§ 8.46 p.m.
§ Consideration of amendments on Report resumed.
§ Clause 18 [Financial penalties]:
Baroness Hollis of Heigham moved Amendment No. 60:
Page 18, line 15. leave out ("in his absolute discretion").
§ The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendment No. 61. These amendments are minor technical amendments. First, Amendment No. 60 will put beyond any question that we might, by using the words "absolute discretion", intend to create a bar on the exercise of judicial review in connection with the imposition of penalty payments. The amendment, however, 518 maintains the policy intention that discretion will be exercised reasonably, based on the circumstances, in order to determine the amount of the financial penalty.
§ During consideration of the Bill, the noble Earl, Lord Russell, moved an amendment to probe the intention behind the meaning of "absolute discretion" in connection with this clause. There was concern that the intention was to oust the jurisdiction of the courts as regards judicial review. There was never any such intention. We always expect the Secretary of State to act reasonably but I thought that the noble Earl made the better case. Therefore, I am happy to bring forward an amendment to meet the noble Earl's concerns without changing the policy intent.
§ Amendment No. 61 is a minor amendment intended to clarify the drafting of Schedule 3 to the Bill. Currently, paragraph 11(3)(b) of the schedule amends Section 4(9) of the Child Support Act 1991 by adding the words "treated as made" after the word "application". However, the word "application" appears twice in Section 4(9). We are therefore taking the opportunity to clarify our intention and to put beyond a doubt which part of Section 4(9) is to be amended. With that brief explanation, I beg to move.
§ Earl Russell
My Lords, I thank the Minister very warmly indeed for Amendment No. 60. I am extremely glad that she is satisfied about the case, although I must admit that when she sat down at the end of our discussions in Committee, you could have fooled me.
She has discharged her duties like a trooper, as a junior Minister should. She is to be congratulated on spotting the point; on having the clout to persuade other people within the Government of its validity; and on drafting the amendment in such a way that it is a good deal better than my original one. I am absolutely satisfied and I warmly thank the Minister.
On Question, amendment agreed to.
§ Schedule 3 [Amendment of enactments relating to child support]:
Baroness Hollis of Heigham moved Amendment No. 61:
Page 107, line 27, after ("after") insert (""an").
§ On Question, amendment agreed to.
§ Clause 30 [Earnings from which pension derived]:
§ [Amendment No. 62 not moved.]
Lord Astor of Hever moved Amendment No. 63:
Page 26, line 41, leave out ("six") and insert ("eleven").
§ The noble Lord said: My Lords, in moving Amendment No. 63 I shall speak also to Amendment No. 64. We shall not be moving Amendment No. 65.
§ With six children of my own, I feel I can comment objectively on the amendment. Even after children reach the age of six, they can place major demands on a carer. My nine year-old son needs just as much, if not more, care now than he did when he was five. It seems unreasonable that pension rights for those who make a major commitment to their family should suffer as a result.519
§ In Committee the Minister gave the Government's reasons for the requirement that a child should be under six for its carer to qualify for the state second pension carer's credit. I did not find those reasons persuasive. We propose instead that deemed benefit contributions be received by those who look after children up to the age of 11. That is consistent with labour market reality. Many more women work full time when their children are over 10.
§ We are sympathetic to the amendment tabled by the noble Lord, Lord Goodhart, although we prefer the age of 11 to that of 12. I beg to move.
§ Lord Goodhart
My Lords, Amendment No. 64 stands in the name of myself and my noble friend. It is, of course, to exactly the same purpose as Amendment No. 63 which has just been moved by the noble Lord, Lord Astor of Hever. The arguments we would put are exactly the same as those which he put. The only difference between us is that we propose the age of 12 rather than 11. We do that because we believe that for many children the first year of secondary school is a difficult and, in a few cases, a traumatic one, and it is reasonable for mothers to decide that they will stay at home rather than commit themselves to work until the end of the first year of secondary school of their youngest child. Therefore, we suggest that the appropriate age is 12 rather than 11. However, subject to that, we are in agreement with the amendment moved from the Conservative Benches.
§ Baroness Hollis of Heigham
My Lords, I am sorry that I was unable to persuade your Lordships in Committee that the Government's policy was the right one. As your Lordships will know, the Government propose that anyone who earns less than the annual lower earnings limit in a given year who is looking after a child under age six and receiving child benefit will accrue entitlement to state second pension (S2P) in respect of that year. In effect, we are targeting extra help on people looking after children up to early primary school age.
That is because we recognise—as can be seen in the employment patterns of mothers with young children—that carers (usually mothers of children below school age) have the least opportunity to work and earn above the lower earnings limit. That is why we are seeking to help them and to ensure that they have the opportunity to build up a decent pension in older age.
The problem currently under SERPS for people caring for a young child is that for every year that they are not working they get a smaller pension when they come to retire. That is a significant reason for women, who are most often affected by periods of caring for children, getting less from SERPS on average than men.
Our proposals for S2P will help to address that problem. Almost 1.5 million women will benefit. Five years out of work looking after a young child will give someone additional pension of about £5 a week in state second pension. Under SERPS, that same person would have received nothing at all.
520 However, the amendment focuses on whether that guarantee or passport into S2P should apply beyond the age of five up to either 11 or 12. Your Lordships will know that many mothers of school-age children choose to combine their caring duties with part-time work. Many of those parents will benefit from the low earner's boost in the state second pension by earning as little as £3,500 per year. That means that as a result of the minimum wage, someone will only need to work about 18 hours a week to gain access to the boost.
I have done some calculations. If, for example, a mother with a child from five or six upwards was working five hours a day just for term times weeks—which is well within the school day, even for children of the age of six onwards—at a minimum wage she would already be above the LEL and qualify. That means that a person working a fairly low number of hours—five a day, in term time only—at minimum wage will qualify. Anyone who combines a part-time job with child caring, as around 60 to 70 per cent of married women with children over the age of five or six do, will qualify for S2P. I believe that that is a perfectly reasonable position for us to propose.
Obviously, some mothers may choose to stay at home even when their children are older; whether they are 10, 12 or 14. Some may have no choice because of family or other circumstances. If, for example, those circumstances include a disabled child, they might receive ICA. That would give them other qualifications. It is not our intention to punish them for that. Indeed, we are doing a great deal to help stay-at-home mothers, including big increases in child benefit and really big increase in income-related benefit rates for young children, which have gone up by nearly 100 per cent in three-and-a-half years since the Government came to power.
We are also introducing new rights for parental leave. But we have to ensure that mothers have the choice to return to work if they want to, and the majority do. That is why we have introduced the working families' tax credit, the childcare tax credit and the national childcare strategy. As a result, women are coming into work.
Focusing S2P and the HRP credit for it on those caring for children under school age matches the choices most women make. Generally, mothers take career breaks or periods out of work when their children are very young. As most children start school well before they reach age six, mothers will have had time to adjust to the change and look for suitable part-time work if they choose to do so, as most do. They will be able to qualify for S2P by working within the normal hours of a school day. It is a decision about individual choice. Entitlement to state second pension will simply be one more factor to consider.
Obviously, bringing up children is a valuable contribution. Given what I have said, I hope that your Lordships do not think that mothers have to choose between part-time work, if that is what they wish, and bringing up children over the age of five or six and thus disqualifying themselves for state second pension. These are combinable and are combined by most 521 women. However, we are focusing help on those mothers with younger children, below the age of five, where there is not that same access to part-time work, given that the children are still dependent upon them. That is where we believe our priorities should lie. I hope that with that explanation, your Lordships will not feel the need to pursue the amendment tonight.
§ Lord Astor of Hever
My Lords, I thank the Minister for that response. I take on board the points she makes about part-time work. I agree with the noble Lord, Lord Goodhart, that there are times when it is reasonable for a parent to remain at home looking after a child or children up to the age of 11 or 12. They should not be penalised for that. We shall, of course, carefully read Hansard. However, in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ [Amendments Nos. 64 and 65 not moved.]
§ 9 p.m.
Lord Goodhart moved Amendment No. 66:
Page 27, line 9, at end insert—
("(e) the pensioner—
§ The noble Lord said: My Lords, in moving Amendment No. 66 I shall speak also to Amendment 67. Although it is not formally grouped with Amendment No. 66, I believe that it may be convenient if I speak to it at the same time because it covers a good deal of common ground.
§ This is the first in a short series of rather complex amendments on matters concerning pension contributions. Clause 30 of the Bill inserts a new Section 44A into the Social Security Contributions and Benefits Act 1992. Among other things, it gives deemed pension credits for the S2P to people who qualify in four different categories. I regret that my amendment covers only three. I notice that I failed to take up a point made by the Minister in Committee. The four categories are: first, those who qualify as recipients of invalid care allowance; secondly, those with home responsibility for a child under the age of six; thirdly, recipients of long-term incapacity benefit; and, fourthly, recipients of severe disablement allowance. In each of those four cases, the pensioner, or prospective pensioner, gets credit only if he or she falls within that category for the whole of a fiscal year. This creates serious problems for what might be described as the "entry and exit years"; namely, the year in which the right to the benefit begins or ends. I use "benefit" as a shorthand way of including people with home responsibility, who are not receiving benefit as such.522
§ If in the entry or exit years a contributor has sufficient earnings, he or she qualifies for S2P credits on that basis. The level of earnings required, as I understand it, is 52 times the lower earnings limit for each week. That aggregate is described as the "qualifying earnings factor". But there will obviously be many cases, particularly if the change from earner to carer comes early in a fiscal year, in which the contributor will not have reached the qualifying earnings factor before he or she switches from earning to caring.
§ Therefore, as the Bill now stands, many people will lose the year's credit towards the S2P for their entry and exit years because they do not have sufficient earnings in those years to reach the qualifying earnings factor, but have not been receiving the relevant benefit for the whole of that year. I believe that that is unfair. Why should people in those circumstances lose credit? Not only is it unfair, it is also random, because the question of whether a contributor has reached the QEF in any particular year may well depend on whether the switch from earning to caring, or earning to benefits, has happened late or early in that year. Moreover, it is worse than random because it discriminates against the poor. Even though, of course, earnings above the higher earnings limit are disregarded for this purpose, one will reach the QEF much more quickly if one's earnings are at the higher earnings limit than if they are at the lower earnings limit. So, this is irrational; it is random; and it is discriminatory against the poor.
§ The way of curing that problem is obvious: to allow people to mix and match. If someone switches from earnings to benefits half way through the year, surely one should take the earnings for the first half of the year and add on a notional credit for earnings at the lower earnings limit during the period when that person has been in receipt of benefits. That in the great majority of cases would solve that particular problem. Therefore, why not allow mix and match?
§ In Committee, the noble Baroness, Lady Hollis of Heigham, recognised the problem and promised to look at it again. No doubt she has done so, but no government amendment appears in the Marshalled List. Clearly, although she has looked at it again, it has been decided that nothing should be done. I have to say that I find it difficult to believe that the problem is as intractable as that. I await with interest her explanation.
§ The only problem that I can see is that the Contributions Agency, which is now part of the Treasury, will have to talk to the Benefits Agency. The Contributions Agency will know what a contributor's total earnings were in any year. It will have to find out from the Benefits Agency, whether any person was receiving relevant benefits for part of that year. Surely, those are facts which are relatively simple to ascertain. All one has to do is to put the two of them together, and "hey presto", if the aggregate sum reaches the qualifying earnings factor, problem solved. I do not believe that the problem is insoluble. I believe that if there is a will to solve the problem, it could be solved.523
§ I should like to finish by referring briefly to Amendment No. 67. That derives from a matter raised by the noble Baroness, Lady Pitkeathley, both at Second Reading and in Committee. There is a special problem which relates to ICA (invalid care allowance). This can be lost temporarily if a person cared for is in hospital or respite care for more than 28 days in any one period of six months. The pension credit, therefore, in this case may be lost not only in the entry and exit years but in an intermediate year in which the hospital or respite care exceeded the permitted amount.
