House of Commons Hansard Debates for 7 Dec 1992

Mr. Dewar : I am not dying--I hope that that news is not too disappointing for the hon. Lady. She and I should perhaps call a truce on animal parallels because we are wandering into dangerous territory.

Miss Widdecombe : What kind of animal am I?

Mr. Dewar : That is exactly what the hon. Lady should not tempt me to say.

Does the hon. Lady recognise that an interesting point about the exchange on invalidity benefit in the Second Reading debate was that she refused to deal with the point, and avoided it, using the technicality of the 1922 Committee as a reason for doing so? I know that the hon. Lady will tell me that she does not discuss leaked documents, but she must be aware of the fact that there is substantial evidence about detailed preparation for the taxation of invalidity benefit. Within what time scale is this manifesto promise of the Conservative party likely to be implemented?

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes) : Order. Before the Minister replies, let me point out that I cannot see what that issue has to do with the Committee stage of the Bill. I suggest that it is not further pursued by hon. Members.

Miss Widdecombe : In deference to your ruling, Dame Janet, I shall not refer to any leaked documents, or indeed to any other form of stolen property. I shall, as you rightly urge us, move on to the detailed points raised in the debate.

The hon. Member for Islington, North (Mr. Corbyn) and, as the hon. Member for Garscadden rightly reminded us, Conservative Members have expressed concern, both on Second Reading and today, that personal pensions should be properly regulated. I made it clear on Second Reading that I recognised that that concern was shared and that I did not underestimate the importance of getting the regulations right. Nor do I underestimate the importance of addressing all the points that were raised by Labour Members about the validity of personal pension schemes, about the amount of information that is given at the time of sale of such schemes, and its accuracy. However, like occupational schemes, personal pension schemes depend on investment. In response to the point made by the hon. Member for Islington, North, I can say that the Occupational Pensions Board has not had to revoke a certificate from a personal

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pension scheme because the scheme could not give it an assurance that it could cover the guaranteed minimum that it stated that it would produce and that it was obliged to produce ; there is that monitoring.

I also fully understand the point that if one starts calculations on various bases, one can produce a scenario that might show that a pension will not be worth what it was originally thought that it would be worth. All pensions, however, are dependent on investment. It is impossible to judge what will be the case in 20 years' time on the basis of a short-term trend or on information immediately available. We are certainly not going to go into the business of trying to guarantee or underwrite given levels of investment, but that is not unique to personal pensions. I do not want our 5 million personal pension holders to assume from today's debate that all is not well.

Mr. Corbyn : As the Minister presumably knows, examination of occupational pension schemes by the Occupational Pensions Board normally relates to 20 per cent. of the capital. The board verifies whether that is in order, which is not the same as verifying the whole scheme. To what extent does verification go into personal schemes?

Does the Minister agree that one way of enhancing the security of both company and personal pension schemes would be to introduce a guaranteed level of gilt-edged investments within them?

Miss Widdecombe : Certain minima operate for both occupational and personal pension schemes. In neither case is there a maximum or a guarantee at the end : there cannot be, simply because of the way in which investment works. I take the hon. Gentleman's point that it might be possible to produce a better sort of investment by insisting that it contained a gilt element of X per cent., and I hope that investments would be prudentially handled in that way. Nevertheless, I do not yet see a case for insisting that any investment organisation follow a particular path that could be laid down and curtailed.

Having said that, I shall consider what the hon. Gentleman has said. As I stated earlier, we are reviewing the whole position. I shall find out whether there is any practical way of implementing the hon. Gentleman's suggestion and let him know the outcome of my deliberations. I hope that that is acceptable to him.

The hon. Member for Garscadden raised the question of income levels. He said that it probably did not pay people to take out personal pensions if they were earning less than £9,000 a year ; he then upped the figure to £10,000, on the basis of discussions in which he had engaged. The essence of his argument, and that of the hon. Member for Islington, North, was that there was an income level below which it did not pay people to opt into personal pensions, and it was implied that people on incomes below that level were doing so because they had been badly advised.

