West. It is inconceivable that we should conduct our debate about a radical reform of the welfare state without being prepared to take on board the issues relating to full employment. If we talk about moving back to a time of full employment, it is clear that we will all have to entertain new thoughts in order to achieve that objective.
That objective will be more difficult to achieve than that achieved by Keynes. He advanced his ideas, or managed to pinch others' ideas and convince people that they were his, at a time of falling prices. We are living in a time of mass unemployment, when prices are rising—they are not going up as much as before, thank goodness, but they are still rising. In those circumstances, it is much more difficult than it was in the 1930s to consider what measures one should take to try to reflate the economy. Then, the Treasury, without telling anyone, followed the policy of constructing a tariff rule and it reflated the economy behind the rule. We all know that that policy was successful well before the second world war broke out.
When we conduct that debate and when we allow ourselves to think in a totally different way, we should not limit ourselves to considering ideas from this country. The German trade unions are equally worried about the extent of unemployment. Those trade unions are now saying that if they forgo wage increases, given the rate of productivity in society, their employers and the Government should start talking about expanding the job base as a result of 85 those forgone productivity increases. In other words, the German trade unions are now saying that they will break up the cartel that has operated in western society. That cartel is composed of those in work and, all too often, it operates against the interests of the unemployed.
That idea may not work out to be the most profitable way in which to return to full employment—I accept that it is one of many such strategies. However, the German trade unions are thinking about a dynamic policy. It is not equivalent to the old crude policy of wage freezes or the policy for which we voted just the other day: to shift resources from the employed to the unemployed in a manner which would give those people a chance to work. We should consider that policy very carefully.
§ Mr. Ralph Howell
I am extremely interested in the hon. Gentleman's remarks. Does he subscribe to the idea of the right to work? Does he recognise that if we could institute a workfare system in this country it would, over time, eliminate unemployment? I should be interested to know whether he supports that idea.
§ Mr. Field
I think that we should consider that proposal. I understand that the Cabinet has considered it, but rejected it because it would be immensely expensive. It is not a cheap scheme and it does not rely on what my constituents call "Mickey Mouse" training.
Under such a scheme the public sector could initially create jobs that paid proper wages. On the other hand, running alongside that provision, one could build up pukka training schemes. People could opt for training, and the compulsion element would operate on the work side. Therefore, benefits would be withdrawn from those who failed to take up the work opportunities. That would be a totally different scheme from anything that has been discussed publicly in this country—I know that the Government have, privately, considered the option, but have rejected it because it would be so costly.
I read the record of the debate that was initiated by the hon. Member for Norfolk, North (Mr. Howell) on the Friday before last—I was unable to be present—and I noted that the Government said that they would conduct a pilot study in the hon. Gentleman's constituency. He is a wily old bird and he does not need my advice on this, but I am sure that he will ensure that the jobs offered under that study are proper ones and that decent wages will be paid. I am sure that he will ensure that that study does not resemble what one might have been offered—a scheme whereby people would be given a small addition to their benefits and threatened with the loss of their benefits if they did not take up the job offered. I know that the hon. Gentleman has a healthy majority, but it will be slimmed down greatly if he does not stick to his guns, as I see them, on this point.
§ Mr. Ralph Howell
The hon. Gentleman is one of the most radical thinkers in this House. Surely he is making a mistake by saying that the scheme that I have advanced for so many years would be so expensive. No one knows, because no one knows what percentage of the unemployed would take up the option. If there were a 100 per cent. take-up, and it was voluntary, I accept that the scheme would be expensive, but if only two thirds of those eligible took it up, many others would still be engaged in lucrative work in society, known as the black economy. Until we have tried it, nobody knows whether it will work. It would be helpful if the hon. Gentleman put his weight behind 86 trying the scheme effectively. We shall know only when we have operated, perhaps not the pilot scheme that has been promised but a true pilot scheme, such as I have been suggesting.
§ Mr. Field
If the scheme is voluntary, we shall never know whether hordes of people are undertaking work on the side, because they will not volunteer for the hon. Gentleman's scheme. We would only know about that if there were an element of compulsion in the scheme. We know that the scheme that the Cabinet has considered was rejected on the ground of cost. The effort of ensuring that the jobs would pay proper wages and that there were training schemes which the hon. Gentleman and I would be prepared to go on, rather than some of those offered, is much more expensive than what is now being provided.
I shall watch with interest to see how the hon. Gentleman boxes from his corner when the Government try to unleash that experiment in his constituency. As he says, we shall not know the true cost until the pilot scheme has been run. I hope that it will be a genuine scheme that offers proper jobs and training, not one that tries to operate on the cheap.
§ Mr. Nicholls
May I return to the point which the hon. Gentleman was making a few moments ago when he said that the German trade unions might be prepared to trade off job losses for restrictive or no pay increases? Surely that would institutionalise overmanning. The hon. Gentleman will admit that one can hide unemployment in a number of ways, one of which might be with the scheme that my hon. Friend the Member for Norfolk, North (Mr. Howell) has in mind. At least that would be an honest and open "hiding". What the hon. Member for Birkenhead (Mr. Field) has in mind would institutionalise and structuralise inefficiency. I do not think that that is what he means.
§ Mr. Field
No, I do not mean that. Discussions are going on among the car unions in Europe on the basis that workers should not accept lay-offs but should all accept shorter time. They would then not add to the job queues, which may lead to what the hon. Gentleman is saying. That is separate from what the German trade unions are beginning to discuss, which is a scheme whereby workers would not take a salary increase, even though increased productivity figures might show that it had been earned, provided that the job base was expanded by the wealth so created. That might lead to the inefficiency that the hon. Gentleman described, but it probably would not.
It is an interesting debate and, if we are serious about breaking up the employment cartel to which most of us fortunately belong—people on the outside feel that it is almost impossible to break into it—those ideas must be considered. If we are to think about a new Beveridge scheme, it must be run in harness with a serious debate on achieving full employment.
I shall end this part of my "actuary-unsound" contribution by saying that, in the 1920s, reformers were disturbed that some workers had entered the third winter of unemployment. In all our constituencies now there are households with third generation unemployed. That is how long unemployment has stayed with certain groups of people. There is no urgency in this debate about moving back to full employment and therefore offering people hope of the chance to work again. I look forward to having that debate in the next year or two.
87 We should rethink the welfare state. I happily pick up the challenge made by the hon. Member for Havant about pension increases and the reforms that we should at least say are on the table, even if, on balance, we decide that we do not wish to back them. At a time when an increasing number of people are retiring with occupational pensions that are substantially greater than their state pensions, it is worth debating whether we should continually increase the national insurance pension for everybody at the same rate as in the past. Should we not think of ways in which we could concentrate on to the poorest pensioners the sum it would cost to increase the state pension for everybody?
Every time that we put regulations through the House, without a vote, to increase the national insurance rate, we are increasing our own old-age pension without knowing what our circumstances will be and whether we will need that help. When we consider the proportion of the current pensions budget to the large social security budget—it is about a third—we cannot leave undebated our approach to that topic. We may ultimately still think that the method by which we now provide benefit is the most perfect form of benefit provisions that mankind has ever devised, though I should be surprised.
We now have a budget of £75,000 million to £80,000 million, yet many of our constituents are desperately poor. They are unemployed, do not know whether they can pay heating bills, must economise on food, and do not know how they will provide Christmas presents without getting into the money lenders' hands. Moreover, they know that it is not just this year but that, unless we come up with a full employment policy, that future may stretch on and on into the sunset. In those circumstances, it is important that we consider whether we could spend some of that £75,000 million to £80,000 million more effectively to offer a greater chance to people who have least. We must bite the bullet on that issue and realise that if we are to advocate such a policy, we shall not give increases to other much more advantaged groups of people and we must do that in an electorally successful way.
The exercise cannot, therefore, be conducted in a purely statistical way, balancing the books. The review on full employment and welfare must be conducted within a framework that sets the public imagination alive, as Beveridge managed to do 50 years ago tomorrow. Unless one gets over the sense that those two policies are building a different Britain, it will be impossible to win electoral support to take help away from some people and give it to those who have least.
§ Mr. David Faber (Westbury)
I am grateful for the opportunity to add a few words to this debate. I am a newcomer to social security debates and I have enjoyed listening to the whole of this debate. My hon. Friends and Opposition Members have made many interesting contributions.
It is a pleasure and a privilege, albeit a daunting task, to follow the hon. Member for Birkenhead (Mr. Field), whose knowledge of these issues is so well known and on whose Select Committee I, too, am pleased to serve. I particularly welcome the praise which he lavished at the start of his speech on my right hon. Friend the Secretary of State.
§ Mr. Faber
The hon. Gentleman is absolutely right—the praise which he lavished on my right hon. Friend and his hon. Friends, on their performances after the autumn statement.
I particularly enjoyed the erudite intervention from my hon. Friend the Member for Havant (Mr. Willetts), whose expertise in the subject is also well known. I enjoyed listening to my hon. Friend and the hon. Member for Croydon, North-West (Mr. Wicks) swapping stories about Beveridge. Had I known last week that the hon. Members for Birkenhead and for Croydon, North-West and my hon. Friend the Member for Havant were so well versed on Beveridge before I spent a rather windy night with two of them earlier last week, I would have swotted up on Beveridge so that we would have had a little more to talk about late into the night.
I enjoyed the speeches by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) and by my hon. Friend the Member for Teignbridge (Mr. Nicholls) both of whom brought considerable experience to the debate—certainly more than I can bring, especially as I cannot claim to be an expert on "Coronation Street". We all agree that the issue of national insurance contributions will be the subject of another debate. I look forward to playing a part in that in the House and, I hope, in the Select Committee.
