HC Deb 10 March 1998 vol 308 cc378-426
Mr. Deputy Speaker (Mr. Michael Lord)

I have to tell the House that Madam Speaker has selected the amendment in the name of the Prime Minister.

7.14 pm
Mr. fain Duncan Smith (Chingford and Woodford Green)

I beg to move, That this House notes with concern the Government's refusal to rule out means testing the basic state pension; believes the Government Actuary's advice to change the National Insurance rebates for those contracting out of SERPS is a direct result of the Chancellor's decision to abolish the ACT dividend tax credit in his July Budget, placing a huge burden on future pensioners, creating turmoil in the pensions market and confusion over pension reform; and calls upon the Government to apologise for devaluing long-term savings and creating fear amongst the most vulnerable members of society. In the next few days, we shall have a chance to look at the Budget, so I do not intend today to trail our ideas about what it should contain. This debate is timely because it is important to consider what has happened in the past 10 months. The Secretary of State for Social Security and her hon. Friends have constantly told us that we cannot discuss matters in the Budget, but the national newspapers contain a series of leaks and discussions that will doubtless be denied as scurrilous rumours, but which seem to have a Government source.

Today, we must focus on pensions and the Government's record of the past 10 months—the impact that their policies have had and the changes that have been made—and ask whether pensions are safe in the Government's hands. The Government came to power giving mixed messages on pensions. On one hand, they said that they would protect pensions, while attacking the serious proposals that my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) made at the last election for pension reform; on the other, they vaguely talked about a system of reform while allowing it to be suggested that they would means-test the basic state pension without denial.

It is therefore ironic that the first step that the Chancellor took on arrival at No. 11 Downing street was to put together an unnecessary Budget that aimed a blow directly at pensions and future pensioners.

Kali Mountford (Colne Valley)

I congratulate the hon. Gentleman on bringing this important debate to the Floor of the House. Does he agree that a decent society is to be judged by how it treats its very poorest pensioners?

Mr. Duncan Smith

A decent society is to be judged by the way in which the Government in power treat all members of society, including those who are considered most in need. If the hon. Member for Colne Valley (Kali Mountford) wants to know how that will be achieved, she should ask the Secretary of State how that chimes with leaks and suggestions that the basic state pension will be means-tested.

The attitude of mind behind the Budget is the same as that which has prevailed in the Labour party since time immemorial. Labour Governments have always believed that company profits are evil and unnecessary. As a result, they equate pension funds with profits and seek to redistribute them as they see fit because they are of no use whatever. It is a case of new Labour, new redistribution; and new Labour, new tax.

Mr. Phil Hope (Corby)

The hon. Gentleman said that this is an important debate. Will he explain why the hon. Member for West Chelmsford (Mr. Burns) is not going to wind up this evening's debate? Is it because he is not good enough, or because is he too good and the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) has dumped him because he is frightened that he will take his place on the Front Bench?

Mr. Duncan Smith

I know from that intervention that there is one person in the Chamber who is clearly not good enough. That was such a ludicrous, idiotic intervention that I shall not even bother to deal with it.

We have discussed endlessly the Government's position on pension funds and ACT dividend tax credits. Although the Government hoped and believed that they could somehow slip through the attack on pension funds unnoticed, it is significant that an increasing number of people are beginning to notice how damaging their actions were. A measure that raises £2.3 billion in 1997–98, £3.9 billion in 1998–99 and £5.4 billion in 1999–2000 from pension funds will have a huge negative effect on what pensioners will receive in future.

It is ironic that contrasts with what is in the Labour manifesto, which states: We will support and strengthen the framework for occupational pensions. The Labour Government have actually done a complete turn around and have attacked personal pensions and occupational pensions. A measure that is equivalent to putting 2p, 3p and 4p on income tax over the same period is hardly likely to protect those most in need, to whom the hon. Member for Colne Valley referred.

The effect has been to force schemes to increase the contribution rates payable—

Mr. Hope

Will the hon. Gentleman give way?

Mr. Duncan Smith

I have already given way to the hon. Gentleman. His absurd and idiotic intervention was not worth dealing with then; it is not worth dealing with him now.

Some schemes have already had to pass on those increases to their members. Many in the industry say that that practice will increase dramatically as they continue to pass on the effects. A number of schemes have also already cancelled benefit improvements; as we have heard, some schemes have even switched from final salary to money purchase. That point has not gone unnoticed and the Government have tried to deal with it by dealing with the SERPS rebate.

Let us consider one important example of the effects of the Government's changes to ACT dividend tax credits and their attack on the funds. A 30-year-old whose fund would have been worth £260,000 at age 65 would have to pay £1,000 a year to make up the shortfall that is a direct result of what the Government did in the last Budget.

Today, a report commissioned by the BBC showed that council tax will rise by twice the level of inflation—when in opposition the Labour party promised that would not happen. I ask the House to reflect on what will happen in the next two to three years, as the effects of what has happened to pensions run by councils will begin to be felt. The effect will be to force council taxes to rise again and again. All that will occur as a result of the policies of a Government who, when in opposition, said that they would keep those taxes down.

Mr. John Gummer (Suffolk, Coastal)

Does my hon. Friend agree that those who are having to pay the extra £1,000 to put their own pension into proper funds will be the same people who are having to pay for other people—those who work for local authorities—to put their pensions into funds? Many employees will find that their employers are not prepared to make the extra money available for their pensions, but they will still be charged for the pensions of local government employees.

Mr. Duncan Smith

My right hon. Friend makes the point very powerfully. Either all those consequences went completely unnoticed by the Government at the time of the Budget or the Government hoped that they would go unnoticed by everyone who will have to make the extra contributions that my right hon. Friend has mentioned.

The cost will be passed on to local taxpayers. There is no such thing as a tax or a charge made on a company that does not go through to the consumer or taxpayer. The extra costs to businesses will flow as payroll taxes. On top of that, as we have heard today, the Government have got themselves into a bind over individual savings accounts. The Government's proposals for ISAs will compete directly with the same funds that people will want to put into pensions for long-term savings. There will be direct competition between short-term saving and long-term saving—that goes against the very reason the Government gave for introducing the new measure.

Mr. Desmond Browne (Kilmarnock and Loudoun)

Is the hon. Gentleman aware that Bill Robinson, a director of the consultancy, London Economics, who was an adviser to Norman Lamont when he employed the same tactic of reducing ACT credit in his Budget, wrote an article entitled,"Taxing pension funds could be good for our health", which appeared in The Independent on 21 April 1997? That article stated: There is room for argument as to the proper scale of the fiscal privileges accorded to the pension funds, but what is potentially damaging is that the privilege is limited to distributed profits.

Mr. Duncan Smith

We resisted the temptation to do that. While we are on this point, I must quote Hansard from 1993, in which the then Chancellor, Norman Lamont, said: I propose to reduce the rate of tax on dividends from the current basic rate of 25 to the lower rate of 20 per cent. The effect of this, combined with the change to the tax credits, is to leave basic rate taxpayers neither better off nor worse off than they are now." — [Official Report, 16 March 1993; Vol. 221, c. 186.] I think and I hope that that quotation will end the whole ridiculous argument so that Labour Members will leave the subject.

Mr. Chris Pond (Gravesham)

Will the hon. Gentleman give way?

Mr. Duncan Smith

No, I wish to move on.

The key and the cornerstone to the issue—the biggest problem—involves SERPS. As the Government will remember, back in July Conservative Back Benchers warned the Government that their hasty consideration of such matters in the Budget would have a serious knock-on effect on those who had opted out or who were thinking of opting out of SERPS. I said that it was necessary to have an immediate out-of-sequence review to adjust the rebate, otherwise it would be devalued and people, particularly those in personal pensions, would eventually pull back into SERPS, increasing the Government's expenditure and exposure.

Mr. Pond

Will the hon. Gentleman give way?

Mr. Duncan Smith

No, I am making progress on this point.

The Under-Secretary of State for Social Security, the hon. Member for Southampton, Itchen (Mr. Denham), who is to wind up tonight's debate, will recall those comments because they were part of my winding-up speech in that earlier debate. I should be grateful if he would deal with the way in which he dismissed the points that I made and then, in November, was forced to call in the Government Actuary and ask for a review.

The Government Actuary's report is an absolutely damning indictment of Labour's first Budget for nearly 20 years. He said: As a result of the proposed tax changes announced in the July 1997 Budget occupational and personal pension schemes (including appropriate personal pension schemes) are no longer able to reclaim tax credits on dividends payable by UK companies on equities which are held as scheme assets. This reduces the amount of dividend income from UK equities by just under 20 per cent. relative to the previous tax position". The Government Actuary went on to make a number of points affecting personal pensions and occupational pensions, both salary related and money purchase. It is clear that, in his report, he assumes, quite rightly, a reduction of a quarter of 1 per cent. in the income from investments. That was obvious when the Chancellor sat down after giving his Budget speech.

I note that in today's Financial Times the leading actuarial consultant, Bacon and Woodrow, has said that the shortfall to those funds could be as much as £5 billion. That shortfall will be passed on directly to the companies and their pensioners. Bacon and Woodrow said: It said the problem stemmed from lower than expected dividends, pushing many schemes below the minimum funding requirements (MFR) set out in last year's Pensions Act. Returns have been cut by the abolition of tax credits in last July's Budget and by soaring equity markets". The point about the Financial Times article is clear: at the last Budget the Chancellor assumed that the funds were all in surplus and so were easy to raid. The Financial Times is now demonstrating that the Government's assumption that there was a never-ending gravy train of improving dividends was wrong. The returns are now lower; they are becoming closer to the minimum funding requirement, so decisions will have to be made on whether to stay inside salary-related schemes or to get out and move into either personal pensions or contracted-out money purchase schemes. The Government have forced pension funds, on which they said they were keen, to make changes that are likely to be for the worse.

When they were given the options by the Government Actuary, the Government chose to increase the personal pensions rebate and freeze the rebates on contracted-out occupational salary-related schemes. It is clear that the one area that got badly hit was occupational money purchase schemes. We know that the Government Actuary assumed—I hope that the Secretary of State will focus on this—that there was a reduction in the return on investment of a quarter of 1 per cent., which had a huge effect on the way in which those funds would be managed. When the Secretary of State accepted the Government Actuary's report and said that she would raise the rebate on personal pensions, she accepted that position. She accepted that, as a result of the Budget, there was a fall-off in the amount of money that the funds would receive from their investments.

The Secretary of State then took a decision to freeze the salary-related rebate. At the same time, she has accepted that there was a shortfall to income from investments. However, in her rationale for reducing the rebate amount for money purchase schemes, the Secretary of State has executed a complete about-turn. Her rationale for lowering the rebate on those schemes has simply been that there has been no change in the amount of investment income that they were receiving, and that they would have lower expenses. In the table that she has accepted, she has therefore done a complete about-turn.

I should like the Secretary of State to tell the House why she has hit so hard contracted-out money purchase schemes and those who have pensions in such arrangements. Why has she dealt them such a blow—for what specific purpose? Clearly, it has been done to save money for the Exchequer and from the national insurance fund. Her rationale in the report is extremely unclear.

Mr. Pond

A few minutes ago, the hon. Gentleman mentioned the Government Actuary, and he now mentions the cost to the Exchequer. Is he aware that, according to experts in the industry, the basic pension-plus scheme—which I believe he supported—would have cost the Exchequer very large amounts without providing any form of sustainable income for pensioners? Will he tell the House whether, as the Opposition spokesman, that is still his position? I see that the hon. Member for West Chelmsford (Mr. Burns) is shaking his head. I therefore assume that you are not in favour of that scheme. So this intervention—

Mr. Deputy Speaker

Order. The hon. Gentleman is not using correct parliamentary language.

Mr. Pond

I apologise, Mr. Deputy Speaker.

Mr. Duncan Smith

The hon. Member for Gravesham (Mr. Pond) really should wake himself up in the morning and remind himself that his party is now in government, not in opposition. I know that those points—that Labour is in government, and that those decisions have to be made—are very hard to bear, but the Government have been elected on the basis not only of protecting pension incomes but of developing reform proposals, with which we shall deal in a moment, but which are almost non-existent. The point that I was making—on which I thought he wished to intervene—was that my policy is to get into government at the next general election to sort out the mess that the Government have created.

The real issue is the extent to which the Government, after 10 months in office, already fear the likelihood of us getting back into government. I do not know whether my right hon. and hon. Friends have noticed it, but both in our earlier debate and in this one, Labour Members have spent their time asking what we will do when we are back in government. I certainly did not expect such fear after only 10 months in government—but never mind. We will now hear the reasons for their fear.

Ministers fear that they have been rumbled, and that the basis of the Government Actuary's report is an absolute indictment of the Government's Budget. The report demonstrates that the changes to the ACT dividend tax credit forced the Government to make an emergency call to the Government Actuary, who has had to examine and adjust the rebates. Ministers now say, "We cannot accept part of those recommendations, because what we really need to do is to save ourselves some money."

The Government have therefore done an about-turn, and basically accepted the logic of those who shouted the loudest—all the financial advisers on personal pensions, who said, "If you don't make this change, we'll drive them all back into SERPS." The Secretary of State has therefore bowed before that group. However, because others in the industry did not make such a noise, she has clawed back the money from those sources. That is the type of Government we have. The main blow to contracted-out money purchase and other schemes will fall directly on employers, and will subsequently be shuffled down to employees.

I see that the hon. Member for Doncaster, North (Mr. Hughes) is yawning. I know that he finds it difficult to stay awake for the Government. It is remarkable that, although he does not understand what is going on, he votes for it.

The Secretary of State made a reply to the actuarial report. When she said that she would have to raise rebates for personal pensions, she was asked whether she took a measure of the blame for her actions and those of the Chancellor. She said: For individuals who have pensions with providers who take a rather less optimistic view of future investment returns there was a short term risk that they would be advised to contract back into SERPS. Now she is blaming the advisers for being pessimistic, although they are bound by law to tell those investing in personal pensions, when the changes are made, that they should go back into SERPS. However, the Secretary of State wants to blame them for making those comments. The Secretary of State went on to say: This would not necessarily have been in the long-term interests of the individuals involved. What she is really saying is that the Government panicked. She was saying, "It wasn't in our long-term interests. They were going to bust our Budget; so we had to do something about it." That is the reality.

Several hon. Members


Mr. Duncan Smith

We can now move on.

Mr. Hope

Will the hon. Gentleman give way?

Mr. Duncan Smith

No, I will move on. I have already given way to the hon. Gentleman.

Despite the much-vaunted statement that the Government will support and strengthen the occupational pension framework, Ministers have simply dealt a body blow to pensions generally. The significant part of the Actuary's report makes it quite clear that the Chancellor has proceeded, with stealth and in secret, to redistribute money from one part of the economy to another. However, without realising it, he has dealt a blow to the overall pension reform process. By creating the problem at the heart of the debate on SERPS, he has made it almost impossible for the Under-Secretary of State for Social Security to make progress in his reform programme. The hon. Gentleman shakes his head, but we are now 10 months into the welfare reform programme, and there is still no report on it.

