HL Deb 27 October 1999 vol 606 cc315-42

(" .—(1) Section 150 of the Administration Act shall be amended as follows.

  1. (2) In subsection (1), after "prices" insert "or earnings".
  2. (3) In subsection (2)—
    1. (a) for "Where it appears to the Secretary of State that the general level of prices" substitute "Where it appears to the Secretary of State that the general level of prices or earnings", and
    2. 316
    3. (b) in subsection (2)(a) after "beginning" insert "and, in the case of the first of the sums specified in section 44(4) of the Contributions and Benefits Act and the sum specified in column 3 of paragraph 5 of Part IV of Schedule 4 to the Contributions and Benefits Act, not less than the percentage by which the general level of earnings is greater at the end of the period than it was at the beginning".").

The noble Baroness said: In moving the amendment I shall speak also to Amendment No. 3. Both amendments are tabled in my name and that of Lady Turner. I shall discuss them together, although we shall wish the House to express its opinion on each separately.

Amendment No. 2 is designed to restore the link with average earnings for the annual uprating of the basic state pension. I want to try to interest the House in the far-reaching effects of the present situation and how we deal with it today. Last night, this Chamber was crowded. There was an excited debate in which Members from all sides of the House said that we were "making history". I wish to point out in all seriousness that if Amendment No. 2 is not carried today, we shall be destroying history. That is not an exaggeration because we shall be destroying—I use that word advisedly—the centre of the social insurance schemes in this country; namely, the basic state pension.

What astonishes me is the equanimity with which the Liberal Democrats in this House have visualised this development. After all, two of their giants helped to mould the social insurance system in this country in the past century. First, of course, was Lloyd George, who, I believe in 1906, although I am subject to correction, introduced a five shilling old age pension. He was warned by a Conservative Peer in this House that that would ruin the empire. We do not use exactly that word today, but the assertion will be made, in a slightly different form, that it will "ruin the economy" if we restore the earnings link. I await with interest alarming figures from the Minister to make our blood run cold about the danger we all face economically if we go back to what was Labour's policy in 1974.

The second great Liberal figure was Sir William Beveridge, to whom millions of people must have offered prayers of gratitude, because he took a hotchpotch of private provision, a bit of state help here and a bit of charity there, and moulded it into a comprehensive state insurance system under which everyone in work was compelled to contribute in order to receive a benefit as of right when they retired.

That vision of social cohesion has helped to make our national character. I am desperately afraid that, unless we return to that vision, we shall have the exact opposite—the splintering of society and the breaking up of pension provision into different private schemes or occupational schemes for those who can afford them or who are lucky enough to have them. It will be rather like the Tories' privatisation of the railway system, giving us dozens of bits of responsibility, so that we do not get a comprehensive national transport plan.

I must begin by reminding the Government of what they wrote in their manifesto before the last election. That manifesto declared that the Government would continue to provide a basic state pension, not means tested, as of right, for everyone who had contributed. The manifesto added that the Government would also ensure that all pensioners shared fairly in rising national prosperity. It cannot possibly be said that the present system is achieving that. I am astonished at the way the Minister returns time and time again to that pledge. "Oh yes", she says, "it's the building block of our pensions provision." But if we continue to increase the basic pension in line with prices rather than earnings, in 20 years' times it will have shrunk to 7 per cent of average national earnings. Are you going to tell me that that is to allow pensioners to share fairly in rising national prosperity?

Let us take this year as an example. Pensioners are muttering. Indeed, they are becoming almost as angry with this Government as they were with the Tories, despite the Government's many excellent moves to help them, such as the £100 fuel allowance, free eye tests and the attempt to introduce a national plan of concessionary fares. Those provisions are excellent. However, they are not means tested, but needs tested. Thus pensioners keep their dignity. But they are increasingly angry when they see the contrast between price indexing and earnings indexing.

The figures this year show that inflation has gone up by 1.1 per cent. We all applaud that, of course. However, what it means to the pensioner—and this has already been announced by the Government—is 73 pence per week on top of their pension. In the meantime, the wage earner has had an increase of 4.9 per cent, maybe more. I never like to exaggerate.

The Minister cannot say that that is a fulfilment of manifesto pledges; it is not what pensioners believed they were voting for. They believed and trusted that at last Labour would return to its 1974 policy of indexing their pensions in line with growth of earnings. Of course, the rate has varied from year to year because one year price rises may be higher. That is not very often the case, but in some years they will be. Broadly speaking, however, we know that unless there is high unemployment, which keeps wages down, wages tend to rise above prices. The figures show the effect cumulatively. If Lady Thatcher had not abolished in 1980 the earnings link which Labour had introduced, the basic state pension for a single pensioner today would be some £93 per week. Imagine what that would mean to pensioners: a little bit of breathing space; a little feeling that they are not the pauper pariahs of society. They do not want the pension means tested. They want something they have earned as of right.

I hope the House realises what it will be saying if it votes down Amendment No. 2. It will be saying, "We are content that in 20 years' time the basic state pension should be worth 7 per cent of average national earnings." I am sorry, but I believe that this Government's policy, like that of the previous Conservative administration, is designed to allow the state pension to wither on the vine. Increasing numbers of people have a choice between private or company insurance on the one hand and a charitable safety net on the other. In making that choice the Government are not only humiliating pensioners; they are saying that the whole state insurance system is out of date. We are always being told that we must think of the future and not be dragged down by our ideological past. To the pensioner, this issue is not ideological; it is very practical.

Lord Higgins has breathed some very sympathetic noises and sensitivities which made me hope at one stage that he would be on our side. I realise that he is a prisoner of his own party's history and that that might be slightly inhibiting. However, perhaps he was listening to Lord Mackay of Ardbrecknish who told us that he had done his best while the Tories were in power to get the policy which is being advocated today for war widows adopted. I hope that Lord Higgins, who is a humane man, will break out of his prison and join us in the Division Lobby when we vote today.

Amendment No. 3 is slightly different because it asks for an immediate increase in the state pension to £75 per week from the £67 which it is at the moment. On what is that based? It is based not on some fancy figure which we produced out of thin air but on the Government's own figure. The Government say they will abolish poverty and thus ensure that no single pensioner should get less than £75 per week. That is all very well but, if it is good enough for those who have not saved, why is it not good enough for those who have—for those who have contributed all their lives?

I shall not bother the Minister with the dozens of letters I have received about means testing to which, of course, the minimum income guarantee, which the Government offer, is subject. People may say, "Well, what have I been up to all these years, scraping and saving to get my own house and stand on my own feet? Now I find that I am not a penny better off." Indeed, in one of our earlier debates the Minister got dangerously near to saying, "It is absolutely fine that that should happen because we have discovered that many of those million pensioners who have been quoted as not drawing the income support to which they are entitled have in fact been saving too much. Of course, they must be penalised, mustn't they?"

I have had a long correspondence with the Minister about the cost of this provision. In our previous debates I pointed out that, based on the Government Actuary's own figures, the National Insurance Fund has a surplus of £5.89 billion. No doubt unintentionally, in her first reply the Minister misled the House. She misled me because she said that the Government Actuary insisted on a balanced basis—that an amount must be achieved by the contributions in order to keep the fund in funds. That figure was, as the Minister told us, nearly £8 billion. She then added, as though this condemned the whole situation, that the surplus was only about £5 billion. The general impression given was that the surplus paid for the balance. When I got home I started to think about those figures and found that the £5.89 billion is over and above that prudent figure demanded by the Government Actuary.

In later letters the Minister admitted that our figures were correct. But she said, "Ah, but you see, there are all sorts of different uses to which we could put the money. You have got to take into account our state second pension." How can we? That is not mentioned in the Bill. There is no means of judging it. There are many glossy consultation documents but, of course, they are only consultation documents and the proposals might be changed. The Government may change their mind.