The technical annex to the 1986 White Paper made it clear that people with very low earnings might not be better off with personal pensions. However, the level of income is crucially dependent on the level of the return on their investments. As all pensions are a long-term investment, decisions should not be made on the basis of

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an isolated year or other short period. The warning is there ; on the other hand, if there seems to be an investment pattern that will produce returns--

Mr. Dewar : I am sorry to interrupt, but I am genuinely interested in this point. I entirely accept that there are many individual exceptions, and that people must examine their personal circumstances and take advice. Let me remind the Minister, however, of the quotation from Legal and General which I gave earlier. I think that it is a fairly broad rule of thumb that those in the £9,000 or £10, 000 income category should consider the balance of advantage carefully before opting into a private pension scheme. In the light of that, is the Minister not surprised by the figure of £9,750, which is given as the average earnings of people with private pension plans?

5.15 pm

Miss Widdecombe : As the hon. Gentleman has himself pointed out, individual circumstances will vary from the norm. I am not wholly surprised, given that it was always clear that, in introducing personal pensions, we were endeavouring to benefit people on fairly modest wages. The technical annex makes clear the need to be more careful at that point, but being more careful is not the same as assuming that in no circumstances should a personal pension be taken on.

I am sure that it will not please the hon. Member for Roxburgh and Berwickshire very much to learn that the regulations are negative procedures.

As the hon. Member for Garscadden said--I almost used the word "rumbled"-- the £6 million is spread over six years, from 1988-89 to 1993-94, providing an average of £1 million a year. It is just above 0.5 per cent., not just above 3 per cent.

It is right that the administrative expenses associated with payments from the fund should be met from the fund ; the clause simply writes in a perfectly normal provision for the meeting of such expenses. The annual cost of £165 million was based on the payment of an additional 1 per cent. to 2 million personal pension holders. The hon. Member for Roxburgh and Berwickshire also mentioned the need for a regulation-making power to verify dates of birth. In the vast majority of cases, inquiries about dates of birth should produce no difficulties ; the information will already be held by the Department. It is possible that, in a few cases, the Department will not hold those details and the individual will be unable to provide a birth certificate or other verification. In those few cases, the adjudication officer will have to make a determination on the basis of the best evidence available.

Mr. Corbyn : I asked the Minister earlier about the disclosure of information to the holders of personal schemes : I asked her how they could find out what was happening to their investments and where the money was invested. The money is often put into other trusts, which makes it very difficult for the individual to follow the normal rules governing disclosure, which are implicit in all the regulations concerning occupational and company pension schemes.

Miss Widdecombe : The Government--and, I am sure, the

regulators--certainly want people to have access to regular information about what is happening to their schemes, as and when they require it. That already applies to those who invest in occupational pensions. There

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should be no difficulty about providing information about the state of their particular pot of gold-- [Interruption.] Let me tell hon. Members who have poured scorn on personal pensions--at one point, they almost seemed to pour scorn on occupational pensions as well--that, following the measures that we have introduced, nearly 70 per cent. of people retire with occupational pensions. Moreover, the average value of their pensions is now nearly as great as that of the state pension. We are vastly increasing pensioner incomes. A certain number of people have always been excluded because occupational pensions were not suitable for them. The Bill is designed to ensure that they have exactly the same advantages as people with occupational pensions.

I am amazed at the scorn that is continually poured on the provision of greater choice, greater flexibility and greater incomes in retirement for ever more people.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2

Payments into National Insurance Fund out of money provided by Parliament

Mrs. Golding : I beg to move amendment No. 4, in page 2, line 14, leave out from determine' to end of line 16.

The Second Deputy Chairman : With this we may take amendment No. 5, in page 2, line 17 leave out subsection (3).

Mrs. Golding : Clause 2 provides for Treasury grants to the national insurance fund. As the Government Actuary puts it, "The amount of such payments will have regard to the expenditure of the Fund in future and will be limited to a specified maximum percentage of estimated benefit expenditure in the relevant financial year. For 1993-94 this maximum is set at 20 per cent. For 1994-95 and later financial years, the prescribed percentage may be amended by the Secretary of State with the consent of the Treasury but will not exceed 17 per cent."