Before the July Budget, I think that most hon. Members would have expected to hear more from the Minister for Welfare Reform, who had already examined the matter—I know, as I took great pleasure in reading many of his publications, as I am sure that the Under-Secretary of State for Social Security did; or perhaps did not—and, regardless of whether we liked them, we would have expected him to come up with a set of schemes that might have focused the Government on pension reform, getting them off to a flying start. If he had, perhaps we would have had something to debate by now. Instead, he was taken off the review, and his colleague was put on it.

At the heart of that ministerial change was the Budget's effects on SERPS. The Minister for Welfare Reform—who is on record as saying endlessly that SERPS has to go—suddenly discovered that the Chancellor had said in the Budget that SERPS must stay. He was subsequently taken off the review, and we will have to find some other way round the problem.

The Under-Secretary initiated a review that received 2,000 responses from industry. Although he closed that review, he almost immediately started another type of review—which received 171 responses by the time he closed it—because the responses to the initial review did not say want he wanted to hear.

There is therefore massive review fatigue in the industry. Every time industry answers a question from Ministers, it is asked another question. Ministers hope that, if they ask the industry ever more questions, they will eventually receive the answer that they wanted to hear initially. However, that should not really be surprising. The Government spent their time in opposition scurrilously attacking all aspects of pensions reform, and consequently did no thinking on the subject.

Across the country, Ministers have been scaring men and women not only about the basic state pension but about the state of their pension when it is time for them to retire.

Dr. Brian Iddon (Bolton, South-East)

Does the hon. Gentleman agree that this debate is rather academic for millions of pensioners across the country? I am talking about pensioners—thousands of whom live in my constituency—who are drawing the basic state pension. Does he accept that the basic pensioner is £22 a week worse off today than when the Conservatives were elected to government in 1979—after which they decoupled pensions from earnings and coupled them with prices?

Mr. Duncan Smith

I hope that the hon. Gentleman tells all those—not wealthy—people in his constituency who made the effort to save money for their future and pensions that they are academic and irrelevant. They thought that their pensions—which the Government said that they would protect—were safe. I thought I heard him say—I wonder whether he is speaking on behalf of the Government—that the Government might be thinking about linking the basic state pension to earnings instead of to prices. Is he saying that the Government will do that?

The point is that the hon. Member for Bolton, South-East (Dr. Iddon) should be discussing everyone's savings and everyone's future—not trying to divide and attack one group. That is what the Government's actions amount to and what has happened since Labour has been in power. The Government have scared working men and women across the country.

Mr. Hope

Will the hon. Gentleman give way?

Mr. Duncan Smith

I tell the hon. Member for Corby (Mr. Hope) and other Labour Members that they have been asked the question that was at the heart of what the hon. Member for Bolton, South-East asked: what will happen to the basic state pension? There has been leak after leak about whether the Government will means-test it, or claw it back. We have even seen a report in a newspaper—I think it was The Sunday Times—that said that the Government would claw back a basic minimum income of £100 via a means test.

Mr. Browne

Will the hon. Gentleman give way?

Mr. Duncan Smith

No. I have already given way to the hon. Gentleman, and I want to make progress.

When the Secretary of State was challenged on the matter—I think that it was at Question Time—she said: The hon. Gentleman should read our manifesto, which says that the basic state pension will continue to be paid universally, as it is now".— [official Report, 15 December 1997; Vol. 303, c. 5.] I checked the manifesto, which, funnily enough, did not say that at all. It said: The basic state pension will be retained as the foundation of pension provision. It will be increased at least in line with prices. I do not know what my right hon. and hon. Friends think about that, but it does not sound to me like an absolute guarantee in regard to the basic state pension. It sounds a little like "Read my lips."

Mr. Browne

Will the hon. Gentleman give way?

Mr. Duncan Smith

I have given way to the hon. Gentleman already. He has had his moment in the sun.

We simply offer the Secretary of State an opportunity to support her hon. Friend the Member for Bolton, South-East in her very first words. Perhaps she will be able to answer his question, and even answer the question supported by the Liberal Democrat amendment. What will happen to the basic state pension? I think that that is a fair question: the Government can give a guarantee about that. If the Secretary of State does not want to rule out means testing, perhaps she would prefer to say that the Government are thinking about it. I am sure that every hon. Member will understand that she is caught against the Budget, and cannot make commitments in one sense; but she can certainly rule out actions that the Government are not going to take.

So far, the Government have made a real mess of pensions. There has been chaos from the word go. Much of it started in the ridiculous position adopted by the Government during the last election, when they attacked any proposal for the reform of pensions. That continued into the Budget statement, when the Chancellor, in a moment of frenzy, attacked pension funds and drove a wedge into pension reform. He made it almost impossible for the Government to tackle the issue. That has created a problem right across the state earnings-related pension scheme. It has meant that the Government have had to arrange a special out-of-sequence review; it has meant that they have had to change policy in the space of 10 months. It has left people out there scared about their basic state pensions, scared about their pension funds and scared about what will happen to the pledges that were made at the time of the election.

The Prime Minister endlessly said that the Government would not raise taxes, but, since the Government took office, we have seen one tax raid after another. The most significant tax raid is the one that the Government have made on pension funds. That is the key. In 10 months, all that we have had is a record of broken promises and taxes increased by stealth. I can only say this to Labour Members: it is one sort of record to come to power and, in 10 months, to be tacking and weaving as though they were on their way out of power.

Perhaps that is what should happen. Perhaps that is why Labour Members are so scared. Perhaps that is why, throughout the last debate and, I dare say, during this debate, they have been more interested in knowing what we will do than in finding out what they have done themselves—which is to break promise after promise.

7.42 pm
The Secretary of State for Social Security and Minister for Women (Ms Harriet Harman)

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: welcomes the Government's commitment to maintain the basic state pension as the foundation of pension provision and to uprate it at least in line with prices; welcomes the tough action which is being taken to ensure that victims of pension mis-selling are compensated; welcomes the action the Government has already taken in giving a Winter Fuel Payment to all pensioners with fuel bills to pay and fulfilling its promise to Britain's pensioners by cutting VAT on fuel to five per cent.; welcomes the Government's progress in developing pensions policy which will benefit today's and tomorrow's pensioners; welcomes the widespread consultation the Government is undertaking and notes that the Government's Pension Review has received over 2,000 submissions from pension providers, employers, trade unions, pension experts and pensioners' organisations; notes the widespread support for the Government's proposals for Stakeholder Pensions; and deplores the previous administration's policies on pensions, their imposition of VAT on fuel and their attempt to increase VAT on fuel to 17.5 per cent. Labour Members always welcome the opportunity to debate pensions, and I commend the Opposition on their choice of debate, but I cannot extend that commendation to the speech of the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith). He had no positive proposals to make on pensions policy. Let me say in response to my hon. Friend the Member for Bolton, South-East (Dr. Iddon) that the Opposition's current pensions policy is that they will be in government next time: that seems to be the extent of their policy.

The hon. Member for Chingford and Woodford Green said nothing about his Government's record, because they let pensioners down. Although that Government were comprehensively rejected by the British people—partly because of their record on pensions—all that the hon. Gentleman did was criticise the present Government for implementing the manifesto on which we were elected. Let me make the last Government's record clear, because it is the challenge that we now face. They failed pensioners: too many people in retirement are poor, as my hon. Friend the Member for Bolton, South-East made clear in his intervention. It is a scandal that, after a lifetime of work or caring for their families, pensioners are among the poorest people in Britain today. One in four pensioners must live on or below income support levels; 1.7 million must depend on income support; and a further 1 million who do not even claim the income support to which they are entitled live only on the basic state pension.

Inequality between pensioners has grown. The income of the bottom 20 per cent. of pensioner couples has risen by just £25 per week over the past 20 years, while the incomes of those at the top have risen by more than £160 a week.

Miss Julie Kirkbride (Bromsgrove)

Is that wrong?

Ms Harman

The hon. Lady asks, from a sedentary position, whether that is wrong. We want to narrow the gap between the pensioners at the bottom and all the others by ensuring a better standard of living for pensioners at the bottom. Without action, that inequality is set to grow.

All pensioners were hit by the notorious Tory VAT on fuel. Pensioners' fuel bills soared when it was introduced at 8 per cent.; only the Labour party, the Liberal Democrats and pensioners themselves stood together to stop the Tories from raising it to 17.5 per cent. That is the last Government's record on pensioners. Nor did they establish a proper framework for pensions for the future; indeed, they made matters worse.

Mr. Browne

In a Budget debate, the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) said: The most important part of the Budget speech was the part that dealt with VAT on fuel. All hon. Members should welcome that announcement." —[Official Report, 30 November 1993; Vol. 233, c. 975.]

Ms Harman

The hon. Member for Chingford and Woodford Green has gone a bit quiet now. He has lowered his head, and is looking at his papers. Perhaps he can hardly believe that he said that.

It is clear that the key to security in retirement is a good second pension on top of the basic state pension. Now, however, millions of people have no such provision of their own, as they have had no chance to build up a good second pension. Many who did have good occupational pensions lost out when they were wrongly encouraged to opt out of those pensions into poor-value private personal pensions under the last Government.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

Why has the Secretary of State decided to reduce rebates for contracted-out money purchase schemes on the basis of an assumed 2.25 percent. rate of return on assets, when the Government Actuary recommends an assumed 2 per cent. rate of return?

Ms Harman

We have made our position clear, but I will deal with it further in my speech. We sought the advice of the Government Actuary. The hon. Member for Chingford and Woodford Green makes much of the review being out of sequence, but we are entitled to ask for the Government Actuary's advice when we consider it right. Is the hon. Gentleman saying that we should not have done that? I am sure he agrees that it was right for us to seek the advice. We did so, we acted on it and we published our draft statutory instruments.

Mr. Duncan Smith

Will the Secretary of State now tell us why the Government asked for the Government Actuary's advice?

Ms Harman

We asked for the Government Actuary's advice because we thought it proper to do so; that is what he is there for. We sought his advice and took appropriate action.[Interruption.] Conservative Members are engaged in diversionary tactics because they know that I am about to deal with the issue of pensions mis-selling. We were right to seek the Government Actuary's advice. We took appropriate action and published draft regulations.

Many people in good occupational pensions opted out, which proved disastrous. Hundreds of thousands of people who had previously had an index-linked pension to which they and their employer contributed were landed instead with a poor-value private pension that ate up £1 in every £4 of their hard-earned savings.

That had a terrible effect on those people's prospects for retirement. People on half average earnings who previously contributed to their company pensions, along with their employer, would have seen their pensions in retirement slashed from more than £130 a week to only £58 a week.

Having caused the scandal of pensions mis-selling, the Tories failed to take action to compensate those who lost out. The hon. Member for Chingford and Woodford Green asked us to account for what we have been doing on pensions in government. My Department and the Treasury have been sorting out the scandal of those who were mis-sold personal pensions and whom the Tories failed to compensate. By the time of the general election, fewer than 2 per cent. of those who had been mis-sold personal pensions had been compensated, and 18,000 people died before getting any form of redress. It has been left to this Government to ensure that people are properly compensated.

My hon. Friend the Economic Secretary has pressurised the companies that mis-sold personal pensions; that pressure continues and is paying off. Figures published today by the Personal Investment Authority show a respectable increase in the effort to get compensation to the victims of pensions mis-selling, with a thirteenfold increase in the number of people compensated compared with this time last year. I want to thank my hon. Friend for that progress.

We will press on, bringing justice to those whose pensions were ripped off by the Conservative Government.

Mrs. Teresa Gorman (Billericay)

The Secretary of State has made comments about whether people were wise to come out of the state earnings-related pension scheme. The Minister for Welfare Reform said, at column 197 on 11 December 1997, that SERPS was "a pay-as-you-go scheme" and that he proposed to give people a better stake in their pensions by using the private sector.

Ms Harman

Indeed, we made it clear in the manifesto that we want people to have a stake in their pensions. That is why we are introducing and consulting on the stakeholder pension in addition to the basic state pension.

Despite the Conservative Government's record, the hon. Member for Chingford and Woodford Green criticised this Government's record on pensions, and in particular the effect of last year's Budget. He spoke at length about the Budget, but said absolutely nothing new. He has made his sole point—it is not a good one—many times before, in written and oral questions, and he will continue to get the same answer. Let me try once again to explain the position to him.

My right hon. Friend the Chancellor has made it clear that he believes that we must take action to strengthen the economy for the longer term. The only way in which to build an economy that can pay decent pensions in the future is by providing stability and growth, today and in the future. That requires high levels of long-term, high-quality investment, such as we have not seen before.

The Budget was designed to create the right conditions. It committed us to prudent spending, sound fiscal policies and cuts in corporation tax. We removed a bias in the tax system that discouraged long-term investment. Because the Budget was good for investment, good for companies and good for the economy it will be good for the ability of the economy to sustain pensions in the long term.

Mr. Simon Burns (West Chelmsford)

Will the Secretary of State give way?

Ms Harman

I did not know that the hon. Gentleman was allowed to speak in this debate. If I give way to him, he can explain why he is not winding up tonight's debate.

Mr. Burns

As always, I am extremely grateful to the Secretary of State. I want to ask her one simple question. Will she do me the courtesy of giving me a straightforward yes or no answer? As she develops her theme, will she please tell the House, and the hon. Member for Bolton, South-East (Dr. Iddon), whether the Government will restore the link of the basic state pension to earnings or keep it linked to prices?

Ms Harman

I will deal with the value of the basic state pension later. Perhaps the hon. Gentleman can give a yes or no answer to the question why he is not winding up this debate—yes or no?

Mr. Burns

Before the situation gets out of hand, let me explain that, as the Secretary of State knows from Question Time and from numerous debates, I have concentrated on welfare reform, while my hon. Friend the Member for Grantham and Stamford (Mr. Davies) has done a great deal of work on pensions, so it is only right that he should wind up this important debate tonight.

Ms Harman

If the hon. Gentleman listens to the debate, he may learn more.

We are increasing the rebates for appropriate personal pensions to ensure that contracting out remains attractive. The hon. Member for Chingford and Woodford Green asked about the advice of the Government Actuary. As I have already said, we sought and considered that advice, and last Wednesday we laid orders to increase the rebates.

The Government are taking, and are determined to continue taking, the long-term view of the economy and of pensions. That is the right approach to developing a pensions policy that can provide a secure retirement for all tomorrow's pensioners as well as today's.

The future of pensions policy is at the heart of the reform of the welfare state. When we set out the case for reform at the beginning of the year, we said that a welfare state fit for the 21st century had to extend opportunity and security to all. We said that individuals have a responsibility to provide for themselves when they can do so and that society has a responsibility to help those who cannot.