I warmly welcome the Bill's further measures to widen the personal choice that is already available to most people in providing for their retirement. The Government have shown foresight not only in safeguarding their current pension provision but in ensuring that as many people as possible will be able to seize the opportunity to provide for themselves in retirement. The Bill is part of the Government's continuing policy to promote personal pensions—one tier of their comprehensive strategy to improve living standards for all pensioners now and in the future.
The strategy has three main strands, the first of which is to maintain at all times the basic state retirement pension, always increasing it in line with prices. The Government have done that and, as we know from the autumn statement, they will continue to do it. It is worth repeating that since 1979 social security spending has risen by more than 50 per cent. over inflation and that in 1988 the average pensioner was about 34 per cent. better off than he was in 1979, a point made by my hon. Friend the Member for High Peak (Mr. Hendry).
Secondly, the Bill is part of continuing Government policy to make everybody responsible for his own pension provision where and when he is able to do so. People may make provision through occupational and personal pensions and, if possible, through savings or other investments so that they can add to income from the state pension. As my hon. Friend the Member for High Peak said, the recent falls in interest rates were warmly welcomed by all hon. Members because they are essential for recovery, but they are not always so warmly welcomed by pensioners. More than three quarters of those who have recently reached retirement age derive income from savings and the average income from those savings doubled between 1979 and 1988. Therefore, personal savings are playing an ever more important part in the life and financial considerations of pensioners.
89 Thirdly, Government policy focuses additional resources on those who are less well off. That is especially true in recent years for some older pensioners who have had less time to build up personal pensions or whose savings were ravaged by the inflation of the 1970s. Therefore, it is right that over the past three years special attention has been paid to those pensioners, and income-related benefits have been targeted more than ever to the tune of about £700 million a year over that time.
As we enter the next century the number of people over pensionable age will be much higher than at present. My hon. Friend the Member for Teignbridge dwelt on that at length and I shall add my example to those that he employed. On Friday evening my wife and I were fortunate enough to attend the 80th birthday party of one of the most loyal party workers in my constituency, Mrs. Edith Belcher. On that happy occasion Mrs. Belcher did not qualify for a telegram from Her Majesty the Queen, but she received many telegrams and letters from my right hon. Friends and from some of my noble Friends. She reminded me that a few years ago she held a 25th anniversary party for my predecessor, Sir Dennis Walters, and that 25 years before that she held a 25th anniversary party for his predecessor, Sir Robert Grimston. She left me with the news that she intended to hold my 25th anniversary party 25 years from now.
Many people are now living to a much greater age, and that means that we shall have to make much greater provision for pensioners in the next century. That was why we introduced personal pensions in 1988 as part of a wider Conservative philosophy to increase choice and personal responsibility and to help to increase the freedom epitomised by other landmark Conservative legislation such as our highly successful privatisation programme and the sale of council homes.
Since 1988 nearly 5 million people have taken out personal pensions. They are already making a massive contribution to an ever-stronger structure of pension provision into the next century. Everyone is now able to make a choice as he prepares for retirement and to do it as he best sees fit. Personal pensions are now available to almost every employee, irrespective of whether his or her employer operates an occupational pension scheme. Personal pensions also provide a crucial source of finance for industry. The schemes are almost always fully funded and provide an important stimulus to industry through investment.
Since 1979 people of this country have voted four times for a Conservative Government. That is a resounding yes four times over for greater choice and greater flexibility—the sort of flexibility that the Bill seeks to provide. On each occasion such choice and flexibility would have been denied to people if there had been a different electoral result. So that we do not overburden the next generation, it is essential to continue to spread the message about the benefits of non-state pension schemes across the whole age spectrum.
The advantages of personal pensions are undoubtedly greater for younger people, and that is shown by their take-up among that age group and the vigorous marketing directed at them. I understand that the Institute for Fiscal Studies has calculated that the take-up of personal pensions is highest among the age groups 22 to 26 and 27 to 31.
Clause 1 introduces the 1 per cent. additional rebate for holders of personal pensions who are over 30 years of age 90 and is in line with the commitment in our election manifesto. The new rebates should help about 2 million people and will be a vital incentive to those entering that age group to maintain their personal pensions. My hon. Friend the Member for Havant spoke about that. I understand that this is to be a temporary measure and, as we know, the existing 2 per cent. rebate for those who opt out of SERPS will end in April.
I welcome the Minister's news that a new system of age-related rebates and all options will be considered. I welcome his offer to consult widely on that so that such a system may start to operate in April 1996. The Government want to see all age ranges and groups benefit from personal pensions and not just younger people. By using clause 1 to remove the anomaly the Government fully comply with their manifesto pledgeof ensuring that personal pensions remain attractive across the age range.Clause 2 relates to the national insurance fund and ensures that the top-up grant will become available to the fund from the Treasury from 1993–94 and, if necessary, subsequently. In his absence I congratulate my right hon. Friend the Chancellor on the autumn statement and for rightly safeguarding, as we knew he would, all social security spending. It was welcome news, despite scaremongering in the press, that all benefits are to be uprated in line with inflation. The hon. Member for Birkenhead claimed that the stories were put about by the Government. I prefer to agree with my hon. Friends who said that the stories were put about by the Opposition.
§ Mr. Frank Field
It is unfair of the hon. Gentleman to downgrade the achievements of the Secretary of State, who had two successes. He managed to frighten—goodness knows how—his Cabinet colleagues into agreeing his budget. At the same time he had the energy and wit to orchestrate extraordinary campaigns saying that everything would be smashed. He was able to claim those successes in the House. I was not trying to make mischief. I wanted the House to give full credit to the Secretary of State for his double success.
§ Mr. Faber
Having had the pleasure in recent weeks of serving on the Select Committee under the chairmanship of the hon. Member for Birkenhead, I would not accuse him of making mischief. I do not believe that he was doing so here. However, he credits my right hon. Friend the Secretary of State with doing a better public relations job than even he would lay claim to.
The national insurance fund is financed by contributions from employees and employers alike through national insurance payments. Therefore, as has been pointed out, it is sadly inevitable that, at a time of severe world-wide recession, income to the fund will fall while benefits payments will rise. It would have been all too easy for my right hon. Friend the Chancellor to have increased national insurance contributions the other day, thus easily increasing income to the fund, but that would also greatly have increased the tax burden on employers and employees alike, which would have been fatal in a time of recession.
It is also worth remembering that, had the Labour party won the general election in April, we would have seen those increases in national insurance contributions, as promised in its election manifesto. However, I am a little confused—I say that in all seriousness—following a recent statement in The Guardian by the hon. Member for 91 Dunfermline, East (Mr. Brown) that such rises in national insurance contributions were no longer necessary. I cannot understand why in April those rises would have stimulated recovery and growth in a recession, but for some reason they have now become dependent upon recovery and the end of the recession.
Clause 2 will introduce a top-up grant to enable the fund to meet fully its commitments to those in receipt of all social security benefits, without hitting employers or employees in their pockets. The Bill is innovative in that, unlike the old Treasury grant, it will not be automatic, but will be used only when needed, and will not be implemented when there is no need for its provisions. That will result in greater flexibility in management as the grant will vary in each year according to need. Most important of all, it means that the taxpayer's money will not be wasted on surpluses, and there will be no effect on overall public expenditure.
We have heard that spending on social security over the next three years will be £79.8 billion, £82.9 billion and £87 billion respectively. That is an accurate gauge of the Government's commitment to the needy, sick and elderly. We shall maintain full support for those hit hardest by the recession, while focusing additional support on the most needy and safeguarding the pledges that we made to the elderly in our manifesto. We heard from my right hon. Friend in the autumn statement that all major benefits will be increased by 3.6 per cent., fully in line with the rate of inflation. That uprating will cost us some £2.5 billion next year and real increases in disposable income for the needy will cost a further £1 billion.
One aspect of the autumn statement and the social security uprating that has not been mentioned so far is social security fraud. In considering a top-up-grant to the national insurance fund, we should also remember the many millions of pounds that are lost every year through social security fraud. I warmly welcome the Government's plans to combat fraud and especially my right hon. Friend's reiteration in the autumn statement of his determination to step up his efforts in that direction. Total savings next year are expected to be £1 billion—a staggering amount of money—and that can only ensure that more money is available to the majority of needy claimants.
My constituents in rural Wiltshire need no reminders of the problems of social security fraud. Year in and year out, hordes of scroungers dressed up as new age travellers descend on our farmlands, villages and famous beauty spots. Most infamous was the mass invasion of our landmark white horse between Westbury and Bratton. My constituents witnessed at first hand the mobile benefits officers dishing out money to those who had no intention of ever looking for work in their lives.
§ Mr. Frank Field
I cannot understand why the Government and Conservative Members draw attention to that. Is it not a disgrace that the Government took so long to deal with the matter?
§ Mr. Faber
I can only repeat what I said earlier. I warmly welcome the fact that the Government have reiterated their intention to crack down on fraud, and I hope that that will be done swiftly. I also hope that my right hon. and hon. Friends in the Department of Social 92 Security will get together with other Departments to try to find some lasting solution to the problems that my constituents have to face year in and year out, and which they dread.
§ Mr. Frank Field
It was not just the hon. Gentleman's constituents who suffered. The Government allowed mainly women benefit officers to go there and be almost abused by some of those people. That was the other shameful part of such incidents, which continued year in and year out before the Government did something about them.
§ Mr. Faber
The invasion of Bratton was three years ago and I was not then Member of Parliament for the constituency, so I did not have the opportunity to comment on it. I agree with the hon. Gentleman. It is wrong that anybody should have to hand out allowances from mobile caravans, dishing out income-related benefits to people who had no intention of looking for work.