As I have said previously, I deeply deplore the failure to give a balanced picture of what the pensions system of this country will be like when the Government's whole network of different pensions is in place. However, one thing that we do know for sure is that unless the earnings link is restored and unless this minimum guarantee is not means tested, there will be a growing cleavage in our society in which some people will be made to feel poor and therefore outside the ring referred to earlier. This is probably one of the most important issues for social cohesion in our society. The Government's policy pauperises pensioners. I know that child benefit does not do so because it is universal and non-means tested. The same applies to eye tests and fuel benefits. Excellent! But why do it for one person and not another? Do not say that we cannot afford it. Of course, the cost grows steadily. But so does the yield from our contributions. What the Government do not seem to realise is that that surplus in the National Insurance Fund will continue to grow because contributors pay earnings-related contributions for a flat-rate, price-indexed benefit. Therefore, that surplus will grow.

I hope, therefore, that the Minister will listen. This is a very serious subject. It is not just one or two of us saying, "Let's have a bash at the Government". We have thought long and hard about it and worked out our tables just as much as the Government have worked out theirs; indeed more.

In all seriousness, I beg the Opposition to let us, in this Parliament, before the end of this Session, tell the Government that they must restore to pensioners the dignity of an adequate pension as of right. If they do not, they will pay an electoral penalty.

4.30 p.m.

Baroness Turner of Camden

My Lords, I rise to support my noble friend. This is the last opportunity we shall have before the Bill leaves this House to restate the case for pensions as of right based on the contributory principle rather than on means testing.

The vast majority of today's pensioners rely on the basic state pension, which is now £66.75 for a single person. As my noble friend said, we know that had it been uprated in line with the earnings index it would now be in the region of £93 per week. What is being offered instead is the minimum income guarantee of £75 dependent on means testing.

I cannot emphasise enough just how much means testing is disliked, particularly by elderly people. Take-up is low and one does not need expensive research to understand precisely why. Benefits that are not means tested, such as child benefit, have a high take-up and rightly so.

Today's pensioners believe that they have paid for a decent pension. This is the wartime generation, people who spent their youth in the Armed Forces fighting for their country and afterwards endured the lean years that in so many ways prepared for later prosperity. Moreover, the oldest pensioners are the poorest pensioners. Because they retired some years ago, even if they had occupational pensions, these are based on earnings much lower than those of someone retiring now.

One in four pensioners qualifies for income support; about 700,000 are entitled to it but do not claim it. Of course, it will be said that to increase the basic pension in the way suggested and, incidentally, in the way that previous Labour governments have always supported, would mean that people who do not really need it would benefit. But those who do not need it are already taxed and the Government will get most of it back; that is even supposing that the really wealthy would ever bother to claim what is hardly small change to them.

Governments redistribute through the tax system. They should not seek to do so through the benefits system. As my noble friend Lord Ashley said so eloquently, "If you do it that way, the poor are forced to pay for the really poor people". Pensioners do not want handouts, welcome as they may be to meet fuel bills and other expenses. They want the income they believe they have earned of right.

Let us not again have the argument that lots of white-collar employees have generous occupational pensions. Some do, but by no means all. Most ordinary schemes, as distinct from "top hat" schemes for senior management, are based on the assumption that they top up the basic state pension. That means that the basic state pension is an important part of pension provision for large numbers of people. Furthermore, the pensions are, of course, paid for by the employees themselves. The unions rightly always describe pensions as deferred pay, so people are getting what they have paid for, both through national insurance contributions and the pay packet.

We are not treating our pensioner population very well. It is not surprising that so many feel resentful. One said to me quite recently, "I worked hard for over 50 years, paid my taxes and national insurance and now I am expected to live on a pittance. What have they done with all my money?" I hope that your Lordships will feel constrained this afternoon to support Amendment No. 2.

Amendment No. 3 has been grouped with Amendment No. 2. As my noble friend has already said, £75 per week is the Government's proposed minimum income guarantee for a single person. That is presumably the minimum amount that is estimated can support a single elderly person. However, as has been indicated, it is not all that generous and, as I said before, it is means tested. Not all pensions are generous. Most are based on the assumption that they are second-tier; in other words, the basic state pension is the cornerstone of pension provision for large numbers of people.

We believe that if we can pay £75 as a basic right to all pensioners and then build in the right to earnings-related increases, we will help to restore a reasonable pension structure for much poorer people. I therefore hope that the House will feel constrained this afternoon to support these amendments.

Lord Haskel

My Lords, I cannot but admire my noble friend Lady Castle. All of us have been treated to many speeches from her over the years and everybody admires the way in which she fights for pensioners. Of course, one can admire her but perhaps not agree. Frankly, I am not sure whether I do agree.

I have an interest to declare. Since Report and Third Reading, I have become a pensioner. As such, my interest is that there should be stability in prices and wages. That is what will benefit society as a whole. The question of pensions has to be looked at within the economy as a whole. If we are to vote for my noble friend's amendment, we are, in a way, voting against the management of the economy. The Government are doing a very good job in managing the economy. The interest of pensioners is the same as the interest of everybody else; that is, that there should be stable prices and wages. That is what the Government are managing to do. I support the Government on this.

Lord Goodhart

My Lords, I do not intend any discourtesy to the admirable speech of the noble Baroness, Lady Turner of Camden, if I say that the speech from the noble Baroness, Lady Castle, was one of the most powerful and persuasive speeches I have ever listened to in this Chamber. On these Benches, we are able to give her some support, although I fear it will not be as much as she would like.

As we know, Amendment No. 2 proposes restoration of the link of basic pensions to earnings. Amendment No. 3 proposes a one-off increase in the basic pension. Both would increase the social security budget substantially. We are in favour of an increase in public spending on pensions. However, we realise that that is potentially very expensive and therefore needs to be carefully targeted.

One problem with restoring the earnings link—a problem that perhaps, in a sense, we should welcome—is that of the increased life expectation of pensioners. If the basic pension is linked to earnings, total pension costs will increase faster than earnings because pensioners are living longer. Therefore, pensions will require an increasing share of GDP to fund them. That problem will be reduced but not eliminated when the pension age for women is raised to 65. Be that as it may, it cart be argued strongly that the cost of the basic pension is now so low that we can afford to restore an earnings link even if, over time, it will significantly increase funding costs as a proportion of GDP.

A forecast given in a Written Answer in the other place within the past two days was that by 2050, if no changes are made to the present system, 30 per cent of pensioners will be below income support or minimum income guarantee levels.

The cost of pensions in the United Kingdom is very low in comparison with the cost of pensions in other countries. A recent IFS report contained a table of 10 of the leading developed countries. The forecast for state spending on pensions in the United Kingdom as a percentage of GDP in 2000 was 4.5 per cent. Only two countries in that list, the USA and Australia, spent a smaller share of their GDP on pensions. Further, the projection of trends for 2040 shows that United Kingdom spending will have dropped to 4 per cent of GDP while in all other countries in the list spending on pensions will have increased as a percentage of GDP; and by 2040, on the basis of those trends, the United Kingdom will be spending less than any other country on the list. I accept of course that some countries, notably Italy and Germany, have landed themselves with an unsustainable burden of pension costs, but they already spend nearly three times as much as the United Kingdom.

The problem with Amendment No.2 is that this is not yet the right time to discuss it. I believe that the future of the basic state pension cannot be considered without also looking at the second state pension.

The Government are likely to propose that the second state pension should be earnings linked, but it is not clear how firm that undertaking is. We know need to know the plan for the second state pension. What are the long-term projections of its cost; and will there be a firm undertaking to index-link it? It is only when we have detailed information about the second state pension, which will be a very important element in pension provision, that we shall be able to form a judgment on the need for the restoration of either full or partial linking of earnings to the basic state pension.