§ The purpose of the amendment is to allow a carer to continue claiming the pension credit, although not the ICA itself, during the period of hospital or respite care of the person being cared for, for up to three months. This is perhaps a relatively small point, but it is surely a very important one for those who are affected. I believe that the Government would do well also to accept the principle of this amendment. I beg to move.
§ Baroness Pitkeathley
My Lords, in Committee I put my name to an amendment similar to this one in the name of the noble Lord, Lord Goodhart. I have not done so on this occasion because I believe there may be some technical difficulties with the suggestions that he puts forward. However, I want very much to speak in support of the principles which I believe underlie his amendments. I raised these issues about carers' income at Second Reading and in Committee. I must acknowledge the huge progress that has been made for carers in recent years: the Carers (Recognition and Services) Act 1995, the National Carers Strategy, and —if your Lordships will forgive the commercial— the Carers and Disabled Children Bill, which I shall bring before your Lordships' House tomorrow. But, so far as income is concerned, progress for carers and policy thereon have not kept pace.
At Second Reading I asked about a review of carer's benefits. I raised that again with my noble friend last week in a Starred Question. I am particularly concerned at this moment about carer's income because the latest survey published by the Carers National Association—Caring on the Breadline—shows that 77 per cent of carers say that they are worse off as a direct result of their caring responsibilities; one in three have trouble paying for gas and electricity; and one in three have been or are in debt. It is an extremely gloomy picture.
I know that the Government value carers. But on the question of income, carers are beginning to have doubts about that. I am not suggesting that there should be vast influxes of money; like all carers, my requests are modest. But small changes can make big changes in carers' lives; for example, raising the earnings limit for invalid care allowance and the lower earnings limit for national insurance contributions; introducing a taper on invalid care allowance; extending invalid care allowance for eight weeks after the death of the person being cared for. There is a precedent for that, as I pointed out on an earlier occasion, because the carer's premium, which was introduced some years ago, extends for eight weeks 524 beyond the death of the person. Alternatively, the respite care provision could be continued as suggested by the noble Lord, Lord Goodhart, in Amendment No. 67.
I hope that the Minister, who I know is extremely sympathetic to the problems of carers, will take note of these points, either now or at Third Reading. The Government must show some movement in this area if carers are to be reassured that they are valued in the way that everybody agrees they deserve.
§ Baroness Hollis of Heigham
My Lords, we discussed Amendment No. 66 in Committee. As the noble Lord, Lord Goodhart, said, in good faith I took it away to see what I could do.
The intention of the amendment is to allow someone with earnings below the annual lower earnings limit for the year (LEL) to benefit from the lower earner" s boost where they were also entitled to ICA, long-term incapacity benefit or home responsibilities protection (HRP) for part of that year.
During the previous debate I tried to set out the very real difficulties underlying what the amendment sought to achieve. I said that I had then and continue to have sympathy for it. I hoped that if there were an easy solution we would find it. I was more than willing to take it away to see what we could do.
We have examined these matters again. Speaking personally, I have been engaged in two quite long and extensive meetings with officials. I am still unable to see a way through the difficulties, as I shall explain. But perhaps for those who were not present at the time, I can say what the nature of the problem is.
As is the case for SERFS, entitlement to S2P (state second pension) will be calculated on an annual basis on a person's surplus earnings; that is to say, the amount by which someone's earnings exceed the annual lower earnings limit of £3,500. That means that we need to look at someone's earnings over the whole of the tax year in question. That is consistent with the annual returns made by employers on each employee's earnings in the preceding year.
This means that someone who has earnings between the annual LEL and the low earnings threshold for the year in question will benefit from the state second pension low earner's boost. And someone who has been entitled to ICA or long-term IB throughout the year will be credited into the state second pension.
The noble Lord, Lord Goodhart, supported by my noble friend Lady Pitkeathley, was seeking to see whether we could mix and match benefits and earnings for the entry and exit years. The difficulty is the consequential anomalies that would result. We have found ways around some of the problems, but there are others we are unable to resolve.
We have proposed that it will be necessary to meet the qualifying criteria for the whole of a year—that was the original intent—because it would not be operationally feasible for either employers or the department to move to a system which calculated entitlement not on a yearly basis, but on a weekly 525 basis, given that all earnings details are provided on an annual basis by employers and are recorded as such by the department.
Having looked carefully at that issue to see whether we could find a workable solution, we established that it would be operationally possible to combine earnings for weeks in which someone earns over the lower earnings limit (£67 a week) with credits for ICA and long-term IB recipients, treating the credits as if they were equivalent to earnings at the level of the weekly LEL. So far so good. Technically we could do that.
The problem arises—it may be that I did not explain this fully enough at the time, but I have been round this time and again and cannot see a way forward—when we try to read across to home responsibilities protection for basic pension purposes. HRP will be of much greater benefit to such carers under our proposals for state second pension, and we intend many more to be aware of it. But as HRP is only available for whole years of caring activity, we cannot unpick and revise that legislation to allow for part years. Any measure therefore which benefited only certain carers would not only be morally difficult to justify, but would also leave us open to future ECHR challenges.
Perhaps I can remind your Lordships that ICA goes to those who are caring for more than 35 hours a week and earning less than £50 a week and therefore are likely to be either in a household where no one is in receipt of benefit or, alternatively, are likely to be in work. As the noble Lord said, it is not beyond our wit to do a mix and match for entry and exit where people are above the LEL for the other part of the year. Our problem lies with home responsibilities protection: HRP goes to two other major groups. It goes to the carers of elderly or disabled people who qualify for ICA but do not receive it; for example, those who are on income support with the carer premium, the poorest carers, or those who, although they are entitled to ICA, also get another, higher benefit, such as widows' benefit or IB, who are often the most frail carers. So those who most need the protection are those who are most likely to be protected by HRP, rather than getting ICA.
Given the way that all the records are built up, we cannot possibly "part-year" home responsibilities payments for carers. Even if we could, we would have to consider what to do about the people receiving HRP because they are caring for children under five. The cost of extending these exit and entry years would be extremely high—about £200 million per year. In addition, we must also consider the implication of extending that to a group far wider than that envisaged by the noble Lord.
Our problem is that wherever the line is drawn, greater anomalies are created than if that line was not drawn at all. That is our dilemma. We can solve it for those on ICA. However, we cannot have equitable treatment of those carers of older people who are receiving HRP without at the same extending it to other groups, who I am sure are not envisaged by the 526 noble Lord as requiring entitlement, such as those who get HRP through caring for children. For HRP, that is built up on an annual basis.
I am very sorry about this. I very much wanted to see whether we could deliver a mix and match. I recognise the arguments and I have every sympathy with them. However, I now honestly believe that we cannot do it without producing more anomalies than we solve. I am afraid that the read-across consequences of doing something which here looks decent, right and proper, but which in turn generates other unfairness and injustice in the system, is a recurrent problem in social security. It is for that reason that, although I took away the provision in good faith, I have not been able to come back with something that will meet the concerns of the noble Lord tonight. With that explanation, I hope that the noble Lord will accept my arguments.
The noble Lord also referred to Amendment No. 67. It may be helpful if I remind your Lordships about the interaction of ICA rules regarding periods spent in hospital and residential care, including respite breaks. During any six-month period, ICA can still be paid for four weeks when there is a break in the caring. In addition, it remains payable for a total of eight weeks in a six-month period if either the carer or the disabled person is in hospital. The total of 12 weeks can all be taken as a hospital in-patient if no respite breaks are taken. If the carer is in hospital, the eight weeks could cover one period. However, if the disabled person is in hospital, the length of time for which ICA is payable depends on the disabled person's DLA or AA still being paid.
The DLA and AA rules for periods in hospital have recently been changed to extend entitlement to DLA and AA to include the day of discharge from hospital and the day of admission to hospital, which means that there will be fewer cases where there is a break in entitlement. Similarly, the carer of a disabled person—it might be a severely disabled child in a weekly residential school—who is in publicly funded care all week, but who returns home on Saturdays and Sundays, could now become entitled to ICA for the whole week. Because of the discharge rules of DLA and AA, that would not previously have been possible; it is now possible. There has been some decent movement on that front, where, particularly for parents with disabled children or someone in weekly residential care, the entry and exit days do not jeopardise their entitlement to ICA. I think that the rules are quite generous.
This amendment would introduce a set of different rules in S2P for periods spent in hospital or residential care for respite breaks to those receiving ICA, which we think would be administratively cumbersome. A carer whose ICA had ceased during such a period would be treated as though they were still entitled to ICA for up to three months at a time, which is quite a long period in which to have a roll-over of entitlement. It could be repeated several times during the year. Therefore, although the majority of the year could be spent not caring, that year would still provide a year's entitlement towards S2P.
527 In addition, it is worth noting that this proposal would break the essential link between DLA and AA and its carry on entitlement to ICA and, therefore, the link between ICA and caring for a severely disabled person.
With regard to Amendment No. 67, I hope that the noble Lord will agree that the Government have gone quite a long way to meet some of the very real concerns. I hope that he will recognise, however, that we cannot do what he is now asking us to do, which would not only be cumbersome but probably unfair. In the light of my explanations and my regret that we cannot move on Amendment No. 66, I hope that the noble Lord will withdraw his amendments.
§ 9.15 p.m.
§ Lord Goodhart
My Lords, I am most grateful to the Minister for the obvious effort that she has put into seeking a way round what are undoubtedly real administrative difficulties in this matter. I very much regret that it has not been possible to find a way round these difficulties, because I think that this is a cause of real unfairness and injustice.
I accept that it would, of course, cause anomalies to extend the measure to cases in which it could be done, such as ICA, while not extending it to HRP. At the same time, however, I want to say two things about that. First, the anomaly is no greater than the existing anomaly where someone who starts drawing ICA on 31st March will then get credits starting from the following 6th April, whereas someone who starts drawing ICA on 12th April will have to wait nearly a whole year to be able to get the credit. That seems to me to be at least as serious an anomaly as the other one.
I also think that this is perhaps a case where the following principle applies: thou shalt not do a just thing today for fear of having to do a juster thing tomorrow. Were the Government to at least extend it where it could be done with relative administrative ease, they might find themselves more motivated to come forward with a solution for the more serious difficulties surrounding HRP.
Nevertheless, I feel that this is a highly technical issue. Without the administrative backing that the noble Baroness enjoys, I am reluctant to insist that this problem that can be overcome. In those circumstances, it would frankly be wrong for me to do anything other than beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
§ [Amendment No. 67 not moved.]
Lord Higgins moved Amendment No. 68:
Page 27, line 14, after ("1") insert ("and Class 2").
§ The noble Lord said: My Lords, the House is most fortunate in having a Minister who is able to explain the kind of technicalities that we have just debated. Indeed, if I may presume to say so, she gave quite a remarkable exposition. However, I fear that the matter now before us is probably equally complicated. I recall 528 that I used to give instructions to parliamentary draftsmen a long time ago on how to draft a particular passage of legislation. A month or two later, when the matter reached Committee stage, I would perhaps experience some difficulty in recognising what was before me because there seemed to be no resemblance whatever between what I had asked them to do and what appeared on the face of the Bill. The drafting of this clause is somewhat unusual. I hope that the Minister will be able to clarify one or two points in that respect.
§ The whole clause is drafted in relation to Section 22 of the Social Security Contributions and Benefits Act 1992, but it relates to the state second pension, which is entirely new. Can the Minister say whether this section has repercussions on other pensions legislation apart from the state second pension? If it does not, can she tell us why it is set out by reference to the 1992 Act, when the state second pension could perfectly well have been self-contained? It is always most unfortunate to approach these matters by reference to previous legislation, because the subject matter is not then self-contained.
Having said that, it seems to me that we have a strange two-tier system of drafting before us. Under subsection (3) of Clause 30, a new Section 44A (Deemed earnings factors) is to be inserted into the 1992 Act. My amendment relates to new subsection (2)(d), as set out at the bottom of page 26 of the Bill. But, instead of going on to deal with all the other points relating to that subsection, the legislation goes on under new subsection (3) to define the,
requirement referred to in subsection (2)(d)".