§ Mr. Nicholls
Does my hon. Friend agree that the full extent of the problem was found out only this summer, and at that stage my right hon. Friend the Minister for Social Security and Disabled People acted with commendable speed? Given that the hon. Member for Birkenhead (Mr. Field) is an acknowledged expert in social security matters, does my hon. Friend not find it curious that he did not bring this matter to the attention of the Government before?
§ Mr. Faber
I am grateful to my hon. Friend. The hon. Member for Birkenhead knows that the invasion of Bratton was one of the first of such incidents that drew the problem to people's attention. My hon. Friend is right. The problem became significantly worse, possibly last summer but certainly this summer. I welcome the speedy action taken by my right hon. Friend the Minister to deal with the matter.
The Government are committed to improving living standards for the whole community, and that includes people for whom national insurance contributions make provision in their old age. We now have lower inflation and interest rates and pensioner incomes are higher than they have ever been before. Spreading the ownership of personal pensions will encourage that trend to continue, and that is the aim of the Bill. I am pleased to support the Bill and I urge the House to do likewise.
§ 8.7 pm
§ Mr. Jim Cunningham (Coventry, South-East)
Like the hon. Member for Westbury (Mr. Faber), I am not an expert on pensions. I can only relate to the House some of the things that my constituents have had to say about the present system. Pensions have become a political football. The Government often dress up ideas in such a way that they appear good and seem to benefit people, when they do not in reality do so. The Government's scheme to encourage people to leave SERPS and join private pension schemes has done more to cause confusion than to improve the situation for people who might want to retire before pensionable age. Such people believe that they have security, but they often find that private pension schemes do not give them the benefits to which they thought they were entitled. As a result, there is a long series of complaints to the ombudsman, sometimes there is redress, but sometimes there is not.
93 We cannot say often enough that pensioners in this country have made a major contribution to its wealth and it is not their fault or that of the unemployed That the prospects for wealth creation have been called into question. That problem is basically due to the Government's policies. The key to the problem of private and state pension schemes lies in contributions and higher insurance premiums. Wealth creation is needed in order to fund those contributions. The Opposition say that we must get people back to work to create wealth—to use a Conservative expression. We would rather see full employment, whereas Conservatives would rather see wealth creation. The Government never exactly tell us how they intend to achieve that end, despite various Budgets over the years.
As long as there is high unemployment in this country, there will always be a generation of pensioners who miss out, primarily because they cannot afford the contributions. That is the fundamental isssue, which some of my colleagues mentioned earlier. Wealth creation and full employment should be the major topics for debate in future. The central thrust of the argument is that wherever there is segregation, whatever the economic policies, there will always be funding problems.
I have had consultations with pensioners in my constituency. We had a meeting not long ago that 500 to 600 pensioners attended. Before we start discussing targeting, we must ensure that pensions are adequate. Many of the pensioners at the meeting wanted a minimum pension of £100 a week. I do not think that that is too much for pensioners to ask in this day and age, given the sacrifices and contributions that they have made to the wealth creation of this country. The House must consider whether the pension is enough for pensioners to be able to afford television licences.
The Government say that they believe in consultation, but I have not heard very much from the Government about how they propose to consult pensioners to find out their views. From time to time, we hear a variety of opinions from the Government about what they believe to be pensioners' needs. We must set up the machinery so that pensioners' organisations can be consulted and their needs taken into consideration.
I am sure that some hon. Members—at least, those in Glasgow—will have seen the Channel 4 programme some weeks ago about a number of people with young families who were out of work. They found themselves in the hands of money lenders. How many districts are there in this country where advice bureaux give financial advice to families who find themselves in such a position'? Not only do many families in this country go to money lenders, but they suffer considerable intimidation. All those who saw the programme would recognise some of the problems that seem to be hidden from the Government when they look at the needs of pensioners and those who are unemployed through not fault of their own.
Very often, Conservative Members such as the hon. Member for Westbury are more interested in the propaganda of what the Government are doing and how many people are caught abusing the system. Those abusing the system are obviously in the wrong and should be caught and brought to book, but the real issue is the level of pensions and how we see pensions in the future.
Some 40 or 50 years ago, Beveridge predicted what would happen. Today's debate probably took place in the early 1930s—the clock has been turned back during the 94 past 10 to 12 years. The Labour party is not in government—the general election is over and the responsibility lies with the Conservative Government. They must stop reminding us of what happened in the 1970s and what we said during the general election, and instead deal with the injustices in society.
An old-age pensioner in my constituency has a serious heart problem and cannot obtain the necessities of life such as a replacement cooker. Anybody who considered the injustices that I have witnessed in my constituency would realise the laborious processes involved. Those in need have to talk to voluntary organisations to see whether they can provide a gas cooker or a little bit of furniture on the cheap.
It is time that we had a realistic debate on the problem of unemployment in this country. We do not need any more phoney training schemes; we need adequate pensions and unemployment benefit. The debate should be about how we can achieve those goals in future.
§ Mr. Hartley Booth (Finchley)
I rise with some temerity to speak on the subject of social security, as, during the debate, many hon. Members such as my hon. Friend the Member for Havant (Mr. Willetts) and the hon. Member for Birkenhead (Mr. Field) have spoken with the benefit of an enormous wealth of experience on the issue.
I welcome the debate, and the Social Security Bill. I am often brought face to face with the stark reality—the comparison between now and the 1930s before we had a social security system, so many benefits, and the capacity to care for those in need. The comparison between the 1930s and now is nothing more than a stark contrast between darkness and light.
My hon. Friend the Member for Havant dealt with the Beveridge report, complete with suntan oil stains. I entered the debate in the 1970s in Islington, when, as a young barrister, in my spare time in the evenings I tried to give free legal advice to those who needed it. Young barristers need to work in their spare time to gain experience and give help where they can.
I found that we had a generation of people who had relied on the results of Beveridge and lived through the myth that Whitehall could provide for all their needs. I found people who were disillusioned by the promises of socialism. There were poor people who had never been told that their talents could provide for them if only they could be taught the confidence to use them.
The Bill will be judged on four criteria. First, will it make people better off? It certainly will—2 million people will be £160 million better off as a result of the Bill. If we work that out as an annual payment with uprating, on a conservative estimate, each of those 2 million people will be £3,000 to £4,000 better off. I stand to be corrected by my hon. Friend the Under-Secretary of State, the hon. Member for Maidstone (Miss Widdecombe).
Secondly, will the Bill penalise other pensioners? Of course not. At Question Time today, we heard that even The Guardian welcomed the fact that this autumn, despite the recession, pensions had been uprated in line with prices.
Thirdly, will the Bill improve choice and resolve a problem? The answer is yes to both those questions—and we have discussed that.
95 Fourthly, will the Bill provide a disincentive to all those people in the matrix of helping and caring for the needy to come forward? I believe not. I wish to talk about this matrix of care. A distinctive feature of what my right hon. and hon. Friends understand by care is that, beside state provision, which is the main thrust of the debate, is private care, such as care for a neighbour. That fits into the pattern of provision of every constituency.
In Finchley, which I represent, there is everything from the Milly Apthorpe trust, which provides for the disabled when they are in need, to talking newspapers for the blind, from excellent homes for the elderly to the Finchley friends of the local hospital, who provide for the geriatric wards. We need idealism. We need a matrix and a partnership in care.
In the past, young men dreamed dreams and old men saw visions. We on the Conservative Benches are now told that it is the middle-aged Members who mess things up. Of course we need idealism, even those of us who carry the burden of government, but we must aim higher. We have heard about the realities of demography, and to expand upon that, I tell the House that the uncle of one of my constituents recently died at the age of 118 years.
People will live longer, and we must provide for them. Some call for the cause of euthanasia to be advanced. I vehemently oppose that, as a matter of deep conviction. Surely we want to see the quality of life after retirement improved and improved again.
My hon. Friends and I are proud that pensioners have seen annual growth in their receipts from the Government—five times faster than that achieved during the Labour Administration. Pensions have increased in line with prices. Many argue—for example, Pensioners' Voice—that pensions should be linked to the rise in average earnings, but the entire picture needs to be put in perspective and all factors taken into account.
Pensioners' incomes doubled between 1979 and 1988, whereas they fell by 16 per cent. between 1974 and 1979. If we set inflation alongside pensioners' savings and their income from their savings, we find a generation of pensioners who are better off. In 1986, I came across a sad case of a delightful old man who had put aside £1,000 since 1974 to pay for his funeral, which meant a great deal to him. By 1980, the value of that £1,000 had been whittled away. It was then worth only £400. He was deeply worried, because that sum would not pay for his funeral. As I have said, we must consider all the aspects of care. Inflation and the excellent increases that will stem from the Bill must be set side by side.
We Conservatives alone have had the courage to deal with fraud within the social security system. We have provided an extra £10 million this year to tackle fraud and abuse of the system. We estimate that £100 million will be brought back to help provide for the extra benefits that will stem from the Bill. It is this approach that will make the money available, and we want to provide it for those who are in need. I ask Opposition Members to condemn fraud in the social security system, which they have not done.
Let us compare provision in the United Kingdom with that in other parts of Europe. Taken against France, Germany, Italy, the Netherlands and Spain, Britain fares well. A study was published on 29 November by an 96 organisation called Hannan Ltd. Media Scan. It compared six individual cases, and went into its research in great detail. In every case, the United Kingdom took either first or second place, except for one in which it came third. We have a proud record in provision of care for the elderly through pensions and other benefits and allowances. The survey justifiably demonstrates that.
Of course there is more to do. There will always be more to do to help those who are in need, including the elderly, and the Bill is a step forward. It is sensible, short and balanced. That balance continues to provide an incentive to public as well as private provision, and I commend the Bill to the House.