I am not very hopeful about the effect of the second state pension. Another Written Answer given on Monday to my honourable friend Professor Steven Webb in another place suggests that by 2025 the second state pension will have increased the income of most single pensioners by less than £2 a week and of most married pensioners by £5 a week, which does not seem to be adequate. However, the time for that battle is when we are considering the second state pension next year.

Amendment No.3 proposes a substantial one-off increase in the basic state pension. That would be the new baseline for future increases, whether price or earnings linked. It would not restore the full amount of the loss over the past 20 years as a result of the loss of the earnings link. If the earnings link had been retained, single pensioners would now be getting £93.25 a week. An increase even to £75 would be very expensive: it would cost approximately £3.6 billion a year if a corresponding increase was made in the basic state pension for married pensioners.

There is a surplus in the National Insurance Fund, but that can be spent only once, and, unlike the noble Baroness, Lady Castle, I am not persuaded that there will continue to be a regular surplus of the same amount.

We would be able to support the amendment if the increase was restricted to pensioners aged 75 or over. Those who are now over 75 are, as the noble Baroness, Lady Turner, pointed out, are the least likely to have significant income from occupational or personal pension schemes or from SERPS. Old age brings increasing costs, such as the need to spend more on heating. The over-75s are those who find it most difficult and confusing to apply for income support. According to another Written Answer, of the estimated 720,000 pensioners or pensioner couples who are entitled to income support but not drawing it, no fewer than 430,000 are aged 75 or over. That strongly bears out the particular problems of the older pensioners.

We believe, therefore, that there is a very strong case for a substantial increase in the basic state pension for pensioners aged 75 or more, but, reluctantly, we cannot support a blanket increase of this size for all pensioners.

In those circumstances, if the noble Baroness wishes to divide the House, our position is that we are unable to support her because we feel that there is a great deal in principle to be said for the arguments that we are putting forward. We shall also be unable to support the Government.

4.45 p.m.

Lord Shore of Stepney

My Lords, for many of our fellow citizens the state national insurance pension is the only pension that they have. For a very large number of people on low incomes, the lowest 30 per cent, the second supporting pension, from whatever source it comes, is a very small supplement. Therefore, the basic level of the state national insurance pension is very important, and will be so for a considerable time.

Frankly, unless we are simply to accept that a great swathe of our people should have recourse to national assistance or supplementary benefit or income support, we clearly have to try our best to bring up the level of the national insurance pension, and this Bill is perhaps our last opportunity to do so.

I agree with the noble Lord, Lord Goodhart, that on the available information I cannot support the once-for-all large increase, much as I should like to do so. However, I am prepared to keep an open mind on that matter in the light of any further information.

I should have thought that no one, for reasons of fairness and natural justice, could seriously challenge the restoration of the link between pensions and earnings. Why should the pensioner alone be denied the benefit? It is no good my noble friend Lord Haskel saying that their only interest is in stable prices and stable wages, the same as everyone else, because they have a separate interest. The point is that they are not, with the rest of our wage-earners, carried forward by the growth in prosperity of the country as a whole.

Having said that, what can one add? Very little. The only possible answer to the problem is that the new second pension, or the new pension, the stakeholder pension, could conceivably provide a solution. If the stakeholder pension became one of substance and could rescue the lowest 30 per cent of the population from what is otherwise a rather poor prospect in retirement, I would go along with that, but the stakeholder pension is wholly untried, as we know. It is almost undefined. A very small stakeholder pension will be available to people on lower incomes who can put money into such a pension. There is no prospect of any significant return for the greater majority of lower-paid people, where there is no employer's contribution and no state contribution.

As the noble Baroness, Lady Castle, reminded us, our manifesto stated that the basic state pension would be retained as the foundation for pension provision. The following sentence in the manifesto is also an important one as it states that the pension will be increased at least in line with prices. I assume that that rather careful caveat was put in because of the general state of panic of my party leadership just before the general election when they were desperately anxious not to give the slightest sign that there would be an increase in public expenditure if the Labour Party won the general election. OK! Responsible stuff. But as it turns out, the economy is really rather good, not in terms of the National Insurance Fund to which reference has been made, but in terms of the national finances as a whole. And this modest amendment is simply asking for an annual uprating which will be linked to earnings rather than prices. One is almost embarrassed to be asking for so little.

I hope therefore that my noble friend, for whom I have the highest regard, will go back to her Secretary of State and say: "Think again. You are not fulfilling what we in the party and the country as a whole have a right to expect on behalf of retired people. Look again at your pledge to at least increase in line with prices. Surely we are entitled to something more than an increase in line with prices, which is all that we are being offered at the present time.

Lord Stoddart of Swindon

My Lords, I congratulate my noble friends Lady Castle and Lady Turner on tabling these two amendments. I was pleased to add my name to the first of them.

I listened to the noble Lord, Lord Goodhart, and felt he made an excellent case in favour of the amendments. I can only say that I am extremely sorry that his vote will not follow his voice in true parliamentary tradition. However, there is still time for he and his colleagues to change their minds before the vote takes place and I sincerely hope they will do so.

I support the new clause which, if accepted by the Government or agreed by the House, will be welcomed not only by pensioners, but also by most other people. They believe that pensioners have not been well treated over a long period of time. I have to tell the House that the prospect of an increase of only 73p on the basic pension this year is causing outrage. It will do the Government and the Labour Party no good if they persist in putting that forward. I hope that they will change their minds.

I had a conversation yesterday with a Labour MP in the House of Commons. He said that he was receiving lots of letters from pensioners regretting that the contract which they believed was made between the Government and pensioners in 1948 was not honoured by the Conservative Party and they are extremely sorry that it is not now to be honoured by the Labour Party. That was a contract to ensure that pensioners had a good and continuing standard of living. In fact many people are worried about this and are writing to MPs and to Members of your Lordships' House.

The new clause is very modest. It does not seek to backdate the link between pensions and incomes to 1981. It simply proposes that it should be reinstated from now. So in fact the pensioners are being asked to make a big sacrifice; make no mistake about that. As we have heard, they have lost so much in the past 19 years. I recall, as one or two of my noble friends will recall, the excitement and the satisfaction of the 1975 Act which not only kept pensions in line with the cost of living but also ensured that pensioners shared in the rising standard of living reflected in people's incomes. The Labour Party was proud of that Act. We believed that we had put pensions on a sound and permanent footing.

We are asking now to go back to that Act, of which we were so proud—not to reinstate the amounts that have been lost, but to go back to what was a great scheme put forward by my noble friend Lady Castle, who is as great a person as Lloyd-George and Beveridge. She has contributed so much to this country and to the pension situation.

It is shameful that the link between pensions and incomes was broken by the previous government. For most of our time in opposition, the Labour Party demanded —I was part of the demand, as was my noble friend sitting on the Front Bench—the restoration of that link. However, it seems that things have changed now that new Labour is in office. I suppose the Prime Minister will regard people like me as part of the forces of conservatism for wanting to restore the link—a link fought for by the last Labour government. Apparently the progressives are now those who destroyed the link in 1980—the noble Baroness, Lady Thatcher; a progressive!—and those who do not want to restore it are also progressives.

Those who wish to reduce the value of the state pension, vis-à-vis GDP and living standards, are those who are supposed to be progressive, while those like myself who wish to restore the link and to maintain the living standards of the pensioners are apparently conservatives. That is complete and utter nonsense. Indeed, if that is being conservative, I suppose I must own up on this issue to being conservative. But how odd it is that the noble Baroness, Lady Thatcher, whose government broke the link, are apparently now considered to be the progressives, while my noble friends Lady Turner and Lady Castle and others, including myself, are the new conservatives.