Those are the principles that underpin our pensions reform. We are determined to build a pensions system that provides a secure retirement for all pensioners: for today's pensioners as well as tomorrow's; for people on low or modest incomes as well as those on good salaries; and for women and carers as well as male breadwinners.

The system must balance fairly the responsibilities of the state and the individual, and the public and private sectors. In the past 10 months, we have made substantial progress in both providing for today's pensioners and developing a framework for pensions provision.

Pensions policy has to provide long-term security; people may contribute to their pensions for 40 years and be in retirement for more than 20 years. Pensions reform has to begin with debate, unlike the previous Government's pension plus scheme, which began on the back of an envelope. Our reform will begin with a wide-ranging debate, as it must be the product of consultation and build on broad support, because pensions reform has to last.

Mr. Desmond Swayne (New Forest, West)

Will the Secretary of State give way?

Ms Harman

I want to make some progress, so I may give way to the hon. Gentleman later.

Only two months after coming into government, I announced a wide-ranging review, led by my ministerial colleague, my hon. Friend the Member for Southampton, lichen (Mr. Denham), fulfilling another manifesto promise, to build a sustainable consensus on the future of pensions policy. We set out 10 challenges that the review needed to address. We have not heard one word from the hon. Member for Chingford and Woodford Green about whether he thinks that they are the right challenges or how we should meet them. He has nothing to say on the subject.

We have a pensions system that serves some people extremely well, but fails too many, so we have to find ways of enabling those who lose out to get a better income in retirement. We must tackle the growth in pensioner inequality, including the growing inequality between men's and women's incomes in retirement. We have encouraged debate, and have consulted widely. We have received more than 2,000 responses to the pensions review from pension providers, the Confederation of British Industry and employers, trade unions, pensions experts and pensioners, and we have given the National Pensioners Convention, led by Jack Jones, a specific and central role in our review.

Officials, my hon. Friend the Under-Secretary, my right hon. Friend the Minister of State and I have met the National Pensioners Convention a number of times to ensure that the views of pensioners are heard at the heart of government. But the debate about the future of pensions must be better informed than it can be with the current available information. That is why, as part of the pensions review, we have set up for the first time an independent pension provision group, which is chaired by Tom Ross, to whom we are grateful, to provide an authoritative analysis of the current state of pension provision and likely trends. The group will report shortly, and will make an important contribution to the debate on pension reform.

Some of the fundamentals are already clear. Our pensions system has not kept up with the social and economic changes that have transformed the working and family lives of men and women over the past 50 years. The world of work has changed; it is no longer characterised by large numbers of men working for large employers, secure in the knowledge that their jobs are for life and bring with them a family wage and a pension for them and their wives when they retire.

Mr. Keith Simpson (Mid-Norfolk)

The Secretary of State is describing the problem.

Ms Harman

It is a problem that we inherited from the previous Government. The world has changed, but pensions policy failed to respond, and those changes clearly passed the hon. Gentleman by.

Mrs. Gorman

Will the Secretary of State give way?

Ms Harman

I have already given way to the hon. Lady.

Occupational schemes provide, and will continue to provide, the best form of second pension, particularly because in most cases the employer, as well as the employee, contributes towards the pension.

We want further to strengthen the framework of occupational pension provision, and encourage more people to join an occupational scheme when one is available. However, more and more working men and women do not have access to an occupational pension, because the best employer schemes are generally in the parts of the economy where employment has been shrinking—large private sector companies and the public sector. More people work for small and medium firms which are less likely to offer an occupational pension.

In the modern world of work, more men and women change jobs regularly, and are employed on temporary or short-term contracts. That is the background against which we have to work. More people are on the borders between employment and self-employment, and have no guarantee of regular work. Nowadays, two out of three women work, and it is expected that women will account for three quarters of the increase in the work force by 2006.

Mothers form a growing proportion of the work force, and many of them want more flexible working patterns, which is one reason why one in five employed people work part time. Over the past 50 years, there have been profound changes in work and family patterns, but while the world of work has changed dramatically, the pensions system has not.

Mrs. Gorman

Will the Secretary of State give way?

Ms Harman

I have already given way to the hon. Lady; I shall not give way to her again.

Millions of people work in ways that are not catered for by the existing pensions system: their employer does not provide an occupational pension; their income is not high or stable enough to make personal pensions a good deal; and some of them, mainly women, may not even contribute to their basic state pension because, although they work, their earnings fall below the national insurance lower earnings limit.

Without action being taken on pensions, those millions of people will face the prospect of dependence on means-tested benefits in retirement, and the gap between those who have access to a good occupational or personal second pension and the millions who do not will widen. That is unacceptable.

Our welfare-to-work reforms will help people into work, and our pensions reforms will help people in work to save for their retirement. We are working on plans for stakeholder pensions, and consulting on the technical detail to which the hon. Member for Chingford and Woodford Green referred, to help people who do not have access to an occupational pension for whom there was no provision under the previous Government.

We want secure, flexible, value-for-money pensions for people on low or intermittent incomes, many of whom are women. Not only is consensus growing about the nature of the problem, but there is increasingly broad agreement about the solution. I have been encouraged by the consensus about the need for and shape of new, value-for-money second pensions which has emerged from our recent consultations on stakeholder pensions.

Stakeholder pensions must offer excellent value for money, and can do so by making economies of scale through pooling savings in multi-member schemes and adopting low-charging regimes. They must be simple to regulate and easy to understand, and they must be available to the self-employed. Our pensions policy is starting to fill some of the gaps left behind by the previous Government who left people heading for their retirement without a good second pension.

We must provide security in retirement for people who are contributing to society, not through paid work but through their caring responsibilities. Carers, most of whom are women, are unable to save for their pension, and if pensions that are designed to meet their needs are not available—under the previous Government, there was none—they face poverty and dependence on means-tested benefits in retirement. For example, a woman from West Yorkshire contacted the Carers National Association.

Mr. Gibb

Will the Secretary of State say, once and for all, whether the Government will means-test the basic state pension—yes or no?

Ms Harman

I am dealing with the citizenship pension for carers, and will address the hon. Gentleman's point when I come to the basic state pension.

A woman from West Yorkshire contacted the Carers National Association. She had worked in a supermarket since she was 20, and had an occupational pension into which she and her employer had paid. When the woman was 50, her mother, who was in her 70s, had a stroke, so the woman gave up her job to care for her. She has lost 10 years of her and her employer's pension contributions, and fears that in retirement she will end up like her mother—on income support.

That woman, and people like her, deserve a secure and dignified retirement, and a pension in their own right on top of the basic state pension, so we are exploring plans for a citizenship pension to enable all carers to enjoy a decent and dignified retirement.

Mr. Steve Webb (Northavon)

I have been studying the Government's pension reforms, and stakeholder pensions have received huge attention. There has been a massive consultation exercise on them, but citizenship pensions, rather like the people they are provided for, are the poor relation. The Secretary of State was questioned by the Social Security Select Committee on citizenship pensions, and her answer was hesitant and unclear. Does she accept that no progress has been made on the issue?

Ms Harman

There has been extensive consultation. The hon. Gentleman and his party have been consistent advocates of such pensions. I assure him that we are making progress, and that citizenship pensions have by no means dropped off our pension reform agenda.

The Government are already tackling key issues in developing a fair and lasting pensions policy for the future, but we are also taking immediate action to fulfil our commitment to help today's pensioners. Our manifesto made it clear that we would maintain the basic state pension as the foundation for pension provision, and that we would uprate it at least in line with prices. We have fulfilled our commitment and have increased the basic state pension for all pensioners, so that from next month the basic state pension for a couple will exceed £100 for the first time.

Pensioners spend a greater proportion of their income on fuel than other households, so we have taken a wide range of action to help them to afford to keep warm during the winter. We have cut pensioners' fuel bills by cutting VAT on fuel to 5 per cent., and have reduced the gas levy to zero. For the first time—

Mrs. Gorman

None of them has been paid.

Ms Harman

The hon. Lady says that none of them has been paid. What we are talking about is the cut in VAT on gas and electricity, which certainly has happened and which would not have happened had we not been in government. For the first time, all pensioners are getting help with their fuel bills through winter fuel payments.

Mr. Burns

Some are still waiting.

Ms Harman

We made it clear that we would pay out first to the poorest pensioners—those on income support. All the poorest pensioners have been paid.

Mr. Burns

Will the right hon. Lady clarify the phrase "all the poorest pensioners", which she keeps using? Nobody who becomes a pensioner from 6 January this year will receive a penny this year.

Ms Harman

For 18 years, nobody, whenever he or she retired, got a winter fuel payment. The hon. Gentleman knows that, when a payment is provided, there has to be a cut-off point somewhere. The difference is that this Government are paying money to help pensioners with their fuel bills, whereas under the previous Government pensioners had to pay money to the Government to help them with their financial problems.

Mr. Burns

Will the right hon. Lady tell the House the cut-off date for the Christmas bonus?

Ms Harman

That is a routine payment, which is paid every year.

The Minister for Welfare Reform (Mr. Frank Field)

Christmas is 25 December.

Ms Harman

My right hon. Friend says that Christmas is 25 December. The hon. Member for West Chelmsford (Mr. Burns) wants to make a huge point about the administration, but the fact is that we are paying every single pensioner extra money to help with his or her fuel bills. For the first time, all pensioners are getting help with their fuel bills through winter fuel payments. Some of Britain's poorest pensioners—the 1.5 million pensioners who are on income support—received their winter fuel payment of £50 in January. They have all been paid.

Mr. Terry Rooney (Bradford, North)

Is my right hon. Friend aware that, during the 18 years of the Conservative Government, 9.5 million people retired and every single one was worse off as a result of the policies of that Government?

Ms Harman

My hon. Friend makes a good point.

Last week, the first of more than 8 million pensioners received their winter fuel payment, as we started to pay £20 to all other pensioner households. All pensioners should receive a payment by the end of the month. Conservative Members may deride that policy, but people think that it is fair and just that one of our priorities, as promised in our manifesto, is to get help to all of today's pensioners, especially the poorest. We said that, as a priority, we would get help to today's poorest pensioners and we are delivering on our promise.

We are concerned about the very poorest—the people who are not claiming income support even though they are entitled to it. We are carrying out research to establish why up to 1 million pensioners do not claim the income support to which they are entitled. We have made it clear that the Government believe that people who are not entitled to benefit should not get it, but we also believe that those who are entitled to benefit should get it.

When we were in opposition and when the House debated what became the Social Security Administration (Fraud) Act 1997, I repeatedly pressed the Tory Government to use the new computers and data-matching powers not only to catch fraudsters—important though that is—but to identify pensioners who were falling through the net.

Mr. Field

They would not do so.

Ms Harman

My right hon. Friend is right. The previous Secretary of State for Social Security, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), refused to do that. He said that the poorest pensioners chose not to claim the money, because they did not want it. He said that, if the Government attempted to identify them, they would be found guilty by the European Court of Human Rights, so they could not possibly do it. We are not that frail. The right hon. Gentleman refused to recognise that, although those pensioners might need the money, they might not know that they were entitled to it, or that they might know that they were entitled to it, but be too proud to claim it.

That was wrong and now that we are in government we are taking action to carry out our manifesto promise of getting help to the poorest pensioners. Today, I can announce that we are investing £15 million in nine new pilot exercises to find the best ways of getting help to pensioners who do not claim their income support. Those pilots will start next month in Glasgow, Preston, York, Lambeth, Torbay, Stroud, South Staffordshire, Torfaen and East Renfrewshire.

We already hold numerous records and data on the people whom we are trying to help. Most are on record at the Contributions Agency as being entitled to the basic state pension and many are on record at the Benefits Agency because they receive other social security benefits such as attendance allowance, housing benefit and council tax benefit. At the moment, that information is just lying there, on different computer systems, but we will use that information and our data-matching powers to identify those pensioners who are missing out. Under those pilots the Benefits Agency, the Contributions Agency and local authorities in the nine areas will work together to find the best ways of getting the money to those poorest pensioners.

Mr. Vernon Coaker (Gedling)

I congratulate my right hon. Friend on that announcement. May I ask her to do as much as she can to accelerate the pilot projects and get them finished quickly, so that what is learned from them can be extended to the rest of the country as soon as possible?

Ms Harman

We shall report back to the House on how the projects work, but we can all agree that those who have gone without are the poorest people in society. The information on how to help them has never been used before, so this pioneering and innovative measure is long overdue.

We are modernising the social security system to tackle social and economic inequality and to tackle poverty. That is a promise on which we were elected. Not only do the new Labour Government take a different approach to the objectives of pensions policy from their predecessors; they take a different approach to developing that policy so that we get it right.

That is why we shall publish our proposals on pensions and the conclusions of our pensions review, so as to enable a full and well-informed debate and to get it right. That is why our proposals on pension sharing on divorce will be set out in draft Bill clauses, which will be published in advance of introducing them into the House, so that they can be examined by, among others, the Select Committee on Social Security. In that way, we can consult with and draw on the advice of others and so get it right.

Our principles are clearly established and now we have established the practice of open consultation in order to improve the quality of the draft legislation that comes before the House for consideration. Reforming pensions provision is at the centre of reforming welfare and we have already made substantial progress along the path of pensions reform.

8.17 pm
Mr. Edward Leigh (Gainsborough)

I was delighted when the Secretary of State said that we had to proceed by consent. In my brief contribution, I shall echo that point of view. Pensions are far too serious a subject to be the plaything of party politics.

The parties on both sides of the House have apologies to make. I shall start by making an apology on behalf of the Conservative party: there undoubtedly was a serious problem of pension mis-selling in the 1980s. I doubt whether that was the fault of Conservative Ministers or Back Benchers, but the problem occurred and the Labour Government are right to address it. In turn, the Government should make an apology for their abolition of ACT which, as my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) made clear, will cost pensioners up to £5 billion. That sends entirely the wrong message. As I have said, if we are going to make any headway at all, we have to proceed by way of consent and cross-party support.

The Secretary of State for Social Security is right to say that the pension system is failing many people. It has become almost a cliche, but work patterns are changing and, for the first time, there has been a worrying dip in the number of people who take out occupational pensions. Our pension industry faces a serious crisis.

Since the second world war, we have had a record second to none in persuading people to take out occupational pensions. A total of £600 billion is invested, but work patterns are changing. The Secretary of State is right to say that there is a particularly worrying trend with women workers, whose contributions are often not sufficient.

All that leads me to suggest that there must be cross-party consensus that, with the end of the link with earnings, the basic state pension, which for 50 years has been the pride of the welfare state, is no longer adequate. It is no longer adequate in our age; it will certainly not be adequate by the middle of the next century. That is a worrying development because people have been taught to rely on the basic state pension. They can no longer do so.

There is no point in hurling insults across the Chamber. The fact is that neither party, whichever is in government, is going to restore the link with earnings because we simply cannot afford to do so. Therefore, the basic state pension is going to decline, is declining in terms of real value, is not sufficient and will be even less sufficient for our elderly population.