§ Mrs. Angela Browning (Tiverton)
I welcome the Bill and the opportunity that it provides to debate yet again the merits of pensions—especially personal pensions—for the current generation.
It is easy—perhaps this is typical of the Conservative party—to confine ourselves to present needs, but perhaps it would be more advantageous to consider the burden upon taxpayers as we move into the next century. In other words, we should consider the position of the next generation. Perhaps I should declare a personal interest: I am a member of the generation who will be pensioners to be supported by the next generation. It is probable that I shall be asking my children's generation to pay out to meet any entitlement that I may have to a state pension.
The Government, in taking account of demography and actuarial figures, especially in relation to the state earnings-related pension scheme as it is attached to the state pension for the next century, are right to draw attention to the fact, as they have done since 1988, that it will be our children's generation who will have to earn the money and pay the taxes to provide for our generation when we receive the money at a post office or in our bank accounts.
I hesitate to use the word "philosophy", because it has many connotations that tend to be rarefied and academic, but that is not so of pensions. When talking of pensions we are discussing the practicalities of people's lives. Many years ago, when they were asked what they most wanted in life, people in my peer grouping said that they wanted a home of their own. If we ask people in my generation—those in their 40s—to identify their aspirations, we find that they are looking forward to their years of retirement and are interested in what their quality of life will be in their 60s, 70s and 80s.
We are asking people now to start making provision for their years of retirement during their working lives, when they are earning money and paying national insurance contributions and taxes. We know that, as people's health improves and there is the prospect of living much longer, the money available for retirement will have to last much longer. Fortunately, people often remain much fitter for much longer than hitherto. That means that their expectation of what they will be able to do in retirement is greatly enhanced when set against the expectations of previous generations.
The average woman has a life expectancy to the middle 70s. Let us take 74 as an example. If she retires at the current retirement age of 60 and we consider her potential for making provision for her retirement, we find that the first 18 years of her life were spent in the education system, 97 when she was dependent on others to provide for her. We can then take six years of her life, for example, when she was looking after children and was not able to contribute to a pension. She will often be dependent on a husband with an occupational pension. When she retires, she will have a life expectancy of another 14 or 15 years. Out of a lifespan of 74 years, she would have been in a non-earning capacity for 38 years, so there were few years in which she could make provision for her retirement.
The Government arc right to be flexible in the range of pension provision, especially for women. I want to emphasise the difficulty they face. Britain has a high divorce rate, with one in three marriages expected to end in divorce. Many women work only part-time or are dependent on their husbands' occupational private pensions for their quality of life in retirement. There is little opportunity for such women, especially if they divorce later in life, to accrue financial security. For many of them, SERPS is the one opportunity to accrue some independent financial provision during their working lives.
The Government's approach to pension provision has been flexible right through from SERPS—I welcome the additional bonus for those who contract out—to additional voluntary contributions for those who wish to top up a company or occupational pension scheme, to free-standing pension schemes, to portable personal pensions and to a whole range of pension provision under which people can, for example, invest a single lump sum.
That flexible approach is important, because people's working patterns have changed. Now, someone coming out of education can expect to be in employment for a few years, then perhaps to be self-employed; then later, he may have to reduce the number of hours he works. All those factors now impinge on people's life patterns, so it is right that pension options should marry, meet and fulfil their expectations.
Previously, people in occupational pension schemes who changed their jobs had their contributions and those of their employers frozen. The effect was punitive, especially on those who changed jobs more than once. That is why the Government were right to free the pensions market and ensure that those who could make pension contributions during their working lives should have the flexibility and opportunity to do so. It can only enhance their quality of life in retirement.
I accept that currently a group of people are not in that happy position but depend on the state pension, plus any top-up benefits to which they are entitled. I am not saying that they are well off, but there is now a growing generation of pensioners who are beginning to reap the benefits of investing in a personal pension. It is easy to recognise the enhanced quality of life they enjoy.
That is why the Government, contrary to what the Opposition want, are right to act as an enabling body through the introduction of flexibility into pension provision—of which contracting out of SERPS is a good example—and through the tax discounts available to those who invest money in a pension. It is wise to give someone a tax break during his working life, so that the next generation will not have to pick up even higher bills to support him in retirement.
Labour Members have a rather wry expression on their faces—[interruption.] Perhaps not; I do not want to misjudge them. It must be right to encourage investment in 98 personal pensions for those who have the opportunity to do so, so that when they retire they can enjoy a good quality of life.
Of course I fully accept that the state must always provide for those who are dependent on a state pension or on benefits and for those who are widowed or divorced and whose retirement expectations will not be fulfilled. However, that should not deter those who have the opportunity to do so from investing in a pension during their working lives. It is not simply a question of capitalism and personal wealth; it is the quality of life for a whole generation of pensioners. We have to consider those, in whom I include myself, who will have to provide for that generation.
When a range of options is available, it is important that people receive professional advice. I recently wrote to my right hon. Friend the Secretary of State about that, not just in the context of pensions but about the way that the Financial Services Act 1986 has been implemented through the devolution of power to the Securities and Investments Board, LAUTRO, FIMBRA and others.
If self-regulation is to work, people must be able to trust the advice they receive from financial advisers. I am encouraged to learn that my right hon. Friend intends to produce a leaflet giving further guidance—[Laughter.] Before Labour Members collapse with laughter, I must tell them that I have received a personal assurance, not just from my right hon. Friend but from the self-regulatory bodies and those who have to deal with them, about certain cases that should have been picked up earlier.
I am pleased to hear that my right hon. Friend is to tighten the way in which the self-regulatory bodies work because they need to be scrutinised. They must ensure that they properly exercise their devolved powers to ensure that the pensioner or other person receiving financial advice is protected. We can never stop the fraudsters and crooksters in, for example, the Maxwell case. It would have been difficult even for those with advance knowledge to have recognised what Maxwell was doing, even if it is easy with the benefit of hindsight.
There will always be villains. The regulations should work, provided that my right hon. Friend uses his powers. I have asked him to scrutinise more thoroughly what is happening within the regulatory bodies, and he has assured me that he will do so. If he does not, I shall be at the front of the queue wanting to know why. It is important that people receive the right advice.
The Government have put SERPS at the heart of the Bill. The Opposition have publicly criticised the provision to contract out, but they should realise that, if someone who has paid into SERPS dies before pension age, there is little provision for his next of kin, whereas, if he had contracted out of SERPS, there would be a lump sum. I think that is admirable, especially for widows whose retirement expectations would not otherwise be fulfilled. It is more beneficial to the individual, because he or she can monitor how the policy is growing.
I support the Government's most welcome move to expand and increase the provision of private pensions. They will definitely be much more meaningful to the next generation—in the same way that the present generation of pensioners enjoy a greater quality of life because their basic state pension is topped up by private provisions. There is nothing wrong with that.
If one asks people what they look forward to in retirement, they reply that they want time and leisure, to 99 go out and do things that they previously never had the time to do. We all know that costs money, and pensioners will be unable to enjoy those pursuits without the wherewithal—unless they stay at home in their gardens seven days a week.
I support the Government's proposals in the Bill, and hope that they will continue to ensure that personal pensions are available and flexible, and that a wide choice will be available to the next generation.
§ Mr. Stephen Day (Cheadle)
I apologise to the House for not being present for the first part of the debate. You knew, Mr. Deputy Speaker, of my intention to speak, but I was delayed in my constituency and then had the joys of a five-hour drive through the rain and traffic jams. I apologise also if I repeat any points that have already been made.
Whenever I speak as a member of the Social Security Select Committee, I make a point—and I do now—of declaring my indirect interest as a parliamentary adviser to the National Association of Local Government Officers.
Whenever Opposition Members speak on the topic of social security—this came across strongly this evening—they say that their key objective is to ensure that the level of pensions is addressed. The hon. Member for Coventry, South-East (Mr. Cunningham) also said that unemployment is rarely addressed and expressed a desire for the House to deal with that aspect, too. I have no quarrel with that, because surely right hon. and hon. Members in all parts of the House agree with both objectives. It would be a funny person who did not.
However, the hon. Member for Coventry, South-East repeated the fundamental error made by many Opposition Members, in believing that just by making such a remark, the problem will be dealt with. There are harsh realities and choices confronting this country and, I readily admit, many individual pensioners. I will try to address that aspect in the debate.
§ Mr. Jim Cunningham
I touched on the point that the hon. Gentleman mentioned, but followed it up by saying that the key to the pensions problem is wealth creation—or, as my right hon. and hon. Friends would put it, putting people back to work. Whether or not one is talking about a private or state scheme, the key to an adequate pension must be wealth creation. I did not glibly make that point and leave it at that. I emphasised the fact that people must be put back to work, to create the resources necesary to pay adequate pensions.
§ Mr. Day
I am glad to have given the hon. Gentleman an opportunity to explain the position. No one on this side of the House would disagree that wealth creation is the key to the future of all benefits and to any modern society. That is the heart of Conservative philosophy. Wealth creation comes first—and then one decides how to allocate that wealth among the least well-off. That is a fundamental tenet of Conservative thinking, so I cannot disagree with the hon. Gentleman on that.
Conservatives make the same point as the hon. Gentleman, but that is not enough. Obviously we must get people back to work, but the political debate on that issue and on the Bill is how to achieve the necessary wealth.
§ Mr. Jim Cunningham
That political divide is obvious, but I am also saying that your polices have led to a situation in which there has been a depreciation of state benefits and pensions, because your policies are not necessarily designed to get people back into wealth creation. They are designed more to put people on the dole—and that is the political divide.
§ Mr. Deputy Speaker (Mr. Michael Morris)
Order. I believe that the hon. Member for Coventry, South-East (Mr. Cunningham) meant "your party'.