The amendment attempts to probe the thinking, assumptions and calculations behind the figures. One difficulty we face is that of having no firm actuarial statement for 1994-95 and, because of that, we are limited to approaching the matter through the 1993-94 figures. For 1993-94, the maximum Treasury grant to the national insurance fund is set at 20 per cent. of the estimated benefit expenditure. Will that be sufficient to achieve the Government's objective of ensuring that the estimated balance in the fund at the end of the year equals one-sixth of benefit expenditure?

The Government Actuary has reported that, on certain assumptions, the figure needed will be 19.6 per cent. The assumptions are extremely important in assessing the whole operation, but what are they? I quote from paragraph 10 of the Government Actuary's report, Cm. 2097, which states :

"The income from contributions and the expenditure on benefits in the remainder of 1992/93 and 1993/94 will depend inter alia on the level of unemployment and the rate of increase of earnings. In accordance with the normal practice, working assumptions have been given to me by the Government in regard to these factors. The assumptions I have been instructed to use"--

not merely given but "instructed"--

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"for the purpose of the above estimates were set out in the following terms in the Chancellor of the Exchequer's Autumn statement :

[1] the number of the unemployed [Great Britain] averages 2.74 million in 1992/93 and 2.8 million in 1993/94 ;

[2] the increase in average earnings on a year earlier is 5 per cent. in 1992/93 and 5 per cent. in 1993/94."

Those figures form the basis of the Government Actuary's assumptions. They are interesting and very revealing--it is no wonder that the junior Minister ducked, dived, dodged and weaved and resorted to abuse when my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar), who is very sensitive, shy, retiring and easily hurt, asked her whether she was confident that the forecast of 2.8 million in 1993-94 would be held. Instead of coming clean and admitting that she was stuck with the figures because they were part of the autumn statement, she said :

"Our job is not to second-guess the Government Actuary but to respond to him."--[ Official Report, 30 November 1992 ; Vol. 215, c. 107.]

Fancy blaming the Government Actuary for the Chancellor of the Exchequer's actions! What a nerve! No wonder she did not want to answer my hon. Friend the Member for Garscadden.

Mr. Corbyn : My hon. Friend the Member for Newcastle-under-Lyme (Mrs. Golding) makes an extremely valuable point. The Bill hides an attempt to control the independence of the Government Actuary when he makes rational assessments of the future. The Government have never forgiven him for the way in which he exposed their spending projections and proved the unviability of some of their proposals.

Mrs. Golding : That is a valid point. The Actuary is not merely given information but instructed to make his assessments on the basis of Government figures.

However, it is possible that the estimates may prove to be correct--by the laws of chance the Chancellor of the Exchequer must get something right sooner or later. I am sure that my hon. Friend the Member for Islington, North (Mr. Corbyn) will concede that. Very few people have confidence in the Government's estimate of unemployment, which has been forced on the Actuary. If unemployment is higher than estimated, the cost of benefits will go up accordingly. If the estimates of the increase in earnings do not rise as much as predicted, the contribution income will be so much lower. Do the Government believe that, despite the public sector wage freeze, there will be a 5 per cent. increase in earnings in 1994, which is the figure that the Government have forced on the Actuary? Will the Minister remind us how the figure has been calculated?

If unemployment is above 2.8 million and the increase in earnings is below 5 per cent., the Treasury grant required would be greater than 19.6 per cent. The Actuary himself refers to the uncertainty about the future level of unemployment and increases in earnings. If the Treasury grant were greater than 20 per cent., what action would the Government take? The figure is questionable but it is at least based on published figures.

What of the reduced figure of 17 per cent. for 1994-95 and subsequent years? How was that figure reached? What are the estimates for unemployment and earnings? We need to know such figures before we proceed. Surely the figures were not produced out of a hat in the Treasury. If

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they were, the Minister for Social Security and Disabled People should admit it. If they were not, he should tell us how they were arrived at.

The Minister for Social Security and Disabled People (Mr. Nicholas Scott) : We are discussing two amendments and if they were accepted,I think that hon. Members would accept that they would mean that from 1994-95 no maximum would apply to the grant which my right hon. Friend the Chancellor of the Exchequer could determine to draw from the money provided by Parliament and into the national insurance fund. I believe that the issue would be better discussed when we debate the next group of amendments dealing with the rules that apply to the Government Actuary or his deputy and the assumption that he is allowed to make.