Two nations are emerging. Many of us enjoy an excellent occupational pension in the House, if we are fortunate to survive for enough years. One nation enjoys first-rate occupational pensions; another does not and is condemned to an old age of poverty and reliance on income support. That is not acceptable in a civilised society.

Surely that point is, or should be, accepted by hon. Members on both sides of the House, but what do we do then? Obviously the Secretary of State is right. We have to create a stakeholder society, to use her jargon. There is nothing wrong with the phrase. She coined it, but there is no reason why we should not adopt it. That was precisely what my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the former Secretary of State for Social Security, now the shadow Chancellor of the Exchequer, was trying to do before the general election. He was trying to encourage people to make provision for their old age.

Mr. Hope

The hon. Gentleman gives the impression that there is cross-party consensus. Does he agree that the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), the Opposition Front-Bench spokesman, said nothing about pensioner poverty, about extra payments to pensioners or about the Conservative Government's failure to do anything to assist pensioners who live on or below the poverty line? Does the hon. Member for Gainsborough (Mr. Leigh) agree that we have inherited a legacy of pensioner poverty, which has caused millions of people throughout this country enormous distress?

Mr. Leigh

It is precisely that sort of pointless party political intervention that does not help pensioners one bit. The hon. Gentleman made an utterly ludicrous intervention at the beginning of the speech of my hon. Friend the Member for Chingford and Woodford Green. What is the point in saying that? How will that help pensioners?

Let us return to the real debate. The fact is that the basic state pension is not adequate. What are we going to do about it? Before the general election, my right hon. Friend the Member for Hitchin and Harpenden proposed an idea, a concept. The trouble is that it was launched almost exactly a year ago, on 6 March 1997, when we were in the midst of pre-electoral tension. Frankly, there was no proper debate about his sensible proposals. All he was saying was that people—all people—should be encouraged and required under the basic pension plus system to put a proportion of their income into a private insurance company to provide for their old age.

That idea clearly was not acceptable to the Labour party in that pre-election period. Perhaps it is not acceptable now. However, there is a compromise that hon. Members on both sides of the House may be able to accept. I know that Chile is a dirty word to many Labour Members, so I do not want to go on and on about it, but I could mention Singapore if that makes life easier for them. Consensus is surely emerging throughout the world that, if we are to provide sensibly for all old people, we must proceed not down the pay-as-you-go route, but down the stakeholder pension route.

Whether we support the Chilean model, by which people are required to put 10 per cent. of their income into a highly regulated, albeit private, insurance system, or the Singaporean model, where people do the same, but pension funds are effectively controlled and run by the Government, all we can do is give pensioners the choice. We have to require them to put a proportion of their income into a pension plan.

Mr. Howard Flight (Arundel and South Downs)

There is a crucial difference between the two models. The returns achieved by Singapore have totalled only some 2.5 per cent. because the investment has been state controlled, whereas the returns achieved by the Chile funds have been substantially larger. If it is a compulsory state-run system, there is a huge issue as to how the money is used.

Mr. Leigh

I fully accept my hon. Friend's point. The initial enthusiasm of the Secretary of State for Culture, Media and Sport—when he was the social security shadow spokesman—for the Singaporean system was tempered by the relatively low rate of return that the Singaporean Government managed to achieve, even though it is a successful and highly regulated society, so my hon. Friend makes a fair point.

All I say is that I fear, because we are not at present in government, that there is no enthusiasm on the Treasury Front Bench to proceed down the Chilean route. When the Select Committee on Social Security visited Chile before the last election, led by its then Chairman, now the Minister for Welfare Reform, it took some interesting evidence. Generally, we were impressed by the Chilean experience. We were particularly impressed by the rate of return and by the fact that, because the system is so highly regulated, there has been little abuse, although there has been a certain amount of abuse with people chopping and changing between different pension schemes. However, as it is highly regulated, they do not personally lose out.

The Government are not going to move down that road immediately because that would go against all their instincts. I understand that, but surely we can give people at least the choice, either to invest in private pension plans or, if that is unacceptable to them, to invest in pension schemes that are run by mutual or friendly societies.

I understand that pension schemes that are run by mutual or friendly societies may be more acceptable to the Government than private insurance schemes, but, whatever system we adopt, we cannot dictate to people how they should plan for their retirement. We have to give them the choice. What we surely have to do as a nation is find some way—this will take not one or two Parliaments, but perhaps five, 10, 15 or 20 Parliaments to achieve—that hon. Members on both sides of the Chamber can support, to encourage and require everyone, whatever the nature of their work pattern, however many times they change jobs, and whether they are men or women, to provide adequately for their old age. If we do not, we are storing up for this country the most profound and agonising social turmoil that it has encountered for many years.

8.28 pm
Kali Mountford (Colne Valley)

This has been an intriguing debate so far. At the beginning of the debate, I thought, "This is typical. It exemplifies the difference between Labour and Opposition Members." Following the speech by the hon. Member for Gainsborough (Mr. Leigh), I am even more intrigued. We continue to talk about the second pension route, but I was intrigued especially by the hon. Gentleman's remarks about pensioner poverty. I want to concentrate today on pensioner poverty, and stability and security in old age. I agree that we need a second pension, but that is for the future—the young people of today and how they supply the resources to provide security for themselves in their old age. One thing that will not give them security is a scheme that pulls the rug from under them by taking away the security of a basic state pension. Most of the suggestions from the Conservative party when it was in government gave the impression that it would pull the rug away from pensioners.

Mr. Flight

Will the hon. Lady give way?

Kali Mountford

I hope that the hon. Gentleman is going to illustrate that point.

Mr. Flight

The policy proposed before the general election involved a state guarantee equivalent to the state pension. The crucial issue was that the returns on private sector investment could be considerably greater than the returns within the state system. It was not proposed to remove the guarantee of the amount of the state pension.

Kali Mountford

We are going down an old path here. We have discussed this before in the debates on the Finance Bill and subsequent debates about social security. The perception of voters and my perception of basic pension plus was that once one was out of the system, there was no way back in. That created real fear for voters. We have to take that fear away.

Security in retirement is an absolute need. Another absolute need is freedom from poverty. I am delighted with what I have heard from my right hon. Friend the Secretary of State this evening. The use of the technology of today to provide security for a new age has to be the right approach. Many people have an income below the level of income support. That is real and abject poverty. There is a generation gap which is important both to the provision of second pensions and to the provision of pensions today. The poorest people are those aged over 75, of whom 40 per cent. have an income below the level of income support. That generation of people is least likely to claim the benefits to which they are entitled. They live in the most real poverty of all. Whichever group of poor people we discuss, those are the people about whom I am most concerned. They are physically vulnerable and they are proud of their traditions. We have to find the right way in which to ensure that they claim that to which they are entitled. One way in which to do that, which is a correct way, is to ensure that they do not pay over the odds for basic needs. So let us have a look at VAT on fuel.

Pensioners will have been disappointed in Conservative Members, such as the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), who welcomed the previous Chancellor's proposal to increase VAT on fuel to 17.5 per cent. Let us remember that it was the Labour Opposition who beat down that proposal. The Chancellor at that time decided to fill the gap in his Budget, which was created when the House voted against his proposal, by reducing the increase in the state pension by 30p. How did that meet the expectation of proper state support through the basic state pension? That illustrates the difference in the priorities of the Labour Government and the Conservative party when it was in government.

Mr. Hope

Is my hon. Friend aware that the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) said in the House of the increase in the state pension age: The equalisation of the state pension age at 65—again a change that we proposed in August—is welcome, but the Government should look again at increasing it, in due course, to 67 because the average age is rising."? — [Official Report, 30 November 1993; Vol. 233, c. 978.] If that had happened, some 2.4 million pensioners would have lost out.

Kali Mountford

Sadly, I am not surprised to hear that, although I am disappointed. The demographic changes in society present a problem and imagination has to be used to solve it. We have an aging population with growing needs, but a simplistic approach is not the answer. One simple answer that needs to be understood is that people who need benefits sometimes need to know the route to those benefits. That is why VAT on fuel is so important and why I welcome the reduction in VAT on fuel. I expect that Conservative Members were disappointed in it, given that they welcomed the opposite when their party was in government.

Let us consider the effect of reducing VAT on fuel, blunt instrument though it may be. It allows pensioners to keep their heating on in the winter. Help the Aged reported that pensioners were having to make decisions between food and fuel. That is why it welcomed the introduction of the £20 and the £50 for fuel this winter—another blunt instrument, but a blunt instrument that gets to the point. If pensioners have to wait for weeks on end to see how cold it gets to find out whether they will be entitled to extra support, it makes life very difficult for them, especially as the rules in relation to income support and cold weather payments were complicated. At least this winter—it has been a mild winter—pensioners have had the cash to pay their heating bills without all that rigmarole. That is important.

Our aging population faces some difficult issues and problems. A group of pensioners came to see me on Saturday. They brought me a letter from their pensioner action group about what they thought was most important. They wanted to see an increase in the basic state pension; there is no surprise in that. So they would have been disappointed by the previous Chancellor's reduction in the increase.

Mr. Gibb

Did those pensioners request that the hon. Lady's Government means-test the basic state pension? If not, why is the hon. Lady not asking the Secretary of State to confirm whether she intends to means-test it?

Kali Mountford

The issue of means-testing was not raised by that group of pensioners. They concentrated on some rather more interesting issues, such as why they had so much difficulty with care in the community, why they could not get into the private residential homes that used to be in local authority control and why they found it so difficult to get access to the national health service, which they felt that they had paid for and the previous Government had eroded.

Miss Kirkbride

I wonder whether the hon. Lady explained to her pensioners why her Labour Government, who pleaded so much on behalf of poor pensioners, were not prepared to restore the link with earnings.

Kali Mountford

The hon. Lady obviously has not been listening to the debate. After 18 years of Tory government and the erosion of the basic state pension, we have a long way to go from a low base. A great deal of imagination is needed. The most important people are those on incomes below income support level. The point of income support is that it marks the point of poverty. If people are below that point, they are making difficult choices in managing their families' budgets. To keep harping on this issue, which misses the point about pensioners, does them no favours at all.

We need to make decisions about our priorities. Conservative Members keep talking about actuaries and private pension funds—

Mr. Gibb

No, about SERPS.

Kali Mountford

The hon. Gentleman should allow me to finish. Conservative Members have missed the point about basic priorities. We must start with those in greatest need. The Secretary of State is absolutely right to look into providing second pensions and increased pensions. That process needs to be inclusive and consultative. The Conservative party bludgeoned people into decisions without properly consulting. At least at the end of our process of consultation, a consensus will emerge on how future pensions are to be provided. It is the pensioners of today who are not on income support who must be the main focus of our attention.

Under the Conservative Government, one quarter of all pensioners did not get an adequate second pension, and 12 million of them got no company pension. Then there was the diabolical tragedy of the mis-selling of pensions. There was also a growing gap between the poorest and richest pensioners. In 1979, the bottom 20 per cent. received £55.90 and the top 20 per cent. £169.60. Sixteen years on, the bottom 20 per cent. have had an increase of £15 but the top 20 per cent. have enjoyed an increase of £103. If that drift were allowed to continue, the poorest would become even poorer and the richest would continue to get richer. That is no way to proceed. The challenge for this Government is to provide for the poorest pensioners, which is why I commend my right hon. Friend's proposals to the House.

8.41 pm
Mr. Steve Webb (Northavon)

I brought with me to the Chamber tonight a secret—a secret concerning how the Conservatives are planning to win the next general election— [-10N. MEMBERS: "Tell us."] I note a greater than usual attentiveness on the Conservative Benches. After close textual analysis of tonight's motion, it is clear to me that the Conservatives plan to sweep back to power on a tide of amnesia. They hope that we will all forget the past 18 years and concentrate only on the past eight months. They must think we have very short memories.

The Tories spent 18 years ripping the heart out of rural Britain, and they now pretend to be the friends of the countryside. They spent 18 years squeezing higher education, but now pretend to be the friends of the students. After spending 18 years slashing future spending on state pensions and creating a shambles over private pensions, they now claim to be the friends of pensioners. It just does not add up.

The motion claims to deal with the failings of the present Government. We shall assess those claims in a moment; meanwhile, it is important to remember that the real problems with pensioner incomes have arisen not just since 1 May but since 1979.

Mr. Ian Taylor (Esher and Walton)

Before we all join the hon. Gentleman in suffering from amnesia, will he recognise that no Government will change the rules linking pensions to prices rather than earnings; and that, if Labour ever did that, the Government would be unable to provide the expenditure for health and education that they want to?

The Conservatives' proposals on pensions just before the election would have increased expenditure on them by £7 billion a year, at the peak, in order to bring our pension system under better long-term control. Why did not the hon. Gentleman welcome those measures—or perhaps he has not yet worked out what Liberal Democrat party policy is on the issue?

Mr. Webb

The hon. Gentleman is quite right to say that the Government will not link the basic state pension to earnings again. I would be most surprised if they did, but I am sure they will not. Nor would the official Opposition; and I would be greatly surprised if our party policy, as it is reviewed, came up with that idea, either. It is true that all the parties seem agreed on that.

The motion suggests that everything that is wrong with pensioners' incomes started to go wrong on 1 May. That is simply not true. Pensioners who retire in the new millennium will have far less to live on, not as a result of this Government's policies but as a result of Conservative policies. The basic state pension will have been eroded, by the breaking of the earnings link, to a level which Michael Portillo once famously described as nugatory. SERPS pensions will be worth less than half what they would have been under the pre-Conservative system.

How many billions did those Conservative measures take off pensioners? The answer is: not the £5 billion that the Government have taken from pension funds, but tens of billions of pounds. Yet now the Conservatives have the gall to criticise the Labour Government for taking £5 billion out of the system. That is small beer by Conservative standards.

It is not as if the private sector fared any better. Was it not a Conservative Chancellor, Mr. Lamont, who first spotted that tax credits were a wheeze for raising £1 billion? It seems that a few years ago that was right when the Conservatives did it; now, when the Labour party does its famous trick of following Conservative policies, the Opposition criticise it for doing so. How implausible it is when the Conservatives pretend to be outraged when the Labour Government follow their lead.

What about the debacle over personal pensions, which is still only slowly being unravelled? The Labour Government may not have done much for pensioners so far, but they have at least tackled this one scam with a great deal more energy and urgency than it ever received from the Conservatives. Indeed, I pay tribute to the Economic Secretary to the Treasury for all she has done and for the energy that she has devoted to that campaign. We wish her well with it.

What of the Government's record on pensions? For today's pensioners, they have cut VAT on fuel from 8 to 5 per cent—no doubt a move welcomed by pensioners. But Labour Members should not get carried away into thinking that that will make a big difference to elderly people. The Government announced the cutting of VAT on fuel in July. That had the advantage of feeding into the September retail prices index, which meant that pensions next April will go up by less than they would have without the cut in VAT. Taking account of that, a recent written answer stated that a typical married pensioner will get about 25p a week from the cut in VAT on fuel—not unwelcome, but scarcely a king's ransom.