I suppose I must not be too hard on Cabinet Members. After all, the Prime Minister, Mr. Brown, the Chancellor of the Exchequer, Mr. Straw, the Home Secretary, and Alistair Darling, the Social Services Secretary, were not even Members of Parliament at the time of the 1975 Act. I am not even sure that the Prime Minister was a member of the Labour Party. So they must be forgiven for not being part of that great fight for decent pensions in 1975. They may not feel the same sense of obligation to pensioners that those of us who fought that Bill through the House of Commons feel, and feel very deeply. They may not understand that those of us who voted for the Act—I was a Whip and helped to Whip it through in 1975—believe that it was a fine Act, designed to remove poverty in retirement by giving pensioners a decent pension by right and not by means test. We believed that fervently, and I still believe that.

This is the time to restore the link and add a little dynamic to the basic pension to bring it up to £75 a week as some compensation for the losses incurred since the breaking of the link in 1980. There will never be a better time. The economy is booming. Living standards are rising. Inflation is steady. The budget is in surplus by at least £5 billion and likely to remain so for as long as income is buoyant from taxation as well as national insurance contributions. As we have heard, the National Insurance Fund is in surplus of £3.8 billion this year. So there is no need to increase contributions or taxes to fund what is being proposed. But even if it did mean a rise in contributions—I say this to my noble friend and indeed to the Conservative and Liberal Democrat parties—or even taxes, the people of this country would be prepared to pay if it meant that pensioners received a decent and ensured standard of living.

Our pension contributions as a percentage of GDP are much lower than those in Germany, France, the United States, Japan or Canada. Further, we do not have the same problems, and are not likely to have such problems, as some of our continental neighbours whose deficits on their pension schemes are horrendous. Indeed, we have no such problems. Therefore, I appeal to the House and I appeal to those in the Conservative Party to redeem themselves. This is the opportunity to redeem the awful mistake they made in 1980. If they want to restore their reputation among pensioners, this is the opportunity to do so. They were the ones who destroyed the link. I ask noble Lords opposite to come with us on this because it is fair and decent. I understand that Conservatives believe that they are decent people, despite what some people may say—though I shall not mention any names. This is the opportunity for them to come along with us.

I say this to Labour Members. I believe it is their duty today to restore that link which Labour gave. Let us not forget that it was a Labour Act. It is for Labour Members today, assisted, I hope, by other Members in the House, to help to restore that link. I also say this. There are Members of Parliament along the road who are dying for the opportunity to have another go at restoring the link. So by voting for these amendments, my noble friends would not only be voting to help the pensioners. They would also be voting to help elected Members of Parliament do their duty. Above all, they would be helping the pensioners of this country have a decent and rising standard of living, which it is our duty to give them and which is something everyone else enjoys.

5 p.m.

Baroness Park of Monmouth

My Lords, I have a particular interest because there was a very distinguished woman called Eleanor Rathbone, whom I think the noble Baroness, Lady Castle, may remember, who sat as a Member for the combined universities. She was one of the first to begin work on just these issues. Therefore, I have a particular interest. I am not an actuary, as are so many noble Lords, so I cannot produce the impressive figures that have been put forward. However, I do know that the honour and the dignity of old people matters not only to themselves but also to their families.

Many people now living alone would at one time have been living in a family environment where the grandmother played a valued part by looking after the small children. None of that—or relatively little—happens now. There are many people who are as concerned for their old aunts, uncles, fathers and brothers as they are for themselves. They care about the dignity and well-being of those people.

On a more practical issue, the health budget is a very large one. I believe that it could be a great deal smaller if people had more money to spend—modest money—to keep warm, to avoid stress and to look after small ailments before they become big ones. That is something which should be in the power of any one of us to do. We should not have to turn to the state for what is, basically, charity, especially if we have spent our whole lives paying into the scheme. I cannot think of any other business or industry into which you would pay and invest and get nothing back. If that was the case, you would be saying that it was bust business and not very impressive.

I strongly support these amendments. I feel that there is a question of human dignity involved here. I conclude my remarks by saying that I am very proud to call the noble Lord, Lord Stoddart of Swindon, a friend; indeed, I would love to call him a noble friend as well.

Lord Bruce of Donington

My Lords, most of us in this House who are members of the Labour Party, of whatever stream we might conceivably belong to, remember quite well the anxiety that was felt at a certain time. We were naturally very pleased that our Government had been returned, but we were under no illusion. Times were going to be difficult before we were able to correct many of the trends that had established themselves in the previous Conservative administration.

We were well aware—even those of us in your Lordships' House—that hard choices would have to be made. I believe that most of us were extremely cautious as to the rate of progress that could be achieved in the years that followed. However, as time has passed—there are many reasons for this, not all of which are disagreeable or disreputable—my party and my colleagues have not made quite as much progress in the direction to which they have normally pointed their political actions. We find that there has been an increasing tendency for hard choices to be made by people who have no power to make any choice at all. The hard choices have to be made by them, yet they have no power. Indeed, there are thousands, nay, millions of them, in the United Kingdom.

Therefore, when my noble friend Lady Castle, with whom I have had the privilege of being associated over many years—way back to 1945—came forward with this proposal to insist that my party honoured the obligations which it willingly undertook I naturally thought that she would pursue the campaign that she has. She has done so with courage, tenacity, eloquence and deep feeling for people who are less fortunate than herself.

I was trained as an accountant. I tried to look at the real nature of the contract originally entered into by the state and by the population in 1974. What was that contract? Subject to certain qualifications, clearly laid down in the Act and explained in Parliament at the time, the contract was that employees generally were to make an insurance contribution, which was fixed. Employees had no particular part in framing the rules; they were there and were accepted. In return, employees were offered a pension on retirement—not means tested—which was upgraded year by year in accordance with earnings rather than with prices. That was the contract.

In my view, an insurance contract is a contract of the utmost good faith. I believe it is called in legal terms uberrimae fidei. At least that was what I was told when I had what smattering of legal education it was my fortune to receive. I naturally expect contracts, particularly contracts of insurance, to be carried out. No upward limit was laid down, nor any minimum limit, but the rules were quite clearly there. I expected that to be carried out and, quite frankly, I expect it to be carried out now because it was a contract entered into in good faith.

I willingly concede that circumstances can occur—some national catastrophe or some unforeseen economic misfortune that is manifestly no fault either of the state or of the population of the country—which mean that some possible revision has to be undertaken in spite of undertakings that have been given. But that is a matter for public debate; that is what Parliament is all about—the Parliament which is progressively being stripped of such powers as it once had. This is where my noble friend has pursued her campaign.

What national catastrophe has occurred to justify the breaking of the insurance contract? My noble friend Lord Haskel must make up his mind: either we are prosperous or we are not. It is my understanding that Her Majesty's present administration say that we are doing well. However, I have reservations about that. But has there been anything to justify the state dishonouring a contract that it entered into with the most vulnerable section of our population, the least articulate section of our population and, unfortunately sometimes, the least educated section of our population? In my view nothing has occurred to justify that.

We must now have even greater regard—especially the day after we made an historic decision with regard to the composition of this place which will have profound effects upon the whole of the constitution of the United Kingdom—to the esteem in which we are held by the other place, the notice that it is prepared to take of what we say, the authority by which we speak, and the regard in which we are held by the public. These are also important considerations.

I have listened carefully to the arguments. I have been present throughout most of the proceedings on this Bill although I have been silent as this is not my normal subject. I pay tribute to my noble friend the Minister for the great care she has taken in presenting the figures. However, with our national record of public expenditure, our record of investment and so on, there can be no possible reason why the Government whom I have the honour to support should not honour the obligations that were freely entered into.

Lord Milverton

My Lords, I have every intention of supporting this amendment, as I did the previous one. I admire the noble Baronesses, Lady Castle and Lady Turner of Camden, and I have always enjoyed listening to the comments of the noble Lord, Lord Bruce of Donington. I express my last few words here before I find new pastures in which to exercise my mind—

Noble Lords

Fight on!