I have done some research and, as far as I can ascertain, the establishment of the rule about the assumptions which the Government Actuary and his department--let us put them together in this case--go back to 1945 and have been pursued by successive Governments since then. That means that there is a sensible rule that standard assumptions across Government are practical and understandable by the public and the specialists involved.

In this case, the Government Actuary uses the same assumptions as the Treasury about future policy. I hasten to say that the assumptions are not forecasts--they are, in essence, working assumptions which are essential. It would be a receipt for chaos if different arms of Government were to make different working assumptions, and the most sensible--

Mr. Dewar rose--

Mr. Scott : If I may finish the sentence I shall of course give way- -perhaps I shall even anticipate the hon. Gentleman.

All types of assumptions are made, not all of which turn out to be correct and many vary in one direction or another, but it would make sense to have a common set of assumptions for the purposes that we are discussing.

Mr. Dewar : I accept that, but perhaps the Minister will say a word or two on behalf of the Chancellor--I know that the Government speak with one voice so I can invite the Minister to deal with this issue. A 5 per cent. increase in earnings between 1992-93 and 1993-94 is a rather puzzling figure in view of the Government's public sector pay policy. Surely that should have been taken into account and an adjustment made.

Mr. Scott : I do not accept that. The assumptions are made a number of years ahead but they are reviewed annually and new assumptions made. It is most important that there is a common set of figures on which all those involved can work. We are sometimes wrong and sometimes right and there will of course be variations. I repeat the point, which is broadly accepted by Opposition Front-Bench Members, that the value of having a set of common assumptions outweighs any shortcomings of the system.

5.30 pm

Mr. Malcolm Wicks (Croydon, North-West) : Was the 5 per cent. assumption made before or after the public sector pay policy was devised? May I tease out a little more

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the Minister's idea of the difference between an assumption and an estimate? Have I understood correctly that one is false and one is true?

Mr. Scott : I am not going to be drawn into becoming a Treasury Minister at the Dispatch Box. I am talking not about estimates or assumptions generally, but about assumptions that are read in across the board of public expenditure assumptions for the years ahead as against firm forecasts, which are wholly different. We all know how many different forecasts are made from different areas, not only in Government, but outside.

Mr. Corbyn rose--

Mr. Scott : I will return to the main thrust of what I was saying rather than get bogged down on this point as I am sure that the Committee wants to come to a decision on the amendment and on the clause. The main thrust of the amendment was not assumptions, which we shall discuss when dealing with another amendment, but the Opposition's concern, which I well understand and which was expressed on Second Reading, that if the outturn is different from the planning assumptions underlying the decision to set the maximum for the grant at 17 per cent. for successive years, it will not be possible to keep the fund in balance. I welcome the concern of Opposition Front-Bench Members and I understand their wish to press that concern by means of the amendment. I hope that I can ensure that I set their minds at rest.

On Second Reading, the hon. Member for Glasgow, Garscadden (Mr. Dewar) drew attention to the high level of grant assumed for 1993-94 by the Government Actuary which, at 19.6 per cent., is very close to the maximum of 20 per cent. for that year, as we all recognise. My right hon. Friend the Secretary of State pointed out in that debate that the level is high in 1993-94 because of the need to make up ground lost by the fund in 1992-93.

The Committee will be aware that the Government Actuary recommends a prudential minimum balance for the national insurance fund of around two months' of benefit expenditure. A Treasury grant of up to 20 per cent. aims to ensure that the prudential minimum is maintained throughout 1993-94, but in the event that the outturn is different from the assumptions, the figure of £6.5 billion, for which we have planned as the end year balance for that year, provides in my view and in the view of most people an entirely adequate safety margin which will prevent the fund from exhausting its resources. That is the purpose of setting the figure as we have. I believe that it protects the fund and provides an ample cushion against any exigencies.

Looking beyond 1993-94, it is obviously more difficult to see where we will be. The potential shortfall in the fund should be considerably less than the amount that we need to make up next year--well below 17 per cent. of annual benefit expenditure. The purpose of the grant in future years is to provide some flexibility in the management of the fund and not to guarantee its solvency under all conceivable circumstances.