What about the other measure—winter fuel payments? That, too, is a welcome move, although there is no long-term strategy to deal with fuel poverty: it is to apply just this year and next. The payment is worth less than 40p to a typical pensioner. Added together, therefore, the two measures are worth less than £1 a week to the typical pensioner. That hardly constitutes a serious attack on pensioner poverty.

As regards changes to tax credits, it is disingenuous of the Government to pretend that they can take £5 billion from pension funds without affecting pensions—

Mr. Coaker

The hon. Gentleman is falling into the same trap as the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) fell into—equating a change in the tax regime with an effect on pension fund income. Pension funds operate in the total economy and depend on a range of factors, not just the tax regime. We cannot ignore the general health of the economy, investment returns and so on—they all affect pension funds as well.

Mr. Webb

The hon. Gentleman is right, to the extent that tax treatment is but one of a range of factors. I am not relying on my own opinion here, however. The Government Actuary must be preening himself—everyone seems to have been reading his report. Indeed. I can recommend it as a stonking good read. The Government Actuary has said that returns to pension funds, allowing for possible increases in dividends, will be lower because of the Government's tax changes. Presumably the Government Actuary has no political axe to grind; otherwise, he would not recommend changed rebates for personal pensions. Independent comment states that the changes will damage pensioners' incomes. That is why we have opposed them.

I accept that the Government will not reverse that policy now, but I want to raise with the Pensions Minister one group that will suffer through the change, and for which many of the arguments advanced by Labour Members do not stand up as a defence. I refer to members of closed pension schemes—people whose employers have gone out of business and for whom there is a pot of money in the pension fund. Where there is no sponsoring employer, if the tax credit is cut, the income from the fund goes down and there is no employer to make up the difference.

There is a danger that people such as my constituents in the DRG pension scheme will lose income. They will say, "A Labour Government cut my pension." I am sure that the Pensions Minister would not want them to say that. I ask him to look again at the position of people in closed pension schemes.

One fundamental point underlies the debate about pensioner incomes. The Government have taken a number of small but welcome measures to help pensioners with their fuel bills. They are also rumoured to be examining the cost of television licences and of public transport for pensioners. Those proposals would no doubt be well received by many pensioners.

Most of all, however, pensioners need, and I believe deserve, security and a decent income that they decide how to spend. Ultimately, what matters is not gimmicks or short-term sticking plaster. If pensioners cannot afford their fuel bills, television licence or bus fares, it is because their basic income is too low. Until that issue is addressed, neither of the two larger parties can claim to have taken seriously the concerns of pensioners.

8.51 pm
Mr. Phil Hope (Corby)

I join my hon. Friends in welcoming the debate. Having listened to the opening remarks of the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith), may I say how strange it is to welcome to the Chamber yet another representative from the planet Zarg. That is where I assume he is from: given the remarks that he made, he cannot be living on this planet.

Pension reform is one of the greatest challenges facing the Labour Government. Ensuring decent incomes in retirement is a key aim in the Government's wider strategy for tackling social exclusion and reducing poverty. Regrettably, we start with a Conservative inheritance that has failed today's pensioners, and would have devastated tomorrow's pensioners too.

A quarter of today's pensioners do not have an adequate second pension. Almost 2 million depend on income support. The Tories did not lift a finger to ensure that the poorest pensioners received the benefits to which they are entitled. They abandoned a million pensioners, mainly women, to live on incomes well below the poverty line.

We know that 12 million people do not have access to a company pension. For people on low or modest incomes, private personal pensions can be poor value for money. In some cases, £1 in every £4 of savings is eaten up by fees and charges. We know, too, that the Tories wrongly encouraged people to opt out of their company pension into private personal pensions, and then failed to take tough action on the disgraceful pension mis-selling that they encouraged. I wonder when those people will get an apology from the Conservative party.

Kali Mountford

Would my hon. Friend be surprised to hear that a pensioner in my constituency of Colne Valley, who lost £21,000 because of wrong advice, was compensated by only a few hundred pounds when his case was eventually settled?

Mr. Hope

I am not at all surprised to hear that example. There are thousands of other similar examples—a devastating legacy of the appalling treatment that the Opposition, when in power, meted out to pensioners.

Mr. Oliver Letwin (West Dorset)


Mr. Hope

The Conservatives in government not only targeted their attacks on vulnerable pensioners: they used a shotgun approach. They tried to attack every pensioner by raising VAT on fuel to 17.5 per cent., which the hon. Member for Chingford and Woodford Green supported and voted for, even though his own Conservative constituency association urged him not to do so.

Mrs. Gorman


Mr. Hope

I give way to the hon. Gentleman.

Mr. Letwin

I tried to intervene before the hon. Gentleman left the subject of the mis-selling of pensions, as I have a genuine interest in the matter. Does he think that it will be one year or two, three, four or five years before the Labour party stops hiding behind that accusation to excuse every failing of the Government?

Mr. Hope

What an intriguing intervention. We are invited to suggest how many years it will be before the Conservatives come up with an apology for the way that they treated pensioners. The Labour Government understand that there is a crying need for reform of the pension system.

Over the past 20 years, the incomes of retired people as a whole have risen faster than those of the working population, but that statistic hides the reality of the Tory legacy-inequality among pensioners has risen dramatically over the same period.

Pensioners are among the poorest people in Britain today. Inequality has widened between rich and poor pensioners, and between older and younger pensioners. Unless things change, that inequality is set to widen. On the basis of reasonable assumptions, it is estimated that, over the next 30 years, the incomes of the poorest one fifth of pensioners will rise by about 20 per cent., but the incomes of the richest one fifth will rise by 80 per cent.

As my hon. Friend the Member for Colne Valley (Kali Mountford) reminded the House, the poorest pensioners tend to be older, and they tend to be single and women. A quarter of pensioners are entitled to income support, yet nearly 40 per cent. of them—1 million pensioners—do not receive the income support they should get. It is vital that we give immediate help to the poorest pensioners. Like my colleagues, I am delighted at the announcement by my right hon. Friend the Secretary of State that £15 million is to be spent on pilot schemes throughout the country to ensure that the poorest pensioners, the people who have suffered the most, will get the benefits to which they are genuinely entitled.

On the wider priorities, there are many ways that pensioners can share fairly in the increasing prosperity of the nation, not just through state pensions but through state income-related benefits, non-state pensions, savings and earnings, concessionary schemes and the tax system. For many pensioners, the national health service—long-term health and community care—can be as important to their quality of life as their income. We must make sure in government that we make the most efficient and equitable use of all those resources to ensure that all pensioners share in the nation's rising prosperity, but we must give priority to the needs of the poorest.

The Labour Government have done much in that regard already. The cut in VAT on fuel benefited all pensioners, as did the winter fuel payment of £20 to every pensioner household. We made sure that the poorest pensioners, those on income support, received more— £50 per household—because they are most in need.

Sir Robert Smith (West Aberdeenshire and Kincardine)

On the issue of cold weather payments, does the hon. Gentleman not think it perverse that the Government are willing to give a blanket payment to pensioners across the country, regardless of weather conditions, but refuse point blank to do what they called for in opposition and pay pensioners when they experience the cold, by allowing the wind-chill factor to be taken into account in calculating payments?

Mr. Hope

My hon. Friend the Member for Colne Valley has already pointed out that the complicated and difficult assessment procedures for cold weather payments meant that many pensioners switched off their heating because they were not sure whether they would qualify for the payments. Labour has demonstrated its commitment to pensioners by allocating £200 million this year and next year to winter fuel payments—that is more in one decisive action than the Tories managed over 18 shameful years of inactivity.

It is not just about reversing the Tory legacy and tackling inequality: the Labour Government must build a sustainable framework for pensions for the future. A huge amount is spent on pensions throughout the country. More than £74 billion was paid in 1996 to pensioners from all types of pension schemes, of which £33 billion was paid out by the state on the basic state retirement pension and SERPS. From those basic figures, it is clear that a sustainable framework will always comprise a partnership between public and private provision, and be a balance between income sourced from tax and that from invested savings.

Unlike the Conservatives, who would have abolished the basic state pension and struck fear into the hearts of pensioners and working people across the country before the election, the Labour Government must keep their manifesto commitment to retaining the basic state pension as the foundation of pension provision, increasing it at least in line with inflation. We must also retain SERPS as an option for those who wish to remain within that scheme.

We have much more to do. Many people in this country are not able to save for a second pension. The Tory pension mis-selling scandal, which we are making decisive moves to settle, has made many people nervous about relying on invested second pension schemes. Tory dogma and the Tories' failure to regulate the industry and the market properly caused that personal pension scandal. It need not have happened.

We must develop a new framework of flexible, value-for-money, second stakeholder pensions in order to help to meet the needs of those on low and modest incomes with changing patterns of employment who cannot join a good-value second pension scheme. We must ensure that those schemes are large enough to enjoy economies of scale, are approved to meet high minimum standards, are run in the interests of the members and not the companies, and are run in a way that allows members to understand readily what they are paying and what they might expect to receive when they retire.

We must also remember that a significant number of people cannot be expected to save for their own retirement. Many carers are unable to work, or suffer greatly reduced earnings because of their caring responsibilities. I believe that the Government should credit carers, and perhaps others, into a citizenship pension that will provide a second pension for those years when they are unable to work. That will help to avoid poverty and dependence on means-tested benefits as a consequence.

Most of the poorest pensioners are women. Low pay during their working lives means that women are often less able than men to build a second pension. They may also experience disadvantage in their pension incomes if they are divorced. Many women are also badly served by SERPS at present. Stakeholder pensions, citizenship pensions and pension sharing on divorce are a combination of measures that will cut the routes to pensioner poverty and significantly narrow pension inequality between men and women in future.

The Government must develop a pensions strategy that can cope with a slowly aging society without heaping unsustainable costs on to our children. A sustainable policy for pensions in the next millennium must tackle inequality among pensioners today and create a robust framework to ensure effective and equitable support for the pensioners of tomorrow.

9.2 pm

Miss Julie Kirkbride (Bromsgrove)

Thank you, Mr. Deputy Speaker, for calling me to speak in this very important debate.

I have listened to the speeches of Government Members and I believe that a travesty of justice has been done to the previous Government's policies and our pension achievements. [Interruption.] If the hon. Member for Corby (Mr. Hope) would listen, he might understand my points.

The hon. Gentleman admitted that, during 18 years of Conservative government, incomes rose more quickly for pensioners than for the general population. We welcome that fact: it is testimony to our successful pensions record. We recognise—as do the Government, for which we are grateful—that more must be done to ensure that everyone receives a pension. However, we wish to take some credit for what has occurred to create a secure future for many of our pensioner constituents who have fared extremely well.

During the 1980s, the Conservative Government recognised—

Mr. Coaker

Although it may be true that some pensioners have shared in the country's increasing prosperity, the reality is that the vast majority of pensioners are poor, and that a significant number are absolutely destitute. Is that not a damning indictment of the policies pursued by the previous Government?

Miss Kirkbride

I am afraid that the hon. Gentleman will have to say what his Government will do—to answer the mock indignation coming from hon. Members on the Government Benches—before we on the Opposition Benches will take any lessons about what we should have done while we were in power.

The Government have failed to say that they will do anything significant to raise the basic state pension or add significantly to the benefits that are available to people on income support, or to increase income for the poorest pensioners. I have yet to hear anything from hon. Members on the Government Benches that would suggest that that is being contemplated, and until they do, there is no point in their continuing their mock indignation.

Mr. Letwin

My hon. Friend is making an important point. Does she agree that, importantly, we heard an admission this evening from the Secretary of State that the guaranteed income of £100, which was widely trailed in the newspapers, has disappeared without trace and been replaced by a £15 million pilot project to add to the pile of 150 reviews?

Miss Kirkbride

I could not agree more. It was the death knell for the minimum pension scheme. The Chancellor clearly won in the departmental spending wrangles, which we all know take place behind closed doors.

I want to return to the 1980s and my former Government's record on pensions.

Mr. Gibb

Wouldn't we all?

Miss Kirkbride

Quite. They recognised that the state could not continue to pay pensions in the way it had, as that was unsustainable, and it was necessary to encourage people to save more to sustain them in their old age. The House will be shocked to hear it, but even we on the Conservative Benches want pensioners to have a secure old age, one that they can enjoy in comfort, without fear for their financial future.

Recognising that we had to do more, we introduced private pensions and encouraged people to opt out of SERPS, so that they would no longer be an unsustainable liability on the state in future years. What did the present Government tell the population when they were in opposition? They said, "Don't trust this. You mustn't do this. These wicked private pension schemes will not pay out when you retire." They pretended that what the Conservative Government were trying to do was wicked and unsustainable.

Thank goodness the British population had the good sense not to believe the Labour party at the time, and pursued their private and occupational pension schemes with the SERPS opt-out, and they have been much better off as a result.

Kali Mountford

Would the hon. Lady like to join the hon. Member for Gainsborough (Mr. Leigh) and apologise for the pensions mis-selling fiasco and the real damage it did to confidence in pensions?

Miss Kirkbride

Again, it is a travesty of justice for the Government to pretend that we were responsible for pensions mis-selling. We regret it enormously, and welcome what the Government are doing to put the matter right.

The situation came to light in the mid-1990s, and we welcome what is being done to restore the contributions that people accrued. There is no question but that we deplore and condemn pensions mis-selling. We expect the pensions companies to put it right. For the Government continually to suggest that we encouraged it and wanted it to happen, and that we welcome it and do not regret it, is quite preposterous.

The Government also ignore the fact that what happened to the private pensions industry—if I may call it that—during the 1980s and 1990s has been a signal success for the British economy and the British people. Both those factors are important, as in future years there will be a crisis. At present, 3.4 people in the working population sustain one pensioner. In 40 years' time, 2.6 people will sustain a pensioner in his or her old age. We had to address those points. What we did on private pensions has been a massive bonus for the British economy and British pensioners. Those who have an occupational and private pension scheme can look forward to a secure old age.

Figures provided by the Library show what a magnificent success the private pensions industry has been. In 1995—one expects that the figure has gone up considerably since then—£750 billion, roughly equivalent to the nation's gross domestic product, was invested in private pensions. In 1991, when the United Kingdom's pension fund assets were around 73 per cent. of GDP, they were 66 per cent. in the United States and 10 per cent. in Japan, Germany and France.

When I am 90 years old, in 2050, when I shall still be taking a keen interest in the performance of the economy and the Government's tax rate, I am pleased to discover that the British economy's balance sheet will be even healthier. It will so exceed any other balance sheet in the western world that Conservative Members can truly take magnificent pride in what has happened.

