HC Deb 23 May 2002 vol 386 cc428-56

'( ) The Secretary of State shall as soon as practicable after the end of the financial year 2004–05 and annually thereafter lay before Parliament a report containing an assessment of the effect of the savings credit on the propensity of individuals of working age to save for their retirement; and may invite the Social Security Advisory Committee to comment thereon and make recommendations for any change to structures or benefits which seem to them to be appropriate.'.—[Mr. Clappison.]

Brought up, and read the First time.

Mr. James Clappison (Hertsmere)

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

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this it will be convenient to discuss the following amendments: No. 6, in clause 1, page 1, line 5, after "credit", insert— 'calculated in accordance with section 2'. No. 7, in page 1, line 9, leave out from "2" to end of line 10.

No. 8, in page 1, line 11, leave out subsection (3).

No. 9, in page 1, line 18, leave out "and (3) are" and insert "is".

No. 10, in clause 2, page 2, line 10, leave out "a guarantee" and insert "state pension".

No. 11, in page 2, line 11, leave out "guarantee" and insert "state pension".

No. 12, in page 2, line 13, leave out "guarantee" and insert "state pension".

No. 4, in page 2, line 36, at end insert— '(8A) For the purposes of this section, where the client has attained the age of 65 or is a member of a married or unmarried couple the other member of which has attained that age, there shall be disregarded in the calculation of the claimant's income a prescribed percentage of the amount, if any, by which his qualifying income (after deducting such part of his income, if any, as lies between the standard minimum guarantee and the appropriate minimum guarantee) exceeds a prescribed amount (the savings disregard threshold). (8B) Regulations may make provision as to income which is, and income which is not, to be treated as qualifying income for the purposes of this section.'.

No. 5, in page 2, line 40, leave out Clause 3.

No. 1, in clause 3, page 2, line 42, leave out "age of 65" and insert "qualifying age".

No. 2, in page 3, line 26, at end insert— '(6A) In the case of men aged under 65, such regulations shall provide that the calculation of qualifying income shall include an amount equal to the amount of retirement pension that the claimant is forecast by the Secretary of State to be entitled to at the age of 65. This forecast shall be revised on each anniversary of the initial claim until the claimant reaches the age of 65.'.

Mr. Clappison

New clause 5 would require the Secretary of State to prepare a report on the effect of the savings credit on savings behaviour, and to invite the Social Security Advisory Committee to comment on that report and to consider recommending change. We have been over this ground before, but I make no apologies for coming back to it, because the effect of the pension credit on the incentive to save, and the amounts actually saved, are matters of real concern, and have been identified as such by many experts and organisations that have looked at the Bill, including those who looked at it when it was being considered by the Select Committee. Their concerns about the effects of the Bill on incentives to save are reflected in their many submissions to the Committee.

We are holding this debate on new clause 5 against the background of the salutary fact that, as a nation, we are simply not saving enough. The savings ratio is now at its lowest for 40 years, and we hear tell in the media and elsewhere of estimates of a £27 billion savings gap. Against that background, it is important that people should save more, particularly those on modest incomes, and we need to consider the effect of the pension credit on this problem.

Will the credit make matters better or worse? The new clause would go some way towards enabling us to find out, because it would require the Secretary of State to prepare a report. We need to remember, when considering this question, that the pension credit follows in the wake of the minimum income guarantee. One of the obvious features of the MIG that was much commented on is that it leaves pensioners on modest incomes with savings in no better position than those without. For those who could see 100 per cent. of the value of their savings coming from the benefits that they received, there would therefore be no incentive to save.

3.15 pm

We acknowledge that the Bill seeks to change matters through the introduction of the savings credit. That much is obvious, but what effect will that, and the way in which it is being introduced, have on incentives? Will there be an incentive to save, when what is saved now will, in effect, be subject to a 40p in the pound tax on retirement? That is what this measure will mean for those involved.

The views of the expert authorities submitted to the Select Committee were decidedly mixed. Andrew Dilnot of the Institute for Fiscal Studies, when questioned by the Select Committee on incentives to save, said that the Government were on "a difficult wicket". Difficult wickets invite spin—I am sure that you know that as well as anyone, Mr. Deputy Speaker—and no doubt we shall be told in due course that the savings credit is an innovative and imaginative way of rewarding saving, as the Secretary of State suggested on Second Reading, when he said: The important point is that the pension credit removes for the first time-this has been widely recognised-the disincentive in the present system whereby someone with moderate savings can find that they are no better off than somebody who has made no effort whatsoever."—[Official Report, 25 March 2002; Vol. 382, c. 600.] That raises the question of who introduced the minimum income guarantee and linked it to earnings in such a way that it would be likely to bring more and more people into its ambit, but there we are.

What will be the effect of these measures? Under the Bill, pensioners will, in one sense, derive benefit from having saved, and no doubt the Minister will take us back to that point. By the time people become pensioners, they will be better off through having saved, compared with those who have not, because they will have the benefit of 60p in the pound for every pound of their savings.

That, however, is not the question. The question that Ministers must address, and have so far failed to address, is: will it be worth while for workers to save earlier in their lives, when their savings will be subject to an effective 40 per cent. rate of tax later on? What will be the effect on their incentive to save, and on their savings behaviour, at that point in their lives?

The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle)

Does the hon. Gentleman accept that the reasoned amendment that he tabled on Second Reading would have left the minimum income guarantee as it is, with a cliff edge, a 100 per cent. marginal withdrawal rate?

Mr. Clappison

We set out what we proposed to do. I do not accept the hon. Lady's analysis, but she cannot get away from the question of the incentive to save, which is rather a different matter.

Mr. McCartney

Middle stump!

Mr. Clappison

I think that I am dealing with the spin rather well.

Mr. McCartney


Mr. Clappison

The right hon. Gentleman says, "Out". I might say that his judgment is as good as some other recent umpiring decisions—but we shall not go into that, Mr. Deputy Speaker. He is absolutely wrong. Neither he nor the hon. Lady will face up to the question of what the effect of this measure will be on the incentive to save. That is the question that I put to them. When one is referred back to other subjects by Ministers, one knows that one is getting somewhere with one's bowling, so let us take this a bit further.

Bob Spink (Castle Point)

I am grateful to my hon. Friend for allowing me to intervene. May I give him a bit of fast bowling from Age Concern on that wicket? A briefing dated today, on just this subject, says: we believe that the pension credit will fail to provide sufficient incentive for younger people to save for their retirement.

Mr. Clappison

That is very much to the point and very accurate, as fast bowling often is.

Mr. McCartney

It's wide!

Mr. Clappison

I hear the Minister saying that the ball was a wide. Perhaps he will try this—

Mr. McCartney

No ball!

Mr. Clappison

Before the Minister says "No ball", I must point out that I have not even got as far as the crease. That says much about the quality of his umpiring. Perhaps he will do me the courtesy of allowing me to get that far before he proclaims a no ball.

Perhaps the right hon. Gentleman will umpire the views of the Association of British Insurers, which has sought to measure the economic benefit of saving. It has found that under these proposals, someone saving £50 a month would have to save for 10 years before they would see any economic benefit from having saved. The association believes that for W years, there would be a negative implied rate of return from saving £50 a month. Less value will be received in increased retirement income than will be paid in through contributions. Perhaps we will get an honest stroke from Ministers in response to that.

What is Ministers' reaction to the views of the Institute for Public Policy Research—on which the Government look favourably in other circumstances—on this matter? Further to the opinion of Age Concern cited by my hon. Friend the Member for Castle Point (Bob Spink), the IPPR, of all things, says: It would be very hard to argue that the Pension Credit has been designed to generate incentives for current workers to save.

What do Ministers say to the National Pensioners Convention, which states: People of working age, deciding how much to save for their retirement will need to take into account the very real possibility—for some a strong probability—of any additional retirement income being taxed at 40 per cent."?

Ministers may argue—as some of their colleagues have argued in other forums—that people simply will not understand what may happen with the pension credit. They may argue that there will be no disincentive to save, because people will not look into the future and make those calculations, and even that if they do, they will not understand the pension credit. That is one view, but it was disposed of by, among others, Andrew Dilnot, of the Institute for Fiscal Studies, in his comments to the Select Committee. Ministers may not agree with him, but if so they would do well to heed the following warning from the National Pensioners Convention: It is tempting to assume that only a small minority of financially well-informed people will be aware of these facts and that the disincentive effect on saving will therefore be small. It seems to us, however, that financial advisers and providers of pension schemes will have a duty to inform people about such a major factor affecting the outcome of their investment decisions. Even if that were not so, it would be difficult to justify a policy which rested on the assumption that most of those affected by it would be deliberately kept in ignorance of its implication for their future well-being.