It must be recognised that Parliament does not provide a bottomless pit of money on which my right hon. Friend the Secretary of State can draw. We believe in the principle that an overall limit should be set on the Treasury grant, just as it was set in the days of the old Treasury supplement, which is sensible and prudent.

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I hope that I have been able to assure Opposition Members that the ceiling that we propose for the amount of grant for the immediately following year and for successive years is sensible and prudent. It can, of course, be adjusted if needed. I do not believe that we shall have to return to it.

Mrs. Golding : I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.

Mr. Dewar : I beg to move amendment No. 6, in page 2, line 22, leave out

or the Deputy Government Actuary'.

The Second Deputy Chairman : With this, it will be convenient to take the following amendments : No. 7, in page 2, line 22, after Actuary' insert

on the basis of such assumptions as seem appropriate to him'. No. 8, in page 2, line 23, leave out from first be' to second the'.

Mr. Dewar : We have already had a preliminary canter round part of this course in the past few minutes. The amendment is inevitably connected with the previous group. The amendment goes back to the vexed question about the duties of the Government Actuary and the assumptions on which he works. The key amendment is amendment No. 7. Clause 2 suggests that " estimated benefit expenditure'" means "the amount estimated by the Government Actuary".

We seek to add the words :

"on the basis of such assumptions as seem appropriate to him." We seek to charge the Government Actuary with taking on board the proper basis on which to make forecasts rather than taking instructions from the Treasury. I understand that the Minister is likely to say that Government Departments must work on the same basis and must speak with one voice, and that that applies to the Government Actuary as certainly as it applies to the Under- Secretary of State.

The Minister's argument may be superficially plausible. However, there is a public interest, which I pray in aid, in having forecasts that are plausible and which can be taken at face value as genuine attempts to predict what will happen. I realise that the Government are bound to insist that the projection is 2.8 million for the seasonally adjusted unemployment figure in the coming year because that was the figure in the autumn statement. However, it is not unfair to say that if I and the Minister were sitting over a cup of coffee in the Smoking Room--an unlikely scene-- [Laughter.] I did not say which aspect of the scene was unlikely. I leave it at that. In those circumstances, the Minister and I would agree that there is no reasonable prospect of the seasonally adjusted unemployment figure for next year being down at 2.8 million. Most forecasters are looking at a seasonally adjusted figure of about 3.2 million and some have suggested more alarming scenarios. I am not in the business of spreading dissension and dismay in Government ranks. I am prepared to assume that the figure may be around 3.2 million.

If the figure is 3.2 million, the whole arithmetic of the national insurance fund will be affected. To that argument can be added the other point made in the past few minutes--the assumption that earnings between 1992-93 and 1993-94 will rise by 5 per cent. If that happens, it will be a considerable defeat for the Chancellor of the Exchequer

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and for the Government as a whole as they are clearly looking for a very low round of wage settlements and are taking energetic steps to ensure that that occurs, at least in the public sector over which, as employer and paymaster, they have some control.

I protest mildly to the Minister that there is a certain unreality about his defence. Although he shows admirable loyalty to the Chancellor, he does no great service to the compilations on which we have to consider policy and to the projections of what is likely to happen in the national insurance fund.

I accept that the Minister is anxious to be helpful. He does not believe in the form of timidity practised by his colleague the Under-Secretary of State in her exchanges. The hon. Lady sometimes does herself an injustice because there is some evidence that she has a romantic side of her temperament--

Miss Widdecombe : What evidence?

Mr. Dewar : There is some evidence. I cannot go into that. I am spluttering-- [Laughter.] I am spluttering with the excitement of it all. I have been following with great interest the hon. Lady's dealings with the present crisis in the Church of England. In her style and stance, she has taken a rather romantic approach of High Church principle. In some of the reference books that we occasionally look at to while away our time, I notice that she lists as her principal interest research into the escape of Charles II after the battle of Worcester. That certainly suggests a romantic turn of mind. Sometimes the hon. Lady does herself little good by adopting the somewhat confrontational style that she affects--and I use the word affects--

The Second Deputy Chairman : Order. The hon. Gentleman will not do himself much good if he does not come to the point.