In 2050, unfunded state pension liabilities in Britain will amount to just 15 per cent. of GDP—that amount of money which taxpayers will have to contribute in order to pay pensioners who have a legitimate expectation that the money they have salted away when they were working will be there when they retire. The sad fact is that many EU countries, instead of that money being invested privately and securely tucked up in some private bank account from which it can be released when needed, will be looking to their taxpayers, or will have to borrow the money to pay those liabilities.

The Japanese will find that their unfunded liabilities amount to 399 per cent. of their GDP; the Germans, 431 per cent.; the French, 370 per cent. — [Interruption]—the Italians, 338 per cent.; the Canadians 189 per cent.; and, as hon. Members making sedentary interventions may have forgotten, the British, only 15 per cent. That is a massive success story, which will transform the future British economy, and Conservative Members perceive it as a considerable obstacle to joining a single currency as and when that decision comes along.

Having put straight the Conservative Government's record—

Mr. Webb

The hon. Lady says how wonderful it is that all those future liabilities will have been reduced, but, as my hon. Friend the Member for Newbury (Mr. Rendel) has said, anyone can do that if they scrap the basic state pension, which is essentially what, in Michael Portillo's words, the Conservatives are planning to do. Is there anything particularly impressive about reducing future state liabilities by abolishing the benefit?

Miss Kirkbride

I think that the hon. Gentleman is a professor, and I cannot believe that he has made such a facile intervention when he knows that I am talking about private pension fund contributions which have transformed the balance sheet. That is reflected in the unfunded liabilities and the percentage share we then have.

During their 18 years in power, the Conservative Government did not abolish the state pension, and there is no question that Conservatives will do so in five years' time, when they are back in government. That is a preposterous suggestion. It is one which Liberal Democrat and Labour Members like to perpetrate, and it is nonsense. We have not done it, and will not do it. I shall not continue having a conversation with the hon. Gentleman when I am meant to be addressing the House.

I return to the Government's pension policy because they are in power, albeit that they often forget that when they ask Conservative Members for our views on the subject. The Government have severely let down many pensioners on the upper end of the pension earnings, who are nevertheless vulnerable in their incomes and feel insecure about how they will meet their liabilities in their old age. They are equally deserving of consideration.

Mr. Coaker

Does the hon. Lady agree that, in terms of insecurity and income in old age, the Government's decision to set up a royal commission to look into the cost of nursing home care for the elderly is of great significance to people in their old age, now and in the future? One of the most damaging feelings of insecurity experienced by people is how they will be able to afford to look after themselves and their relatives. That is a fundamental problem that the royal commission will address.

Miss Kirkbride

I recognise the issue that the hon. Gentleman has raised. It is equally important to my constituents. Although I welcome the quick recommendations of the commission, my constituents and those of the hon. Gentleman can take no comfort from the fact that, after 18 years in opposition, the Labour party could not come into office with proposals ready to do something about the problem, but has postponed any decisions until it hears the recommendations of the royal commission.

I do not wish to repeat what was said by my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) about how iniquitous the changes to ACT have been in reducing income available to future pensioners as well as existing pensioners. They may find that, as a result of the changes, they will receive a smaller increase in their pensions every year because their pension fund will no longer be as well off as it would have been had the ACT changes not taken place.

The figures are clear. The amount of tax raised is £5 billion, which is equivalent to about 2.5p on income tax. Had the Government been more honest and put that increase in revenue on to income tax bills, I would have had more respect for them. Instead, they have tried to introduce a sneaky, sleight-of-hand tax which they hope people will not notice.

In the interest of open government, of which Labour Members are so fond, I call upon the pensions industry to clarify what the loss in income has been as a result of the changes made to ACT. I am sure that it would come as a shock to many of my constituents to learn that the money they think they have been saving for their old age has now been reduced considerably as a result of that sleight of hand.

We have still had no clarification from the Government about whether they propose to means-test the state pension. That is now the real issue. As my hon. Friend the Member for Chingford and Woodford Green pointed out, the manifesto commitment in 1997 does not rule out the fact that affluent pensioners might be facing the demise of their old-age pension, to which they are entitled as a result of their national insurance contributions. I would welcome the Government making clear their policies on that.

The Government's proposals for the stakeholder pension raise the biggest question that the Government will have to face as and when they introduce their proposals on the Floor of the House. As we have pointed out, many people do not have a second-tier pension because they are on low incomes. They might find it difficult to save for a pension, because they do not earn a great deal and because the day they reach 65 seems a long way off.

If the Government are to succeed in increasing the number of people who have a second-tier, funded pension, they will have to decide whether to make contributions to that stakeholder pension compulsory.

Mr. Richard Allan (Sheffield, Hallam)

The hon. Lady is making a good case for some sort of minimum wage. That would raise incomes sufficiently for people to be able to pay into a pension scheme.

Miss Kirkbride

We will have to see the level at which the minimum wage is introduced when the Government announce their plans. If it is introduced at £3.60—as has been widely speculated—it will not be enough in terms of weekly earnings to take the average man with two children, who is trying to keep a roof over his family's heads, above the level of family credit. Therefore, the state will still contribute to his earnings.

The preposterous nonsense that the Government are trying to perpetrate—that somehow the minimum wage will take people off state subsidy—is not true, unless the wage is set at such a level that it destroys jobs wholesale. I would be grateful if the Minister would speculate on the introduction of the stakeholder pension, and whether the lower-paid will have to make compulsory contributions to that pension.

9.21 pm
Mr. Desmond Browne (Kilmarnock and Loudoun)

The hon. Member for Bromsgrove (Miss Kirkbride) eulogised the private pensions industry. I do not want to be mean-spirited about the impressive statistics, but she did not give us the comparison of the public state pension as a percentage of GDP. While we may be at the top of any league table in terms of private pensions, we were near the bottom—in fact, we were second from bottom—of the EU league table in 1995 in terms of the state pension as a percentage of GDP.

Mr. Letwin

I am exceptionally grateful to the hon. Gentleman for giving way at such an early stage, but he has made an important point. Is that not exactly the position that his Government's policies will institutionalise for the future?

Mr. Browne

In my view, it is not.

As a result of those figures, we have heard from my right hon. Friend the Secretary of State, others of my hon. Friends and the hon. Member for Northavon (Mr. Webb) examples of the growing problems of pensioner need—especially for the poorest pensioners—which were created by the previous Government's changes to the British state pension system. It is nothing short of breathtaking hypocrisy for the Conservative party, which had a deplorable record on pensions, to criticise this Government, who inherited that record of Tory failure.

It was interesting that, writing in The Times on 5 August, the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) said: Countries across Europe have failed to encourage independence, private provision and reform of the state pension system. The Conservative Government achieved all three of these aims and bequeathed Labour a sound basis on which to build. One can imagine my surprise, having read that, that a defence of that record was conspicuous by its absence from the hon. Gentleman's speech.

The view of the hon. Member for Chingford and Woodford Green is not shared by the vast majority of pensioners in my constituency, where approximately 20 per cent. of the population are pensioners. Some are the poorest pensioners in the United Kingdom, and all need reassurance that they will have adequate income levels in their retirement. They certainly never received any such assurances from Conservative Members. Instead, the previous Government left a legacy of a Britain where 1.7 million pensioners are so poor that they have to depend on income support and, as we have heard, a further 1 million do not claim the income support to which they are entitled.

I am repeating the statistics, but they bear repetition. In addition, pensioner inequality is growing. The top 10 per cent. have seen their incomes growing steadily due to their share in the private pension industry boom, but the bottom 10 per cent. have become progressively poorer. In my constituency, prospects are no better for the pensioners of the future. Of those who are lucky enough to have work, the majority do not have access to a company pension scheme.

Social justice, the inadequate level of state pension and the predicted demographic changes—whether they turn out to be a demographic time bomb or not—which will see the ratio of people of working age to pensioners falling in the first half of the next century, demand that finding a way to deliver a decent income is a priority for the Government. It shall be found.

The Tories took steps to ensure that the aging of the population posed no great threat to public finances, but they failed to address the fundamental challenges of pension reform until their Government's dying days, and they did so for electoral purposes. Until then, they had turned their back on Britain's pensioners.

Mr. Hope

Not only did the Tories not take into account the needs of the poorest pensioners before the general election; they have continued to fail to do so since then. The motion before us is entitled "Effects of the Government' Policies on Pensioners' Incomes". Is my hon. Friend surprised to see that it does not mention pensioners living on income support or anyone who was mis-sold a pension by the previous Administration?

Mr. Browne

My hon. Friend makes a good point. Any mention of poor pensioners has been conspicuous by its absence from Conservative Members' speeches.

I was discussing electoral pension reform. True to their Thatcherite roots, in March 1997, the Conservatives responded to a call by Professor Patrick Minford and unveiled their plans to privatise the state pension. Had they had their way, the end of the previous Parliament would have seen the scrapping of the basic state pension and SERPS and their replacement by a private pension scheme, which, even in the most optimistic view, would have guaranteed a pension worth only £175 a week in 2040.

Mr. Letwin

At today's prices.

Mr. Browne

Assuming a real earnings growth of 1.5 per cent. a year, the new pension would have represented 23 per cent. of pay compared with 36 per cent., which men on average earnings were receiving in 1997. In calculating that optimistic sum, the Conservatives paid no regard to inflation or the cost of looking after the funds and, most culpably, they ignored completely the financial services industry's failure over the preceding decade.

Mr. Letwin

Will the hon. Gentleman give way?

Mr. Browne

No, I do not have time.

During that time, instead of making rigorous efforts to investigate the mishandling of 1.5 million pensions by the private sector, the Conservatives planned to hand over the management of any replacement of the state pension and SERPS to those same companies. So enamoured were they with the dogma of privatisation that they were prepared to hand over £320 billion of taxpayers' money to an industry whose credibility had reached rock bottom, as it had consistently failed to right the wrongs of the pensions mis-selling scandal. In many ways, it was hardly surprising that they should wish to do that, as they had ignored financial experts' warnings when they passed the Social Security Act in 1986 and happily endorsed the mass marketing of private pensions.

The Act was calculated to entice millions of people to switch from perfectly good pension arrangements for the promise of greater future security in the private sector. Between 1988 and 1994, insurance companies, independent financial advisers, banks and building societies sold more than 5 million private pensions. For the financial companies, it was a bonanza. For some of their customers it worked, but for a significant minority it did not. For them, pension advice was negligent and sometimes downright dishonest. As a result of the absence of effective regulation, hundreds of thousands of people were cheated by both cowboy companies and well-known firms. Each case was a personal tragedy and, instead of facing security in their retirement, hundreds of thousands faced uncertainty and poverty.

Bad as that was, it was made worse by the length of time those people had to wait for compensation. Had Labour not won the election in May 1997, many of them would still be waiting. The previous Government's history of cleaning up the mess that they created is a disgrace, to say the least. In 1994, the Securities and Investments Board went to the length of requiring firms to review the most urgent cases, but deadlines for those reviews just came and went and the Tory Government did nothing.

From 1994 to 1997, the Tory Government failed to tackle that problem effectively, but within 14 days in government my hon. Friend the Economic Secretary to the Treasury had met 24 firms responsible for three quarters of the cases and she left them in no uncertainty that she was determined to take firm action. The Tories did not get that far in three years.

To be fair to the hon. Member for Chingford and Woodford Green, he has written that the Government were right to demand that the mis-selling of pensions is fully resolved and reparations made. However, he did not do that until August 1997, and he now wishes to portray himself as the champion of the pensioner. Where were those demands for remedial action between 1992 and 1997? Unlike the hon. Member for Gainsborough (Mr. Leigh), he does not even now, in 1998, have the courage to make a simple apology for that omission.

Results have been achieved because this Government have refused to let the issue rest on the back burner. My hon. Friend the Economic Secretary to the Treasury has focused public concern and media attention on the firms responsible. The Tories' previous level of inaction did nothing to help pensioners and the victims of the scandal; it served only to highlight their own lack of concern for some of the most vulnerable groups in our society.

The Labour Government have quickly ended the misery of many hundreds of thousands of people who were in fear of their financial security in retirement. The Labour Government will also improve the lot of many millions of pensioners by making a winter fuel payment to them, as well as cutting VAT on gas and electricity. Those steps, along with the others that we have taken to help ensure that all pensioners who are entitled to income support receive it, make the Labour Government's record of achievement one of which I am already very proud.

9.30 pm
Mr. Quentin Davies (Grantham and Stamford)

This has been a good debate; in particular, it has been an important debate. I do not think that I can recall in my time in the House of Commons—it must be true for much further back—a Government going in for such systematic evasion of basic questions and such shameless financial chicanery. Never before in my time have an Opposition had such an important task to perform in exposing the reality behind what the Government have been doing.

This has been a good debate. It was opened by my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith), who asked all the pertinent questions and did not receive a single response. He was followed by attempts by my hon. Friends on the Back Benches, in interventions and excellent speeches, to prise out of the Government a few answers. They also failed.

My hon. Friend the Member for Gainsborough (Mr. Leigh) made a speech with feeling, which was also extremely well informed. Having studied pension systems in many parts of the world, he made a particularly original contribution to the debate.

My hon. Friend the Member for Bromsgrove (Miss Kirkbride) gave the House an extremely lucid defence of the previous Government's record and pointed out, not least, that the average earnings of pensioners increased faster than national income over the period of the Conservative Government. That is ultimately what counts. She also addressed the issue of the Government's behaviour since the Budget last July, which was fatal for pensioners, and asked a raft of questions. She did not receive a single answer. I hope that she may receive an answer from the Under-Secretary when he winds up.

There is nothing wrong with the Government's rhetoric. Indeed, there is unlikely to be anything wrong with their rhetoric as they stole most of it from the Conservative party. What is wrong and damaging—in this case damaging to the interests of pensioners—is the reality. The Government should be profoundly ashamed that, after only nine or 10 months in office, there should be such a wide gulf between rhetoric and reality.

Whole sections of our country were systematically deceived by the Labour party at the election. Single parents were entitled to believe the assurances that their special benefit regimes would be protected by a Labour Government. Students were entitled to believe the explicit promises that they received, even from the Prime Minister in April, in the middle of the election campaign—on the record—that a Labour Government would not introduce tuition fees. Savers were entitled to believe the promises that PEPs and TESSAs would be safe, but they have retrospectively found that they are not.

Mr. Hope

Will the hon. Gentleman now apologise on behalf of the Conservative party for the scandalous and appalling mis-selling of pensions, and for the fact that the Conservative party has failed to do anything about the million pensioners who continue to live on income support and below the United Kingdom poverty level?

Mr. Davies

The hon. Gentleman makes my point for me. Everything that has been said in this debate not only by Ministers but by Labour Back Benchers relates to the past. They want to keep the electorate's attention away from the present and the future—away from the fatal impact of the Government's actions, in nine or 10 brief months, on pensions.