We do not want people to be in ignorance of what these important decisions mean for their future well-being. Ministers need to come clean, and to answer now the question of whether the provision amounts to a disincentive to save. The new clause simply asks that Ministers provide information for a report in due course. If they maintain that there is no disincentive to save, perhaps they could be brave and allow the report to state as much.

Mr. Graham Brady (Altrincham and Sale, West)

I am concerned by the nature of the defence that Ministers appear to be deploying. Is it not true that the perception that the whole savings environment is very complex, off-putting and difficult to engage with already acts as a major disincentive to younger people making proper provision for their retirement? We need a simple approach to promoting saving, not added complexity.

Mr. Clappison

With the best will in the world, it is not entirely self-evident that the provisions of the pension credit will simplify future pension provision.

Amendments Nos. 4 to 12 attempt to achieve the simplicity to which my hon. Friend refers. [Interruption.] Ministers may laugh, but that is no easy task. They are drafting amendments designed to make the Bill more straightforward, and to achieve the Bill's original effect, rather than to alter it. You will be pleased to hear, Mr. Deputy Speaker, that I shall not take the House through their precise nature, although the Minister may well choose to do so. If they do not find favour, I do not intend to press them to a vote, given that the simplicity of this issue is not entirely self-evident.

New clause 5 could not be more straightforward. Let us have an open debate about incentives to save, and access to all the relevant information. I hope that Ministers will respond positively, because I cannot imagine that there is anything they want to keep covered up. Let us be transparent, and bring everything out into the open.

Mr. Webb

I have a lot of sympathy with where the hon. Member for Hertsmere (Mr. Clappison) is coming from on this issue. I have been advised not to remark on his reputation for googlies, so I shall not do so at this juncture.

The hon. Gentleman's point about the effect of the provision is critical. Beneath the rhetoric, the state pension credit is actually the minimum income guarantee, plus a boost for those who have saved. If we did not have the additional savings credit the Bill would not be necessary, because the MIG already exists. In essence, the Bill merely adds the new savings credit and tidies up the link between it and the MIG.

Under new clause 5, I would want any report to consider the effect on people's propensity to save not of the savings credit, but of the whole of Government policy on income in old age. The savings credit might arguably be regarded as the cavalry: it comes along when the Government have completely messed up the incentive to save, and restores it. The Government and the Minister for Pensions are fond of saying that they are the first Government to reward people for saving, but in fact they are the first to have completely trashed the incentive to save. In a sense, they are penitent sinners on this point, but only partially.

When the Government came to power in 1997, the gap between the basic pension and the MIG—or income support, as it was then known—was about £7 a week. For anyone who could save more than £7 a week, it therefore paid to save. Those who saved £8 a week got the first £7 at the 100 per cent. marginal rate, so they were better off by the extra £1. [Interruption.] Ministers may disagree, but those are the facts. The eighth, ninth or tenth extra pounds all constituted a complete benefit, beyond the scope of the means-tested benefit system. In other words, it paid to save anything more than seven quid.

When the MIG and the other provisions are introduced next year, the pension will be £77 and the MIG £100, so taking the MIG into account, it will not pay to save £23. When the Government took office, someone who saved £23 a week was £16 a week better off for having done so, but under the proposed rates, such a person will be no better off. The Government merely say, "Whoops"—

Maria Eagle

The hon. Gentleman seems to be arguing that alleviating pensioner poverty today is providing such a disincentive to save for the pensioners of tomorrow that it should not be done.

Mr. Webb

As the hon. Lady knows, there are two ways to target pensioner poverty. One is using complicated means-tested mechanisms such as that in the Bill and—dare I say it—in amendments Nos. 4 to 12. The other is using age as a proxy for poverty, because the basic state pension is a guaranteed way of getting money to poor pensioners. Given that the majority of poor pensioners—particularly the poorest in the land, who are entitled to means-tested benefits but do not get them—are older pensioners, pensioner poverty can be targeted by raising their pension, rather than by using complex means-tested benefits. The right hon. Member for Birkenhead (Mr. Field), the former Minister with responsibility for welfare reform, the hon. Member for Hertsmere and I all agree with that view.

David Cairns (Greenock and Inverclyde)

The hon. Gentleman says that there are two separate approaches to alleviating pensioner poverty: complex means testing, with which he disagrees, and targeting by means of age, which he advocates. He will accept that even if we focus on age, in certain circumstances pensioners aged between 65 and 70 will not benefit, even though their incomes are low. For such people a means-tested element would still be necessary, even under his proposal to target by age. The difference is that he is proposing means-testing for the poor only, which increases its stigma.

Mr. Webb

I was with the hon. Gentleman until his final sentence, which I am not sure that I understood.

Our view is that—to echo a new Labour phrase—means-testing should be for the few, not the many. That is the distinction. Under our proposal, "the few" would be those under the age of 75 who are residually poor. On average, the majority of those under that age tend to be better off, whereas the majority over that age tend to be poorer. One helps the poor in a universal way by helping the old. It is true that some better-off people would benefit, but it is predominantly poorer people who would benefit. If such people are sufficiently well-off to pay tax on the benefit, they would do so. The Government use the language of guarantees, but the MIG is guaranteed to no one unless they claim it. Some 500,000 pensioners—predominantly older pensioners—do not claim it, but they all claim the basic state pension.

3.30 pm
David Cairns

The hon. Gentleman will deliver eloquent diatribes against means-testing in debates on the amendments and on Third Reading. However, for the pensioners who are interested in this debate, will he clarify the fact that under his policy, means-testing will still exist, primarily for pensioners between 65 and 70 who are poor, which increases the stigma of means-testing?

Mr. Webb

For the avoidance of doubt, the answer to the first part of the hon. Gentleman's question is yes. The question is whether we means-test half or two thirds of the pensioner population, which is the Government's strategy, or whether we have a residual safety net—

David Cairns

For the poor.

Mr. Webb

Absolutely. We want the vast majority of people in old age to have a guaranteed income that lifts them clear of the need for top-ups. What the hon. Gentleman and I will want in our old age is a decent pension—whether from this place, the state or anywhere else—so that we do not have to claim a top-up every year. Our strategy would reduce the number of pensioners who need to claim top-ups at all to a relatively low level.

Mr. Boswell

As the hon. Gentleman will know from our earlier debates, I am very much on his side on such matters. Is not the logic of the position of the hon. Member for Greenock and Inverclyde that the only way to make means-testing acceptable is to put so many people into it that somehow the effect is diluted? The hon. Member for Northavon is arguing for a safety net for the few that is not spread across the whole pensioner population.

Mr. Webb

That is right. In all such arrangements, we are dealing with a continuum and a trade-off. There is no perfect solution. The Government's mass means-testing solution leaves hundreds of thousands—on the Government's own figures—not getting a penny of what they are entitled to and living below the poverty line. The hon. Member for Greenock and Inverclyde may frown, but the Government estimate that roughly 500,000 pensioners do not claim the minimum income guarantee to which they are entitled. Therefore they are below the poverty line. That is a simple statement of fact, based on the Government's own figures. Paying the money through the pension would mean that everyone in the age category was guaranteed to get it.

Mr. McCartney

The determinant for older people is not age but income; that is the case whether they are 60, 85 or 90. Significantly, the hon. Gentleman is saying that the Liberal Democrats' proposals for pensions—far from helping the very women for whom he says he is campaigning—will result in the vast majority of those now coming up to pension age getting no benefit whatever. Indeed, they would have to stay on the old-fashioned minimum income guarantee with no commitment that they would be made up to the basic state pension. That is not a small group of women, or of pensioners. It is almost equivalent to the current number of pensioners whom we have taken out of poverty in the first four years of the Labour Government—and kept out of poverty.

Under the hon. Gentleman's proposals, nearly 2 million people would be left on an old-fashioned minimum income guarantee, an old-fashioned means test. He argues that his proposals are about getting rid of poverty, but he would be making sure that poverty remained not just for this generation, but for every generation thereafter. He is talking economic nonsense.

Mr. Webb

The Minister is talking complete nonsense himself. The group coming up to pension age have many historic problems in their accumulated pension rights, including the married woman's stamp. We have a range of proposals in our campaign for justice in women's pensions that will address those points to ensure that as few of them as possible have to depend on a means-tested top-up when they reach old age.

To come back to the perfectly reasonable point made by the hon. Member for Greenock and Inverclyde, there will be some residual role for means-testing. There are aspects of the pension credit that make the minimum income guarantee more humane, and I am entirely in favour of those. For example, sending people a claim form when they apply for a pension is eminently sensible. It is not a case of throwing the baby out with the bathwater; there are administrative aspects of the Bill that I heartily endorse. But the strategy of mass means-testing is not one of them.