Mr. Dewar : The material that I was dealing with was probably considerably more interesting than the arithmetic of the national insurance fund.

The Second Deputy Chairman : That is not the Chair's view.

Mr. Dewar : I understand your stern duty, Dame Janet, to drive us back to the national insurance fund.

I hope that the Minister for Social Security and Disabled People will deal with my point because there was a certain reluctance to do that on Second Reading. The Under-Secretary of State complained--and I can use that term fairly--that I raised the point no fewer than three times. Indeed I did and I did that because I strongly suspected that I was not going to get a satisfactory answer. That turned out to be the case. I would like a better response today.

When I first raised the point, I was told, in short order, that I would

"get an answer, but it will be in my good time and not at his request."

That was a little peremptory. The hon. Lady occasionally sounds like an old -fashioned school teacher of the kind who used to imagine that if the children enjoyed their lessons, one lost half the disciplinary profit. I do not like to be scolded in that way. However, I tried again on Second Reading, as those who follow the minutiae of our exchanges will recall. In a most inadequate reply, the hon. Lady said :

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"I have already taken care of that point. One of the reasons that those on the Opposition Front Bench get so muddled sometimes is that they do not listen to what is said."--[ Official Report, 30 November 1992 ; Vol. 215, cc. 106 and 108.]

I have reread what was said because I am always willing to be corrected if that is justified. However, I can find absolutely no evidence that the hon. Lady had produced an explanation.

It is significant that the Under-Secretary of State was not prepared to express a personal or ministerial opinion that the 2.8 million or 5 per cent. earnings figure was likely to hold during the next year. She was prepared to tell us where the figure came from and to point at the guilty party. However, she was not prepared to say that she believed a word of it and I do not blame her. She is not foolish. She recognised that it is extremely unlikely that those figures will survive to the end of the year.

I hope that the Minister for Social Security and Disabled People will accept and concede that. Once we have that concession, I hope we can consider the interesting debate that would follow about what we should do about it and how we can place the earnings figure and unemployment projection on a more realistic basis.

I am sure that you, Dame Janet, appreciate that this is an important point. Clearly if unemployment rises, contribution incomes inevitably fall and the pay-out demands on the national insurance fund increase. That is like the displacement theory when, in the fourth form, one puts things into a bath and watches the water overflow. The impact can be quite serious. I hope that the Minister will be prepared to consider those points.

The other two amendments do not require great examination. They were tabled simply to allow a slightly broader platform to allow us to make one or two points. However, perhaps the Minister will deal with one or two little matters. The Minister will recall that there is an instruction in respect of the Government Actuary's report to the House. Does "instruction" have a specialist and technical meaning? Or does it mean that the poor man was told, "However squiffy this may make your calculations, this is your starting point and you had better not complain." ?

I want also to refer to the inclusion in subsection (4) of the reference to Deputy Government Actuary. I have no objection to the Deputy Government Actuary having his moment of glory and appearing in statute. I know who the Government Actuary is, but I do not know who his deputy is. If the Minister tells me, his name will appear in Hansard and that might be some consolation.

5.45 pm

Although I do not want to detain the Committee or the Minister, I have a serious point. Why is the reference to the Deputy Government Actuary necessary? I would have presumed that all the work was carried out by the Government Actuary. However, there is of course a power to delegate to others, as there is in every Department. If the Government Actuary says to the Deputy Government Actuary, "Would you like to go and do these calculations because I really cannot bring myself to do that, given the false nature of the starting point", he is entitled to do that. If the poor man has a cold and the work must be carried out in his absence surely the Deputy Governor Actuary becomes the Government Actuary. The specific reference to Deputy Government Actuary seemed a little odd.

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That was the kind of point that, in my younger days in Standing Committee, might have run for a very long time. However, perhaps I should leave it at that. In respect of the other amendment that I have decided to duck, the reference to the aggregate of the amounts seemed otiose and unnecessary. No doubt that refers to the fact that the fund is an aggregation from a variety of different sources. While I doubt whether the words are necessary, I do not believe that even I could elevate that into a matter of principle.

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