Pensioners comprise the largest group in our society who were systematically deceived at the general election. What were they told by the Labour party before the general election? Before voting in a general election, on whose words is one supposed to rely about the future pensions regime if not on those of a party's proposed Chancellor of the Exchequer? On 19 April 1997—on almost the eve of the election—the Chancellor said: All Labour's proposals will protect and improve the quality of life of pensioners". That quotation bears repetition. He said: All Labour's proposals will protect and improve the quality of life of pensioners". Pensioners therefore went to the voting booth believing that they would be protected. Only two months later, an unprecedented tax was introduced that, from 1999, will take £5 billion a year from the income of pension funds.

How can one possibly expect the British public to believe that pensioners will not be worse off if someone, each and every year, malversates £5 billion from their pension funds? It is an extraordinary state of affairs for a Government to have so little respect for the public's intelligence. Although the public fell for it during the general election, they will not fall for it if the Labour party does it again.

Every one of the Government's actions on pensions has undermined pensioners' standard of living and prospects for a secure retirement.

Mr. Cooker

Will the hon. Gentleman give way?

Mr. Davies

I cannot give way because of lack of time, but I may give way to the hon. Gentleman in a moment.

Criminologists sometimes do studies and write learned articles on a strange phenomenon that they encounter in their work. It is the phenomenon of someone who has conducted such an appalling crime that he or she cannot quite face the fact that it has been committed. I believe that—in the trade—it is called a criminal who is "in denial". If the Labour party is not blatantly telling lies, it must be in denial.

After last year's Budget, the Financial Secretary to the Treasury said: The measure is good for pensions and pensioners, not bad for them… People should understand that our reforms will benefit pension funds. — [Official Report, 3 July 1997; Vol. 297, c. 507.] If taking £5 billion out of pension funds benefits pension funds, what does one have to do to damage pension funds? No one other than Ministers, and perhaps a few of their more sycophantic Back-Bench supporters, could even begin to believe such nonsense.

The Government Actuary does not believe such nonsense, because he has just produced a large report mathematically proving that pension funds will have to receive higher funding levels to compensate for the abolition of the dividend tax credit. Independent financial advisers also do not believe that nonsense. On the contrary, they formed up to the Secretary of State and to the Treasury and threatened that unless something was done to protect the value of personal pensions, they would advise their clients to move back into SERPS.

Pension fund trustees—managers of British companies that have occupational schemes—do not believe that nonsense. The National Association of Pension Funds has carried out a survey of them, according to which almost 90 per cent. of employers claim that the abolition of dividend tax credit will absorb increased costs, but many of them are planning to share the burden with their employees…One in seven employers also report that they are planning to reduce pension benefits So much for the Financial Secretary's words: The measure is good for pensions and pensioners, not bad for them…People should understand that our reforms will benefit pension funds." —[Official Report, 3 July 1997; Vol. 297, c. 507.] Having been rumbled, the Labour party is seeking to retreat surreptitiously—piecemeal—hoping that no one will notice quite what is going on.

Let me ask the Under-Secretary—who has the difficult task of defending the Government this evening—six questions. I see that he is getting out his pen. The whole country will looking forward to the answers to my questions, and the whole country will know that, if there are no answers, the Government are continuing to avoid the facts. [Interruption.]

First, what is the cost of the additional rebates that the Government have decided to provide? Secondly, what would have been the cost if all the contracted-out pension schemes had been compensated at the rate accorded to appropriate personal pensions? Thirdly, what survey has been undertaken of the cost to local government pension funds over the remaining term of this Parliament— [Interruption.]

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I am sorry to interrupt the hon. Gentleman. May I say to the hon. Member for Corby (Mr. Hope) that I think he has used up his ration of sedentary comments?

Mr. Davies

Thirdly—as I was saying—what study has been done of the cost to local government pension funds of the abolition of dividend tax credit over the remaining four years of the current Parliament? Would the Minister care to quantify that? If no such study has been done, the Minister and his Government are in dereliction of their duty.

Fourthly, what is the logic or fairness of not compensating the occupational schemes—the contracted-out salary-related schemes—on the same basis as the appropriate personal pensions? The loss to both sets of funds is exactly the same. Will the Minister give the same answer as the Financial Secretary gave in the earlier debate—that employers can pay, and make up the difference? Is he going to say that the Government are acknowledging the existence of a surreptitious additional tax on employers?

Fifthly, what is the logic of not compensating the contracted-out money purchase schemes? What would be the cost of compensating them according to appendix D rather than appendix E of the Government Actuary's paper? Finally and most important of all, there is the question that the Government have systematically avoided at every Social Security Question Time this year. Will they state clearly whether or not they intend to means-test the basic old-age pension?

Those questions are not at all esoteric or technical, however much the Government try to hide behind complicated mathematics. They are questions of genuine, immediate and often searing importance to older people or those approaching retirement age who do not know whether, in their retirement, they will be able to continue to afford their houses, gardens, cars and way of life.

We have not had a worse example of cynicism in the last nine or 10 months, from a profoundly cynical Government, than what has happened to pensions. If the Minister thinks that a single one of my strictures is unfair, he has the opportunity to put the record straight and provide us for the first time with some answers.

9.44 pm
The Parliamentary Under-Secretary of State for Social Security (Mr. John Denham)

I welcome the hon. Member for Grantham and Stamford (Mr. Davies) to the Front Bench tonight. He gave the speech because, as the hon. Member for West Chelmsford (Mr. Burns) explained, the latter did not know much about the subject.

Let me start with the six completely unanswerable questions. The first has already been dealt with in a parliamentary answer. The second could, I am sure, be answered in response to an appropriately worded parliamentary question. The valuation of local authority pension funds will take place in March this year. The remaining three unanswerable questions I shall answer in the course of my speech. I am grateful to the hon. Member for Grantham and Stamford for posing such challenging questions.

It has become clear beyond doubt in the debate, as the hon. Member for Gainsborough (Mr. Leigh) said, why pensions reform is necessary and right. It is also clear why it is this Government who have the determination and vision to bring about the changes.

The Opposition have been generous to the House with their time tonight. We have heard time and again how the previous Government failed Britain's pensioners. Throughout the debate, my hon. Friend the Member for Colne Valley (Kali Mountford), the hon. Member for Northavon (Mr. Webb) and others have reminded the House of the previous Government's actions, describing how pension rights were reduced throughout their period of office and nothing was done to ensure that pensioners would share fairly in rising national prosperity.

Despite the views of the hon. Member for Bromsgrove (Miss Kirkbride), it has been made clear how personal pensions were launched in an atmosphere of hype, fuelled by the then Government and exploited by poorly managed companies, so that more than 1 million people fell victim to mis-selling. I am afraid that my hon. Friend the Member for Corby (Mr. Hope) failed on several occasions to extract an apology for that mis-selling from that Government's representatives.

I do not intend to argue that no changes were needed to the pensions system in the past 20 years, and I would certainly argue that radical improvements are needed to modernise the system and ensure that it can develop and evolve to meet society's needs in the new world of work in the next century. Change is needed, but the party that called this debate stands condemned by its own record: it made changes, but they made things worse.

The symptoms of failure are clear. There is widening inequality among pensioners. One in four are reliant on income support or are entitled to it and not getting it. The previous Government were totally uninterested in those pensioners' plight. They turned a deaf ear to the problems that pensioners faced with their winter heating bills. Millions of people in work today are unable to build up pension rights sufficient to bring them security in retirement.

Perhaps 1 million people were encouraged by the previous Government not to join their employer's occupational scheme, which would have given them the best chance of a secure retirement. Provisional figures show that membership by men of occupational pension schemes fell by more than 2 million while the previous Government were in office: that is 2 million more men no longer benefiting from what is usually the best pension scheme around.

Millions of people today cannot join an employer's scheme, and while personal pensions have been, and are, fine for some, many people who are in and out of work, the majority of them women, cannot maintain payments and find that the fees and charges can eat up a quarter or more—sometimes far more—of their savings by the time that they retire.

Mr. Gibb

Will the Minister confirm that, in view of the Secretary of State's announcement this evening of yet another pilot scheme, the mooted pensioners' guaranteed income scheme has been dropped?

Mr. Denham

We are committed to honouring our manifesto promise to try to find ways of getting more automatic help to the poorest pensioners, and the pilot schemes that we have launched today and the other research that we are conducting will give us the information that we need to design the best system to achieve that aim. The previous Government did not take such action in 18 years.

I have set out the legacy that the Government's pensions review will have to address, but return to the Opposition's claim that measures taken in last July's Budget, and measures which have followed in part the Budget changes, will damage pension provision. But all hon. Members know that any pension system depends on creating the wealth that will be needed to pay retirement pensions. Boom and bust economics, short-term fixes that throw people out of work and prevent them from saving, and uncertainty, which stops companies investing, all existed under the previous Government, and undermine the economy, investment, British companies and the ability to create the wealth on which our pension incomes depend.

Last July's Budget, which took place after the Chancellor gave the Bank of England greater power and independence, was intended to create conditions for steady, sustainable economic growth. We set out to put the economy on a solid foundation by scrapping measures that distorted investment decisions, by cutting corporation tax and, above all, by putting the country's finances on a sound footing. A Budget that is good for the economy is good for pensions.

There have been significant changes in the pattern of pension provision in recent years, which we needed to address. [Interruption.] I am happy to repeat that I believe that a Budget that is good for the economy is good for pensions. If Conservative Members do not believe that, I wonder what they believe is a good Budget.

Mr. Duncan Smith

I am listening carefully to the Minister, but does he accept that the Government Actuary's report makes it clear that the Government Actuary believes that income from investment fell by 0.25 per cent. directly as a result of the Budget?

Mr. Denham

I shall deal with the Government Actuary's report and our response to it. There have been significant changes in the pattern of pension provision in recent years. Some pension schemes have changed from salary-related schemes to money-purchase schemes. Other pension schemes have changed from employer's occupational schemes to group personal pensions. Those important trends were not caused by the Government, but were well established; indeed, the actions of the previous Government encouraged them.

We asked the Government Actuary to examine those trends, and issues arising from the Budget. The Budget was for the long term, pensions are a long-term business, and rebates are normally set for five years: in our judgment, no early action was needed at this stage in the quinquennium on salary-related schemes which are investing for the long term. However, some personal pensions providers might have advised members of personal pensions schemes to opt back into SERPS, which might not have been in their long-term interest. So, we have increased national insurance rebates to personal pensions to maintain the attractiveness of opting out.

We have acted to prevent the extra subsidy intended for small contracted-out money purchase schemes being enjoyed by larger schemes which have no need for it.

Mr. Gibb

Why have the Government decided to reduce rebates only for COMP schemes on the basis of an assumed rate of return of 2.25 per cent. when the Actuary has said that the rate of return for pension schemes is 2 per cent.?

Mr. Denham

The action taken on COMP schemes was foreshadowed by Lord MacKay of Ardbrecknish, Pensions Minister in the previous Administration, who said of the trend of moving from salary-related schemes to COMP schemes: It appears that there are some schemes seeking to take advantage of these new flexibilities in order to maximise the national insurance rebate. There is obviously a great deal of money involved here, and the Government would be very concerned if this were to happen. Lord MacKay made it clear that the previous Government would keep the effects of the contracting out changes under review, and the Government Actuary makes it clear in his report that if the trend for large schemes to change into COMP schemes continued, that would take funds from the national insurance fund. This Government have rightly acted to prevent that.

Mr. Duncan Smith

The Minister has just come up with a statement in answer to a straightforward question from my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb). My hon. Friend asked why the Government took a different settlement. The Government have missed the point. They did not allow for the fall-off in investment in COMPS. It has nothing to do with the fact that there may be some changes relating to those companies coming into COMPS and everything to do with the fact that the Government were trying to save money on the national insurance fund. That is the fact—savings to the Exchequer.

Mr. Denham

I made it perfectly clear: for occupational schemes there was no need to take action, whereas for personal pensions there was that need and we took the appropriate action. We recognise that, over the past 20 years—the past 10 in particular—

Mr. Quentin Davies

Will the Minister give way?

Mr. Denham

No, I have given way generously. If the hon. Gentleman does not like the fact that we took the action to protect the national insurance fund that his predecessors said they would take when in government, that is his difficulty.

We recognise that the rebate structure that has evolved over the past 20 years has created inequalities. It does not necessarily match the needs of the different types of contracted-out pension provision now available. Although we have made the necessary short-term changes, we shall review the whole rebate structure in the light of the pensions review and the introduction of stakeholder pensions to ensure that it underpins the Government's new pensions policy.

The Government keep their promises and we have kept our promises to pensioners-both today's pensioners and those who will retire in future. We promised to maintain the basic state pension as the foundation for retirement and to uprate it at least in line with prices. We have kept that promise and we shall honour the manifesto on which we were elected. We have done more: we shall spend —200 million this year and next giving all pensioners help with their heating bills. We are doing more: we have cut VAT on fuel—

Mr. Burns

Prices or earnings?

Mr. Denham

If the hon. Gentleman, who is the Opposition spokesman on the subject, cannot be bothered to reply to the debate, he can at least do without making interventions from a sedentary position.

We are doing more: we have cut VAT on fuel after the Conservative party tried to raise it to 17.5 per cent. We are cutting other VAT, so that more pensioners' homes can be insulated. We are allowing local authorities to invest capital receipts to improve the homes of pensioners, among others.

We are doing more. For 18 years the Conservative party did nothing for those pensioners—mainly women, usually over 75, often living alone—who do not receive the income support to which they are entitled. Instead, the Conservatives blamed pensioners for their poverty. The Government have set out to find out why those pensioners do not claim and my right hon. Friend the Secretary of State has announced nine pilot schemes to find the best ways of identifying those pensioners and encouraging them to claim. We promised in our manifesto to find ways of giving more automatic help to the poorest pensioners and these early actions will help us to find the best way to do so.

The Government have taken action for today's pensioners already. In our pensions review, we are talking to and meeting today's pensioners and giving them a voice at the heart of government. While we tackle the problems faced by today's pensioners, we want to help the pensioners of the future too.

Miss Ann Widdecombe (Maidstone and The Weald)

I thank the Minister for giving way. As we have only three minutes left, I did not want him to forget one very important question, which he promised to answer. Has his right hon. Friend the Secretary of State ruled out means-testing the state pension?

Mr. Denham

I have made it perfectly clear that we shall honour the manifesto on which we were elected. We shall increase and we have increased the basic state pension at least in line with prices. I am not surprised that Conservative Members scream and shout, because they did not do what my hon. Friend the Economic Secretary to the Treasury has done and set about tackling the problem of pension mis-selling. They did nothing about that problem for five years.

Undoing the damage done by the Conservatives is not enough. We do not want only some people to enjoy a good second pension; we want as many people as possible to do so. That is why we are looking at ways to support and strengthen the framework for occupational pensions. However, not everyone can join an occupational pension scheme, which is why we are consulting on our plans for low-cost, value-for-money, flexible stakeholder pensions. That is also why we want to make sure that those who cannot save for a second pension, such as carers, many of whom are women, can also enjoy security in retirement. We know the scale of the pensions challenge. We know that we must build consensus on a new pension framework that will last. That is why we are consulting so widely with pensioners, employers, trade unions and pension providers. It is a challenge that we must meet.