§ Mr. Day
I stand corrected, Mr. Deputy Speaker.
I strongly believe that whatever provision society makes for personal pensions in the foreseeable future, for the public to believe that they can rely on the state to provide a basic pension that will meet all their needs is, in the modern age, living in cloud cuckoo land. One may be able to make a theoretical moral case for making such a provision, but it comes down to the practicalities—and of not only the present but potential economic performance of this country and of the economies that surround it. I will expand on that point later.
That background makes it essential that personal provision is made and that choice is available to those who are able to make choices. Whatever provision the Government make, and whatever encouragement they give, I acknowledge that they cannot help everyone. Not everyone is able to make use of opportunities. I refer particularly to pensioners in the 75 to 80 age group and older. When they were youngsters, even if they could have afforded the luxury of a pension scheme, such a thing did not exist, while many others did not earn enough to exploit such an opportunity.
Those who rely totally on existing state benefits definitely struggle. That is why hon. Members on both sides of the House are right. The Opposition say that pensioners cannot manage. In the case of older pensioners who rely on state benefits, that is true. It is also true when the Government say that state pensions have risen far more under them than they did under the last Labour Government. The record of Conservative Governments in that regard surpasses anything achieved by Labour in terms of pensions, savings and retaining value.
At the heart of the issue is whether we can deliver. The pensioners who are aged 80 or more must be looked after by the state—and the state ought to do more in respect of those people. As to pensioners generally, while those who rely on state benefits are struggling—I know that from my own constituents—I am firmly convinced that the majority of pensioners in my constituency are doing comparitively well. They have, of course, struggled in recent years and experienced difficulties—especially with the significant fall in interest rates. That brought joy to mortgage holders but despair to many pensioners in my constituency who have savings.
In general, pensioners have savings. Many more find themselves in that situation than ever dreamed that they would at the end of the last war. There have been great advances and Conservative Members have nothing for which to apologise in that regard.
101 However, the realities must be faced, and I should like the Government to do more for older pensioners who rely totally on the state. They cannot make use of the opportunities for private pension provision that are now available—but it is right that such provision should be offered to those who can make use of it. That is the only realistic course to take.
Social security, like health, creates massive problems for this country and other western societies. We all face the same demographic pressures. When we have addressed that key issue 'we may have to take some difficult decisions. Pensions have become a political football. That is unacceptable. The vast majority of people, who are not assisted by politicians who never tell the whole truth, believe that the provision of state benefits is theirs by right. That belief was fostered by years of socialism. The state is supposed to provide everything and people think that it will always be able to do so. The harsh reality is that that is not so.
We know that health and social security issues are at the heart of the problems that face the United States of America. They were the two great issues with winch the electorate were faced during the presidential election. They are the two great issues which also face this country. New Zealand faces massive problems over its social security payments. The number of working people in the developed world with an income and the number of companies that make profits, the two things which alone create the funds for pension schemes and state benefits, has been reduced, while the number of people who want to benefit from pension schemes continues to increase. The problem is made even worse in a recession.
The western world—the so-called first world—is in danger. A fundamental shift of economic power is taking place in the world. It is time that politicians faced up to that reality and considered what could be a realistic objective. We should stop raising people's hopes that, somehow, the state will always be able to provide pensions. We can take some steps. To some extent, the Bill takes us forward, particularly over private pensions. The problem is greater, however, than any of us is prepared to admit.
In terms of the world's economy, the growth area is the Pacific basin. There are all sorts of reasons for that. They are newly industrialised countries. Expectations are low, so wages and costs are low and productivity is high, though workers in this country would not accept the working conditions in that part of the world. Nor should they have to accept such conditions. However, economic reality may force us to make changes.
The world does not owe this country a living. It is nonsense to assume that the standard of living that I enjoyed when I was a young man and that the wealth that created it will always be there. The debate on this issue never addresses that point. People are never told that the countries of the west face a major problem. No Opposition Member has ever addressed that fundamental shift of economic power. Whether we like it or not, the truth is—my perception of the truth is—that economic—[Interruption.] It is the only valid perception of truth that anybody can have, is it not? It must be their own, certainly in this place.
The economic facts are that economic sovereignty no longer exists. When we deal, therefore, with issues such as this we have to face the reality that we are part of a world economy and suffer from its effects. If, therefore, we are to 102 ensure that pensioners will be provided for by some means or other, we shall be unable to rely on the belief that private pensions are bad and that the state must provide them. It will be impossible for the state to do so. When Opposition Members say here and, by so doing, say to the people outside the Chamber that the provision of state pensions is morally correct, they mislead the House and they also mislead the nation about the fundamental problems that face any Government when trying to provide pensions for the people of this country.
To some extent, the Bill addresses these great difficulties, but I should like the Government to address other issues that we have not yet had the courage to deal with. Since we face great demographic pressures, we must not be afraid of targeting benefits. If only a shrinking pot of money is available, we must ensure that the money goes to those who most desperately need it. The so-called first world countries will have to think about that problem.
Let me take as an example family allowances. I supported uprating in the past. I supported, too, the principle that the allowance should be paid to the lady of the household, but the economic position is so grave that we must look again at that benefit and consider whether it is right that it should be paid to everyone, irrespective of need. We must ask ourselves whether that is the best way to use limited resources. It will be a difficult decision, but I believe that we should look at it.
§ Mr. Day
You are absolutely correct, Mr. Deputy Speaker.
The Bill's provisions take us in the right direction, in that they provide for private pensions, but my case is that the state can never again be the only provider and that people should not be led to believe that the state will be able to provide benefits to everyone. The point that I am trying to make by mentioning family allowances is that the benefit is provided generally and that we shall have to address that issue.
The Bill proves beyond doubt that the Government are committed to providing for those members of society who are least able to provide for themselves. The recent measure to protect social security payments was widely welcomed in my constituency not only by recipients of such benefits but by many people who receive no benefit but want fair play for those who do. The Government certainly achieved what the vast majority of my constituents wanted—fairness. Social Security Ministers fought hard in a difficult spending round and I add my congratulations to them on securing extra benefit for the least well-off members of society and on giving the firm message that the Government are committed to looking after their interests.
There are other fundamental issues that the Bill does not address, but they must be addressed if we are to maintain the care and provision that every hon. Member wants to see.
§ 9 pm
§ Mrs. Llin Golding (Newcastle-under-Lyme)
The Secretary of State's speech showed once again what chaos the Government are in and how badly they are managing our money. He confessed, four years after the Government said that there was no need for Treasury payments to the national insurance fund, that he will have to go cap in 103 hand to the Treasury for money. At the same time, he had the nerve to ask us to support giving away unnecessarily the people's money in the fund.
What has happened since the 1988 autumn statement, when it was announced that the Treasury supplement to the national insurance fund would be abolished? Only four years ago, John Moore, now Lord Moore of Lower Marsh, speaking for the Government about the supplement, said:We consider that there is now no need for it at all. The £26 billion of expenditure from the fund is fully covered by contributory income, and the abolition of the supplement will have absolutely no effect on that expenditure." [Official Report, 10 January 1989; Vol. 144, c. 719.]What has happened since? Payments to the fund have increased from £29,825 million in 1988–89 to an estimated £35,000 million in 1991–92. That takes into account changes following the Social Security Act 1990. In the same period, payments out increased from £26,744 million to £37,802 million.
The Government have turned a surplus of £3,081 million into a deficit of £2,802 million, and things are getting worse. The Government Actuary report on the financial provisions of the Bill showed that the estimated deficit for 1992–93 has been revised from £2,850 million to £4,659 million. Paragraph 12 reads:Lower earnings and fewer contributors reduce the estimated contribution income in 1992–93 by some £360 million and £750 million respectively whilst other miscellaneous changes increase income by £8 million in aggregate.Paragraph 13 says that estimated benefit expenditure is £991 million higher than in the uprating order for 1991 and thatUnemployment benefit is increased by £408 million due to an increase in the assumed average numbers employed.Expenditure on invalidity benefit is estimated to be £460 million higher. Minor revisions to estimates for the other benefits increased expenditure by £43 million. This has come about because lower earnings and fewer contributors have reduced the estimated contribution income. This is an example of another fine mess that the Government have got us into.
What are the main reasons for the mess? First, there is the removal of the Treasury supplement. Secondly, there is the payment of personal pension incentives which rose from £289 million in 1988–89 to a colossal estimated £2.487 billion in 1991–92. I will deal with that later. Thirdly, there is the fact that benefit payments increased more rapidly than contributions. Who is responsible? Who was Chief Secretary to the Treasury in 1988 when the Treasury supplement was taken away? Who was the Chancellor who watched personal pension incentives grow to massive proportions? Who is the Prime Minister who has seen unemployment grow—and grow and grow? I will not name him because he will only say that it was somebody else.
Our people now know that the responsibility for our appalling unemployment rate and for the devastation of British industry lies with the Prime Minister, with the Chancellor of the Exchequer and with the Secretary of State for Social Security who, in his time at the Department of Trade and Industry, destroyed more of our factories than the Luftwaffe ever managed to do.
Let us look at the record since the third quarter of 1990. There are 1.25 million more unemployed, 110,000 104 businesses have failed, 140,000 homes have been repossessed and there has been a 4 per cent. fall in output. I see it starkly in my constituency. There is the fight to survive and the battle against short-time working, there are redundancies, there is unemployment, there is the closure of factories, foundries and shops, there is the devastation of the building trade, there is the contraction of the pottery industry and now the threat of the closure of Silverdale colliery. Against that background, nobody should be surprised that the Government have had to ask for more money. As a result of lower earnings, people are paying less. Unemployed people, who should be paying into the fund, are having to be paid out of it, which is a great part of the problem.