Maria Eagle

The hon. Gentleman just said that his schemes would leave a residual role for means-testing. How many people would remain on the means test under his proposals?

Mr. Webb

That would depend on exactly how much we could increase the basic state pension by. I do not have an exact figure. The Minister will know that before the means-tested benefits system kicks in, the majority of poor pensioners are women and older pensioners. By loading the increases for older people on to pensioners, we will do the most to get people off the means test altogether.

The majority of the newly retired are couples, and couples tend on average—partly because one of them is a man—to have higher incomes, so the incidence of means-testing among that age group is much smaller. We are focusing the money where the means-testing is most intense and on the group that is, on average, substantially poorer, and we are guaranteeing take-up with no savings disincentive. That is a powerful combination.

Annabelle Ewing (Perth)

On the extension of mass means-testing, can I remind the hon. Gentleman that in new Labour's 1997 election manifesto, there was a pledge to reduce means-testing for pensioners? Perhaps the comments made by Labour Members should be viewed in the context of that pledge.

Mr. Webb

I do not recall the exact wording of the manifesto, but we all recall the Chancellor talking about an end to means-testing for our pensioners. The semantic hoops through which Labour Members jump to try to get out of that, result in their saying that what is proposed is not means-testing—but I suspect that to the recipients, it will feel very much like it.

Mr. Clappison

With the benefit of some extra spin, we now know that what the Chancellor really meant was an end to "old-fashioned" means-testing.

Mr. Webb

I am sure that that is right.

To return to the amendments, we are interested in the effect of the Government's strategy on the incentive to save, and a report such as that proposed in new clause 5 would have the potential to add something. I have suggested that the scope of the report should be broader than just the effects of the savings credit; it ought to look at the whole strategy. The savings credit is applied to a system in which the 100 per cent. tax rate has been vastly extended in scope and gives a bit back.

Even the Financial Services Authority produced a report—only last week—which said on page 24, paragraph 4.33: the implied 40 per cent. deduction rate will inevitably be a disincentive to save for some now at work. That is the FSA, not some extreme organisation opposed to Government policy. The FSA is, almost certainly, run by the Government.

Everybody seems to agree that the overall strategy is undermining the incentive to save. That is the beauty of targeting by age; we give people more money in their old age for being old and their savings are theirs to keep on top of that, because they are clear of the means test. The more people we can get clear of the means test, the less we will need complicated savings credits, because they will get to keep the money anyway.

The gist of what we are saying is that the Government are trying to claim credit for solving a problem that they have made themselves. That is why an assessment of the effect on the incentive to save, as proposed in new clause 5, would be welcome.

The hon. Member for Hertsmere said that amendments Nos. 4 to 12 were so complicated he would not take us through them in detail, but that they were not complicated compared with the Government's complicated scheme. I wrestled with the amendments for several minutes and they are indicative of the problem of trying to write any such schemes down; they are inherently complex. A simple system with a good basic pension—particularly for older pensioners—and a savings incentive so that they get to keep their own money, is the simplest and neatest of the lot.

Amendments Nos. 1 and 2 seek to remove yet another respect in which the Bill discriminates against a group of women. The House may feel that I am warming to a theme this afternoon, but there are various ways in which the Bill penalises particular groups of women. There will be women up and down the land who hang on to every word that the Secretary of State says. They will have heard him say, "It will pay to save" and that "pensioners"—the term is unqualified—"will for the first time be rewarded for their savings."

What the Secretary of State has not said is that women aged 60 to 64 do not count; they do not qualify. He did not qualify any of his statements to that effect. I challenge Ministers to give me any instance of an occasion when the Secretary of State, having made those sweeping statements, has qualified them by saying explicitly that women aged 60 to 64 will be excluded. I would be happy to take an intervention to hear about a time when he has done that. The Secretary of State has failed to point that out. Obviously, those who read Bills and follow the small print will know it, but women aged 60 to 64 are missing out.

Those women may feel that they are pensioners who have saved. Why can they not be rewarded? The Government's answer concerns equalisation; they have to equalise somewhere because of equal opportunities requirements. However, they have equalised at 60 for the guaranteed credit element of the pension credit. Within the Bill, we have equalisation at 60. When the Government have been forced to equalise, whether on winter fuel payments or concessionary travel for older people, they have equalised at 60, not 65, even though that brings in men aged 60 to 64, who are not state retirement pensioners. Therefore, the precedents exist. There is even a precedent in the Bill for equalising at 60.

When we raised the issue in Committee and came up with a proposal for achieving our aims, the Minister said that it would not work because men of, say, 63 had not had the opportunity of living to 65 to receive a full pension and being assessed on that basis. It was, the Minister argued, discriminatory to assess men at 63 on the basis of the pension that they had accrued up to that point.

Amendment No. 2 therefore proposes an alternative strategy. Instead of assessing those people on the basis of the pension accrued to that point, they would be assessed on the pension that the Department forecast that they would receive at 65. Each year, as men approached 65, the calculation would be done afresh. Such calculations are done all the time by the Government, and we have all seen pension forecast statements. It would not be complicated to provide such forecasts for men aged 60 to 64.

Amendment No. 2 would be non-discriminatory, because the message for women over 60 would be, "You have had your full working life to build up a pension, and we will assess on the basis of that pension." The message to men would be, "We will assess you on the basis of the pension that we expect you to get at the end of your full working life." That deals with the point about discrimination, which was the Minister's principal objection, and it would bring into the scheme women aged 60 to 64, who are another group of second-class citizens under the Bill.

The issue of incentives to save is important. I welcome the spirit of new clause 5, if not the detailed string of amendments that go with it. In our view, a related aspect is that women aged 60 to 64 who have saved should not be excluded. If they were included, the Government would have to agree that the new clause would provide an additional incentive for women to save. Therefore, the Government should welcome our amendments.

Bob Spink

The encouragement of saving is a key area in which the Bill falls seriously short. The pension credit might even depress the savings ratio, which is already dangerously low. New clause 5 is an important addition because it would focus attention on the Bill's impact on the encouragement of young people to save for their retirement. The Bill should not discourage people from saving for their retirement, but it may have that impact.

The Bill should provide an incentive for younger people to change their behaviour. It should encourage them to save more for their retirement and to consider more carefully their post-retirement income and lifestyles. In short, it should encourage them to be prudent. New clause 5 would facilitate the measurement of the Bill's success in achieving that increase in prudence, although we believe that the Bill may discourage prudence. New clause 5 is, therefore, an essential part of the necessary control mechanism for the Bill, without which it would be less effective.

The Government should have no problem accepting new clause 5 as a simple, common-sense feedback mechanism that would illuminate the performance of the savings credit measure and enable the legislators to make any necessary changes in that light. The only reason for the Government to resist this common-sense addition to the Bill is if they lack confidence in the potential effectiveness of their savings credit measure and would be embarrassed to have light thrown on its performance.

David Cairns

I appreciate that the hon. Gentleman is making a narrow argument about new clause 5 merely adding the requirement to submit a report. However, he has made several comments about the need to encourage prudence. Can he outline exactly what his party's policy is on encouraging prudence and getting people to save for their old age?

Bob Spink

I should be delighted to do as the hon. Gentleman suggests, but I am sure that if I did so, you would immediately call me to order, Madam Deputy Speaker, because we are debating new clause 5. What do the Government have to be afraid of if more light is shed on the matter, which is all that new clause 5 seeks to do?

We should all be concerned about today's pensioners, because they have had a raw deal from the Government—[HON. MEMBERS: "Oh!"] They certainly have. The proportion of national income taken by pensioners today is lower than it was under John Major's Government in 1997, and that is disgraceful. We should also be concerned for the well-being of tomorrow's pensioners. Only around half of people below state retirement age are currently saving for their retirement. That is a chilling and frightening statistic that we should do something to correct. We should increase the number of people who save for their pensions, but the Bill will not do that. The new clause would illuminate that point and I therefore commend my Opposition colleagues for tabling it. I urge the House to accept it because it would enable us to monitor what is happening to savings and to change the operation of benefits to encourage greater prudence.