Lord Milverton

My Lords, I shall fight on in the area where I live and do whatever good hereditary Peers can do, by Jove I shall! I support this amendment as I feel that what it seeks is only right and fair. I hope that Her Majesty's Government will not just listen to what is said but will also respond. There are people in this country who still need the support of this Chamber where they do not receive it from the other place down the corridor. I hope that the Government will not just listen to what is said but will also accept the amendment.

5.15 p.m.

Earl Russell

My Lords, I think that it is time to pull together some of the threads of what has been an interesting and excellent debate. I thank the noble Baroness, Lady Castle of Blackburn, for introducing it and for making us all do some thinking. There seem to me to have been valid points made on both sides. On the one hand, the erosion of the basic state pension is becoming serious. When that erosion falls below income support level, it does not result in any substantial saving of public funds. Also, of course, it is creating a fairly considerable level of hardship among a limited number of people, which is why the Government have felt the need to offer the minimum income guarantee, which is known by the somewhat unfriendly acronym of MIG. The trouble with that, of course, is that although I know that the Minister has been deeply concerned for a long time about the level of take-up—I congratulate her on all she has done—there is no foolproof way to guarantee the delivery of income support to those who do not wish to claim it. Therefore there is a real and serious problem.

On the other hand, we on these Benches see a real and serious problem in going all the way down the road of the amendment proposed by the noble Baroness, Lady Castle of Blackburn. We have, among other things, a party conference resolution on this subject in which we abandoned the link with earnings. I have a great deal more respect for party conference resolutions than some people do, and I am proud to belong to a party where I think they deserve respect.

On this occasion I must pay particular attention to it because the movers of that resolution were none other than my noble friend Lord Goodhart and myself. I would find those words distinctly indigestible especially as I still think they were right. The trouble is that for as long as I can remember our earnings have grown faster than GDP. We have in fact paid ourselves more than we earn. The effect of that is that the money comes to be worth less over the progress of time. Were we to commit ourselves to compound that mistake by paying pensions also at a rate growing faster than GDP, again the effect could only be that the money actually received by pensioners becomes worth less, as the noble Lord, Lord Haskel, pointed out. That point is one that I do not think it is safe to ignore. But since, as the Minister has pointed out over and over again in debates on pensions, the poverty is concentrated among a particular number of pensioners without occupational pensions, the proper way to address the issue is through the state second pension. What we on these Benches look for with particular interest is how substantial and how secure and how much backed by the necessary element of compulsion the state second pension will be. As we do not know that yet we reserve judgment and therefore we reserve judgment on this amendment.

Baroness Castle of Blackburn

Can the noble Lord help me before he sits down? The state second pension will come too late to benefit millions of those to whom we refer. It will not be granted retrospectively to people who have missed out.

Earl Russell

My Lords, we accept that point. That is why we are committed to an increase especially for the over 80s, which is where we think the worst poverty is concentrated. We do not think that a blanket restoration of the link with earnings meets that need. That is why we have to tell the noble Baroness with regret that we cannot vote for her amendment.

Baroness Jeger

My Lords, I am 84. How many more 80th birthdays have to occur before this measure is granted? The latest increase has the value of a tuppenny ha'penny stamp.

Earl Russell

My Lords, our policy is that that increase should be implemented now. It is not we who are stopping it.

Lord Higgins

My Lords, I think that the whole House will agree that in the course of debates which we have had on this Bill the noble Baroness, Lady Castle, has made a quite extraordinary series of speeches of remarkable quality and force. We should pay tribute to the points she has made. She has been admirably supported on many of the more technical points by the noble Baroness, Lady Turner.

These are extremely difficult issues. I have always found them somewhat difficult because of two aspects of my personal involvement in politics. For more than 30 years I represented the constituency with the highest number of pensioners in the country. It has long been said that people went to Worthing to die and forgot what they came for—and it is true. Many years ago, when I made my maiden speech in the other place, I spoke about the need to give pensions as of right to those who had been left out of the national insurance contributory scheme, who were known then as the over-80s. The first thing that we did when we came into office—I was a Treasury Minister in the Heath government—was to deal with that particular problem. I notice that the noble Lord, Lord Barnett, is smiling. Against that, one has to recognise one's long-standing involvement with the Treasury, either as a Minister or as Chairman of the Treasury Committee and so on.

The basic task is to deal with the very great, real problems of pensioners. As far as concerns take up of pensions, one knows only too well that even now people are very reluctant to accept income support. One recognises all the problems but, at the same time, it remains a question of priorities.

The noble Baroness, Lady Castle, and the noble Lord, Lord Stoddart, have been very clear as to their priorities; they are set out in the two amendments we are debating. The noble Lord, Lord Stoddart, rightly reminded us that he used to be a Whip. I did not realise what an orator he was until I came to this House after he ceased to be a Whip.

The Government have sought to meet these real problems by introducing the minimum income guarantee. However, the danger here is that more and more there is a move away from the contributory principle in the direction of means testing. The problem with the minimum income guarantee—unlike the state pension—is that it is means tested. Moreover, the particular problem with the scheme that the noble Baroness, Lady Castle, is so anxious to address is that it is a pay-as-you-go and not a funded scheme.

We must look at the problem against the background of priorities. It is now generally recognised that the state pension is inadequate. The new Minister at the Department of Social Security, Mr Rooker, for whom I have great respect, is reported as saying last week to the National Association of Pension Funds that the state pension will leave one in poverty. In the present circumstances, it is necessarily the case that the state pension has to be topped up by a degree of income support.

The Government are now engaged in a large-scale reorganisation of the overall situation and one needs to put this debate in that context. We have debated the proposals in the Bill for a stakeholder pension—which was referred to by the noble Lord, Lord Shore—and the proposals for the second state pension. They are likely to be before the House during the new Session of Parliament. But, as the noble Baroness, Lady Castle, pointed out to noble Lords on the Liberal Democrat Benches in an intervention, it will still not come in soon enough. It is very much a matter for the future.

I do not feel able to support the noble Baroness's amendment, despite the personal and charming way she has asked me to do so. However, we should consider whether there are some areas where we need a degree of amelioration. Inflation is proving to be a real problem, a point made by the noble Baroness, Lady Jeger. Inflation has come down radically—that is to be welcomed—but the implications in arithmetical terms for pension increases cause real difficulties. The proposed pension increase is 73p. Even more importantly, as the noble Baroness pointed out, the supplement for the over 80s is 25p. The pension increases have become derisory and are a cause for grave concern. I know the increase is set against a background of a reduction in inflation—which we all welcome—but once it comes down to such a small amount it can cause real problems.

For the future we should move towards more occupational schemes, more stakeholder schemes, the second pension and so on. In that context, I deplore the fact that the first act of the present Chancellor of the Exchequer was to remove some £4 billion from those in occupational pensions as a result of the ACT tax change. There is a degree of schizophrenia on the Government Benches as far as concerns occupational pensions—witness their proposals with regard to those on disability benefit, on which the House has expressed its view, and the actions of the Chancellor, to which I have referred.

We should do everything we can to move towards a degree of reliance on occupational funded schemes. One must hope that the proposals the Government are to bring forward in that respect are adequate and hopeful for the future. While I cannot support the noble Baroness's amendment, it is right that the Government should give very careful thought to what should be done against the background of the trivial increases we are looking at. I agree very much with the views expressed from the Liberal Democrat Benches about the need to give greater weight to the problems of the over 75s, the over 80s and so on. All the evidence suggests that they have higher costs than those at a lower level.

I turn now to the question of capital limits, which the House debated earlier but on which it arrived at no conclusion. Pensioners who have as little as £3,000 capital will find that their ability to receive income support is eroded. Pensioners who have capital of £7,000 will find that it is eliminated altogether. We should give greater priority to these areas. While fully recognising the passion with which the noble Baroness has spoken, these amendments do not represent the right priority in the present circumstances.