The national insurance fund is receiving fewer contributions than was expected because more people are losing their jobs and more firms are closing. Every day seems to bring more job losses and yet another disaster for the British economy. People are insecure, fed up and depressed. They do not expect miracles, but they do expect the Government to be doing more to get the country back to work. They do not expect the Government to introduce a Bill that asks people in work to pay their hard-earned money into the nation's insurance fund so that the money can be given to people as an incentive to opt out of the state earnings-related scheme.
The Government have not explained what is wrong with SERPS which has led them to pay incentives to people to contract out. The Opposition have always opposed the payment of those incentives. Although we welcome the reduction in incentive payments from 2 per cent. to 1 per cent. of earnings, we believe that it is unfair that the new incentive will apply only to personal pension holders. Why should people with occupational pensions now be left out of the scheme? What is so good about private pension schemes that people should be encouraged to transfer to them? Private pension schemes are a lottery. Some may be well run, whereas others may be badly run.
People who take out private pension schemes often do not have enough information. The Opposition believe that the incentive money could be better spent providing the regulation of personal pensions and giving better information to contributors. Why are occupational pension schemes excluded? Why should workers in factories see their money used to help pension companies to undermine the state scheme? Why should working people in the state scheme pay their hard-earned money to do the pension companies' recruitment job for them? Is not it iniquitous that money from workers in the state scheme should be paid out to private schemes? What kind of fairness is that? The Government should be strengthening the state scheme, not weakening it.
Why is it that only people aged over 30 may now apply? If 30 years is such a magic figure, why did it not occur to the Government when the scheme was first introduced? I suppose that the Government will say that the figure is ambiguous and that it is rough justice. Everything about the Government is more rough than justice.
The Labour party is convinced that no incentive should be paid to opt out of the state scheme. We believe that it is in people's interest to stay in the scheme. The Bill is forced on the Government because of the complete collapse of the Government's economic policies. However, we will not ask Opposition Members to vote against Second Reading tonight because we know that it is not the Government who have suffered from their incompetence.
105 The Prime Minister, the Chancellor of the Exchequer and the former Secretary of State for Trade and Industry have not suffered. It is the people who have lost their jobs, incomes, savings and homes who have suffered and they would suffer even more if we did not support the Bill.
Because of those people, we will not oppose the Bill tonight. However, we will examine the Bill in detail in Committee. We will urge the Government to abandon what seems to be their overwhelming desire to squander the money which belongs to the people and on the proper management of which so much of their standard of living depends.
The Parliamentary Under-Secretary of State for Social Security, the hon. Member for Maidstone (Miss Widdecombe), has many questions to answer. She must be aware that our concern is that the money be properly managed because the standard of living and quality of life of so many of our people depend on it.
§ The Parliamentary Under-Secretary of State for Social Security (Miss Ann Widdecombe)
This has been a well-informed and interesting debate with many detailed contributions. I begin by congratulating the hon. Member for Newcastle-under-Lyme (Mrs. Golding) on her first appearance, at least in respect of legislation, at the Dispatch Box. I look forward to more exchanges with her, perhaps even in Committee as she anticipated at the end of her speech.
Various themes have emerged from this wide-ranging debate. I think that I should be able to touch on them at least once in the time that remains to me. The first theme to emerge was the apparent conflict of views on the two sides of the House about whether it is better to encourage dependency on the state or to encourage individuals to make provision for themselves. I thought that I detected a difference of opinion on that issue not just between the Opposition Front Bench and the Government, but between the Opposition Front Bench and some Opposition Back-Bench Members.
It was a recurring theme in the debate that the SERPS burden was growing and Opposition Back Benchers offered various suggestions about how to reduce that burden. The main thrust of the opening and closing speeches from the Opposition Front Bench was that we should concentrate our efforts and resources on the greater promotion of SERPS, rather than on assisting people to make private provision.
Another theme in the debate commanded great cross-party support. That was the shared concern that the personal pensions that we are determined to promote and encourage should be reliable and subject to regulatory safeguards to ensure that when people take out those pensions, what they are told they will get is what they get at the end of the day.
There were several interesting contributions in that respect and perhaps the most interesting was made by the hon. Member for Glasgow, Garscadden (Mr. Dewar), who opened the debate for the Opposition. He said that it is very difficult for people to give the best advice when they are financially dependent on the outcome, as is the case when they rely on commission. The hon. Gentleman was a solicitor before he was elected to the House. Of course, solicitors often give advice on going to law. Presumably, they must occasionally advise clients not to go to law, even 106 though they know that that would deprive them of their fees. Provided that the profession is properly regulated and is honourably conducted, there is nothing unique about an insurance salesman having to distinguish between best advice and his own financial interests. That principle is applied to many occupations. I shall return to the main point about reliability and safeguards.
The third theme was the soundness of the state pension, the soundness of our general provision for pensioners and, in particular, a point that grew towards the latter part of the debate—how we best assure that soundness in the light of the growing number of pensioners and the number of pensioners who are living longer. I was even challenged by my hon. Friend the Member for Teignbridge (Mr. Nicholls) to state the number of centenarians. I am delighted to be able to tell my hon. Friend that I can produce the figure, but I shall do so when I refer to the issues that he raised. The hon. Member for Newcastle-under-Lyme referred—
§ Mr. Willetts
We are heading for an epic speech. It is helpful to have the structure laid out so clearly before we move to the substance of my hon. Friend's speech. Will she refer to European comparisons in respect of pensioners' incomes? Many of our figures on British pension provision are not properly compared with their continental counterparts.
§ Miss Widdecombe
For the benefit of those who did not read the Sunday Express, I shall be delighted to allude to the very favourable position of British pensioners.
As I was saying before I was so helpfully interrupted, the hon. Member for Newcastle-under-Lyme and other hon. Members made much of the present economic situation. The hon. Lady reeled off the standard and requisite gloom and doom statistics which the Opposition always churn out with relish. As we are on the subject of Euro-comparisons, let me point out that there is nothing unique about the British recession. We are in a world recession. In the spirit in which the hon. Member for Birkenhead (Mr. Field) congratulated my right hon. Friend the Secretary of State on his triumph in protecting benefits in the autumn statement, perhaps I may also congratulate my right hon. Friend on not following a large number of our European partners in having to reduce benefit. Although our recession is not unique, our ability to handle it brings great credit on the Government.
§ Mr. Dewar
My point might seem a little pedantic, but it is relevant. The Minister is talking about the excellence of the management of her Department. She knows that the national insurance fund has forecast unemployment of 2.8 million during 1993–94. Is she confident that that forecast will be held?
§ Miss Widdecombe
The hon. Gentleman has a fondness for repetition. He raised that point no fewer than three times in his speech. In setting out the themes that governed the debate, I have made it very clear that I shall deal with each point. He will be delighted to know that I shall deal with that matter and with all the others that he mentioned four, five or six times because he had no others. He will get an answer, but it will be in my good time and not at his request.
§ Miss Widdecombe
Well, the hon. Member for Garscadden did not like it earlier when I smiled and nodded at him, so I thought that perhaps he wanted a change of approach.
Having discussed the general themes that were dealt with during the debate, it might be as well to remind the House of what the Bill is about. It contains three specific clauses. Towards the end of the debate, I thought that we were dealing with the wider question of pension provision, rather than the three small and modest clauses in the Bill.
§ Miss Widdecombe
The hon. Gentleman senses that I am getting nearer to answering his questions. The clauses cover the provision of a 1 per cent. rebate for holders of personal pensions over 30, the Treasury supplement, and the technical adjustment to enable administrative expenses to be paid from the fund.
The hon. Member for Garscadden mentioned the Treasury supplement, as did the hon. Member for Newcastle-under-Lyme. The thrust of both of their criticisms was that somehow we were wholly improvident when we abolished the Treasury supplement, that we did not expect that we might need it again, and that we took a risk that has not paid off.
My right hon. Friend who is now the Minister for Social Security and Disabled People said, when dealing with the question in the Committee stage of the Social Security Act 1986:If the position changed dramatically a future Government could have a single clause in a social security Bill and bring it back."—[Official Report, Standing Committee F, 17 January 1989; c. 35.]What a prophet he turned out to be. As the position has changed dramatically, we have produced a single clause in a Social Security Bill to bring it back. So it was not improvidence. We have provided for the situation.
However, there is an enormous difference. Last time, the Treasury supplement was mandatory—it was there whether we needed it or not. We did not believe that that was a sensible use of public money. The difference this time is that the supplement will be flexible, and will be there for need rather than being mandatory.
The hon. Member for Garscadden said that it used to be a balancing act, but it was not, because the supplement arrived whether we needed to balance or not. We are creating a much more sensible arrangement, whereby we can call on the supplement, as we always said that we might have to do, as and when we need it, rather than being tied down to it.
Four times during the debate the hon. Member for Garscadden mentioned the 2.8 million figure for unemployment. Our job is not to second-guess the Government Actuary but to respond to him. That is why we have brought forward the Bill. The Government review the position each year. If, at the point of review, we decide that the projections are wrong, necessary adjustments can be made. We must make it clear—I was not even certain that the hon. Gentleman appreciated this in his opening speech—that the balance that we are seeking to maintain in the fund is simply the prudential minimum. Once that balance is restored—even if the outcome next year should be different from the forecasts—the fund will still be manageable.
§ Mr. Dewar
I am sorry to interrupt the hon. Lady. I appreciate the point that she made, to which I referred in 108 my remarks, but I should like go back to my original question, although with some trepidation in view of her strictures. The hon. Lady says that it is not her job to second-guess the Government Actuary, but, as he made clear in his report:I have been instructed to use for the purpose of the above estimatesthe figure of 2.8 million unemployed. It is not up to the Government Actuary to second-guess. What I want to know is whether the Minister believes that the figure of 2.8 million will hold.