Thereafter, new subsection (4) says that,
the purposes of subsection (3)—
the part I just quoted—are something else. I am not clear why those three provisions are not included in the same subsection. There are three descending tiers in the drafting. That makes it extraordinarily difficult to follow.
§ I believe that the proposal includes the provision for a state second pension; I am not sure whether it also affects other pensions—so that when determining their deemed earnings factors one should not only take account of primary Class 1 contributions but also Class 2 contributions.
§ If I understand the Bill correctly, it proposes to strip from those who undertake employment and self-employment in the same year the ability to count their income for both Class 1 and Class 2 contributions towards their pension. I understand that such art arrangement for both classes is possible under the existing legislation. Are we now adopting a more stringent process as far as those people are concerned? If I have understood the drafting correctly, this applies only to people who are on incapacity benefit payable throughout the year. This measure, unamended, would adversely affect the pension prospects of those who switch between low paid employment and self-employment—a group whose numbers may well increase as a result of rapid economic and technological change. I believe that the group is 529 comparatively small but those who are self-employed are likely to have a small pension and to that extent they are more vulnerable.
§ Having said that, I hope that the Minister will accept that for those on incapacity benefit who meet all the requirements that I have just set out, the fact that Class 1 contributions are taken into account is insufficient. They should at least be allowed to have Class 2 contributions taken into account in calculating their entitlement to the state second pension and, also, perhaps, to other pensions. I beg to move.
§ Baroness Hollis of Heigham
My Lords, I am in some difficulty in answering some of the noble Lord's questions. Our understanding of the amendment did not encompass some of the issues that he raised in his speech. I am sure that the noble Lord did not do that on purpose. However, I am anxious not to "wing" my words as people, and pension fund personnel, need to be given precise forms of wording to assess the Government's intention in this regard. I shall answer those questions that I can and respond more fully in writing to those questions which do not appear to bear much relationship to the amendment as we understand it. None the less they are perfectly legitimate questions to raise. I do not blame the noble Lord for asking those questions but he cannot blame me for not necessarily having the answers ready to hand.
Amendment No. 68 would enable periods of self-employment to count towards the 10 per cent work requirement for long-term disabled people. As the noble Lord recognised, this raises the wider questions of pensions for self-employed people. It is in that context that I shall respond to the amendment.
Our proposals for the state second pension will do a great deal for disabled people with broken work records—indeed it brings them into additional pension provision for the first time. Of course, one can always go further, but I believe that we have—in that favourite phrase—struck the right balance: providing extra help where it is most needed; maintaining incentives to work and save; and protecting those who cannot work for periods. We are doing this within proper and prudent public expenditure limits.
We recognise that the nature of self-employment is changing and that there are real questions about how best to ensure that the self-employed are encouraged to save for their retirement, and protected where they cannot. There are wide-ranging issues which need to be explored, for example, the question of how including the self-employed in additional state pension provision would be funded. When we raised somewhat similar questions at Committee and Second Reading I was anxious to air with noble Lords the dilemma that while we were urged on the one hand to bring people within either compulsory stakeholder schemes or state second pension schemes there was a real problem with self-employed people who might regard their business as their pension. Any requirement to contribute to schemes, or any levying of national insurance for that purpose, might be regarded as a levy on their cash flow and on their ability to maintain the business. There are 530 real dilemmas about what is the best public policy for self-employed people who may be working on very narrow profit margins, at least when they start.
Whether self-employed people should eventually be brought into the state second pension was part of the consultation exercise on the pensions Green Paper. There were a wide range of responses and we are still considering the outcome. We are talking to pension providers on the one hand—because it obviously has implications for stakeholders—and with Treasury officials on the other. It would be wrong and premature to accept an amendment on the question of the state second pension for self-employed at this moment. We shall certainly return to the issue—the noble Lord is right to draw it to our attention in that respect; it will not go away—but whether we have yet got the right answer I am not sure.
One of the questions raised by the noble Lord concerned the legal drafting. We are reforming SERPS through the introduction of the state second pension; in legislative terms it is still additional pension but the amount of entitlement is calculated in a different way. Therefore there are no repercussions for any other benefit.
Perhaps I may write to the noble Lord on some of his other questions.
§ 9.30 p.m.
§ Lord Higgins
My Lords, in that case, why was it not self-contained? Why is it all done by reference to the 1992 Act? If it is concerned only with the state second pension, why is it done by reference? It may have repercussions if it is done that way.
§ Baroness Hollis of Heigham
My Lords, I cannot help the noble Lord on that question. I do not know why it was drafted in that particular form. If I were the noble Lord, Lord Ashley, I would know the answer by now. I shall have to write to the noble Lord. I apologise. I simply have not had any guidance as to why parliamentary counsel drafted the Bill in this particular form. Obviously I shall seek advice. If the answers I give to the noble Lord are unsatisfactory, he must come hack to me and I shall make sure that he gets the fullest possible answer.
§ Baroness Hollis of Heigham
My Lords, it was the one I had already given. We are reforming SERPS legislation; this is why it takes the shape it does. If the noble Lord is less than fully satisfied by that answer, I shall make sure that he gets a fuller one.
§ Lord Higgins
My Lords, I am most grateful. I look forward to that. If I understand the noble Baroness correctly, now she is saying that this affects not only the state second pension—although that is the heading—but has repercussions for SERPS as well, which is not the heading. We obviously need to go into 531 the matter further. I shall be grateful if the Minister will write to me with an explanation. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
§ Schedule 4 [Additional pension]:
Lord Goodhart moved Amendment No. 69:
Page 112, line 14, at end insert—
- (".—(1)This paragraph applies if a pensioner attains pensionable age after the end of the first appointed year and the pensioner's earnings factor (as revalued under section 148 of the Administration Act) in respect of any relevant year before the first appointed year is an amount equal to or greater than the qualifying earnings factor but less than the lower earnings threshold at the date when he attained pensionable age.
- (2) The additional pension payable to a pensioner in respect of any relevant year before the first appointed year in which his earnings factor (as revalued) was equal to or greater than the qualifying earnings factor but less than the lower earnings threshold at the date when he attained pensionable age shall (subject to sub-paragraph (3) below) be calculated as if his earnings factor (as revalued) for that year had been equal to the lower earnings threshold at that date.
- (3) The number of years to which sub-paragraph (2) above applies shall not exceed the number of complete years between the beginning of the first appointed year and the date on which the pensioner attained pensionable age.
- (4) If the number of years to which sub-paragraph (2) above applies is less than the number of years to which it would have applied but for sub-paragraph (3) above, it shall be treated as applying to those years in which its application is most favourable to the pensioner.").
§ The noble Lord said: My Lords, the amendment is a revised and, I hope, somewhat improved version of an amendment moved at Committee stage. The S2P is an ingenious and interesting idea which has a certain number of defects. One of them is the slow rate of build-up to the full benefits to be provided. If nothing is done to speed it up, we know that it is something which can take up to 40 years—someone's full working lifetime.
The Minister said at Committee stage on 15th May that many of the lower paid,
can expect to see a significant boost to their pensions within 20 years or so".—[Official Report, 15/5/00; col. 86.]
§ The implication is that there will not be a significant boost until about 20 years from now. That seems too slow.
§ The effect of the amendment would be to speed up the benefits. The way in which it would do so is perhaps a little complicated. It would allow any past year in which the benefits derived from SERPS are less than they would have been had S2P then been in operation to be upgraded to the S2P level. That will apply to years in which the earnings of the pensioner, after taking into account the uprating in line with earnings factors, were lower than £9,500.
§ In order to prevent a large boost in government spending on pensions, we have suggested that this should be done only a year at a time; only one year of SERPS can be exchanged for the higher level provided by S2P for each year after the Bill comes into effect in which a contributor has income at or above the level of the qualifying earnings factor. That means that the 532 burden will be increased only gradually, but at rather less of a snail's pace than will be the case with S2P as it is now proposed.
§ The previous version of the amendment involved the exercise of an option by the pensioner and, of course, a corresponding need to inform the pensioner of his or her right to exercise that option. That complication was rightly criticised by the noble Baroness. The new version tabled here operates automatically, without any need to get in touch with the pensioner to ask whether he or she wishes to exercise the option.
§ Almost all of the benefit will go to those who are on relatively low earnings. As I explained previously, there is no point in exchanging SERPS for S2P for anyone whose earnings before downrating would have been more than £9,500. It will be of benefit only to someone whose earnings are below that level. That could be of some benefit to those who begin their careers on low pay but subsequently prosper. However, most of the benefit will pass on, proportionately, to those with a lifetime of low earnings.
§ In our view, this will speed up the conversion of SERPS into S2P. It will provide enhanced levels of pension benefit for some of those who have, in the past, been entitled to only very low levels of SERFS. It will do so at a relatively gradual rate, but even so, it will enable S2P to become effective more rapidly than has been proposed by the Government. I beg to move.
§ Baroness Hollis of Heigham
My Lords, Amendment No. 69 is similar to one we discussed in Committee. It seeks to boost the amount of additional pension which someone with low earnings would receive from their years of SERFS entitlement while S2P is building up to maturity.
The amendment would allow someone who had low earnings while in SERPS to have their SERPS calculated when they reach pensionable age as if those earnings, when revalued, were at the level of the lower earnings threshold. I am glad to see a comforting shake of the head to acknowledge that the amendment has been understood. That is not always the case!
The number of SERPS years which could be enhanced in this way would be restricted to the number of years between the introduction of S2P and the reaching of pensionable age. This would give a retrospective boost for certain people for years before the introduction of S2P, based on the number of years' entitlement after its introduction.
Perhaps I may remind noble Lords of what we are trying to achieve with S2P. We are reforming SERFS to refocus state help on those who have the least opportunity to build up good second pensions. SERPS has served many pensioners well, but because it is earnings related those who earn the least gain the least from it.
Under SERPS, someone who earns just above the lower earnings limit for the whole of their working life will still retire on a state pension below the minimum income guarantee. And that is before the 1986 and 1995 changes to SERPS have their full effect. But 533 under our proposals, anyone retiring with a full working life of employment behind them, or periods of caring or disability, from 2038, when the state second pension has built up, will receive a total of basic and additional pension above the MIG.
We recognise that the benefits in S2Ps take time to build up. Pensions, by their very nature, are a long-term issue. I am sure that the noble Lord will have read the financial pages which state, "If you don't start building your pension at 23, 25 or 27 you will not have a decent one at 65 and you cannot come into a pension scheme at 50 and have anything much worth having".
§ Lord Goodhart
My Lords, I am grateful to the noble Baroness for giving way. That is true and those advertisements relate to funded pensions. However, as regards pay-as-you-go pensions, the level of pension is determined by what the Government think fit to charge by way of contributions or provide out of general taxation. There is no structural reason why it should build up gradually.
§ Baroness Hollis of Heigham
Except, my Lords, that current taxpayers have to fund at an additional cost the pensions of a previous generation which has not in turn funded other people to the same extent. That is the definition of a pay-as-you-go scheme. It is paid for in a different way. As regards a state second pension, there is not the advantage of an employer's contribution, which is available in occupational pensions or in some cases—I hope in money purchase pensions—of contributions along with the recycled rebates and the person's own contributions.
§ Baroness Hollis of Heigham
My Lords, I am talking about the difference between funded schemes, which involve the employer's and employee's contribution together with rebates, as opposed to pay-as-you-go schemes, which still have to be funded but by current taxpayers and national insurance contributors for a generation which is already coming towards retirement—
§ Baroness Turner of Camden
My Lords, does the Minister agree that all pension provision constitutes a contract between generations, no matter whether it is funded or pay-as-you-go? If it is funded, it comes from the overall economy, which is produced by the present generation in order to support the older generation. There is a contract between the generations, whether pensions are funded or pay-as-you-go.