Having said that, against the background which has been outlined by many noble Lords, we should consider whether more cannot be done in the areas that I have mentioned to help pensioners generally. One hopes that in future it will be possible for pensioners to have a more secure existence than they have under a pay-as-you-go scheme which depends on the decisions of Ministers and the Government.

When they stood for election, the Government said that pensioners will share in rising national prosperity. I am not clear about how the Government propose they will do so— unless the Minister is prepared to accept the noble Baroness's amendment.

5.30 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)

My Lords, my noble friend Lady Castle has explained the purpose of Amendment No. 2, which is to allow for uprating contributory benefits each year in line with the growth of prices or earnings, whichever is the greatest. Amendment No. 3 seeks to increase the basic state pension to £75 a week. We have debated these issues both in Committee and on Report. I am not sure whether your Lordships will expect new arguments from the Government at this late stage.

Basically, the Government's belief and position is that these amendments would prove to be very expensive and are badly targeted. They may help pensioners who are better off, but they will do nothing much for the poorest. That is at the core of our objections to these amendments.

The Government believe that it is right to target help on pensioners where it is needed most, which means extra help when is cold, with healthcare and with travel. We are spending an extra £4 billion—money contributed by tax payers, as has been pointed out by the noble Baroness, Lady Park—by the end of this Parliament to heir today's pensioners.

My noble friend Lady Castle asked whether pensioners will share in rising prosperity; a point also raised by the noble Lord, Lord Higgins. The Government stated that pensioners will have a share in rising prosperity. That is exactly what is happening. Let us remember that since 1979, on average, pensioners' incomes have grown faster than those of any other broad group of the population. I am sure that all noble Lords will welcome that. Their incomes have grown by 70 per cent in real terms, compared to an average of 40 per cent for the rest of the population. The proportion of pensioners on means-tested benefit has fallen by almost one-third, from 57 per cent to 40 per cent. However, that growth has been unequal. The incomes of the top 20 to 40 per cent of the pensioner population have grown by over 70 per cent, but those of the bottom 20 per cent of single pensioners have grown by only 28 per cent. We all know that what has happened is that inequality has widened among pensioners. Four-fifths of pensioners have enjoyed a standard of living which has increased faster than that of the rest of the population. I am delighted that that is so. However, the bottom one-fifth has been left behind. The rate of increase in living standards for those pensioners has been only barely half as much as for the rest of us. As the noble Lord, Lord Higgins, made clear in his speech, that is where we have identified that help is most needed.

My honourable friend Mr Rooker was right when he said that we do not expect any pensioner to live on the basic pension alone. We never have expected that. Second pensions, SERPS, in the future the state second pension, occupational and personal pensions have all had the effect, for those pensioners who receive them, of producing a real increase in standards of living nearly twice that of the population as a whole. It is the poorest pensioners on whom we must concentrate our help; namely, those who do not have the resources to support themselves decently and comfortably in retirement.

I ask noble Lords to consider the figures. If we had done as my noble friend asked and increased the basic pension and linked benefits to £75 a week in April 1999, it would have cost over £4 billion gross. However, raising the state pension across the board is not the way to help the poorest pensioners. To restore the earnings link to today's rate of pension would make virtually no difference to the better off and would not be enough for the poorest. But it would cost the country over £1 billion next April, rising to £7.6 billion in 2010. Increasing a £75 pension by linking it to earnings would be even more expensive and would cost £10 billion by 2010.

Those are significant amounts of money, but for the most part that money would go not to the poorest pensioners, who would see it docked off their income support levels, but to those who have generous occupational pensions, savings and the like. That is what my noble friend's amendment would do. It would mean that £10 billion would be spent on pensioners who already have seen a welcome generous increase in their living standards, and whose current living standards are supported and augmented by occupational pensions and savings. However, that £10 billion would do little or nothing for the poorest pensioners—those who have not participated in the improvements in living, standards—because it would be taken off their income support. Is it right to spend £10 billion to help those above the benefit level and to do nothing for those below it?

My noble friend and other noble Lords have referred to the increase of 75p in the basic pension. I hope that noble Lords are not arguing for a return to the days when high inflation meant that there had to be compensating cash increases in the state pension. I have said cash increases, because those were not real increases. They compensated for the increase in the cost of living. In 1991, for example, pensions went up in cash terms by more than £5, but inflation was running at nearly 11 per cent. It may have been a large cash increase, but it gave pensioners no increase in buying power and, because the economy was failing badly, pensioners lost out because high inflation eroded their savings. Low inflation is part and parcel of our aim of ensuring long-term economic stability rather than the boom and bust of the past. It may mean smaller increases in the basic pension, but it also means that pensions and savings better hold their value and it offers much better prospects for sustained capital growth, which means much better prospects for tomorrow's pensioners.

My noble friend Lady Castle suggested that the proposed amendments could be paid for from the surplus in the National Insurance Fund and through taxation. I regret that my noble friend misunderstood the figures I set out in a previous debate on the National Insurance Fund. It did not occur to me that, with my noble friend's huge experience of this area, she would not already know of the sums held in the National Insurance Fund, especially as the amendments she is proposing would have been funded by it. However, we must maintain a significant working balance in the fund to cover forecasting errors—for example, on the numbers in employment who pay contributions—and the risk of disruption in receipt of revenue due to unexpected events.

I believe that the noble Lord, Lord Goodhart, identified that the surplus over and above that working balance would be eliminated in two years if we increased the pension to £75 a week. In addition, the Chancellor will of course already have taken account of this surplus in determining his fiscal stance. It could not be spent without altering that fiscal stance or raising equivalent revenue elsewhere. If we raised pensions now along the lines of my noble friend's amendment, it would mean an annual spending commitment now and every subsequent year into the future, and that would have to be funded.

My noble friend Lady Turner suggested that we would claw back much of that expenditure through the tax system. I regret that I do not think that that would be the case. The Chancellor of the Exchequer's recent changes have lifted 200,000 pensioners out of tax, so that two-thirds of all pensioners—some 7 million people—will pay no tax at all. Only 2.5 million pensioners pay tax at 23 per cent and only 150,000 are higher rate taxpayers. In practice, very little of the enormous cost of these amendments would be clawed back through the tax system. Indeed, I am sure that noble Lords would not want to extend taxation to pensioners in order to claw back expenditure.

The noble Lord, Lord Goodhart, raised several issues, including a point that he quoted from a Written Answer given to his honourable friend Professor Steven Webb. I fear that the noble Lord may have seriously misunderstood the Answer, although that may be the fault of the drafting of the Government's reply, when he said that the state second pension would not be of much help. The £1 or £2 figure that he suggested would be the roll-up figure is in fact the annual figure for each year of credits so that, for example, a carer who had taken on care duties for 30 years would receive a state second pension of £30 or more as an annual figure and not a full figure.

I turn now to the foreign comparisons made by the noble Lord and by my noble friend Lord Stoddart, who said that the UK and the US lagged well behind foreign countries in the contribution the state made to pensions as a percentage of GDP. That is quite true, precisely because in this country—and all credit is due to the previous administration who supported such measures—pensions are largely funded by the private £60 billion occupational pension industry. So far as I am aware, the only other country with a comparable funded pension industry in the private sector is the United States. As a result, in both countries, through the development of partnership, pension poverty has been addressed by the private and the public sectors working together. In most of continental Europe, it has not. That is precisely why those countries are facing a pension funding crisis, as indeed they are.

Baroness Turner of Camden

My Lords, I thank my noble friend for giving way. If it is true, as of course it is, that we have a funded pension system in this country, that relieves the state of the enormous burden of supporting pensioners who are not looked after by the private sector. In those circumstances, surely we can afford to do better by those people.