3.45 pm
Mr. Paul Goodman (Wycombe)

I, too, wish to speak in support of new clause 5. It is important to lay out clearly exactly what the new clause says. It falls into two parts. The first would invite the Secretary of State to lay before Parliament annually an assessment of the effect of the savings credit on the propensity of individuals of working age to save for their retirement". The second would allow the Secretary of State to invite the Social Security Advisory Committee—a neutral and fair-minded body—to comment on the report and make recommendations for any change to structures or benefits which seem to them to be appropriate. I serve with my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) on the Work and Pensions Committee, and in the course of our inquiry into the pension credit we heard much evidence about what expert individuals and bodies believed would be its effect on future saving. The Norwich Union, for example, declared that the incentive to save is "insufficient". The Institute of Actuaries said that it would become impossible to provide savings advice to those on low to medium incomes". The IPPR—a body associated not with the Conservative party, but with the Labour party—[Interruption.] My hon. Friend the Member for Daventry (Mr. Boswell) says, "Not yet." We shall see. The IPPR said that the credit was a highly opaque means of generating the right incentives: it is extremely difficult for individuals to know what to expect from it". Andrew Dilnot of the Institute for Fiscal Studies said that in connection with the incentive to save, the Government were on a much more difficult wicket. That has given rise to the various cricket metaphors that have been thrown around the Chamber.

Kali Mountford (Colne Valley)

I applaud the hon. Gentleman for returning the attention of the House to the work of the Work and Pensions Committee, but is he not ably demonstrating that the Committee had no trouble at all in taking evidence from the Social Security Advisory Committee? From his work on the Work and Pensions Committee, is he not aware of the annual report of the Department to the House that already exists? Would not the new clause simply duplicate matters?

Mr. Goodman

In a sense the hon. Lady is making my case for me, although I am sure that she will not agree. I see no reason why the Committee would not be able to supplement its work with a report of the kind envisaged by my Front-Bench colleagues. I shall cap the evidence to the Committee that I have quoted with what Age Concern has said about the pension credit, which has already been mentioned this afternoon. It said, baldly and clearly, that it believes that the pension credit will fail to provide sufficient incentive to younger people to save for their retirement.

David Cairns

The hon. Gentleman cites many esteemed experts to support his case, but of course he omits the comments made by Lord Fowler in the other place. Lord Fowler, while welcoming the measure, said that his only regret was that his Government had not introduced it when they had the chance.

Mr. Goodman

I am glad that the hon. Gentleman mentioned the comments of Lord Fowler, because if there was an annual report of the type to which my hon. Friends have referred, we should be able to see whether all those who gave evidence to the Select Committee—and indeed Lord Fowler—were right or wrong. The hon. Gentleman, too, is helping my case.

Finally, I quote from the conclusion of the Select Committee itself. The Committee is made up of many more Labour than Conservative Members, but it is a fair-minded Committee. On incentives to save, the Committee stated: We have concluded that, whilst the Pension Credit will enable today's pensioners to see a reward for saving"— I include that phrase because I want to be sure that I quote from the Committee's report in a way that is fair to the Government— there is no clear evidence that it will actually increase younger individuals' savings.

I return to my starting point. In essence, the new clause seeks only to test the claims that have been made by the Labour Members who intervened during my contribution: it would make an independent assessment of whether the Government are right or wrong to say that the pension credit will increase incentives to save.

All the expert advice of which I am aware is that the pension credit will decrease the incentive to save. The Government believe the opposite. If they believe that my hon. Friends on the Front Bench and I are wrong, they need only produce a report, as the new clause proposes, and let a fair-minded and independent body comment and arbitrate on it. I urge the House to accept the new clause.

Annabelle Ewing

I rise to support the basic premise of new clause 5. I do not understand why the Government are afraid of having to produce a report. They maintain that, inter alia, the Bill will act as an incentive to save. If that is their objective and if they are keen to ensure that the Bill is indeed an incentive to save, they should be willing to do everything that they can to achieve that objective. The preparation of a report—supplementary to other reports produced by the Department for Work and Pensions—would be a reasonable way of assisting the Government in securing their stated objective.

As we have already heard, various third-party bodies have expressed concern as to whether the measure will really act as an incentive to save. I do not want to go over the same ground by repeating those concerns. The key question is: how will the Bill act as an incentive to save when individuals do not have sufficient financial information early in their life to assess, or predict, the likely value of their savings many decades down the line? That is an important issue that could be discussed in a report. It should certainly be given further consideration.

Maria Eagle

The hon. Lady has made a good point. One of the best ways to ensure that people save more for their retirement is to give them information about what their retirement income would look like in the light of their current provision. In that respect, the Government are promoting joint pension forecasts, so that individuals receive a document annually that shows what they would be likely to receive from their private and state pensions. Does the hon. Lady not agree that such information would be much more useful than a general report to Parliament?

Annabelle Ewing

The two are not mutually exclusive. It is helpful to learn that there will be some Government-assisted prediction of the likely pension.

Mr. Clappison

May I interject a bipartisan, consensual note? Does the hon. Lady agree that it would be useful if those pension forecasts included details of how much the Government will take from people's pensions through the pensions tax that the Chancellor introduced in 1997?

Annabelle Ewing

The hon. Gentleman has made his point and I do not want to go down that road today; to do so might be to detain the House much longer than anticipated.

Let me return to the Minister's point. The prediction would be very general because the financial information would not be accurate enough; for example, we would not know the value of the guaranteed income 20 years down the line. It would thus be difficult to make a meaningful prediction of the value of someone's savings. In any event, the two elements are not mutually exclusive and I do not understand what it is the Government are so afraid of.

The hon. Member for Northavon (Mr. Webb) felt that the amendment was too restrictive and that we should consider the overall effect of the Government's policy on savings. I agree with him. I share many of his concerns about the situation faced by pensioners at present. I wonder whether the Bill will really make much difference as regards lifting pensioners out of poverty.

In Scotland, we face a disgraceful situation: one in four pensioners live in poverty. That is unacceptable and I am not convinced that the Bill would do much more than tinker at the edges. If it helped even one pensioner, I would certainly support it, but it represents a missed opportunity to deal with pensioner poverty.

I turn briefly to the amendments. I confess that I was a bit puzzled about amendments Nos. 6 to 12, especially Nos. 4 and 5. Could we have some further elucidation of them?

I support the position of the hon. Member for Northavon on amendments Nos. 1 and 2. As he said earlier, there is discrimination against women and the Government are doing nothing to end it. The amendments are a reasonable way of tackling that unacceptable discrimination. The point that there is a contradiction in the Bill was well made: although the Government accept that the problem can be dealt with vis-à-vis the income guarantee element, they seem to take a different view on the savings credit element. Perhaps that will be clarified. I look forward to the Minister's comments.

Andrew Selous

I, too, speak as a member of the Select Committee on Work and Pensions. Sadly, I note that only Conservative members of the Committee are in the Chamber for the debate.

The Committee's excellent Chairman, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), frequently reminds us that, as Committee members, we are simple seekers after truth. That splendid phrase encapsulates the intention of new clause 5, which would cost the Government nothing; the expense for the Department for Work and Pensions would be negligible.

It is excellent that the Under-Secretary of State for Work and Pensions, the hon. Member for Liverpool, Garston (Maria Eagle), has confirmed that there will be annual statements for pensioners of future provision from both their private and public pensions. I very much welcome that; the information will be extremely useful for individual pensioners. However, when, as a nation, we are looking at a £27 billion savings gap, we need aggregate information, covering the whole country, to guide experts in the field and to advise the Government as to what should be done.

The hon. Member for Colne Valley (Kali Mountford) asked why the Select Committee could not examine the matter annually and provide the information. I must point out to the hon. Lady that the scope of the Committee's inquiries is extremely wide. Only yesterday, we considered the Child Support Agency. We also look into the whole field of work. It is not always possible or practical to expect a Select Committee annually to provide information, as she suggests, given the range of the Department's activities—the Department spends £110 billion a year.

I commend the new clause to the House. It will cost the Government nothing and it could shed some useful light on this extremely pressing matter.

4 pm

Mr. Brady

I shall be brief. I have listened with interest to the comments of my hon. Friends and hon. Members from other parties.

On amendments Nos. 1 and 2, about which the hon. Member for Northavon (Mr. Webb) spoke, I was interested to hear that the Government's response has entirely concerned the discrimination that they believe would result in favour of women aged 60 to 64. Will the hon. Gentleman or the Minister comment on the viability of such an argument, given that the transitional arrangement is in itself clearly discriminatory? Ministers have accepted that that arrangement is appropriate. I cannot therefore see why they should not also accept some other measures that try to incorporate greater fairness.

On new clause 5, we must take into account the context in which we are trying to deal with the problem. My hon. Friend the Member for Hertsmere (Mr. Clappison) described the massive damage that the Government have already done to the savings ratio. Hon. Members on both sides of the House are acutely aware of the difficulties that so many pension schemes are facing—whether those are the problems of Equitable Life or of the increasing number of people who will no longer be covered by final salary pension schemes. We are very much aware of the damage that has been done to pension funds by the Chancellor's £5 billion tax on those funds.