§ Miss Widdecombe
I have already taken care of that point. One of the reasons that those on the Opposition Front Bench get so muddled sometimes is that they do not listen to what is said. They spend so much time barracking from sedentary positions, in total contravention of the Standing Orders of the House, that they do not hear the things that are said to them. I have already said clearly—I will repeat it again, because, apparently, the fashion tonight is to repeat endless points—that the figures are reviewed every year and that adjustments can be made, as necessary.
The hon. Member for Garscadden also said that the Opposition would not oppose the Bill because it was necessary to keep the fund in balance and because they rejected the only other two options—to reduce benefits or to increase national insurance contributions. I think that the House will welcome the change of heart that has apparently swept through the Opposition, especially when one considers that they fought the last election on the issue that they would raise national insurance contributions. At long last they have seen the light—
§ Miss Widdecombe
Yes, the Opposition did lose and they will go on losing because every time they have a policy that looks a bit inconvenient, they change it. They do not know from one day to the next what they stand for. Tonight those on the Opposition Front Bench have made it clear that they are against raising national insurance contributions.
§ Miss Widdecombe
Not at the moment, but I may do so later.
We are delighted to note that the Opposition have now made it clear that they are against raising national insurance contributions and we are delighted to note that they have withdrawn a policy under which 3 million extra people would have paid increased national insurance contributions.
The Opposition also say that they are against cutting benefits—they speak one way but look the other. Let me reiterate what my right hon. Friend the Secretary of State said at Question Time about the attitude of the Opposition when he announced that there would be no benefit reductions. When they heard that, their faces were as glum as owls. They not only want people to be dependent upon the state, but, when there is a Conservative Government in power, they want such people to be consistently worse off so that they can make political capital out of that.
§ Miss Widdecombe
The hon. Gentleman can sit down because I cannot remember what his face was like on that occasion, but I know what the overall reception from the Opposition was like. When we called out for the Opposition to cheer on what we were doing, they still sat silent and they still looked miserable. They did not want us to protect benefits on that occasion.
§ Miss Widdecombe
If the Opposition express relief by those gloomy looks, I should love to know how they express horror.
§ Mr. Field
It is totally untrue to say that we were not relieved. Earlier in the debate a number of Conservative Members minimised the Secretary of State's two achievements. First, he defended his budget in the face of bizarre Cabinet colleagues and, secondly, having conducted art extraordinary campaign in the press that suggested that every sort of benefit would be cut, he came to the House in triumph to say that no benefits had been cut. Why do his colleagues suggest that he did not gain such achievements? Why will the Under-Secretary not accept that the Opposition were genuinely relieved when, for once, those on the Treasury Bench protected the poorest in our society?
§ Miss Widdecombe
I am happy to accept that the hon. Member for Birkenhead was relieved, because that would be in keeping with the characteristics that he has always displayed in the House. But if the expression on Opposition Members' faces on that day indicated relief, I dread to think what they look like when they are gloomy.
§ Miss Widdecombe
No. I immediately regretted giving way last time, because the hon. Gentleman's intervention contributed little to the debate.
I shall now jump a point in my speech to deal with a matter raised by the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), which has just been raised again by the hon. Member for Birkenhead and others—that somehow my right hon. Friend the Secretary of State encouraged adverse speculation, raised fears among the dependent and weak, and generally encouraged people to think that the worst would happen simply so that he could come here and present a great triumph in the end.
I remember sitting on these Benches and, time and again, Opposition Members stood up and asked where in the Conservative manifesto we promised to tax invalidity benefit, because that was what we intended to do. They asked whether we denied that we intended to means-test the state pension, given that that was what we intended to do. The Opposition are responsible for stirring up many fears by asking those questions time and again.
§ Miss Widdecombe
If I give way to the hon. Gentleman, I hope that he will give the House some information. Will he name one journalist or any other source who says that his or her information came from my right hon. Friend?
§ Mr. Field
A non-wretched Minister, who comes to this House and, under the guise of loyalty, tries to minimise his achievement.
Fortunately, English courts do not decide whether people are guilty on the basis of what their faces look like. The Secretary of State has now cheered up, but he looked pretty glum when the hon. Lady was minimising his significant double achievement.
§ Miss Widdecombe
I know that my right hon. Friend wants the hon. Gentleman to praise him, but may I deal with one intervention at a time?
Far from minimising my right hon. Friend's achievement, I put it on a Europewide and worldwide basis by comparing it with the non-achievement of other countries that did not protect their benefit system.
§ Mr. Dewar
Will the Under-Secretary deal with two brief points? First, she probably read, as I did, the reports of her right hon. Friend's speech to the 1922 Committee shortly before the autumn statement, which gave some substance to the press reports that were coming from somewhere not far from the Department about the possible content of that statement.
Secondly, when the Minister accuses the Opposition of irresponsibility talking about the possibility of taxing invalidity benefit, does she recall that the right hon. Gentleman made it honestly and explicitly clear that he wished to tax invalidity benefit and was merely being held back by technical difficulties that he soon hoped to overcome?
§ Mr. Lilley
Would it help my hon. Friend the Under-Secretary to relieve the hon. Member for Glasgow, Garscadden (Mr. Dewar) of his profound credulity with regard to the newspapers if I told him that, as much as I should love to address the 1922 Committee, I have never received an invitation to do so?
§ Miss Widdecombe
We may judge the accuracy of the second observation by the hon. Member for Garscadden by the accuracy of that one.
I was asked about tax and invalidity benefit, although I am not sure what they have to do with the Bill. Although the policy has always been clear, the autumn statement did not say that we intended to do anything about that. It was a scare story dreamt up by the Opposition.
111 The hon. Member for Garscadden asked about age-related rebates and our overall plan on that issue. We made it clear in the manifesto that our ambition was to introduce age-related rebates by April 1996. We have no reason to depart from that at this time. Nothing will be done without extensive consultation, and when we have formed a view about the appropriate structures there will be such consultation and the necessary views will be taken into account.
The hon. Member for Garscadden asked about the extensive nature, as he saw it, of the 2 per cent. incentive. My hon. Friend the Member for Havant (Mr. Willetts) made a valuable point about the projection of savings. I listened carefully to the amounts mentioned by the hon. Member for Garscadden. He classified them as a net expense to personal pensions, but they include the rebates that would have been paid if they had been ordinary contracted-out occupational pension schemes. The observation by my hon. Friend the Member for Havant and the inclusion of the rebate figure closes the matter from both ends. The hon. Gentleman should do his sums again before he challenges us in Committee on the expense of the incentive.
The hon. Member for Garscadden asked why we, to use his words, discriminated against company-operated money-purchase schemes—COMPs. My hon. Friend the Member for Havant, the hon. Member for Roxburgh and Berwickshire and several other hon. Members also asked legitimate questions on matters related to that, which are causing concern. There is a difference between COMPs and the operation of a personal pension scheme, which is simply an arrangement between a person and a provider. We need to examine the whole history of personal pensions and what moved us to introduce the incentive.
The hon. Members for Garscadden and for Newcastle-under-Lyme, in their call for a return to SERPS, seemed to be denigrating personal pensions, which have benefited 5 million holders. The average wage of a person taking out a personal pension is £9,750. That means that such pensions address the problems of precisely those people whom the Opposition always say they want to protect—people on modest incomes who are not able to benefit from the large structures of occupational pension schemes and big corporate plans. We wanted to encourage such people and at the same time to promote the flexibility of choice, which is not in SERPS but which exists in personal pensions. We also wanted to encourage pension portability and flexibility of ages at which a pension can be taken out and so on. All that implies an arrangement between an individual and a provider.
COMPs operate rather differently. First, there are economies of scale. Secondly, there is inflexibility in the age at which benefits may be taken. Thirdly, and most important, there is a difference in the method of payment. COMPs generally pay monthly, but personal pension contributions are made after the end of the tax year. This reduces the burden on the employer and throws into question whether, at this juncture, it is appropriate to extend to COMPs the same arrangements as for personal pensions to employers. The point has been taken on board, given the essential differences——
§ Miss Widdecombe
No, I am trying to address the point seriously, because it was well worth raising and I want to get our thinking on it clear and, in turn, to make that clear to the House. Because of those essential differences in the way in which the big corporate scheme operates—it is determined by the employer, it does not give the same flexibility and, although it does not work in the same way as an occupational pension scheme, in that it is not salary-related, it works in the same sort of structure—we do not see, at this stage, the argument for extending the rebate to it.
§ Mr. Field
When the hon. Lady is in the Department considering whether these rebates should operate, should not one of the considerations that the Government take into account be whether schemes will give people adequate income so that they are free of income-related assistance and, in the Government's own words, they can stand on their own two feet? Can she guarantee that the subsidies will achieve that objective?
§ Miss Widdecombe
I shall come to the regulation, safeguards and reliability of the scheme—legitimate concerns which have been raised by hon. Members on both sides.
§ Mr. Willetts
I am grateful for my hon. Friend's explanation of the Government's position on COMPs. Is the regime for COMPs part of the review of age-related rebates that is taking place in the Department with a view to a new structure being in place by 1996?
§ Miss Widdecombe
All aspects of age relation are being reviewed, including salary-related schemes, personal pensions, COMPs and any other variety that my hon. Friend may be able to describe. Although I cannot give him an assurance as to the outcome, I am happy to give him an assurance that they will all be considered.
§ Mr. Rhodri Morgan (Cardiff, West)
One of the disadvantages of a personal pension plan, which has emerged in the case of a constituent of mine, is that there appears to be no precedent for the Inland Revenue giving consent, in cases of terminal illness with a life expectancy of less than 12 months, for the fully paid-up pension to be drawn out by the person with the terminal illness. That is possible with executive pension plans and some other company schemes.