Baroness Hollis of Heigham

My Lords, these are the figures. Those private occupational pensions, in turn, are heavily supported, and rightly so, by recycled rebates, as my noble friend will know. She will also know that around 60 per cent of personal pensions are funded only by recycled state rebates. So there is a question of whether one is talking about direct state funding or indirect state funding—by not requiring from employers and employees the contribution they would otherwise have made into SERPS. The package has to be seen in its totality. It is a partnership. I know that my noble friend believes in the rightness and propriety of private pensions. But, as a result, compared with most of Europe, we have a £60 billion private pension funded industry, which is therefore meeting the needs that elsewhere in continental Europe—unwisely, in my view—have to be met by the state and taxpayers in a pay-as-you-go system so that such countries are now having to contemplate raising their state pension age beyond ours, cutting back their pension levels and undoing the contract. They are having to contemplate doing that precisely because they do not enjoy the partnership that both we and the United States have had over many years.

We are already giving real help to all of today's pensioners. Winter fuel payments have been increased fivefold to £100 this year and for the first time will be paid before Christmas. We have cut VAT on fuel from 8 per cent to 5 per cent. There are free eye tests, concessionary travel and extra help with energy efficiency. Those are all measures that will have an impact on pensioners' lives. Above all, as the noble Lord, Lord Higgins, rightly said, we are introducing in this Bill the stakeholder pension and in the new Bill that I hope will come through, a state second pension which together will in future lift pensioners out of poverty.

My noble friend Lord Shore referred to stakeholder pensions failing to address the problem of the poorest and the lowest paid. He is absolutely right. But stakeholder pensions are not intended for them. Stakeholder pensions are intended for those earning between £9,000 or £10,000 and £20,000 upwards and can be run alongside personal pensions, occupational pensions and so on, up to Inland Revenue ceilings. The pension designed to help the poorest, which I hope to have the pleasure to bring before your Lordships later this year if the Queen's Speech so determines, will be the state second pension which is the reformed SERPS and is a funded pay-as-you-go scheme. It means that people earning between the lower earnings level of £3,500 and £9,000 will receive a pension as though they were earning £9,000. It is a redistribution to the poorest that was never contemplated in my noble friend's SERPS, under which those who earned the most received the highest pensions. On the contrary, under our proposals there will be a stakeholder pension for those who can afford a funded pension, which is cheap, fair, portable and transparent—in contrast to some of the personal pensions that have been mis-sold over the years—and for the poorest, about whom my noble friend is concerned, a state second pension which will redistribute heavily to the poorest, including women, the low paid and the chronically sick and disabled, who have not been able to build up a generous occupational pension record.

Lord Shore of Stepney

My Lords, I am most grateful to my noble friend for clarifying the situation. The difficulty, as am sure she will recognise, is that that second state pension is not part of the Bill. We have great difficulty in envisaging quite what it contains. In order just to clear up one further point, can my noble friend tell me how many pensioners who are entitled to draw income supplements do not, for whatever reason, do so? That raises the question of human dignity and the natural reluctance of so many people to resort to that procedure.

5.45 p.m.

Baroness Hollis of Heigham

My Lords, that is a very pertinent question. Around 1 million pensioners have incomes below the income support level. Some of those cases, as the noble Lord, Lord Higgins, identified—it is a matter of concern to your Lordships—arise because their capital takes them over that ceiling. We think that between 400,000 and 700,000 pensioners may be entitled under present rules to income support but do not claim. That is precisely why, in answer to previous questions in your Lordships' House when pressed by my noble friends Lord Hughes and Lady Castle, we have been trying to explain how we are ensuring that extra take-up. We are becoming successful at it. We are seeking to do it automatically. Our research shows that between a quarter and a half of all pensioners are not claiming income support but want to claim it within two years. We are making in-roads into that problem. If we do not target, the alternative is to spread the same bundle of money thinly over everyone so that those of us in this House would enjoy a modest increase but the poorest would get very little, if anything at all.

My noble friend Lady Castle referred to pensioners as pauper pariahs. That is simply not the case any more. I want to quote from the research of Professor Robert Walker of Loughborough University which was quoted fairly extensively in The Times on 14th September 1999. As I said at col. 175 of Hansard on 11th October, Professor Walker said that the public misunderstanding of pensioner poverty was an obstacle for the Government in attempting to reform the pensions and benefits system. He stated that times have changed: A generation ago, the stereotype of the poverty-stricken pensioner was grounded in truth. Not so today. Some pensioners are very poor but most are not". Professor Walker added that the Government's political problem is that public opinion, has not caught up with the mass of changes that have occurred". He went on to say: Raising the state pension"— that is what the amendments would do — would make richer pensioners richer and would not help the poorest", because they would just lose out on their other benefits. That is the dilemma facing the House. Your Lordships can support my noble friend's amendment, but what you will do is ensure, as Professor Walker has said, that richer pensioners will become richer while poorer pensioners will not benefit at all.

The noble Lord, Lord Higgins, was right when he said that we have a long-term strategy—the state second pension and stakeholder pensions—to deal with long-term pensioner poverty by floating people off into good and decent occupational pensions. He is also right, as other noble Lords have identified, that in the mean time we have the problem of poorer pensioners. The noble Earl, Lord Russell, is right. They tend to be older, usually widowed or single women, who have not built up an occupational pension. We are seeking to ensure that such people take up automatically—through the postal system or by telephone, without ever having to go into a benefit office—the minimum income guarantee to which they are entitled. However, if you depart from the Government's strategy and go for my noble friend's strategy what you will do—I quote Professor Walker—is make "richer pensioners richer" while doing nothing to help the poorest. I cannot believe that my noble friends behind me would feel that such a policy was consistent with the philosophies by which they have lived their lives. I hope that the House will reject the amendments.

Baroness Castle of Blackburn

There is one fatal flaw in the Minister's argument about cost. As I expected, she pointed, as have others, to the enormous burden there would be—there would have to be increases in contributions and all the rest of it—if either of these two resolutions was put into effect. As the Minister has now admitted, a surplus does exist in the National Insurance Fund over and above the prudent basic level upon which the Government rightly insist.

The Minister fails to recognise two things that are happening. One is that national wealth is on a kind of escalator of affordability in terms of social wealth, simply because it will be financed through earnings-related contributions. In return, the Government are offering price-indexed flat rate pensions. So there will be an increasing surplus. If there is not going to be a surplus, why are the Government proposing to cut the contribution rate?

Baroness Hollis of Heigham

My Lords, the basic problem with my noble friend's argument, as I attempted to say earlier, is that the current surplus of some £5 billion or so over the balances proposed by the Government Actuary would pay for her proposal for two years only. She has failed to take into account the fact that across Europe, including the UK, there is a growth in the number of pensioners, and they are living longer. The ratio of pensioners to workers—particularly as young people now stay longer in education—is worsening across Europe. I agree that the position in the UK is probably better than that of many of our European contemporaries, but it is not good enough. The position will worsen and the National Insurance Fund will have to pay. We know that to be the case: pensioners are living longer; younger people are out of the labour market for longer; therefore, the workers have to support more people. That is why there is long-term pressure on the National Insurance Fund.

Baroness Castle of Blackburn

The Minister has still not answered my question. Why are the Government proposing to cut contribution rates, to provide lower rates, so that there will be a smaller income out of which to meet the needs of the rising generation of old age pensioners?

Baroness Hollis of Heigham

We are not.

Baroness Castle of Blackburn

I am sorry, but a cut in rates is proposed by the Government. It is part of a strategy that the noble Baroness, Lady Turner, and I, and those of my colleagues who have supported our amendments with such excellent speeches, are trying to point out to the House. The Government's strategy is to reduce the role of contributory pensions and increase the role of means-tested benefits, or benefits negotiated through private insurance—

Baroness Turner of Camden

That is right.