§ Baroness Hollis of Heigham
My Lords, I, too, believe that pensions are a contract between 534 generations, but I believe there is a deep difference between funded and unfunded schemes. I do not believe that my noble friend's formulation will overcome that. A funded scheme is a personal savings pot into which a person has put money, the employer has made a contribution, and there are recycled rebates and so forth which will grow. As regards pay-as-you-go schemes, whenever you make a pension scheme more generous, those who enjoy it are not the same people as those who have paid for it. The people are currently paying for it at a different rate from the previous generation. That is why, as my noble friend will know, many European countries, such as Italy, France and Germany, where there is a real desire to switch over to funded schemes, cannot do so because one generation will have to pay twice over; for their own scheme and for the generation which has gone ahead.
While I do not disagree in general terms that pensions are a contract between generations, I believe that that conceals the real difference between the method of funding and the nature of that obligation between generations as regards funded and pay-as-you-go schemes.
§ Baroness Hollis of Heigham
My Lords, it is the Report stage; it is not the Committee stage. I shall of course give way to my noble friend, but I suggest that we then return to Report mode.
§ Baroness Castle of Blackburn
Thank you. I wanted to ask my noble friend a question. If the sin of pay-as-you-go schemes is that those who enjoy them are not those who paid for them, is that not the essence of a means-tested benefit such as minimum income guarantee?
§ Baroness Hollis of Heigham
My Lords, I do not quite understand the purport of my noble friend's question.
§ Baroness Castle of Blackburn
Perhaps I may explain it. A person who pays for his pension as of right—the basic state pension—is told that he cannot be given anything, but if he falls within the minimum income guarantee, whether or not he has been among the main savers for his old age, the amount will be made up to £78. The individual will receive that amount whether or not he has paid for it.
§ 9.45 p.m.
§ Baroness Hollis of Heigham
My Lords, as my noble friend knows very well, the policy behind the minimum income guarantee seeks to address the poverty of those pensioners—mainly older women, including widows—who, by virtue of their domestic and caring responsibilities, have not been able to enter into either a SERPS or occupational pension while in the labour market. They have not had the advantage, which future generations of women in that situation will 535 enjoy, of entitlement to the state second pension to float most of them off MIG in future. I hope that my noble friend accepts that description.
Pensions by their very nature are a long-term issue. We have introduced MIG to give extra help to those of today's pensioners who have been unable to save. The need for this extra help will be progressively reduced as the benefits under S2P start to accrue. Many of the lower paid will see a boost to their pensions within 20 years or so. For example, someone who retires in 2025 with earnings of just £6,500 for a full working life will be lifted above MIG by receiving £18 a week more than he would have received under SERPS. The position of couples under S2P is even better, because MIG for a couple is not twice what it is for a single person.
As I said when we debated this matter previously, without our pension reforms one in three pensioner householders would have to rely on MIG by 2050. Our reforms will reduce that proportion to one in five. We shall lift over 2 million pensioners off MIG as a result of our changes. That is our response to an inherited situation whereby a wide range of people—low earners, carers and disabled people—have no hope of a decent income in retirement. Stakeholder pensions and S2P will help people to build up good second pensions in their own right. The MIG provides help to today's pensioners, and will do the same for those currently approaching pensionable age who do not have time on their side to build up an entitlement to S2P. We believe that that balance is right.
Under Amendment No. 69 some low earners would have their SERFS entitlement boosted. I understand the thinking behind the amendment. It recognises that low earners are a group who have benefited least from SERPS and therefore seek to do a swap, as it were, between entitlements. But I do not believe that the way to address the problem is to tinker with entitlement which has already accrued in a way which is partial and unfair. For example, the amendment would not benefit those other groups which S2P is designed to help—carers and long-term disabled people—who have not accrued entitlement under SERPS. It would be unfair to existing pensioners who would be unable to benefit. People with the same earnings in the same year would have the SERPS entitlement calculated in entirely different ways. There would be little gain in the short term because those reaching pensionable age soon after the introduction of S2P would have only a few SERPS years enhanced. Even with that boost, many low earners under SERFS would not have a pension sufficient to keep them above MIG.
The fact is that SERPS is such a poor deal for those on low earnings—which is why we are reforming it— that even this boost would give limited advantage to only a few. That is why in S2P not only do we treat low earners as if they had earnings of £9,500—even if their earnings were £3,500, £6,000 or £7,000 they would get a pension on the basis of earnings of £9,500—but, unlike the noble Lord's amendment, we double the accrual rate on those earnings from 20 per cent in SERPS to 40 per cent in S2P. It is the combined effect of those two measures—the assumption of earnings of £9,500 and the doubling of the accrual rate—which 536 gives low earners in S2P a pension which is sufficient both to take them above MIG when they reach pensionable age and to keep them there for a significant number of years.
The noble Lord's amendment does not increase SERPS entitlement to the level of S2P because it delivers the low earners boost only up to the level of £9,500 and does not tackle the issue of the double accrual rate. Further, his amendment would make the calculation of additional pension entitlement very much more complicated. The noble Lord will say that it is not beyond the wit of man to devise a way round it. None the less, any form of retrospection for one group alone—which is what the amendment would do—is not fair to others, and we believe that the operational complexities are mind-boggling. That is why we are directing resources instead through MIG where there is immediate need and introducing S2P to address longer-term need. I hope noble Lords will agree with me in that approach and that as a result the noble Lord, Lord Goodhart, will feel able to withdraw the amendment.
§ Earl Russell
My Lords, before the Minister sits down, perhaps I may, for the purposes of elucidation and clarification, draw the noble Baroness's attention to the wording in the Companion to the Standing Orders about interventions.
There is no separate rule for interventions on Report. The rule that lengthy or frequent intervention is undesirable is common to all stages of our proceedings. The only thing restricted on Report is speaking after the Minister has sat down, which is to be confined to brief questions for purposes of elucidation. I hope that that may be of some assistance to the Minister and to the House.
§ Baroness Hollis of Heigham
My Lords, I take that point. None the less it is at Committee stage that we explore, discuss and debate in the sense of to-ing and fro-ing. Under the conventions of the House that is not what we do on Report.
While I am happy to try to answer any point that arises, to engage in a lengthy debate in the course of a speech is, from my experience of the House, not Report but Committee procedure. Although taking interjections and interventions in the usual spirit of the House, I do not think that that is the same as introducing a format of debate into the process of Report stage. Such to-ing and fro-ing debate is Committee style, as I am sure the noble Earl, Lord Russell, knows and practises.
§ Lord Goodhart
My Lords, I was pleased that I had managed to draft the amendment in a style comprehensible to the experts on the subject.
We have had an interesting debate. I recognise that the proposal would add a fair amount of complexity to what is already a very complex piece of legislation. Taking that into account, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart moved Amendment No. 70:
After Clause 32, insert the following new clause—
§ ("AGE ADDITION
§ AGE ADDITION
§ For section 79 of the Social Security Contributions and Benefits Act 1992 there shall be substituted—
§ "Age addition.
- 79.—(1) A person who is above the age of 75 and who is entitled to a retirement pension of any category shall be entitled to an increase of the pension to be known as the "age addition".
- (2) A person who is in receipt of a pension or allowance payable by the Secretary of State by virtue of any enactment or instrument (whether passed or made before or after this Act is passed), and who—
- (a) is above the age of 75, and
- (b) fulfils such other conditions as may be prescribed,
- (3) A person who is above the age of 80 and is in receipt of age addition shall be entitled to an increase in the age addition, to be known as the "further age addition".
- (4) Age addition and further age addition shall be payable for the life of the person entitled, at weekly rates to be determined by the Secretary of State in regulations."").
§ The noble Lord said: My Lords, this amendment is what I might describe as our flagship amendment. It is less technical and covers a broader field than Amendments Nos. 66, 67 and 69. Its purpose is to increase the basic state pension for those over 75, with a further increase for those over 80.
§ The amounts of the further age addition are not specified in the amendment because they need to be varied year by year. My party will announce our own proposals regarding those amounts when our policy paper on ageing—it includes our policy on pensions—is published later this summer.
§ We believe that these increases should be targeted on elderly pensioners. The elderly have more needs. They need more heating. They need more warmer clothes. They may have to buy more expensive food in local shops because they are unable to travel to supermarkets and return with a heavy load of shopping.
§ Many present pensioners over the age of 75 do not have occupational pensions as good as those of younger pensioners. Moreover, occupational pensions are always likely to mean that younger pensioners will be better off than older pensioners, particularly in cases where the pensions are based on final salaries and those salaries have increased as a result of the general increase in earnings.
§ We recognise that there are demographic reasons which make it excessively expensive to go back to restoring the earnings link for all state pensions. But an increase in pensions for those aged 75, and 80 or more, would be much cheaper and would benefit directly those who suffered most from the absence of the earnings link.
§ The noble Baroness has said that the best way of helping the poorest pensioners is through the minimum income guarantee. She said in Committee, and will no doubt say again, that the income 538 differences within age cohorts are much greater than the differences between them. That is obviously true, and I have never sought to deny it. That argument strongly favours a minimum income guarantee. But its logical conclusion is that the state pension should be abolished as a universal benefit for all contributors and the money should be diverted into a still higher MIG.
§ The real question is: what is the right balance between flat-rate universal pension benefits and income-related pension benefits? We believe that the Government have gone too far—or certainly, if matters continue, will soon have gone too far—in the direction of income-related pensions.
§ It is a fact that workers have been led to believe, and many no doubt still believe, that the national insurance contributions they pay will be used to pay for their own pensions. That, of course, is not true. Current workers are paying for their parents' pensions and, in due course, it is their children who will pay for their pensions. But whether or not that is the case, they believe—I think rightly—that contributions that they have paid give them a right to be treated fairly: that there is the inter-generational obligation of which the noble Baroness, Lady Turner of Camden, spoke in the previous debate.
§ If pensioners who are not entitled to MIG see the MIG climbing more and more above the basic pension that they themselves are receiving, they will feel cheated out of what they have earned from their own contributions, and will rebel. No government will get support for MIG if pensioners just above the MIG level feel that they are being treated unfairly. That is what the Government need to realise.
§ With hindsight, it might have been better to have a system in which pensions were paid for out of taxes and the National Health Service was paid for out of national insurance contributions. Indeed, it probably would have been better. But of course, it is far too late to think of that; it would be impossible to reach that position now.
§ I believe that our proposal for a general increase for older pensioners will be seen as a fair alternative to full index-linking. But if nothing is done, pensioner anger, shown in the reaction to last year's 75p increase will grow, and grow further.
§ There is another factor. The state second pension will be earnings-linked up to state pension age, but RPI-linked thereafter for any particular pensioner. The state second pension will be flat-rate—partially so at stage 1 and wholly so at stage 2, when it will be based for everyone on a notional income of £9,500 or whatever is the uprated equivalent. It is an inevitable consequence, assuming that earnings continue to rise faster than prices, that S2P will always be smaller for older pensioners than for younger ones, unlike the basic pension, which is the same for everyone and indeed has been increased by the immensely generous sum of 25p a week for those over 80. The effect of that will be that it will also force many pensioners into reliance on the minimum income guarantee late in their life, after they have been in receipt of pensions for 539 perhaps 10 or 15 years. I believe that the fact that older pensioners will receive less than younger ones when both are on a flat-rate pension, and the fact that many pensioners, as they reach the age of 75 or 80, will find themselves having to rely on MIG, will make S2P completely unacceptable.
§ The noble Baroness may ask, therefore, why we do not link the age addition to S2P rather than the basic pension. That would certainly be cheaper because it would exclude higher earners who opt out of S2P but who are still entitled to the basic pension. That is, indeed, a fair point. If the noble Baroness were to offer to add age additions to S2P, I should promise on the spot to accept that as a fair compromise. However, I doubt that the noble Baroness will do so.
§ We believe that Amendment No. 70 proposes the minimum amount which is essential if public support for the present pension system is to be maintained. I beg to move.
§ 10 p.m.
§ Baroness Hollis of Heigham
My Lords, the core of this amendment, a version of which was moved in Committee, is based on a reading of pensioner poverty which I do not believe is accurate. It assumes that the basic determinant of pensioner poverty is the age of the pensioner. Therefore, the response of the Benches opposite is to increase the age-related additions.
