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House of Commons

Wednesday 11 December 1996

The House met at half-past Nine o'clock

PRAYERS

[Madam Speaker in the Chair]

Unfunded Pension Liabilities (European Union)

[Relevant document: The First Report from the Social Security Committee of Session 1996-97, on Unfunded Pension Liabilities in the European Union (HC 23).]

Motion made, and Question proposed, That this House do now adjourn.--[Mr. Wells.]

9.34 am

Mr. Frank Field (Birkenhead): I am grateful to you, Madam Speaker, for the opportunity that the House has of taking note of the report that the Select Committee on Social Security published a few weeks ago on unfunded pension liabilities in Europe.

Before I introduce the House to the ideas in the report, I shall make a few prefatory remarks. The first is that it is now clear that it is difficult for anyone to contribute to issues relating to Europe and expect a sensible response from some colleagues.

The report was made unanimously by the Select Committee, whose members comprise people who are sceptical about Europe and people who are pro-Europe. On this particular occasion--it is not always so--everyone came to the Committee wishing to strengthen the report rather than wreck or undermine it. It was published and issued to the House because we thought that this was a national issue in which we had an advantage over the rest of Europe, and we were motivated by a love of our country rather than by any more basic partisan motives stemming from being pro-Europe or anti-Europe.

Both those in the House who oppose Europe and those who are pro-Europe managed to seize on the report and talk about it when it was clear that neither faction had actually read it. That is a great pity, because I think that it is the shortest report that we have published.

We are aware that we move in dangerous times when we discuss dispassionately anything about Europe. But those were my motives in wishing to publish the report to the House. It was a natural feeling about one's affections for one's country; not wishing to see a real advantage be unnecessarily lost. We do not think that putting the interests of one's country first makes one a bad European. Some of us deeply resent those who argue that if one raises anything that is pro-British, one must be anti-European.

Dame Elaine Kellett-Bowman (Lancaster): Does the hon. Gentleman agree that, in years to come, British pensioners will be far and away the best protected

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pensioners in Europe, far ahead of the French and Germans, who are having such difficulty in funding their pensions?

Mr. Field: The Committee's approach was that, while one would expect the House to divide on party lines with regard to how well placed all British pensioners are, it is difficult to deny the fact that some British pensioners are now well placed because of the funded pension schemes that are in operation. We also took the view that, as other countries try to make adjustments so that their social security liabilities are ones that taxpayers will meet in future, people across Europe are taking to the streets to try to prevent their Governments making those adjustments.

I shall come to that in a moment, because one of our concerns is how our position may be adversely affected by Governments who cannot make the changes that they may need to make through the normal democratic process, because other ways are open to them if their electorate block them on the streets. I am grateful to the hon. Lady for that intervention.

This is not a report about funded pensions. It would be possible for the Select Committee--and we may wish to do this--to consider how a single currency could both advantageously and disadvantageously affect the extent of funded pension schemes in Britain. Yesterday evening, the National Association of Pension Funds issued a briefing on the issue to hon. Members. I am not, however, concerned with that in this debate, which is about Britain's peculiar position of having more funded pension liabilities than the whole of Europe put together.

I am glad to see the hon. Member for Stamford and Spalding (Mr. Davies). Given his facile comments about the Select Committee's report, I could not believe that he had read it.

Mr. Paul Flynn (Newport, West): I speak as someone who has read the report. Does my hon. Friend not believe that it is weakened by this statement in paragraph 10:

"The only sustainable long term solution is to build up the level of personal funded pensions"?

Is it not true that, uncharacteristically for my hon. Friend, the report seems to have been presented by a Committee with a closed mind?

Mr. Field: I suppose that, in one way, the Committee did have a closed mind, in that we did not believe that the politics of the 1970s, which my hon. Friend promotes, are sustainable. If I were considering the issue in the early 1970s, I would probably go down his road and say that we could introduce something such as the state earnings-related pension scheme, which could be sustainable. The plain fact is that we now have--certainly on the Government Benches and to some extent on the Labour Benches--agreement that that approach is not sustainable. It is a deceit, therefore, to say to the electorate that we can guarantee, via a state scheme, a pension level that clearly one and perhaps both major parties in the House do not believe is sustainable.