Baroness Castle of Blackburn

—and the declining number of those who have a good occupational pension scheme. It is that approach that we are fighting. That is what we face at this crucial stage of the Bill.

The Government have indicated that they will restore the earnings link in the longer term for minimum income guarantee. So we face the prospect of a contributory pension that is shrinking all the time under price indexing, and guaranteed means-tested income will go up under the earnings rule. It is true that the Government have not given a date yet. We are rather used to that. But they have conceded the point that there will not be a guarantee unless the amount is uprated in line with the movement of incomes generally. That is the position that some of us are trying to fight.

I am extremely grateful to all those in the House who have supported what we are trying to do through these amendments. If we fail, this country will move inexorably towards the destruction of state insurance in its entirety. A contributory pension which is worth only 7 per cent of average national earnings can only be a pauper's pension. I repeat the word "pauper". We are talking about the people whom the Minister says the Government want to target. Pauperism is not just about quantity of money. It is about one's stature in society. It is time that those old age pensioners who are too old to benefit from the promised, not yet received, second state pension were acclaimed with the affection and dignity that they deserve, and not told that they are being targeted as "the poorest pensioners". How many of us would like to be labelled "the poorest pensioners", deserving of charity?

If it is money the Government are worried about, the most expensive way of helping anybody is through means-tested benefit. Government figures have shown that it costs £5 a week more per recipient to administer income support than it does to administer the contributory state pension. That is what we are fighting today. We could go on arguing the figures. I challenge many of the Minister's figures. She is a bit of a slippery eel—

Noble Lords


Baroness Castle of Blackburn

Yes, she is. I say it in affectionate admiration. I must say —

Baroness Hollis of Heigham

My Lords, only deference and respect for my noble friend's long experience and great seniority stop me replying in kind.

Baroness Castle of Blackburn

You are very welcome to, if you want to. I do not mind. I am thankful that this debate has come alive, and thankful that this Chamber is at last trying to face up to one of the crucial challenges of this century. Are we deliberately going to move to a divided society in which those who can enjoy a private or occupational pension, and the rest are dependent on means-tested charity? That is something I have always fought, and will continue to fight.

As I listened to the debate, and particularly to the Minister's speech, as regards targeting—"We're hard up, so we can't throw money about; fancy giving money to people who don't need it. What a waste of public funds"—I could not help thinking what our National Health Service would be like if that principle animated it. Do we ask what a patient's income is before offering treatment? They do in America. Yes, there are a lot of things that we admire in America. We are galloping after them as fast as we can. No, we say, "You are a citizen, you are human being, and we must so organise society that you can get some of the basic essentials of a decent life as of right".

The whole world admires our National Health Service, as I am sure do Members on all sides of the House. They do now; they did not like it when it started. Look at the National Health Service and the principles behind it. The targeting of income is not one of them, but targeting of clinical need, yes. Regardless of income, people receive treatment when a problem is discovered. I cannot see the National Health Service surviving very long in its present form if we allow this to happen to the state insurance, the great Beveridge scheme. I should think that he and Lloyd George are turning in their graves.

I want to thank all those who have spoken in support of our amendments. I want to thank noble Lords opposite, who have been courteous in saying nice things about me. Of course I like it; I appreciate it very much. But I should like far fewer compliments and more action. And who is following us into the Division Lobby today? I say advisedly that those who vote the other way will have deliberately chosen the destruction of the whole essence of our post-war society, which, for all its failings, has been the envy of the world.

6 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 52; Not-Contents, 111.

Division No. 2
Aldenham, L. Longford, E.
Ashley of Stoke, L. Masham of Ilton, B.
Bruce of Donington, L. [Teller] Milverton, L.
Cadman, L. Mishcon, L.
Castle of Blackburn, B. Molloy, L.
Clancarty, E. Molyneaux of Killead, L.
Cochrane of Cults, L. Monro of Langholm, L.
Darcy de Knayth, B. Morris, L.
Davidson, V. Murray of Epping Forest, L.
Dunleath, L. Oppenheim-Barnes, B.
Elibank, L. Oxford, Bp.
Gardner of Parkes, B. Park of Monmouth, B.
Glanusk, L. Pearson of Rannoch, L.
Hanworth, V. Rix, L.
Holderness, L. Rogan, L.
Hoyle, L. St. John of Fawsley, L.
Inchyra, L. Sefton of Garston, L.
Jeger, B. Selsdon, L.
Jenkins of Putney, L. Shore of Stepney, L.
Kilbracken, L. Stoddart of Swindon, L. [Teller]
Laird, L. Strathcarron, L.
Lawrence, L. Swinfen, L.
Layton, L. Taylor of Blackburn, L.
Lindsey and Abingdon, E. Turner of Camden, B.
Linklater of Butterstone, B. Walker of Doncaster, L.
Long, V. Wedderburn of Charlton, L.
Acton, L. Bach, L.
Ahmed, L. Barnett, L
Ailesbury, M. Bassam of Brighton, L.
Amos, B. Berkeley, L.
Ampthill, L. Blackstone, B.
Archer of Sandwell, L. Borrie, L.
Bragg, L. Hunt of Kings Heath, L
Brett, L. Islwyn, L.
Brooke of Alverthorpe, L. Jay of Paddington, B. (Lord
Brookman, L. Privy Seal)
Burlison, L. Kennet, L.
Carter, L.[Teller] Kintore, E.
Charteris of Amisfield, L. Kirkhill, L.
Christopher, L. Lea of Crondall, L.
Clinton-Davis, L. Lipsey, L.
Cocks of Hartcliffe, L. Lockwood, B.
Currie of Marylebone, L. Lofthouse of Pontefract, L.
David, B. Londesborough, L.
Davies of Coity, L. Lovell-Davis, L.
Davies of Oldham, L. Macdonald of Tradeston, L.
Desai, L. McIntosh of Haringey, L.
Diamond, L [Teller]
Donoughue, L. McIntosh of Hudnall, B.
Dormand of Easington, L. Mackenzie of Framwellgate, L.
Dubs, L. Marlesford, L.
Dunrossil V. Marsh, L.
Elder, L. Mason of Barnsley, L
Evans of Parkside, L. Merlyn-Rees, L.
Ewing of Kirkford, L. Milner of Leeds, L.
Falconer of Thoroton, L. Monkswell, L.
Farrington of Ribbleton, B. Monson, L.
Faulkner of Worcester, L. Montague of Oxford, L.
Filkin, L. Montrose, D.
Gale, B. Nicol, B.
Northfield, L.
Gilbert, L. Orme, L
Gladwin of Clee, L. Ponsonby of Shulbrede, L.
Goldsmith, L. Prys-Davies, L.
Gordon of Strathblane, L. Puttnam, L.
Goudie, B. Ramsay of Cartvale, B.
Grabiner, L. Reay, L.
Graham of Edmonton, L. Rendell of Babergh, B.
Grantchester, L Sainsbury of Turville, L.
Grenfell, L. Sawyer, L.
Hacking, L. Scotland of Asthal, B.
Hardy of Wath, L. Shepherd, L.
Harmar-Nicholls, L. Simon, V.
Harris of Haringey, L. Smith of Gilmorehill, B
Harrison, L. Strabolgi, L.
Haskel, L. Symons of Vernham Dean, B.
Hayman, B. Taylor of Gryfe, L.
Hilton of Eggardon, B. Warner, L.
Hogg of Cumbernauld, L. Warwick of Undercliffe, B.
Hollis of Heigham, B. Whitty, L.
Howells of St Davids, B. Williams of Elvel, L.
Howie of Troon, L. Williams of Mostyn, L.
Hughes of Woodside, L. Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

6.10 p.m.

Baroness Castle of Blackburn moved Amendment No. 3: After Clause 19, insert the following new clause—