It is certainly true that pensioner incomes tend to decline with age. However, the difference between the incomes of older and younger pensioners, which is what the amendment addresses, is, as the noble Lord acknowledged, much, much less than the difference between the incomes of the poorest and best-off pensioners within each age bracket.
Perhaps I may summarise the issue. On average, age reduces the income for a couple, whether they are aged below or above 75, by approximately £20 a week. A couple over the age of 75 will have on average an income of approximately £20 less than a couple aged under 75. The amendment of the noble Lord, Lord Goodhart, would seek, perfectly properly, to address that problem.
However, by no comparison is that discrepancy in the same league as the inequality within each group, age for age. Therefore, the difference between the poorest fifth and the richest fifth, whether they are aged below or above 75, is approximately £250 or more, not £20. That is what MIG addresses and what the noble Lord's amendment leaves unaddressed. He addresses the minor problem. However, because it is a minor problem, the amendment would pass most of the money to those for whom age-related poverty is not an issue. It leaves unhelped those for whom poverty is not age related. He addresses the tiny part of the problem, which is poverty associated with age, and neglects poverty where it occurs among younger pensioners. We address real poverty at whatever age it occurs because all MIG money is spent on the poorest.
My second point is that the feasible levels of age addition would do little to combat poverty, even among older pensioners. Were we to accept the noble 540 Lord's amendment, an age increase of £5 for 75 to 79 year-olds would lift 50,000 pensioners in that age group off MIG, but 200,000 would remain on it. An age-related addition of £10 at 80, which is higher than the £7 proposed by the noble Lord, would lift 100,000 pensioners over the age of 80 off MIG but would leave 400,000 on it. In other words, age-related additions would still leave 80 per cent of pensioners who currently receive MIG still needing MIG. That is not targeting, as the noble Lord, Lord Goodhart, suggested; it is not even, in the words of the noble Earl, Lord Russell, "imprecise targeting"; it misses the target almost completely.
The Liberal Democrats would fund their proposals by scrapping the state second pension, as set out in a paper by Mr Steve Webb. That would be equivalent to abolishing SERPS. It would mean withdrawing access to a state-funded second pension from those who do not have access to good occupational schemes. It would also mean ending the national insurance rebates that underpin savings in occupational and other private funded pensions. The foundation of saving for retirement would be seriously undermined and the long-term result would be more poverty rather than less.
I hope that your Lordships will accept that the amendment would not work and would not do what the noble Lord thinks that it would do. It would merely give some money to older pensioners who need it, a lot of money to older pensioners who do not need it and nothing to poorer younger pensioners.
The amendment is virtually irrelevant to pensioner poverty and the scale of the issues that we have to address through the minimum income guarantee and the House should reject it.
§ Lord Goodhart
The Minister's response was predictable—indeed, I predicted it when I moved the amendment. Let me get out of the way the issue of the paper by my honourable friend, Professor Steve Webb. My party's policy is to maintain a basic pension that includes age additions for older pensioners. We would top that up not with the excessively complicated S2P, but by requiring everybody to contribute to a compulsory stakeholder pension, with contributions from employees and employers.
However, that is a debate for another day. We are talking about the S2P. If we can influence matters before the S2P comes into effect, we would prefer to do without it and move to the system that we propose. However, once the S2P has started to operate, we shall be faced with a fait accompli and we might well feel it necessary to carry on with it.
To return to the main issue, of course I entirely accept what the Minister said about the difference between rich pensioners and poor pensioners within the same age group being far greater than the difference between the age groups. That is an obvious truth. However, she did not answer my point that in fixing the level of pension one has to take account not just of how to help the poorest pensioners—which must unquestionably be an important aim—but of 541 how to maintain public confidence in and support for the whole pension system. That cannot be done unless the Government give more than they currently propose to those who are above the MIG level. We propose to achieve that through age additions. We shall shortly hear from the noble Baroness, Lady Castle, in favour of a considerably more expensive scheme to link the state pension to earnings.
The Minister did not answer that point. We feel strongly about this, but it would be ridiculous to vote on it at 10 past 10 at night. However, we are very likely to have to return to the issue on Third Reading. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Turner of Camden moved Amendment No. 71:
After Clause 37, insert the following new clause—
§ CATEGORY B RETIREMENT PENSION: RATE AND REVIEW
(" . With effect from 1st April 2001, the weekly rate of the category B retirement pension specified in Part I of Schedule 4 of the Contributions and Benefits Act shall be increased to the level of the Minimum Income Guarantee.").
§ The noble Baroness said: In moving this amendment in the name of myself and my noble friend Lady Castle, I shall speak also to Amendment No. 72, with which it is grouped.
The first amendment deals with the minimum income guarantee. The Government have admitted that it is simply not possible to live on the basic state pension. On 3rd April, my honourable friend the Minister in the other place, Mr Jeff Rooker, said:
We know that the basic state pension is not enough".
§ So the Government have introduced the minimum income guarantee at £78 for a single person. It is still not as much as the basic state pension would have been had that pension been increased in line with the wages index which was the original intention under the Castle Plan introduced by the last Labour government. That would now be in the order of £98 or £99 per week.
§ Nevertheless, it is an acceptance by the Government that that is a minimum income for everyone, and that any single person between the ages of 60 and 74 cannot be expected to live on less than £78 per week. But there is one drawback. It is means tested. As we know, many people, particularly older ones, simply will not go through what they regard as a humiliating experience, filling out forms, declaring their resources, meagre as they may well be, in order to claim that money which the Government acknowledge is really theirs by right.
§ The Government are now investing thousands of pounds, or perhaps it is a million or so—I do not know what the figure is; perhaps the Minister will enlighten us—on persuading older people that they really should claim the MIG. I do not know how successful that campaign has been. But if the Government were to treat the MIG as the level applicable to everyone and then build up from there, it would be a major step towards dealing with pensioner poverty. I hope that the Minister will not again tell the House that there are 542 lots of well-off pensioners. There are certainly more older people who have occupational pensions—we should applaud the success of the occupational pensions movement—but as I have said repeatedly in this House, many of those pension schemes are based on the assumption that they top up the basic state pension.
The noble Baroness has described the basic state pension as the building block. But it is crumbling, as we all know. It needs to be radically improved. Everyone agrees with that, even noble Lords opposite. Of course, better-off pensioners will lose improvements through taxation. I am a pensioner. I have an occupational pension. I lose my entire state pension and more to the Inland Revenue. It is given with one hand and taken away with the other. I do not complain about that. We are not talking about very wealthy people. They are just people who have put aside money during their working lives in order to save for the future. I do not want my situation to be used as an excuse not to pay a decent basic pension to other pensioners, most of whom believe very strongly that having worked all their lives—and let us remember that this is the war-time generation who believe that they made sacrifices at that time—they are entitled to a better deal.
I hope that the Minister will not again talk about how well off many pensioners are. It so happens that I have recently had sent to me a submission by an organisation representing Post Office, BT and Civil Service pensioners generally. It says:
There is a widespread but erroneous perception that all occupational pensioners are comfortably off on large index-linked pensions".
But it says that:
The majority, nearly 60 per cent., of occupational pensioners represented by our organisations have second pensions of less than £5,000 per year, equating to less than £100 per week. Indeed, between 30 per cent and 40 per cent have occupational pensions of less than £3,000 a year or less than £60 a week".
Strangely enough, it says:
In the Civil Service, some 60 per cent of widows receive less than £40 per week in occupational pensions".
§ It simply is not true that there are lots of well-off pensioners on occupational pensions who would benefit if we were to put into operation what is proposed in the two amendments.
§ I turn to Amendment No. 72, which again deals with the earnings link. Here, we are talking about social insurance. The welfare concept with which we have lived under successive governments, not just Labour, until relatively recently, accepted the whole concept of social insurance. The result was that we had a system which provided pensions for all, at least at a minimum level, and everyone paid towards the cost. The Government's present policies drive a coach and horses through that concept. The noble Baroness has repeatedly told us that to increase the basic pension for everyone on the lines indicated in the amendment would mean that richer people would get something which presumably they should not. They would, of course, have contributed to it.543
§ If I have a policy with the Prudential, I do not expect the company to say, when pay-off becomes due, "You can't have it; you are better off than you should be". Any insurance company taking such a line would quickly find itself in court and there would be a massive exodus of policy holders. Unfortunately, that is not possible for the millions of pensioners who believed that in paying their national insurance and taxes for over 40 years they were at least ensuring that they would not sink into dire poverty.
§ We welcome what the Government have done by way of winter fuel payments and free television licences. But we should talk to pensioners. What they want is cash flow; some real improvements in income. They want such improvements without having to submit to the indignity, as many of them see it, of means testing. Everyone knows how upset and disillusioned pensioners are as a result of the insulting, as they see it, 75 pence increase. The Government now have an opportunity to repair the damage which that proposition has done. It is not only older people who feel upset about it. Their families are upset too on their behalf. I hope now that the Government will promise to do something about the basic state pension. I beg to move.
§ 10.15 p.m.
§ Baroness Castle of Blackburn
I support the amendment moved by Lady Turner. I shall speak to Amendment No. 72 which, as was explained to the House, deals with the restoration of the earnings link. I say "restoration" advisedly. It is not some new, wild revolutionary idea we are espousing, but part of a pension scheme which the Labour Government of 1974 believed was sustainable, honourable and right.
Like Lady Turner, I should like to know how many people responded to the great effort the Government launched to persuade the reluctant poor pensioners to accept means-tested benefit of MIG. I can, however, tell her what the cost is. It was announced in another place, earlier this week, by the Minister, Jeffrey Rooker. So far, £15 million has been spent on this persuasion exercise. We were told earlier that it would be a marvellous effort; there would be TV advertisements, telephonic approaches and everything possible would be done to ease the admitted pain of applying for means-tested benefits.
I do not know how many Members of the House have seen Dame Thora Hird contributing one of the television appeals. It did not last very long. I have to say that I did not feel she had her heart in it. It was not the robust Thora Hird we all loved and rejoiced in. She said, "Well, you know, you really might be entitled to a bit more". Of course her heart was not in it. I cannot see her enjoying applying for minimum income guarantees. Nor would anybody who has any self-respect enjoy doing that.
I wonder how many Members of this House are applying for the minimum income guarantee. Until they do, they had better not throw away easy phrases about helping the poorest pensioners. As I said before, the very label is a contradiction of all I thought our 544 movement stood for; namely, to lift everyone to dignity and to independence. When you come to think about it, the whole principle of the means tested income guarantee is that it is the pensioners' equivalent of a glass ceiling. Women will understand that perfectly well because it says specifically, "Earn a bit more, get a bit more independence and whoosh, we will put a ceiling on what you can earn". That is effectively it. I have had cases brought to my attention when retired people have been reluctant to take on a little bit of a job because it might lift them out of the minimum income guarantee if they were honest enough to declare what they had been managing to pick up.
So it is the very opposite of the sort of society which I thought our movement believed in. I must say that I listened with great respect to the speech of Lord Goodhart. I am afraid I think that he has the wrong answer to the problem he set before us. But it was refreshing to hear someone make a case for the importance of sustaining the value and the accompanying rights of the basic state pension scheme. I have been waiting to hear the Minister make as passionate a case in support of it, yet I have not. It has all been about just helping the poorest pensioners, about targeting, picking them out, making them obvious. For instance, in my early days in the Labour movement we campaigned for free school meals. The kids who benefited from them had to be protected from being shown as those who were so poor that their parents could not pay for their school meals. And how we hated that.
Now, I wonder whether the Minister has begun to realise the extent to which more and more people are realising the growing gap between what the earnings-related contribution brings into the fund and what the basic state price index pension takes out of it. The latest example of the people on whom that has dawned has been issued this very week by the Select Committee on Social Security. I do not know whether the Minister has yet had time to read it, but she will remember that, as regards the present way of financing the basic state pension, contributions earnings related and basic pension flat rate, and of course price indexed, the Select Committee says it is bound to create a steadily increasing surplus in the National Insurance Fund. And everyone knows that it is nonsense to say, "The earnings link was quite right when you introduced it, Barbara. We think that was very laudable of you, but of course we cannot afford it". That is not true. The Select Committee itself has said in its report—I have some of the quotes here but unfortunately I cannot read them to the House—that it was worried by this growing surplus which has come out of the pockets of ordinary people in this country through their contributions. They have paid; but they are not enjoying!