Against that backdrop and given that young people are not saving sufficiently, the new clause is a modest but important attempt to improve the situation. Young people are deterred from saving because they feel that the system is too complicated, is not worth it, does not apply to them and is not relevant and, tragically, by the knowledge that they will not benefit fully if they take responsible action and try to provide for themselves.

The Minister must reflect on one crucial question. We would not be here today dealing with this new clause and the amendments, or indeed with the Bill that will introduce the pension credit and the savings credit, had the Government got it right in the first place and had they not created a problem with the introduction of the minimum income guarantee. Had that guarantee been accompanied by such a requirement to produce an annual report on the savings behaviour of the nation, the Government would have understood the crisis sooner and the seriousness—

Maria Eagle

Did I hear the hon. Gentleman say that the minimum income guarantee is a problem? It is a poverty alleviation measure of which the Government are proud.

Mr. Brady

I think that the Minister can do better than that. We all accept that there are problems—even the Government clearly accept it—with people's willingness to save and to make proper pension provision for themselves. Frankly, the hon. Lady's point was rather facile given that hon. Members on both sides of the House accept that something needs to be done.

Mr. Goodman

Did the Minister for Pensions not refer earlier in the debate to some of the problems caused by what he called the "old-fashioned MIG", making it clear that he thought that the pension credit was needed to alleviate some of those problems, which is what my hon. Friend was referring to?

Mr. McCartney


Mr. Brady

I think that the Minister wishes to intervene immediately.

Mr. McCartney

We are talking about old-fashioned income support. Perhaps the hon. Gentleman would like to offer an apology for encouraging young people to come out of their pension schemes and go for personal pensions, which led to millions of such pensions being mis-sold. The Labour Government have had to clear up that mess.

Mr. Brady

Ministers are now competing with each other to make silly and irrelevant points, which they are doing rather well. I am sure that I heard the Minister refer to the "old-fashioned MIG". In some of his more red flag-waving moments I think he thought of something else as being an old-fashioned MIG not so long ago. He was referring to the minimum income guarantee and not income support. Perhaps the record will now be hastily corrected, but that was indeed what he said. He referred to the minimum income guarantee as the "old-fashioned MIG". Perhaps it was a Freudian slip, but it was a clear acceptance that the Government have created problems.

If the Government had been prepared to incorporate a proper review procedure such as the one that we seek today, they might have arrived sooner at the conclusion that they now appear to have reached that something needs to be done to "fine-tune", the Minister may say, but certainly to ameliorate the situation.

If the Minister is going to be open minded and try to do the best job he can with the legislation before us, he should accept new clause 5 without any reservation.

Maria Eagle

The debate on this group has been very lively. I hope to be able to answer as many questions as I can get through without testing the patience of the House too much. The hon. Member for Altrincham and Sale, West (Mr. Brady) has just been talking about the minimum income guarantee. We know that the Conservative party dislikes it and thinks that it is a problem. Indeed, the Leader of the Opposition said in March 1999, when we were discussing the MIG in the House: That is a huge rise in spending…I can think of nothing to recommend it."—[Official Report, 15 March 1999; Vol. 327, c. 740.] The Conservatives have never liked the minimum income guarantee because they do not like alleviating the poverty that they caused pensioners.

Mr. Brady

If the Minister likes the MIG so much, why is she legislating to remove it?

Maria Eagle

That is a wide long hop, to return to the cricket analogies that we were using earlier. The minimum income guarantee is based on income support rules. The fastest way we could introduce the scheme to alleviate poverty was to use the existing rules. We are now changing those rules to make them much simpler and to make the scheme better, so I have no problem in dispatching that comment to the boundary. The hon. Gentleman will have to try harder, although I probably should not have reintroduced cricket. I get the feeling that I may regret it at some point this afternoon.

Annabelle Ewing

Retaining the nice humour that we seem to be enjoying in this interlude in hostilities, could the Minister give me a glossary of terms, as I am getting a little lost with all these cricket analogies?

Maria Eagle

I am sorry to hear that the hon. Lady is not as familiar as some hon. Members with cricketing terminology, because Scotland has rather a good cricket team. I would have expected her to have watched their games occasionally. I cannot promise to give her a glossary at this moment as I am sure that Madam Deputy Speaker would bring me to order straight away, but I can point her to the section in the Library that contains "Wisden". She will no doubt find a good glossary of cricketing terms there. However, I must get on if I am to have any chance of dealing with the meat of the debate on this group, which has been very interesting.

New clause 5 was moved by the hon. Member for Hertsmere (Mr. Clappison) at some length and supported by most if not all Conservative Members present and also by some hon. Members from other parties here present. The purpose of the new clause is to ensure that an annual parliamentary reporting mechanism is in place on the effect of the pension credit on an individual's incentive to save for retirement. I do not think that anyone would object to the House and the Government, or anyone who is considering these matters, having as much information as possible about the effect of policies on people's behaviour. Information is a good thing. The Government try to base their policies on evidence, and I am sure that most hon. Members would agree that that was a good thing.

The new clause would, however, require the Secretary of State to lay an annual report before Parliament setting out the effect of the pension credit on the individual's incentive to save, and would give the Secretary of State the authority to invite the Social Security Advisory Committee to comment on that report and make recommendations for changes to the structure of benefits that seemed to it to be important.

The new clause is not necessary because the Secretary of State already has the power to ask the Social Security Advisory Committee for advice on any social security matter. In fact, if Opposition Members look at paragraph 20 of schedule 2, they will see that it will amend section 170(5) of the Social Security Administration Act 1992, so that the Bill, when enacted, will become a relevant enactment, which will bring pension credit into the existing SSAC framework. The SSAC may give advice and assistance to the Secretary of State in connection with the discharge of his functions under those enactments, which will include the Bill. Of course, under section 170(3) of the 1992 Act, he may refer to the committee for consideration and advice such questions relating to the operation of any relevant enactment as he thinks fit. In that sense, the power already exists in the Bill for the Secretary of State to make references to the SSAC if he wishes to do so. So the new clause is not necessary; nor would it add anything to the existing powers.

Of course Ministers are accountable to the House for the introduction and monitoring of any new policy. That is how things should be done. I am sure that Opposition Members will continue to seek Adjournment debates and ask parliamentary questions to discover how the Bill is working if it is enacted. That is the right way to deal with things, and new clause 5 would add nothing.

It is technically very difficult to produce a report that specifically separates the effects of pension credit from other impacts and policies designed to promote incentives to save for retirement. It would be particularly difficult to produce a report that isolated whatever the incentive, or disincentive, effect of the Bill may be on the propensity to save, as the new clause puts it, so there could be rather more confusion.

I hope that I shall not be unfair to the hon. Member for Hertsmere if I say that he probably tabled the new clause to promote a debate about incentives to save. It would probably be fair to say, having listened to the debate, that he certainly managed to have such a debate. [Interruption.] He is chuntering away, and I hope that I can hear what he is saying. I am talking about new clause 5 and trying to deal with the points that he made.

Mr. Clappison

There is no mystery about new clause 5, because it refers to the effect of the savings credit on the propensity of individuals of working age to save for their retirement". That is precisely what the phrase "incentives to save" means.

Maria Eagle

The point that I am trying to make, although obviously not clearly enough for the hon. Gentleman, is that it is quite difficult to disentangle the incentive of one policy from all the other incentives or disincentives that are flying around. That is the problem with the new clause.

The hon. Gentleman was trying to promote a debate about incentives to save, and in that respect I want to answer some of the points that he made. He rightly said that many people of working age are not saving enough for their retirement. No one would disagree with that. Ministers have said at the Dispatch Box that people are not saving enough. He also referred to the alleged £27 billion savings gap, as did some of his colleagues. He made the point that, if the Bill were implemented in that way, it would act as a disincentive to save for people of working age, rather than rewarding savings, which is what we think it would do.

A tension inevitably exists between the need to ensure that there is a floor below which pensioner incomes do not fall and the need to ensure that today's workers have a clear incentive to save. The Bill provides a mechanism for doing both, by ensuring that we can tackle poverty among today's pensioners. May I say gently to Conservative Members that, after their 18 years in power, our priority when we came to power in 1997 had to be to do something, as part of a decent pensions policy, to alleviate the pensioner poverty with which they left us?

Things have not got worse. The claims made by the hon. Member for Castle Point (Bob Spink) were complete nonsense, and I do not recognise any of the points that he made as being based on any kind of fact whatever. If he could point out his source for the claims that he made, I should be very interested to see it.