The Inland Revenue is remarkably slow, particularly when someone has a life expectancy of less than 12 months. That seems to constitute maladministration in the affairs of government. I have already written to the Treasury, but will the hon. Lady look into the matter as well?
§ Miss Widdecombe
We have recently been made aware of that subject—the hon. Gentleman may have been instrumental in that. We are exploring the matter and I hope to write to him in due course, but I cannot give him an answer now.
Viability, reliability and safeguards are necessary to protect those who take out personal pensions. There is continual contact between the Department and the regulators. Most of the various recent initiatives have been entirely motivated by the regulators rather than the result of a request from the Department. Some initiatives have been concerned with tightening up the advice that is given and the check list of what information must be given by the 113 potential buyer to the person who is selling him, or not selling him as the case may be, the pension. The regulators constantly review the monitoring process. However, we accept that it is necessary for us to produce regulations that command the confidence of those who wish to take out personal pensions and we are consulting the regulators to that end. We want to see a tightening up of the present procedures, or possibly an enlargement of them, and more detailed monitoring than is currently possible, rather than an entire new regime.
§ Mr. Day
My hon. Friend will be aware that the Select Committee on Social Services has been examining the matter of regulation. Will my hon. Friend give an undertaking that when the Select Committee is in a position to report she will take its findings closely into account? The present regulations, especially for the state earnings-related pension scheme, need investigation. The Select Committee has carried out a detailed investigation.
§ Miss Widdecombe
I assure my hon. Friend that any report of the Select Committee will be examined and responded to according to normal procedures. Of course, we wish to take into account the views of the Select Committee before reaching any conclusions. I am sure that the regulators will be equally interested in suggestions such as those proposed by the Select Committee which is chaired by the hon. Member for Birkenhead.
§ Miss Widdecombe
I want to give way to the hon. Member for Roxburgh and Berwickshire. However, time is running out, and his will probably be the last intervention.
§ Mr. Kirkwood
In the course of a review, will the Government consider the concern that has been expressed about the amount of commissions that are being deducted from contributions?
§ Miss Widdecombe
Certainly, both the amount and the nature of the commissions—for example, front-loaded commission—will be taken into account. [Interruption.] I have been reminded by a rather helpless gesture that I am in breach of a promise, so I will allow the final intervention to come from the hon. Member for Bradford, North (Mr. Rooney).
§ Mr. Rooney
Earlier, the Minister talked about 5 million beneficiaries. Technically, people become beneficiaries when they retire. The feeling in the House is that it could be 20, 30 or 40 years before people find that they have been given bad advice. Without a meaningful compensation scheme, it is not enough simply to have a system in which people can be suspended from the Financial Intermediaries, Managers and Brokers Regulatory Organisation and the Life Assurance and Unit Trust Regulatory Organisation.
§ Miss Widdecombe
If we were to discover evidence of widespread difficulties or even malpractice, it would be our intention that there should be a trawl of those who have already taken out personal pensions. Therefore, I do not think that anybody will be left behind if we conclude that tighter regulation is desirable and there has been a widespread problem. I do not necessarily say that we have already reached that conclusion. However, if we come to it, the hon. Gentleman is right—we will have to consider 114 those who are already in the system just as much as those who have not yet entered it. I am pleased to give the hon. Gentleman that assurance.
The subject of Mr. Maxwell and the Maxwell pensioners was raised several times during the debate, although I have no idea what it has to do with the Bill. I can only repeat what I said during Question Time today: the way forward to restore peace of mind to the Maxwell pensioners must be to achieve a distribution from the common investment fund, which, after all, has £123 million. It is not a matter of trying to recover something that is missing. Achieving a distribution from the common investment fund is essential.
The hon. Member for Croydon, North-West (Mr. Wicks) made a valuable and thoughtful speech. He spent some time talking about unemployment. As I understood it, he effectively said that unless we tackled the matter of wealth creation and took measures to stimulate employment, we were talking in a vacuum because we were talking theoretically about what we would be able to do as a future contribution. I draw the attention of the hon. Gentleman to a large number of initiatives that the Government have taken to stimulate employment and counter the undoubted evil of rising unemployment and the misery which it brings.
There have been almost 1.5 million opportunities for unemployed people this year—an increase of 500,000 on the year—through the introduction of new job plan workshops and training for jobs, and the expansion of existing successful measures. There is now the widest-ever range of opportunities for the unemployed which, together with a vast range of measures, including extra resources, and more places in job clubs and on job interview guarantee programmes, is a clear sign of the Government's acceptance of the necessity, which we have always accepted, of promoting employment and getting people back to work. It also shows our recognition that measures need to be taken and are being taken.
§ Miss Widdecombe
I made it abundantly clear that I had taken my last intervention. I reneged on that pledge one minute later only because not to do so would have meant a breach of promise.
Another theme that was consistently raised, mainly by Conservative Members, but also by the hon. Member for Birkenhead, was the importance of not tying up occupational pension regulations so tightly that we encouraged employers to opt out of supplying pension arrangements such as salary-related schemes or even money-purchase schemes. The Government are fully seized of that issue. When the Goode committee reports we shall take account of what it says and seek to achieve a balance between keeping the confidence of the pensions industries and the confidence in pensions, however provided, of people who take them out, and ensuring that employers do not find that they are so over-regulated that it proves a disincentive to them to set up schemes.
The subject of older pensioners and the general level of state provision was repeated by all hon. Members. The hon. Member for Roxburgh and Berwickshire described the cohorts who are not covered by occupational pensions and, of the 30 per cent. not covered, he differentiated between men and women. He will, of course, understand that the present figures reflect an historical influence 115 brought about by the fact that women have always been more likely to take part-time, temporary and low-paid work. We are aware of that. Personal pensions which are flexible, portable and "come-back-toable" would benefit women. We recognise the differential in those figures, and will take any reasonable steps that we can to address the issue.
The subject of pensioners without secondary income—not the 30 per cent., which refers only to those without occupational income—was also raised, particularly by my hon. Friend the Member for Teignbridge (Mr. Nicholls), who spoke of the Teignbridge action group.
Another hon. Member, whose constituency I did not note and who spoke shortly after the hon. Member for Birkenhead, referred to the need to consult pensioner interest groups. I regularly meet pensioner interest groups such as Pensioners Voice, the Pensioners Convention and Age Concern, and many much smaller interest groups that ask to come to see me. I can assure the hon. Gentleman who is now absent that I take such consultation very seriously.
§ Miss Widdecombe
They told me that they want savings that are protected against inflation, a reasonable state pension, a good state pension in comparison with what is available in the rest of Europe and a general rise in their incomes. I am pleased and proud to say that the Government have delivered all their wishes.
The major concern of the groups was not whether they were linked to a theoretical earnings figure, as they were under the last Labour Government, when they saw a measly rise in their incomes of 3 per cent., but what their overall incomes would ultimately be when they had to rely on state pensions. They are not interested in theoretical links to something that does not deliver the goods.
The issue of new-age travellers was, for a while, hotly debated across the Floor of the House. I am not sure how they come into these matters unless they have personal pensions. It seems—[interruption.] The hon. Member for Birkenhead should not point to my hon. Friend the Member for Westbury (Mr. Faber), because the hon. Gentleman said that it was disgraceful that the Government had not done something sooner. The hon. Gentleman, who is always concerned to protect those who might be caught up in regulations, would have protested had we reacted to a one-off incident three years ago. Once we found that there was a recurrent problem we reacted to it. There was no question of staff going out in buses to distribute social security benefits. The forms were processed in the usual way and 159 claimants were allowed, not the many hundreds that have been suggested. We were responding to a public order situation in which we did not want a small town swamped. Nor did we want the Department's offices swamped. We responded sensibly. The interpretation that has been placed on it owes as much to the Opposition as it does to the excesses of our friends in the press.
§ Miss Widdecombe
No. I have already told the hon. Gentleman that I shall not give way. He does not 116 understand easily. It is necessary to tell him things five or six times before he comprehends. I have taken my last intervention in this debate. Time is now pressing.
My hon. Friend the Member for Finchley (Mr. Booth) talked wisely about a matrix of care, and I shall put the policy that we are advancing into that context. My hon. Friend is right because we are looking for a partnership between the voluntary agencies—providers of care from a vast range—and the state. In promoting the Bill, we are similarly promoting that partnership. It is based on the individual providing for himself and the state making its contribution in the form of incentives and rebates. I think that my hon. Friend talked extremely wisely and caught in his words the thrust of the Bill.
At the end of a long and interesting debate I take up the issue that was raised——
§ Miss Widdecombe
I am delighted to hear it.
Several hon. Members talked about the reform of the state earnings-related pension scheme. It is interesting that the comments were not confined to my right hon. and hon. Friends. Opposition Members called for an examination of the nature of SERPS, on which the Government have already embarked. That was done in 1986 when we modified the provision for SERPS to take account of the changing nature of things. We have SERPS under review, as we have everything else that relates to pensions.
I end on a happy note. My hon. Friend the Member for Teignbridge asked how many telegrams of congratulations for 100th birthdays have been issued this year. I am delighted to report that 285 men and 2,317 women were aged 100 or over this year. That represents a 15 per cent. increase over the previous year. Perhaps women's longevity somewhat redresses the balance which the hon. Member for Roxburgh and Berwickshire brought to our attention.
We believe in the provision of personal pensions. We believe in making such pensions available to people with modest incomes who would not be able to provide for themselves through an employer. We believe in a state pension that is based on sound principles and not on profligacy. That is what we have produced in the Bill, and I commend it to the House.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Committee of the whole House.—[Mr. MacKay.]
§ Committee tomorrow.