Some of that surplus, to this Government's shame, is being devoted to cutting the employers' contribution. In fact, our own Chancellor of the Exchequer, following the example of the previous administration, gloried in the fact that, in order to offset the cost to business of the climate change levy 545 and the aggregates levy he was introducing, he would further reduce the employers' contribution to the National Insurance Fund. He told the House proudly, "Employers will be paying £1.35 billion a year less into the National Insurance Fund". It is a strange time when the Chancellor is boasting in another place of cutting the contribution to the National Insurance Fund, and our Minister is saying it must be sustainable.
The Select Committee faced that point in its report. It pointed to the accumulating surplus and said that it will continue to accumulate as long as the present system of financing our pensions continues. I wish I could read the figures to the House; at this time of night I cannot carry that lot in my head. The committee said that there would be this mounting surplus in the future, but if we wanted a double guarantee, we could increase contributions.
It may be said, "That would be a terrible burden. We will lose votes". But the Select Committee said that the increasing burden would be extremely light, and in making that recommendation it quoted the deputy government actuary who gave evidence to the committee and worked out the sums. It was said that around a 3 per cent increase in contributions would be needed, if we restored the earnings limit, up to the year 2011, and taking it up to 2060 it might be a 7 per cent increase. But in that period earnings are not standing still. By spreading it out at, say, 1 per cent a year, people who are receiving the rise in earnings will not notice it. Or at the very least, they will not object any more than they objected when I increased the contribution by 2 per cent of earnings when I introduced SERPS, the earnings link and the annual upratings, which had never been enforced by law before, and the other benefits of the 1974 Labour government.
I remember the Tories at that time saying, "There will be such an outcry. Look at that increase"—mind, it was shared between employer and employee—"People will never stand for it". They were astonished to find that there was barely a murmur. Because people will pay for those things that they want, and they want a guarantee of security in old age.
Any Member of the House who wants to vote on this issue should first read the Social Security Select Committee report.
I cannot go on too long at this time of night. However, I believe that there is a growing public opinion in this country which is behind the arguments of the noble Lord, Lord Goodhart, and the arguments which the noble Baroness, Lady Turner, and I have put forward for years. There is a growing anger at the widening gap between what people pay in and what they get, and that conclusion of the people is growing.
If at this time the Government choose to take £1.35 billion out of the National Insurance Fund and say that all they can afford is to help the poorest pensioners, provided that they fill in the necessary forms and do not earn too much or say too much, it can only mean—and I say this advisedly—that this 546 Government have a long-term pensions policy to destroy the state insurance scheme. That would be the consequence. If the Government do not want us to deduce that it is also the desire of the Government, then we must have a better response from the Minister than we have had so far.
I urge the House not to lose touch with public feeling. The public do not want targeting. They do not want labels which say, "You are the poorest" or "You are in the queue for three meals". They want the dignity for which they thought they were contributing.
Finally, I say to the Government that I want them to succeed, that I want them to continue to succeed and that I want them to win the next election. But the Conservative leader, William Hague, is no fool. He may occasionally sound it, but he is not. He has put forward the idea of taking the fuel allowance and the TV licence allowance and turning them into a cash increase on the basic pension. In my opinion, that would be an absolute vote winner, except that in his case it is a once-and-for-all increase. The government spokesmen have been very good at pointing that out, and I would be the first to shout it from the hustings. The Government's biggest defence would be to say, "Whatever pension we introduce, we will keep abreast of rising national prosperity". I believe that one day, when the Government have perilously been faced with the voting apathy of pensioners, they might perhaps recognise that I and Lady Turner, and others, have been right all along.
§ 10.30 p.m.
§ Earl Russell
My Lords, the noble Baroness, Lady Castle, should feel flattered. It is not very often that we see at least 50 people on the Government Benches.
§ Earl Russell
My Lords, I am grateful to the noble Lord, Lord Graham of Edmonton, for the correction. I am glad for the confirmation that my mathematics are not that far out either. Fifty-four people on the Government Benches have come in to listen to a single speech by a single Back-Bencher.
The noble Baroness, Lady Castle, deserves that honour. She has made an extremely powerful speech. I am grateful to her for her compliments to my noble friend Lord Goodhart. I would like to return those compliments in the same measured terms. It gave me great pleasure to listen to a speech which showed the same concern that we feel about the basic state pension as a right. However, as she said of my noble friend, we feel that she has not quite got the answer. What we have in common is that we both think that there is a question which needs an answer. But, in the end, whether or not we think it irrelevant, the voters think it in very large numbers.
I spent quite a long time in Romsey; I spent even longer telephone canvassing. I shall not soon forget a half-hour argument with a lifelong Labour voter who told me that he was never again going to vote for anyone. At the end of that conversation, he said, "We 547 will vote for you this time, but, if you let us down, God forgive you because I won't". I have paraphrased in order to make his remarks acceptable inside the Chamber.
I was in Tottenham last Tuesday and I heard the same response. I shall not prophecy what sort of news we might hear in an hour's time or thereabouts, but I read in today's Evening Standard a prophecy, which appears to emanate from Millbank, that the poll may be even lower than the 19 per cent scored in Leeds Central. My own experience gives me nothing that leads me to dispute that. We live in a democracy; we must listen to our masters.
When it was decided that the basic state pension was going to be uprated in line with prices, we created a situation where it was in danger of withering. It is about time we took on board the fact that what is true of the basic state pension also applies to income support. Indeed, the need in income support may be greater in some ways than the need in pensions. That means that the problem is greater, but it also means that the potential costs of a solution are greater. In effect, it is a matter of double or quits: it doubles the stakes and makes the problem that much more difficult.
I recall the very constructive debate we had on the matter during the Committee stage of the Welfare Reform and Pensions Bill last Session. The Minister generously agreed with me then that, as a consequence of uprating in line with prices, it was necessary, "as resources allowed"—we agreed on those words—to uprate from time to time, and when possible, fairly well above the level of prices. I believe that the Minister will find that I have recollected her words accurately. This year resources did allow, but the Chancellor of the Exchequer did not take his opportunity. He has already lived to regret it. If there had been a decent uprating this year, and one which was fairly significantly above the level of prices, the problem might have been diffused. That has not happened. The voters will not soon forget.
The sort of anger I faced is directed against the whole of our profession. With respect, I do not think that Mr Hague has the answer to the problem. The redistribution that he suggests might have been a perfectly sensible way of tackling such matters if he had not tried to call it an increase. It is not an increase, except by the 42 pence calculated by my honourable friend Mr Webb, and that comes below the Government's 75 pence. Incidentally, if the noble Lord, Lord Higgins, is to speak later in the debate—I imagine that he will—I hope that he will tell us how the Conservative Party means to find the £90 million from the finances of the Social Fund, which I have always regarded as one of the most cash-strapped parts of the whole social security system.
Therefore, we need increases above the level of prices, as resources allow. That is not to say necessarily that regular increases in line with earnings will be sustainable. Here is where we part company with the noble Baroness, Lady Castle. You may calculate the figures for a short period of time. The difference each 548 year is small. Here, I think, is where Mr Darling was completely mistaken in denying my argument that what we are offering here is imprecise targeting. An annual uprating uses a machine-gun. It has a repeat rate of fire. If you get into the target area with the first bullet, you will get a good deal closer over the next 10 or 12. So, the catching up goes on.
If you are uprating by earnings, over the length of a Parliament the increase may or may not be sustainable. But the earnings link means a commitment, year in, year out, in good years and in bad, in fat years and in lean years, to uprate above the rate of prices. It is that continuing commitment over a generation which we on these Benches feel a great deal of doubt about sustaining.
I listened to what the noble Baroness. Lady Castle, said about the surpluses in the National Insurance Fund. The surplus this year is indeed considerable. It would not have been difficult to use some of it for a significant increase this year. But belief in the continuation of future surpluses involves an element of faith. I have not forgotten the first amendment on which I had to consider whether to seek to divide the House from this Front Bench. It was on the then Social Security Bill of 1989. Those were the years of hubris. The government had a healthy surplus in the National Insurance Fund. They believed that it would be there for ever. They introduced a provision to end the Treasury supplement to the National Insurance Fund. They believed that it would never be needed again. I decided not to seek to divide the House but I said that I expected to live to see the provision reversed, as, in the gloomy Budget of 1993, it duly was. Even I had not expected it quite so soon.
The National Insurance Fund responds extremely quickly to economic fluctuations—in fact, on occasion, even more quickly than the Government Actuary expects. It goes up very fast in a period of recovery and goes down extremely fast when that recovery comes to an end. No economic recovery lasts for ever. If the Chancellor of the Exchequer has discovered a way of making it so, he has discovered the philosopher's stone. He is not the first to make that claim, but he would, were he to succeed, be the first in all recorded history to make it good. That would surprise me.
We on these Benches feel a great deal of doubt about the long-term sustainability of a commitment to the earnings link. On the other hand, we feel a great deal of doubt about the long-term sustainability (in the eyes of the voters in a democracy) of the present system of uprating by prices without any further increases, as resources allow. It is no good talking about MIG. First, we are not convinced about the means of delivery of MIG. On the previous occasion that we discussed this matter in Committee I grant that the Minister gave a powerful, well thought out answer. She has thought of a great many ways of encouraging people to apply for money under MIG. What she has not got over is the sense of entitlement felt among voters who believe—as both my noble friend and the noble Baroness, Lady Castle, have said—that, because of their own contributions, they have a resulting 549 entitlement to a pension. That is deep seated in the minds of voters. As Angela Rumbold once said of child benefit, it is deep in the culture. Facts and Ministers will not eradicate it. So if they see MIG as being a matter of charity—as do a great many of the voters that I have talked to in recent weeks—it will not be enough to satisfy them; the voters believe that they have a right. If they do have a right, our right to be here at all is contingent on what they say. We must take that on board.
We must have a significant measure of progress. My noble friend has put forward the right answer in spite of all the criticisms that have been made. I shall address those criticisms later. I am not addressing them now because the Minister replied immediately to my noble friend and they would be wide of the present amendment; but the Minister will hear me address them.
I hope that the Minister will listen to one or other of us—or else come up with a real, significant, immediate increase. If it is not immediate, the voters will make her pay for it.
§ Baroness Park of Monmouth
My Lords, I am not an expert in any of these matters. I am a pensioner and, like the noble Baroness, Lady Turner of Camden, I pay all my pension back in tax. So I have no direct interest in that way.
I feel very strongly about this issue. I do not know how the objective can be achieved—I recognise that all the pundits say that there is not the money to promise it forever—but something has to be done quite urgently now. There are a lot of people out there—not just the old but their families too, who will grow old later—who are watching us to see whether we care enough about them. As the noble Baroness said, the whole issue is one of dignity and self-respect. The Government say a lot about inclusiveness; these people are being excluded—and they feel excluded.
It is absolutely vital that we should also recognise that, if one has independence and self-respect, it has a remarkable effect on, for instance, one's health. We could save a lot of money from the health budget if people were more independent, more able to look after themselves, more able to pay to look after themselves, and had the independence, dignity and self-respect that is part of health.
There are strong arguments for doing something. Whether it will be what the noble Baroness wants I do not know—I shall vote for her anyway—but it is absolutely vital that people do not neglect the fact that there are a lot of angry, resentful people out there who are losing their faith in all politicians—and that matters to all of us. We have to think about that as well.
§ Lord Davies of Coity
My Lords, without any risk whatever, I venture to suggest that there is not a Member of the House who does not admire the passion, the conviction and the sincerity with which 550 my noble friend Lady Castle prosecutes her case in respect of restoring the earnings link. About that I make two points.