4.15 pm
Mr. Goodman

Will the Minister not acknowledge that even the pension credit's supporters recognise that the difficulty with the Government's approach is the extensive reliance on means-testing, that up to roughly a fifth of those entitled to the MIG do not take it up, and that there is no evidence at all to show that take-up will increase under the pension credit?

Maria Eagle

I shall come to some of the points that the hon. Gentleman makes later. Take-up is obviously important. We want to promote take-up to ensure that those who are entitled to benefits take them up. One of the ways in which pension credit represents an improvement in that regard is that the so-called means test—the information that people will have to provide us with—is much simpler and much more straightforward. The weekly means test that currently exists for income support and the MIG will disappear, and people will normally only have to make a claim once every five years. That will lead to a considerable improvement in take-up, which is what we aim to achieve.

The hon. Member for Hertsmere suggested that the Bill will involve a disincentive to save, but the pension credit is about fairness; it will reward thrift instead of penalising it. For the first time, those who have saved a modest amount for their retirement will be rewarded for doing so by receiving the savings credit. That has not been the case in the past. So the Bill will remove a disincentive to save for people who were likely to qualify for the MIG. Instead of losing benefit pound for pound, as happens under the old income support and the MIG systems, they will receive a 60p a week reward for every pound saved in the target income band. That is not a disincentive to save; it is a reward for saving.

No hon. Member has so far mentioned that the capital rule changes that we are making in pension credit are very beneficial. We shall treat capital five times more generously than it is treated under the old income support and MIG-type rules. We have designed pension credit to promote saving in respect of the capital rules. We will abolish the current rule that excludes pensioners with £12,000 or more in savings from any help at all.

Income from savings below £6,000 will be ignored. For savings above £6,000, a notional rate of income, set at half the current MIG rate, will be assumed. Those improvements ought to encourage people and those who have been excluded in the past because of their capital to benefit from the savings reward. All those things are an incentive to save, rather than a disincentive, because they will explicitly provide a reward for savings. That is one of the Bill's main aims, and I contend that that is exactly what the Bill will do.

Of course Opposition Members needed to support their assertions. In doing so, they read out comments made to the Select Committee during the evidence that it took, as well as other sources—briefings and so on—that have been circulated while we have been considering the Bill. However, they did not read out all the quotes from all the organisations—not that I am shocked about that—and there are some other quotes from respectable organisations in the pensions world that agree with the Government that the pension credit will provide an incentive save.

For example, the Association of British Insurers said: The ABI welcomes the Government's proposals for a Pension Credit as an important step in addressing the issues which may currently discourage those on moderate incomes from saving for their retirement. The National Association of Pension Funds said: The NAPF welcomes the concept of the Pension Credit and believes that it will go some way to rewarding low income pensioners for their thrift during their working lifetime. It will also assist in creating the right environment for today's workers on low or modest incomes to be able to justify making a commitment to a long term pension saving vehicle. Legal and General said: Legal and General is confident that the pension credit has the potential to be a powerful encouragement to save for low or middle income groups.

I could read out many more. Obviously, Opposition Members read out the quotes that supported them and they will not be surprised that I have read out some of the quotes that support the Government's position, but Opposition Members ought at least to accept the fact that the professional view is not all one way. Many professionals in the industry believe, as do the Government, that pension credit will provide an incentive to save. I would not therefore accept the Conservative party's claim that our proposals are disincentives to save.

Mr. Goodman

The hon. Lady is being very fair. Rightly, she says that Conservative Members have a propensity to quote those organisations that believe that the pension credit does not provide an incentive to save. She has just read out quotes from bodies that say that it is an incentive to save. Why will she not therefore support the new clause, which would allow a neutral body to make the judgment?

Maria Eagle

If the hon. Gentleman were to be fair, he would accept that I have said that the powers already exist to enable the Government to do as the new clause suggests. Therefore—

Mr. Brady

Will the Minister give way?

Maria Eagle

If the hon. Gentleman gives me a chance to finish, I might consider giving way to him, as long as he does not throw a cricketing analogy at me.

The Government already have the power and authority to do as the new clause suggests. I have made it clear that we believe in evidence-based policy making and that the House has the power and the duty to hold the Government to account, as I am sure it will.

Mr. Brady

I promise no cricketing analogies. The Minister says that the new clause is not necessary because the Government already have the power that it would provide. I know that my hon. Friend the Member for Daventry (Mr. Boswell) is eminently reasonable, and if she were to give an undertaking that the Government would use those powers and commission a report on an annual basis, we might be persuaded to consider withdrawing the new clause.

Mr. Boswell


Maria Eagle

It might be tempting to give such short answers, as the hon. Member for Daventry (Mr. Boswell) suggests, but it is usually foolish for Ministers to give in to that temptation. We are committed to evidence-based policy and we have the power to find out and do all the research that we need to do to evaluate our policies, and we shall do so. There are some technical problems in respect of isolating propensity to save in relation to one policy, as opposed to everything else that is going on. The point that I am trying to get across is that I am not hostile to the idea of evaluating policy—we are in favour of that but the new clause is a flawed way of doing it.

David Cairns

Would my hon. Friend not agree that the reason why we are having so much debate and so many speeches by Conservatives Members on the issue of reporting is that, when it comes to substantial policies for making the lives of Britain's pensioners better, they have absolutely no alternatives?

Andrew Selous

At the moment.

Maria Eagle

The hon. Member for South-West Bedfordshire (Andrew Selous) is a very honest man. My hon. Friend has received his reply.

I do not want to try the patience of the House. I hope that I have dealt with the issues in relation to new clause 5 in detail and that Conservative Members, although they may not like what I have said, will accept that I have at least attempted to answer their points.

Interestingly, when the hon. Member for Hertsmere referred to amendments Nos. 4 to 12—he did not technically move them, of course—he mumbled something about them reducing complexity. He went on to say that they were so complex that he could not and would not deal with explaining to the House what they meant. I was hoping that he would do so, because, on giving them a close look after they had been tabled, I hoped that I would receive a little guidance in his opening remarks.

Mr. Clappison

I am tempted.

Maria Eagle

Oh, the hon. Gentleman is feeling tempted now. I shall not tempt him too much. Given that he did not set out clearly precisely what the amendments were about and what he was about—one wonders how they got written, given that nobody is quite sure what they are about—I must crave the indulgence of the House and deal with them in relation to my interpretation of them rather than the interpretation of the Members who tabled them.

Mr. Boswell

Perhaps I can assist the Minister, as my name is also attached to these amendments, although, for technical reasons, I did not move them. Indeed, it would take a long time to explain them. They are, as it were, derivatives of amendments moved in another place by the late and sincerely lamented Baroness Castle. They are intended to be entirely neutral in effect. The reason they are more complex than the amendments moved by her and Baroness Turner in the other place is that they have been upgraded to take account of at least two of the objections made by the Minister's colleague Baroness Hollis, and we felt that her third objection could have been dealt with in another way. They therefore have a degree of commonality of pedigree, even if the Minister is not prepared to accept them.

Mr. Brady

Middle stump.

Maria Eagle

We are back to cricket again. I agree that, given that explanation, the amendments have a degree of pedigree behind them. On reading them, it was apparent that there was a great deal of ingenuity behind them—I have even written "ingenuity" on my notes. Even though I thought that they were tabled by the Conservative party, I was about to concede that they were ingenious, which they are. If we accept the new clause and amendments at face value as an attempt to improve the Bill, I have some points to make about their faults.

Clearly, clause 3 is a complex piece of work, and it was recognised in Committee that it was not the clearest drafting that we have ever seen. When one tries to set out a mathematical calculation in words, one is already at a disadvantage—that is why we have mathematics—but that is what the parliamentary draftsman who produced clause 3 had to do. The calculation of the pension credit in the Bill has two parts. First, a single pensioner who has an income below £100 will receive 60p a week for every £1 of savings that they have over £77, building to a maximum of £3.80 a week for someone whose weekly income from pensions and savings is £100. Secondly, if a single pensioner's income is above £100, the weekly maximum savings credit of £13.80 starts to reduce by 40p for every £1 of original income. That is the basic calculation.

To achieve the same end, the new clause and amendments introduce an income disregard. The way they work is quite clever, because it seems that the calculation that they introduce works across the entire income range to produce the same figures as the calculation in the Bill. That is why I use the word "ingenious"; they are ingenious. I am not absolutely sure, however, that the calculation is any more transparent than the one in the Bill. In addition, there is a flaw. The current Bill distinguishes between the two components of the pension credit—the guarantee credit and the savings credit—whereas, effectively, the new clause and amendments do the calculation in a different way, which brings everybody's income below the guarantee level using disregards. That was put forward as more simple because, I presume, there is one element instead of two. I hope that I am getting it right.