Tonight, it is the Conservative party that is condemned. For 18 years, it took away pension rights and gave people nothing in their place. It mis-sold personal pensions and did nothing to clear up the mess. For years, it fought against even pension fairness in divorce. It ignored pensioners living in poverty and blamed them for their lack of money. It put VAT on fuel and wanted to raise it to 17.5 per cent.

Mr. James Arbuthnot (North-East Hampshire)

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the original words stand part of the Question:—

The House divided: Ayes 161, Noes 294.

Division No. 197] [9.59 pm
Ainsworth, Peter (E Surrey) Brazier, Julian
Allan, Richard Breed, Colin
Amess, David Brooke, Rt Hon Peter
Ancram, Rt Hon Michael Bruce, Ian (S Dorset)
Arbuthnot, James Bruce, Malcolm (Gordon)
Atkinson, David (Bour'mth E) Burnett, John
Atkinson, Peter (Hexham) Burns, Simon
Baker, Norman Cable, Dr Vincent
Baldry, Tony Campbell, Menzies (NE Fife)
Beggs, Roy Cash, William
Bercow, John Chapman, Sir Sydney
Beresford, Sir Paul (Chipping Barnet) Chidgey, David
Boswell, Tim Chope, Christopher
Bottomley, Peter (Worthing W) Clappison, James
Brady, Graham Clark, Rt Hon Alan (Kensington)
Brand, Dr Peter
Clark, Dr Michael (Rayleigh) McLoughlin, Patrick
Clarke, Rt Hon Kenneth (Rushcliffe) Madel, Sir David
Clifton-Brown, Geoffrey Malins, Humfrey
Collins, Tim Maples, John
Cotter, Brian Maude, Rt Hon Francis
Cran, James May, Mrs Theresa
Curry, Rt Hon David Michie, Mrs Ray (Argyll & Bute)
Davies, Quentin (Grantham) Moss, Malcolm
Davis, Rt Hon David (Haltemprice) Nicholls, Patrick
Duncan Smith, Iain Norman, Archie
Evans, Nigel Öpik, Lembit
Faber, David Ottaway, Richard
Fallon, Michael Page, Richard
Flight, Howard Paice, James
Forsythe, Clifford Pickles, Eric
Forth, Rt Hon Eric Prior, David
Fowler, Rt Hon Sir Norman Randall, John
Fox, Dr Liam Redwood, Rt Hon John
Gale, Roger Rendel, David
Garnier, Edward Robathan, Andrew
George, Andrew (St Ives) Robertson, Laurence (Tewk'b'ry)
Gibb, Nick Roe, Mrs Marion (Broxbourne)
Gill, Christopher Ross, William (E Lond'y)
Goodlad, Rt Hon Sir Alastair Rowe, Andrew (Faversham)
Gorman, Mrs Teresa Ruffley, David
Gorrie, Donald Russell, Bob (Colchester)
Gray, James St Aubyn, Nick
Greenway, John Sanders, Adrian
Grieve, Dominic Sayeed, Jonathan
Gummer, Rt Hon John Shepherd, Richard
Hamilton, Rt Hon Sir Archie Simpson, Keith (Mid-Norfolk)
Hammond, Philip Smith, Sir Robert (W Ab'd'ns)
Hancock, Mike Smyth, Rev Martin (Belfast S)
Harris, Dr Evan Spelman, Mrs Caroline
Harvey, Nick Spicer, Sir Michael
Hawkins, Nick Spring, Richard
Heald, Oliver Steen, Anthony
Heathcoat-Amory, Rt Hon David Streeter, Gary
Hogg, Rt Hon Douglas Swayne, Desmond
Horam, John Syms, Robert
Howard, Rt Hon Michael Tapsell, Sir Peter
Howarth, Gerald (Aldershot) Taylor, Ian (Esher & Walton)
Hughes, Simon (Southwark N) Taylor, Matthew (Truro)
Hunter, Andrew Taylor, Sir Teddy
Jack, Rt Hon Michael Townend, John
Jenkin, Bernard Trend, Michael
Johnson Smith, Rt Hon Sir Geoffrey Tyler, Paul
Tyrie, Andrew
Jones, Nigel (Cheltenham) Viggers, Peter
Key, Robert Wallace, James
Kirkbride, Miss Julie Walter, Robert
Kirkwood, Archy Wardle, Charles
Laing, Mrs Eleanor Waterson, Nigel
Lait, Mrs Jacqui Webb, Steve
Lansley, Andrew Wells, Bowen
Leigh, Edward Whitney, Sir Raymond
Letwin, Oliver Widdecombe, Rt Hon Miss Ann
Lewis, Dr Julian (New Forest E) Wilkinson, John
Lidington, David Willetts, David
Lilley, Rt Hon Peter Winterton, Mrs Ann (Congleton)
Livsey, Richard Winterton, Nicholas (Macclesfield)
Lloyd, Rt Hon Sir Peter (Fareham) Woodward, Shaun
Luff, Peter Yeo, Tim
Lyell, Rt Hon Sir Nicholas Young, Rt Hon Sir George
MacGregor, Rt Hon John Tellers for the Ayes:
MacKay, Andrew Mr. Stephen Day and
Maclean, Rt Hon David Mr. John Whittingdale.
Ainger, Nick Atherton, Ms Candy
Ainsworth, Robert (Cov'try NE) Atkins, Charlotte
Alexander, Douglas Austin, John
Allen, Graham Banks, Tony
Anderson, Janet (Rossendale) Barnes, Harry
Ashton, Joe Battle, John
Bayley, Hugh Ellman, Mrs Louise
Beard, Nigel Ennis, Jeff
Beckett, Rt Hon Mrs Margaret Etherington, Bill
Bell, Stuart (Middlesbrough) Field, Rt Hon Frank
Bennett, Andrew F Fisher, Mark
Benton, Joe Fitzpatrick, Jim
Bermingham, Gerald Fitzsimons, Lorna
Berry, Roger Flint, Caroline
Best, Harold Flynn, Paul
Blackman, Liz Follett, Barbara
Blears, Ms Hazel Foster, Michael J (Worcester)
Blizzard, Bob Foulkes, George
Blunkett, Rt Hon David Fyfe, Maria
Boateng, Paul Galbraith, Sam
Borrow, David Gapes, Mike
Bradley, Keith (Withington) Gardiner, Barry
Bradshaw, Ben George, Bruce (Walsall S)
Brinton, Mrs Helen Gerrard, Neil
Brown, Rt Hon Nick (Newcastle E) Gibson, Dr Ian
Brown, Russell (Dumfries) Gilroy, Mrs Linda
Browne, Desmond Godsiff, Roger
Burden, Richard Goggins, Paul
Burgon, Colin Gordon, Mrs Eileen
Butler, Mrs Christine Griffiths, Jane (Reading E)
Byers, Stephen Griffiths, Nigel (Edinburgh S)
Campbell, Mrs Anne (C?bridge) Griffiths, Win (Bridgend)
Campbell, Ronnie (Blyth V) Grocott, Bruce
Canavan, Dennis Gunnell, John
Caplin, Ivor Hall, Mike (Weaver Vale)
Casale, Roger Hamilton, Fabian (Leeds NE)
Caton, Martin Hanson, David
Cawsey, Ian Harman, Rt Hon Ms Harriet
Chapman, Ben (Wirral S) Healey, John
Chaytor, David Hepburn, Stephen
Church, Ms Judith Heppell, John
Clapham, Michael Hesford, Stephen
Clark, Paul (Gillingham) Hill, Keith
Clarke, Rt Hon Tom (Coatbridge) Hinchliffe, David
Clarke, Tony (Northampton S) Hoey, Kate
Clelland, David Home Robertson, John
Clwyd, Ann Hoon, Geoffrey
Coaker, Vernon Hope, Phil
Coffey, Ms Ann Hopkins, Kelvin
Cohen, Harry Howarth, Alan (Newport E)
Coleman, Iain Hoyle, Lindsay
Connarty, Michael Hughes, Ms Beverley (Stretford)
Cook, Frank (Stockton N) Hughes, Kevin (Doncaster N)
Corbett, Robin Humble, Mrs Joan
Corbyn, Jeremy Hutton, John
Corston, Ms Jean Iddon, Dr Brian
Cox, Tom Ingram, Adam
Cranston, Ross Jackson, Ms Glenda (Hampstead)
Crausby, David Jackson, Helen (Hillsborough)
Cryer, Mrs Ann (Keighley) Jenkins, Brian
Cummings, John Johnson, Alan (Hull W & Hessle)
Cunningham, Jim (Cov'try S) Johnson, Miss Melanie (Welwyn Hatfield)
Dalyell, Tam Jones, Mrs Fiona (Newark)
Darling, Rt Hon Alistair Jones, Helen (Warrington N)
Davey, Valerie (Bristol W) Jones, Ms Jenny (Wolverh'ton SW)
Davidson, Ian Jones, Dr Lynne (Selly Oak)
Davies, Rt Hon Denzil (Llanelli) Keeble, Ms Sally
Davies, Geraint (Croydon C) Keen, Ann (Brentford & Isleworth)
Davies, Rt Hon Ron (Caerphilly) Kelly, Ms Ruth
Davis, Terry (B'ham Hodge H) Kennedy, Jane (Wavertree)
Dawson, Hilton Khabra, Piara S
Denham, John Kilfoyle, Peter
Dewar, Rt Hon Donald King, Andy (Rugby & Kenilworth)
Dismore, Andrew King, Ms Oona (Bethnal Green)
Dobbin, Jim Kingham, Ms Tess
Donohoe, Brian H Kumar, Dr Ashok
Dowd, Jim Lawrence, Ms Jackie
Drew, David Laxton, Bob
Drown, Ms Julia Leslie, Christopher
Dunwoody, Mrs Gwyneth Levitt, Tom
Eagle, Angela (Wallasey)
Efford, Clive
Lewis, Ivan (Bury S) Rapson, Syd
Lewis, Terry (Worsley) Raynsford, Nick
Liddell, Mrs Helen Reed, Andrew (Loughborough)
Linton, Martin Reid, Dr John (Hamilton N)
Livingstone, Ken Robertson, Rt Hon George (Hamilton S)
Lloyd, Tony (Manchester C) Rooker, Jeff
Lock, David Rooney, Terry
Love, Andrew Rowlands, Ted
McAvoy, Thomas Ruane, Chris
McCabe, Steve Russell, Ms Christine (Chester)
McCafferty, Ms Chris Ryan, Ms Joan
McCartney, Ian (Makerfield) Savidge, Malcolm
McDonagh, Siobhain Sawford, Phil
McDonnell, John Sedgemore, Brian
McFall, John Shaw, Jonathan
McGuire, Mrs Anne Sheldon, Rt Hon Robert
McIsaac, Shona Singh, Marsha
McLeish, Henry Skinner, Dennis
McNamara, Kevin Smith, Rt Hon Andrew (Oxford E)
McNulty, Tony Smith, Angela (Basildon)
MacShane, Denis Smith, Rt Hon Chris (Islington S)
Mactaggart, Fiona Smith, Miss Geraldine (Morecambe & Lunesdale)
McWalter, Tony Smith, Jacqui (Redditch)
Mallaber, Judy Smith, John (Glamorgan)
Mandelson, Peter Soley, Clive
Marek, Dr John Southworth, Ms Helen
Marsden, Paul (Shrewsbury) Spellar, John
Marshall, Jim (Leicester S) Squire, Ms Rachel
MarshalkAndrews, Robert Steinberg, Gerry
Meacher, Rt Hon Michael Stewart, Ian (Eccles)
Meale, Alan Stinchcombe, Paul
Michael, Alun Stoate, Dr Howard
Michie, Bill (Shef7d Heeley) Stringer, Graham
Milburn, Alan Stuart, Ms Gisela
Miller, Andrew Sutcliffe, Gerry
Mitchell, Austin Taylor, Rt Hon Mrs Ann (Dewsbury)
Moffatt, Laura Thomas, Gareth (Clwyd W)
Moonie, Dr Lewis Thomas, Gareth R (Harrow W)
Moran, Ms Margaret Timms, Stephen
Morgan, Rhodri (Cardiff W) Todd, Mark
Morris, Ms Estelle (B'ham Yardley) Touhig, Don
Morris, Rt Hon John (Aberavon) Truswell, Paul
Mountford, Kali Turner, Dennis (Wolverh'ton SE)
Mudie, George Turner, Dr Desmond (Kemptown)
Murphy, Denis (Wansbeck) Turner, Dr George (NW Norfolk)
Naysmith, Dr Doug Twigg, Stephen (Enfield)
Norris, Dan Vis, Dr Rudi
O'Brien, Bill (Normanton) Walley, Ms Joan
O'Brien, Mike (N Warks) Wareing, Robert N
O'Hara, Eddie White, Brian
Olner, Bill Wicks, Malcolm
O'Neill, Martin Williams, Rt Hon Alan (Swansea W)
Palmer, Dr Nick Williams, Alan W (E Carmarthen)
Pearson, Ian Williams, Mrs Betty (Conwy)
Pendry, Tom Wilson, Brian
Pickthall, Colin Winnick, David
Pike, Peter L Winterton, Ms Rosie (Doncaster C)
Plaskitt, James Wise, Audrey
Pond, Chris Wood, Mike
Pope, Greg Woolas, Phil
Pound, Stephen Wright, Anthony D (Gt Yarmouth)
Prentice, Ms Bridget (Lewisham E) Wright, Dr Tony (Cannock)
Prentice, Gordon (Pendle)
Prescott, Rt Hon John
Primarolo, Dawn
Purchase, Ken
Quin, Ms Joyce
Quinn, Lawrie Tellers for the Noes:
Radice, Giles Mr. Clive Betts and
Rammell, Bill Mr. David Jamieson.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved, That this House welcomes the Government's commitment to maintain the basic state pension as the foundation of pension provision and to uprate it at least in line with prices; welcomes the tough action which is being taken to ensure that victims of pension mis-selling are compensated; welcomes the action the Government has already taken in giving a Winter Fuel Payment to all pensioners with fuel bills to pay and fulfilling its promise to Britain's pensioners by cutting VAT on fuel to five per cent.; welcomes the Government's progress in developing pensions policy which will benefit today's and tomorrow's pensioners; welcomes the widespread consultation the Government is undertaking and notes that the Government's Pension Review has received over 2.000 submissions from pension providers, employers, trade unions, pension experts and pensioners' organisations; notes the widespread support for the Government's proposals for Stakeholder Pensions; and deplores the previous administration's policies on pensions, their imposition of VAT on fuel and their attempt to increase VAT on fuel to 17.5 per cent.

It being after Ten o'clock, MR. DEPUTY SPEAKER put the Questions which he was directed to put at that hour, pursuant to Standing Order No. 55(1) (Questions on voting of estimates, &c.).

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