First, the arguments have been fully canvassed in this House time and time and time again. The chance of anything new being introduced is very unlikely. Secondly, if an independent observer came here and listened to the way in which the arguments ebb and flow, he would probably get a distinct impression that those who were supporting the restoration of the earnings link were for pensioners; and that the Government, who were defending their proposals, were against pensioners. That is not the case. It is far from the truth. The Government are concerned about pensioners, but their strategy and approach is somewhat different to the one advanced by my noble friend.
As my noble friend Lady Castle knows, governments are required to take some very difficult decisions on occasions. As a Minister of the Crown herself, she will know that she had to face some very difficult decisions during her period of stewardship—which, of course, was a very admirable one.
Here we have a situation where, on the one hand, we have heard arguments in favour of restoring the earnings link for pensioners, an earnings link that was abandoned a long time ago. On the other hand, we can approach this by raising the minimum level of pension income so that it is equal to that of the minimum income guarantee.
Where do the Government stand? As I see it, initially, immediately and for the foreseeable future, the Government wish to devote resources to those greatest in need. That seems to respond to an age-old socialist principle: from those according to their means to those according to their needs. In the long term, the Government want to tackle the real problems of our pension system to ensure that pensioners living through this new century will receive pensions that will be part public and part private. Above all, however, they will be adequate pensions and will be of realistic benefit. It may be thought courageous or even revolutionary to implement such massive changes, but in the long term, I believe that pensioners will benefit from the proposals that the Government have put forward.
I give noble Lords advance notice of what will be announced in the newspapers on Saturday of this week. I shall reach the age when I will attract an old age pension. I know that my old age pension will embrace an element of graduated pension and, perhaps more importantly, a larger element of SERPS. However, if I thought that I was going to receive additional payments to that pension which, at the same time, would mean that worse-off pensioners in either relative or absolute terms would not receive an extra amount that they would otherwise receive, I am afraid that I would feel a measure of guilt.
On balance, I think that the Government are going in the right direction. I certainly hope that, at the end of our debate, the House will give the Government the support they require.
§ Lord Warner
My Lords, it is with some reluctance and trepidation that I rise to question the wisdom of Amendment No. 72. In the mid-1970s I worked closely with my noble friend Lady Castle, when she was the then Secretary of State for Social Services. I have a huge admiration for her abilities. In those days we both believed strongly in linking upratings of the basic retirement pension to increases in the level of earnings. However, I hope that she will accept that, in the spirit of friendship, I suggest that the world has moved on since that time.
I am not sure that we can now move "back to the future". Pinning pensions upratings to prices has been carried out for around two decades, as a result of the actions of the previous government. This Government have had to tackle the problem of pensioner poverty from the situation as it is, not as they would have liked it to be; namely, as if an earnings link had been in place over the past two decades. Through special measures, they have targeted help—in my view, rightly—on those pensioners in the greatest need. Some of those measures are tax free, which would not be the case if we increased the basic pension. The Government have tried to implement measures to help those in the greatest need. I believe that that is totally consistent with the principles of the Labour movement.
I recognise that this has not been popular with many pensioners. However, to correct my noble friend Lady Turner, we should bear in mind that we are not operating funded state pension schemes.
§ Lord Warner
My Lords, with all due respect, my noble friend implied that an analogy could be drawn between the state pension and funded private insurance schemes. The reality, however, is that the people who comprise the present working population are in fact paying for today's pensions. Before we commit future generations to certain levels of pension obligation, we must be confident that those can be sustained.
I believe that the present Government have acted in the best interests of the poorest pensioners. The measures they have taken have increased the benefits going to the poorest pensioners to the tune of something in excess of £2 billion more than if they had increased the basic state pension in line with earnings since 1997.
In those circumstances, I am inclined to keep the present flexibility of more for the poorest pensioners rather than tie ourselves to the rigid formula in Amendment No. 72.
§ Lord Higgins
My Lords, I join noble Lords who have suggested that the noble Baronesses, Lady Castle and Lady Turner, put forward the case with which we are familiar with the greatest eloquence. It is remarkable that they have immediately picked up the report of the Select Committee of another place, The 552 Contributory Principle, published only on 7th June. It raises important arguments in relation to the points put forward.
My party's position is clear and at this hour of the night I do not propose to bore the House by repeating it. Unfortunately, I am not at this moment in a position to announce a sudden change of policy. None the less, perhaps I may comment on our recently announced change with regard to combining the Government's various gimmicks on winter fuel payments, television licences and so forth. Because it saves some £40 million a year in administrative charges, it enables a modest increase to be made. Perhaps I may say to the noble Earl that it was not presented as a massive increase; it was a consequence of the action we took. Although it is, as the noble Baroness, Lady Castle, pointed out, a once and for all increase, it raises the basic level on which future increases are made. Therefore, to that extent it is not a once and for all increase.
Not one of the criticisms made of the proposal put forward by Mr Hague a few weeks ago was valid. There was a great deal of immediate reaction from the Government. Every single point they made was based on a misunderstanding of what we were proposing. I speak as one who for 30 years represented one of the "oldest constituencies" in the country. It is said, "They came to Worthing to die and they forgot what they came for." I have to tell the House that the proposals for incorporating into the basic pension the various government measures—
§ Earl Russell
My Lords, I apologise to the noble Lord, Lord Higgins, for intervening, but before he leaves the subject of his party's policies, is he in a position to answer my question about how it proposes to find a £90 million saving in the Social Fund?
§ Lord Higgins
My Lords, no, not at this stage. However, if the noble Earl looks at the detailed press release issued at the time, he will find a satisfactory answer.
Perhaps I may repeat what I said a moment ago with regard to the speech of the noble Baroness, Lady Castle. She referred to the Select Committee report but did not quote the relevant paragraph. Paragraph J of the recommendations states:We concluded that unless there is a significant change of policy there is likely to be a growing surplus in the National Insurance Fund as a result of benefits being linked to prices and contribution income based on earnings rising at a faster rate".We agree with the Secretary of State that any use of the surplus must be sustainable in the long run, but it goes on to state:The Government Actuary's figures show that in order to pay for an earnings up-rated benefit the combined contribution rate from employers and employees would have to rise by 3.2 percentage points"—the figure mentioned by the noble Baroness—by 2021 and by 7.6 percentage points by 2060".The Select Committee goes on to recommend that the Government should consider that as one option of funding improvements in benefits. Since this is an 553 important and, in many ways, authoritative report, based as it is on the figures of the Government Actuary, I hope that in reply to the noble Baroness, Lady Castle, the Minister will comment on that particular aspect of the matter.
§ 11 p.m.
§ Baroness Hollis of Heigham
My Lords, it is late. Having spent 50 minutes on this matter—this debate is a repeat of one held at Second Reading and at Committee stage—I am sure that noble Lords want me to be as brief as possible.
§ Baroness Hollis of Heigham
My Lords, that may be the most enthusiastic cheer that I receive all evening.
I deal first with Amendment No. 71, spoken to by my noble friend Lady Turner, before I turn to the bigger amendment, if I may so describe it, spoken to by my noble friend Lady Castle. Amendment No. 71 would increase the rate of basic pension received by a couple where the woman relied on her husband's contribution record to the level of the minimum income guarantee for a pensioner couple. In subsequent years the Secretary of State would have the option to increase that pension in line with earnings.
My noble friend will be aware that at the moment there are two ways in which a married woman can qualify for a state pension. Like everyone else, she can pay enough full rate contributions herself. As an alternative, when her husband retires she can receive a pension on his contributions if she does not herself satisfy the contribution conditions. This reflects the operation of the national insurance scheme prior to 1978, when a married woman could choose to pay a lower rate of contribution—I was one—and receive a pension based on her husband's rather than her own contributions. I and many others like me made a deliberate calculation to reduce the contribution and receive a lower return.
Married men pay the same rate of contribution as single men and women and so the pension paid to a married woman based on her husband's contribution is, in practice, partly financed by the contributions of single people. I believe that it would be deeply unfair to increase the total level of retirement pension paid to a married couple on the basis of the husband's contribution. Why should a woman, who may have paid no national insurance contributions at all, or, like me, paid reduced rate contributions, receive an increased contribution for which she has not paid when other women, single men and married men who have also contributed throughout their working lives receive no such increase? My noble friend seeks to give that pension entitlement to people who have chosen to make a lower contribution, or, in some cases, none at all. If there is any merit in the contributory principle for which my noble friend has argued this evening, surely she will accept the truth of that proposition.
554 I turn to Amendment No. 72, which would uprate the basic state pension by earnings. It has been debated at considerable length on previous occasions. I am sure that all noble Lords around the House tonight share the desire to tackle pensioner poverty. As was said by my noble friend Lord Davies of Coity, my noble friend Lord Warner in particular and other noble Lords, I do not think that this proposal is the right way to achieve that aim. The earnings link, as was pointed out by my noble friend Lord Davies of Coity, existed for a period of only four years between 1974 and 1979. In two of those years prices exceeded earnings. This was at a time when few people had a second pension to add to the basic state pension. Today, when we talk about pensioner incomes we look beyond the basic pension to the total income that pensioners receive.
The basic, irreducible facts, boring though they may be, that my noble friends behind me have consistently refused to take on board are that, over the past 20 years since the earnings link was introduced and then disbanded, pensioner incomes have grown at a faster rate than any other broad group in the population. On average, the incomes of all of us of working age have grown by 38 per cent in real terms since 1979. The increase for pensioners has almost doubled from its base, rising by 64 per cent. As a result, their income increase has been substantial. That has happened despite the break with the earnings link, due largely to the impact of SERPS and occupational pensions. Compared with 1979, the real income of pensioners has grown by almost twice as much as the rest of us on average.
§ Baroness Hollis of Heigham
My Lords, it is true. I am prepared to accept that my noble friend may wish to challenge me. I know she feels that that cannot be the case because, I acknowledge, she has personal experience of friends and acquaintances in particular circumstances. But these are official government statistics which have not been challenged authoritatively by anyone so far as I am aware. Pensioner incomes have increased by 64 per cent on average since 1979; the incomes of the rest of us by 38 per cent. That is the first point.
The second and important point for our consideration is that that 64 per cent conceals the most appalling growth in pensioner inequality and, therefore, pensioner poverty. The top fifth has seen its income increased by more than double the amount of the bottom fifth. As a result, whereas the bottom fifth of couples in the 1997–98 figures has an income of £126 per week, the top fifth of pensioner couples has an income of £426—nearly four times as much. That is an increase in inequality which far exceeds any other inequalities in our society.
That situation did not face my noble friend the former Secretary of State. Had it done so, I am confident that her response in 1979 would have been different from the response when she established SERPS and the earnings link. But that is the fact now. 555 My noble friend's policies were right, decent and proper, and I would have been cheering her on in 1979, but not now.
We have now inherited a situation in which the top fifth of pensioners has seen its income increase by nearly 80 per cent and the bottom fifth of pensioners by between 25 and 30 per cent, depending whether they are single pensioners or couples. That is far less than the rest of us.
What do we do in that situation? Would restoring the earnings link which my noble friend Lady Castle wants to see tackle inequality? Would that reduce pensioner poverty? The answer is a resounding no. Restoring the link would cost an extra £1 billion net in 2000, and extra £7.5 billion in 2010 and an extra £24 billion in 2025. Every pound one puts on the basic state pension adds £0.5 billion to expenditure. But it is not the money question. The cost is not the main problem. The problem is that my noble friend's policy would do nothing to help the poorest pensioners. It would not help in the battle we think that we face: pensioner poverty and inequality.
As my noble friend Lord Warner said, we have spent £6.5 million extra on pensioners in real terms in this Parliament if one includes the winter fuel allowance, the TV allowance, and so on. That is over £2 billion more than we would have spent on earnings uprating and over half of that has gone to the poorest pensioners. Under my noble friend's scheme, only one fifth of that money would have gone to the poorest fifth.
§ Baroness Castle of Blackburn
My Lords, I am grateful to the Minister for giving way. She said that the restoring the earnings link would do nothing for the poorest pensioner. She is surely aware that, if it had not been abolished by Lady Thatcher, today every pensioner would be receiving £98 a week—more than the minimum income guarantee of £78.