Mr. Boswell

You are.

Maria Eagle

Good. The problem with that is that the guarantee credit is a poverty alleviation measure and a passport to other benefits, receipt of which is dependent on receipt of guarantee credit. Without guarantee credit, below which everybody's income is reduced before being topped up, there is a difficulty in how to identify those who might be eligible, by passporting to other elements of income support—for example, severe disability premium and carers premium. That is one set of problems with the proposals.

Another defect is that the new clause would exclude pensioners with a downrated guarantee credit, because they were in hospital for more than 13 weeks, from benefiting from the savings credit. As the House knows, or at least, as Members on the Committee know, savings credit should not be downrated. Were we to adopt the proposed formulation and calculation, we would be prevented from being able to differentiate those who had guarantee credit and savings credit, and which one should be downrated.

Mr. Boswell

I had, in a sense, already trailed the Minister's objection to one point about the passporting of benefits. If we had gone on at length about the approach that we would have taken, we would have said that only people with incomes not exceeding the appropriate minimum guarantee would be passported. Although I have not considered the point in detail, I think that it would equally have been possible to have maintained the savings credit about which she has also expressed concerns.

4.30 pm
Maria Eagle

That is interesting, but it still prompts the question: why bother doing the calculation in a different way if it means taking a different route to exactly the same place? What is the benefit of doing that? We need two elements of the pension credit, because they are essential to enable us both to support the income of pensioners by way of the guaranteed credit and to make transparent—this is a main policy aim of the Bill—the fact that there will be a reward for saving. The hon. Gentleman's approach would remove that clarity, because it would not be clear that a specific element of the pension credit would be a reward for savings. That would have an impact on incentives. I know that Opposition Members do not always accept our point of view, but we believe that their approach would be bad in that regard.

I hope that I have dealt with the amendments tabled by Conservative Members, so I shall move on to some of the points made by the hon. Member for Northavon (Mr. Webb). I intervened in his speech when he appeared to complain about our proposals for the alleviation of poverty. He suggested that, by increasing the amount of the minimum income guarantee—soon to be guaranteed credit—we would create a problem. However, I believe that we are helping to alleviate poverty. I would have thought that Liberal Democrats were in favour of that—they used to be.

Perhaps the hon. Gentleman is moving a bit closer to the main Opposition party in saying that he is not really in favour of alleviating poverty even though we inherited from the Conservative party, when it left office after 18 years, a far wider income disparity than existed when they came to office. We were very keen to do something about that.

Mr. Webb

I am never entirely sure whether the Minister is wilfully misrepresenting my position. I made it absolutely clear that we believe that there are two strategies for tackling pensioner poverty: the mass means-testing route or targeting by age. Each has strengths and weaknesses and each involves trade-offs. I made it perfectly clear that we did not oppose attacking poverty but that we thought that the Government's approach had damaged savings, and missed the people who do not claim under the complicated schemes. We think that there are better ways of alleviating poverty, and that is clearly what I said. We do not disagree about the fact that there should be a strategy for dealing with poverty.

Maria Eagle

The approach that the Liberal Democrats have chosen would not achieve that aim, whereas our policies will.

I assure the hon. Gentleman that I am not in the business of wilfully misrepresenting him. Perhaps he is in the business of not being quite as clear as he might be. I listened to him carefully and he basically said that targeting could be achieved without any form of means-testing—[Interruption]—without a form of mass means-testing is the phrase I think he used. He referred to using age as a proxy for poverty and signed up to the reasoned amendment on Second Reading that made that point. That is why I see a lessening gap between the policy of the official Opposition and the Liberal Democrats.

Both parties have referred to age additions as targeting without means-testing. The hon. Gentleman said that the biggest income gaps could be proxied by age, and therefore that age additions were a way of dealing with the problem without resorting to mass mean-testing, as he put it. However, the family resources survey shows that the biggest income gaps are between people in the same age groups, not between people in different age groups. So his point is simply not true.

The hon. Gentleman proposes to give extra money to people such as Baroness Thatcher. Whatever one thinks of her, she is a wealthy woman and has been rewarded for her work. He would give extra money to Baroness Thatcher because she is over 75 but not to a poor pensioner who is 60. If he really is suggesting that that is a way of targeting poverty, he has got it very wrong.

The hon. Member for Northavon suggests that we should pay the £2 billion that the pension credit will cost to the over-75s, but that would still leave three quarters of that group short of the current MIG level. When I asked him for his calculations for those who would be still on the MIG under his scheme, he was not able to provide them and he did not give his figures for what he might raise the pension to. However, if we were to raise the basic state pension to the current MIG level, which is probably higher than he would suggest, that would cost £9.7 billion net and it would not target the poorest pensioners. In fact, the poorest pensioners would have their benefit reduced pound for pound because of the income support rules and the 100 per cent. marginal rate of deduction. That would still leave 1.6 million pensioners entitled to the MIG. His policy would not even achieve his aims or deal with the problems with which the pension credit deals.

On amendments Nos. 1 and 2, points were made about those aged between 60 and 64. As we discovered in Committee, it is a difficult issue. The hon. Member for Northavon has also been fairly ingenious in coming up with a different way of achieving what the amendments he tabled in Committee tried to achieve. Amendments Nos. 1 and 2 seek to rectify the anomaly, as he sees it, of restricting the savings credit for men and women over 65 by making it available to both men and women from the same age as for the guaranteed credit, which is currently 60.

The amendments would set the minimum age for the savings credit at the qualifying age rather than the age of 65. The hon. Gentleman has used that device, and the qualifying age would apply to the guaranteed credit and to the savings credit. Under the Bill, the qualifying age is different for the guaranteed credit and the savings credit.

The problem with the hon. Gentleman's approach is that we still do not have equality in pension provision. I tried to make the point to him in Committee that his proposal would not work because we will not have equality in the basic state pension and pension provision by the state until 2020. The House will recall that the Pensions Act 1995 tackled the issue of gender inequality in pensions, but it recognised that the problems could not be dealt with overnight because pension saving does not operate in that way. Therefore, a provision was made that, between 2010 and 2020, the basic state pension age for women would rise over that time until it is equal to that for men. Until that happens, we will not be able to apply the Bill's provisions in a way that can avoid anomalies. That is the basic problem.

The amendments are slightly different from the ones that the hon. Gentleman tabled in Committee, but they still create the same problems. That is why I ask the House to reject them. They would still leave inequalities between men and women at different ages even though they are in identical circumstances. Despite his ingenuity, the effects are the same. The Government cannot accept them because they would produce anomalous results such as the one that I referred to in Committee. Under his amendments, men between 60 and 64 might receive the pension credit but, once they hit 65, they would have it taken off them. We do not want our policy to create such anomalies.

I give the hon. Gentleman every credit for his ingenuity, but the basic problem is the current inequality in state pension provision. We cannot overcome the problem until we have the equality that will take time to achieve. Try as he might and try as we did, we cannot do any better than to have the savings credit come into effect at age 65. It is regrettable that some people will lose out because of that, but there is nothing that we can do to put matters right unless we bring forward the age of equality between the genders. And we cannot do that.

I realise that I have been speaking for some time. I do not want to try the patience of the House too much, and I hope that I have dealt with the points raised. I also hope that the hon. Member for Hertsmere is not falling asleep as a result of my droning on, and that having heard my argument, he will withdraw the motion.

Mr. Clappison

I would not be so ungallant as to accuse the hon. Lady of droning on. Indeed, I listened to her carefully considered arguments with great interest. However, I am not as convinced as I should like to be to withdraw the motion.

I am grateful for the support given to the new clause by my hon. Friends and from other quarters, reflecting the widespread concern about the crisis in saving and the lack of saving for the future. I remind the hon. Lady, as my hon. Friends did, that this modest amendment only requires the Government to prepare a report. The case for the new clause, which was already strong, now looks even stronger.

The hon. Lady was brave enough to argue that the new clause is unnecessary because the Secretary of State already has the power to require a report. However, when pressed on that, she gave no hint that the Secretary of State has contemplated such a step. That is unsatisfactory. The subject is important and we want the fullest possible information on it.

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

The House divided: Ayes 99, Noes 220.