It is a question of what path you follow consistently over the years. Would not she agree that what she is advocating is a consistent path towards the disappearance of the basic state pension? Does not she realise that that is the last thing that even the poorest pensioners want?
§ Baroness Hollis of Heigham
My Lords, my right honourable friends the Chancellor of the Exchequer and the Prime Minister have made it very clear that the basic state pension will remain an essential building block in pensioners' incomes. That is what we believe and support.
My noble friend will understand that we are not back in 1981, or 1980, when the earnings link was disbanded. We are coming up to 2001; and, since the date when the earnings link was disbanded, the poorest pensioners have fallen well behind not only the median income of pensioners, not only behind the income of the better-off pensioners, but behind the incomes of all of us. The question, then, is whether restoring the earnings link is the right way to address the problem of pensioner poverty.
556 A flat-rate provision, which is what the earnings link is (for a couple, it would have been £3.70 this year) would not help the poorest pensioners, because it would be deducted from their income support; and it would be barely noticed by the better-off. The choice is straightforward. You can give £3.70 to everyone—the poorest will not gain, and the better-off do not need it—or you can target the benefit on those who need it, and they will receive £18. So the choice is: £3.70 for all, or £18 for those who need it. That choice will not go away however much my noble friend wishes we were back in 1979—or 1978 perhaps, given the results of the election in 1979!
There is a further point. What does my noble friend propose to do about those pensioners who currently need, and receive, £18 on top of the couple's basic retirement pension to take them up to the MIG level? An earnings link would give them £3.60, £3.70 or £3.80. What about the rest of the money? Is my noble friend saying that they would not receive the rest of the money, so they would be some £15 poorer than they are now? Or is she saying that they would receive the money, and that they would still need to be means-tested on top of the earnings link, but with less money to go into that means-tested, targeted top-up because the money would have gone to the rest of us? What is her choice? Either pensioners do not get the money— or they do get it, in which case they have to get it through the very targeting that she has deplored.
My noble friend cannot have it both ways. She must address the fact that the amendment belongs to a society which I believe no longer exists. It belongs to a society in which income differentials between pensioners were very narrow, and where a flat-rate increase for all was a decent, right and proper way of helping pensioners by locking them into an earnings right. That society has gone. My noble friend has criticised, as have all of us on these Benches over the past 20 years, the policies of increasing poverty and inequality that have afflicted so many in our society. No group has been hit harder than pensioners. They are the ones who have suffered. The poorest 40 per cent of pensioners are the ones who have been left behind.
My noble friend's amendments belong to 1979. They will do nothing for those pensioners. If all they receive is the earnings link, they will remain in poverty. If, on top of that, my noble friend recognises that they need to go up to MIG, they will still need means-testing, but she will have spent the money on people like me and others of my noble friends who do not need it, and those pensioners will not get the money they need. Those are the facts. In a society of inequality, we need to target help to reduce that inequality, not give the same to all—because if we do, we merely perpetuate the inequality into the next generation and the generation thereafter.
I ask my noble friend to respect that fact and to withdraw her amendment. If she chooses to press the amendment, I ask the House not to support it.
§ Earl Russell
My Lords, one point which I hope the Minister will not find unhelpful and I am sure the 557 House may find helpful is this. How many years of the earnings link would it take to raise the basic pension above the level of the MIG?
§ Baroness Hollis of Heigham
My Lords, I have no idea what the future rate of earnings is likely to be. It is an impossible question.
I was about to conclude my remarks. I hope that I have persuaded your Lordships that while my noble friend's amendments, particularly Amendment No. 72, are a decent and honourable effort to address the problem that she perceives, I suggest in all humility that that is not the problem that we face. The problem that we face is one not only of pensioner poverty but of pensioner inequality. In order to make an impact on the lives of those who are so socially excluded that they cannot join the mainstream of our society, they need to receive an increase well beyond an earnings link. They need the targeted help that only the Government's policies will bring. Therefore, I hope that your Lordships will support the Government's position tonight.
§ 11.15 p.m.
§ Baroness Turner of Camden
My Lords, I thank my noble friend for her explanation of government policy. Of course, she knows that I do not agree with it. I am grateful also to all noble Lords who joined in this very interesting debate. I share with the noble Earl, Lord Russell, his pleasure that so many people have come in to listen to my noble friend Lady Castle at this time of night. I believe that that is an enormous compliment to her.
However, frankly, I do not accept the arguments that have been advanced from the Front Bench this evening. First, the two amendments taken together would mean that one begins from the basis of MIG, which the Government agree is the basic minimum that anyone should be expected to live on, and would build on that by adding to it earnings-related increases in the years to come. I still believe that that would be an effective and fair way of dealing with the whole pension problem.
This evening, the Minister has repeated what she said in other debates: that many pensioners are extremely well off and that their incomes have risen faster in the past 20 years than have other incomes. I explained previously why I find that very difficult to accept, and perhaps I may do so again briefly.
First, as the Minister knows, in my working life I had a great deal of experience of negotiating occupational pension schemes. Most such schemes do not provide for increases even as high as that of the retail prices index. Most have a provision under which they rise up to a maximum of 5 per cent per annum or the RPI, whichever is the lower. In addition, we know that the basic state pension has not increased anywhere near in line with earnings; it has simply kept pace with the retail prices index.
558 Therefore, those two aspects of pension provision in this country meant that the structure simply did not exist for pensioner incomes to rise beyond the level of earnings; in fact, they rose nowhere near earnings, even if taken together.
§ Lord Davies of Coity
My Lords, I wonder whether my noble friend is able to help me. I understand that we are able to evaluate the extent to which state pensions have increased. If one compares the level of occupational pensions in 1979 with their level today, we know that not all, but most, occupational pension schemes are based on final salary payments. If that is so and incomes have risen over that period, will not the level of occupational pensions have increased directly in relation to the increases in income?
§ Baroness Turner of Camden
My Lords, one must understand that very few people, I regret to say, had pensions based on a working life of 40 years. Most people had a chequered work pattern which did not produce the maximum final salary. In addition, as I indicated, very few occupational pension schemes had RPI increases. A person would do quite well to receive a maximum increase of 5 per cent per annum. That was during a 20-year period when the retail prices index was sometimes way above 5 per cent.
Therefore, the structure did not exist in the pensions provision industry to produce a situation in which over that 20 years pensioners would receive incomes in excess of the increase in earnings, which is what has been said from the Front Bench. That is what I meant when I said that I could not accept what had been said about the large increases that pensioners have received over the past 20 years.
Beyond that, I quoted figures in relation to public sector pensioners which show that most people in the public sector are not receiving enormous pensions. In fact, according to the federation whose figures I quoted earlier, the majority of them receive pensions of between £6,000 and £8,000 a year. That is scarcely wealth.
As I said earlier, most pension provision has been based on the assumption that people will receive the basic state pension in addition. With the basic state pension not having increased in line with earnings, which would have been expected 20 years ago when a large number of pension schemes were introduced, people will be much less well off than they expected.
I said earlier that I disagreed with the arguments about pension provision being so excellent that if we increased the basic state pension, far too many people who did not need it would get it. I also pointed out that the well off would lose it all in income tax. I have no objection to the fact that I will lose all my basic state pension in income tax. However, I dislike that argument being used against people who are far less well off and who could very much do with an increase in the basic state pension.
I return again to the argument about social insurance. Several noble Lords have said that the Government are doing the right thing in paying out 559 only to the poorest people who need the money rather than giving money to people whom they do not think need it, but that is not what social insurance is about. The concept of social insurance that we have lived with for many years and that I believe to be the right policy—for many years this has been the policy of my party, the Labour Party—is that everybody pays towards it and people then receive a pension based on the fact that they have made those contributions. I do not know why we are departing from that principle, which I still believe to be right.
Pension provision through the basic state pension is not a charity. It is something to which people believe that they have contributed and to which they therefore have a right. It is not at all surprising that so many pensioners feel hard done by, because the basic pension has not been increased as they expected.
I do not intend to seek a vote on this issue this evening, but it will not disappear or run into the sand. We may well come back to it on Third Reading.
§ Baroness Turner of Camden
My Lords, it is very late at night to vote on a major issue. It is 11.20 and we still have a right to come back to the issue at Third Reading. I repeat, I shall not seek a vote at this time of night because I think it inappropriate to start voting so late on something that many of us regard as very important. I think it wrong to call a vote at 11.20 and I never gave any indication that I would do so. I therefore beg leave to withdraw the amendment.
§ The Deputy Speaker (Viscount Simon)
My Lords, is it your Lordships' pleasure that the amendment be withdrawn?
§ The Deputy Speaker
My Lords, the Question is, That the amendment be agreed to.
On Question, amendment negatived.
Lord Graham of Edmonton moved Amendment No. 72:
After Clause 37, insert the following new clause—
§ INCREASE OF BASIC RETIREMENT PENSION
(" . The weekly rate of the basic retirement pension shall be increased in April each year in line with—
§ The noble Lord said: My Lords, in view of the fact we have been told constantly this evening that Amendments Nos. 71 and 72 hang together and as this is a very important subject, I beg to move Amendment No. 72.560
§ 11.25 p.m.
§ On Question, Whether the said amendment (No. 72) shall be agreed to?
§ Their Lordships divided: Contents, 6; Not-Contents, 84.
|Division No. 3|
|Castle of Blackburn, B.||Graham of Edmonton, L. [Teller]|
|Cocks of Hartcliffe, L.|
|Faulkner of Worcester, L. [Teller]||Park of Monmouth, B|
|Turner of Camden, B.|
|Acton, L.||Harris of Haringey, L.|
|Ahmed, L.||Harrison, L.|
|Alli, L.||Haskel, L.|
|Amos, B.||Hayman, B.|
|Andrews, B.||Hilton of Eggardon, B.|
|Archer of Sandwell, L.||Hollis of Heigham, B.|
|Bach, L.||Howells of St. Davids, B.|
|Berkeley, L.||Hughes of Woodside, L.|
|Bernstein of Craigwell, L.||Hunt of Chesterton, L.|
|Billingham, B.||Hunt of Kings Heath, L.|
|Blackstone, B.||Jay of Paddington, B. (Lord Privy Seal)|
|Bragg, L.||King of West Bromwich, L.|
|Brennan, L.||Lea of Crondall, L.|
|Brooke of Alverthorpe, L.||Macdonald of Tradeston, L.|
|Brookman, L.||McIntosh of Haringey, L. [Teller]|
|Carter, L. [Teller]||McIntosh of Hudnall, B.|
|Chandos, V.||MacKenzie of Culkein, L.|
|Clarke of Hampstead, L.||Mackenzie of Framwellgate, L.|
|Cohen of Pimlico, B.||Massey of Darwen, B.|
|Crawley, B.||Mitchell, L.|
|Davies of Coity, L.||Pitkeathley, B.|
|Davies of Oldham, L.||Ponsonby of Shulbrede, L.|
|Desai, L.||Puttnam, L.|
|Donoughue, L.||Ramsay of Cartvale, B.|
|Dormand of Easington, L.||Rendell of Babergh, B.|
|Dubs, L.||Renwick of Clifton, L.|
|Elder, L.||Richard, L.|
|Evans of Parkside, L.||Rix, L.|
|Evans of Temple Guiting, L.||Sewel, L.|
|Evans of Watford, L.||Shepherd, L.|
|Falconer of Thoroton, L.||Simon, V.|
|Farrington of Ribbleton, B.||Stone of Blackheath, L.|
|Filkin, L.||Symons of Vernham Dean, B.|
|Gale, B.||Tomlinson, L.|
|Gavron, L.||Turnberg, L.|
|Gibson of Market Rasen, B.||Warner, L.|
|Goldsmith, L.||Warwick of Undercliffe, B.|
|Goudie, B.||Whitaker, B.|
|Gould of Potternewton, B.||Whitty, L.|
|Greengross, B.||Wilkins, B.|
|Grenfell, L.||Woolmer of Leeds, L.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ Clause 38 [Preservation of rights in respect of additional pensions]:
§ [Amendment No. 73 had been withdrawn from the Marshalled List.]
§ House adjourned at twenty-five minutes before midnight.