Division No. 253] [4.41 pm
Ainsworth, Peter (E Surrey) Brooke, Mrs Annette L
Amess, David Burnside, David
Arbuthnot, Rt Hon James Burstow, Paul
Atkinson, David (Bour'mth E) Campbell, Rt Hon Menzies (NE Fife)
Bacon, Richard
Baron, John Carmichael, Alistair
Barrett, John Cash, William
Beggs, Roy Chapman, Sir Sydney (Chipping Barnet)
Beith, Rt Hon A J
Bercow, John Clappison, James
Boswell, Tim Clifton—Brown, Geoffrey
Bottomley, Peter (Worthing W) Conway, Derek
Brady, Graham Cotter, Brian
Davey, Edward (Kingston) Öpik, Lembit
Duncan, Alan (Rutland & Melton) Osborne, George (Tatton)
Evans, Nigel Paice, James
Ewing, Annabelle Price, Adam
Fabricant, Michael Randall, John
Field, Mark (Cities of London) Rendel, David
Forth, Rt Hon Eric Robathan, Andrew
Foster, Don (Bath) Roe, Mrs Marion
Francois, Mark Rosindell, Andrew
Gale, Roger Ruffley, David
Garnier, Edward Russell, Bob (Colchester)
Gillan, Mrs Cheryl Selous, Andrew
Goodman, Paul Shepherd, Richard
Gray, James Smith, Sir Robert (W Ab'd'ns)
Green, Matthew (Ludlow) Spicer, Sir Michael
Gummer, Rt Hon John Spink, Bob
Harris, Dr Evan (Oxford W) Steen, Anthony
Harvey, Nick Stunell, Andrew
Hawkins, Nick Swire, Hugo
Hendry, Charles Thomas, Simon (Ceredigion)
Hoban, Mark Tonge, Dr Jenny
Holmes, Paul Tredinnick, David
Horam, John Turner, Andrew (Isle of Wight)
Howard, Rt Hon Michael Tyler, Paul
Jack, Rt Hon Michael Viggers, Peter
Jackson, Robert (Wantage) Webb, Steve
Weir, Michael
Johnson, Boris (Henley) Whittingdale, John
Laing, Mrs Eleanor Wiggin, Bill
Lamb, Norman Williams, Hywel (Caemarfon)
Laws, David Williams, Roger (Brecon)
Lewis, Dr Julian (New Forest E) Winterton, Mrs Ann (Congleton)
Luff, Peter Winterton, Nicholas (Macclesfield)
McIntosh, Miss Anne Wishart, Pete
Maples, John Young, Rt Hon Sir George
Marsden, Paul (Shrewsbury) Younger—Ross, Richard
Mates, Michael
Mitchell, Andrew (Sutton Coldfield) Tellers for the Ayes:
Murrison, Dr Andrew Mr. Julian Brazier and
Oaten, Mark Mr. Laurence Robertson.
Ainsworth, Bob (Cov'try NE) Challen, Colin
Allen, Graham Chapman, Ben (Wirral S)
Anderson, Rt Hon Donald (Swansea E) Clapham, Michael
Clark, Paul (Gillingham)
Anderson, Janet (Rossendale) Clarke, Rt Hon Charles (Norwich S)
Armstrong, Rt Hon Ms Hilary
Atkins, Charlotte Clarke, Tony (Northampton S)
Austin, John Clelland, David
Bailey, Adrian Clwyd, Ann
Banks, Tony Coaker, vernon
Barnes, Harry Cohen, Harry
Barron, Kevin Coleman, Iain
Bayley, Hugh Colman, Tony
Beard, Nigel Connarty, Michael
Beckett, Rt Hon Margaret Cook, Rt Hon Robin (Livingston)
Berry, Roger Cooper, Yvette
Best, Harold Corston, Jean
Betts, Clive Cousins, Jim
Blackman, Liz Cranston, Ross
Blears, Ms Hazel Cruddas, Jon
Blizzard, Bob Cryer, John (Hornchurch)
Blunkett, Rt Hon David Davey, Valerie (Bristol W)
Bradley, Peter (The Wrekin) Davidson, Ian
Brown, Russell (Dumfries) Davis, Rt Hon Terry (B'ham Hodge H)
Browne, Desmond
Bryant, Chris Denham, Rt Hon John
Buck, Ms Karen Dismore, Andrew
Burden, Richard Dobbin, Jim
Burgon, Colin Doran, Frank
Cairns, David Dowd, Jim
Campbell, Mrs Anne (C'bridge) Drown, Ms Julia
Caplin, Ivor Dunwoody, Mrs Gwyneth
Casale, Roger Eagle, Angela (Wallasey)
Caton, Martin Eagle, Maria (L 'pool Garston)
Edwards, Huw Marris, Rob
Efford, Clive Marsden, Gordon (Blackpool S)
Ennis, Jeff Marshall—Andrews, Robert
Etherington, Bill Martlew, Eric
Fitzpatrick, Jim Meacher, Rt Hon Michael
Flynn, Paul Merron, Gillian
Follett, Barbara Michael, Rt Hon Alun
Foster, Michael (Worcester) Milburn, Rt Hon Alan
Foster, Michael Jabez (Hastings) Moffatt, Laura
Galloway, George Moran, Margaret
Gapes, Mike Morgan, Julie
Gardiner, Barry Mountford, Kali
George, Rt Hon Bruce (Walsall S) Mullin, Chris
Gerrard, Neil Munn, Ms Meg
Griffiths, Jane (Reading E) Murphy, Jim (Eastwood)
Grogan, John Naysmith, Dr Doug
Hall, Patrick (Bedford) Norris, Dan
Hamilton, David (Midlothian) O'Brien, Mike (N Warks)
Healey, John Olner, Bill
Henderson, Ivan (Harwich) O'Neill, Martin
Heppell, John Organ, Diana
Heyes, David Palmer, Dr Nick
Hill, Keith Pearson, Ian
Hoey, Kate Perham, Linda
Hoon, Rt Hon Geoffrey Pickthall, Colin
Hope, Phil Pike, Peter
Hopkins, Kelvin Plaskitt, James
Howarth, Rt Hon Alan (Newport E) Pollard, Kerry
Hughes, Kevin (Doncaster N) Pond, Chris
Hurst, Alan Prentice, Ms Bridget (Lewisham E)
Hutton, Rt Hon John Prosser, Gwyn
Iddon, Dr Brian Purchase, Ken
Ingram, Rt Hon Adam Rammell, Bill
Irranca-Davies, Huw Reed, Andy (Loughborough)
Jackson, Glenda (Hampstead) Reid, Rt Hon Dr John (Hamilton N)
Jackson, Helen (Hillsborough) Roche, Mrs Barbara
Jamieson, David Roy, Frank
Jenkins, Brian Ruddock, Joan
Johnson, Alan (Hull W & Hessle) Ryan, Joan
Jones. Kevan (N Durham) Salter, Martin
Jones, Martyn (Clwyd S) Sarwar, Mohammad
Joyce, Eric Savidge, Malcolm
Kaufman, Rt Hon Gerald Shipley, Ms Debra
Kelly, Ruth Simon, Siôn
Kemp, Fraser Skinner, Dennis
Khabra, Piara S Smith, Angela (Basildon)
Kidney, David Smith, Rt Hon Chris (Islington S)
King, Ms Oona (Bethnal Green) Smith, Llew (Blaenau Gwent)
Ladyman, Dr Stephen Soley, Clive
Lammy, David Squire, Rachel
Leslie, Christopher Stevenson, George
Levitt, Tom Stewart, Ian (Eccles)
Lewis, Ivan (Bury S) Stinchcombe, Paul
Linton, Martin Strang, Rt Hon Dr Gavin
Lloyd, Tony Stringer, Graham
Love, Andrew Sutcliffe, Gerry
Lucas, Ian Taylor, Rt Hon Ann (Dewsbury)
Luke, Iain Taylor, Ms Dari (Stockton S)
Lyons, John Taylor, David (NW Leics)
McAvoy, Thomas Thomas, Gareth R (Harrow W)
McCafferty, Chris Tipping, Paddy
McCartney, Rt Hon Ian Trickett, Jon
McDonagh, Siobhain Truswell, Paul
MacDonald, Calum Turner, Dennis (Wolverh'ton SE)
McDonnell, John Turner, Neil (Wigan)
McFall, John Twigg, Stephen (Enfield)
McGuire, Mrs Anne Wareing, Robert N
McIsaac, Shona White, Brian
MacShane, Denis Whitehead, Dr Alan
Mactaggart, Fiona Wicks, Malcolm
McWalter, Tony Williams, Rt Hon Alan (Swansea W)
McWilliam, John
Mahmood, Khalid Williams, Mrs Betty (Conwy)
Mahon, Mrs Alice Wills, Michael
Mandelson, Rt Hon Peter Winnick, David
Mann, John Wood, Mike
Woolas, Phil Tellers for the Noes:
Wright, Anthony D (Gt Yarmouth)
Wright, David (Telford) Mr. Tony McNulty and
Wright, Tony (Cannock) Mr. Nick Ainger.

Question accordingly negatived.

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