The only way in which we can guarantee the viability of such an approach and that it will not cheat future pensioners, is either to win every future election--and we have had some difficulty in winning the past four or so elections--or to abolish elections. Otherwise, there is no

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guarantee that a future Government will not undo what we might wish to have in a state earnings-related pension scheme.

When we compare like with like, we must be careful not to have a closed mind to attacking funded schemes because, as a result of action by Treasury Ministers, the pensions of people in SERPS have been halved and their pension expectations halved again. We did not have a closed mind, therefore, in suggesting that taking the state option is not a viable or sustainable possibility. We have a closed mind only to the extent that we do not believe that we should shut out what happened in the 1980s, when the consensus between the two parties for a state approach disappeared.

We further believe, with our closed mind, that the only way in which we can stop future Governments disrupting people's pension expectations is for those people to own their own capital, so that, if future Governments try that, they will be treated severely at the ballot box. In one way, therefore, my hon. Friend the Member for Newport, West (Mr. Flynn) is right. We have a closed mind. We have a closed mind to the state option, which the Committee does not believe is viable.

If we were having the debate in the early 1970s, I would probably be putting out the line that Barbara Castle and her cohorts then put out and continue to put out, although I now believe that to be dangerous nonsense.

Mr. Flynn: It is suggested not that SERPS should continue in its present form, but that it should be in a new form that will be independent and funded, which will invest some of its funds on the stock exchange, and where the money will be linked to the person paying in. I am sure that it is not beyond the wit of the next Government to devise a scheme that can survive possible Governments of a different colour. If we can sell the idea of SERPS as a good-value pension, it can continue and be unassailable to political change.

Mr. Field: My hon. Friend gives the game away because he says "funded". That is the very antithesis of what SERPS is--a pay-as-you-go scheme, where Governments of both parties have only too willingly pushed pension liabilities into the future for future taxpayers to meet. That is the reason why the report was published: to draw attention to the relative strength of the British position vis-a-vis Europe.

I am grateful to my hon. Friend for the line that he is beginning to take, but five years or more ago, there was not much support for my proposal to give people in the national insurance scheme stakeholder rights. I now believe that the debate has moved on so quickly that no one in his right mind thinks that it is safe to leave his pension funds with the state as guardian. We hear lots of talk about how dangerous it is, about Maxwell and so on, but the Maxwell theft pales into insignificance compared with what the Government have done to SERPS. They have halved it and halved it again. I am pleased therefore that my hon. Friend is talking about funded schemes; even in his constituency and even with his leadership on the issue, his electorate will not choose an option whereby we allow the Government to get their sticky fingers on our funds.

Mr. Andrew Rowe (Mid-Kent): The hon. Gentleman has, I am sure, been approached by Maurice Oldfield of

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the Pre Retirement Association, which, anxious about the unscrupulous selling of private pension schemes, has tried to evolve a system whereby, as in the National Savings system, there is some state involvement in the creation of such funded private schemes. Would the hon. Gentleman care to say anything about that?

Mr. Field: When I reintroduce a Bill for National Savings pension schemes run through the Post Office, I must approach the hon. Gentleman for a bi-partisan report on that. I do not claim that it is a new idea. Mr. Gladstone introduced the proposal, which some powerful insurance companies managed to destroy, so I do not underestimate the power of the market when it feels that it is challenged. What I am in a sense disappointed about in relation to the intervention of my hon. Friend the Member for Newport, West is that we could have agreed because, although we are talking about success here--the hon. Member for Lancaster (Dame E. Kellett-Bowman) raised the point that some pensioners are in an advantageous position--we have far too many very poor pensioners. Another Select Committee report will consider how one might deal with spreading the success that many pensioners experience to all pensioners. There I am in total agreement with my hon. Friend.

The nature of the report is simple. We have considered the extraordinary position that Great Britain is in, having more funded pension assets to meet future liabilities than the whole of Europe put together. We were concerned about how, within a new single currency arrangement, that position might be undermined. We found three possible ways in which that might occur.

First, if Governments find it difficult to balance their budgets to allow for adjustments, perhaps because of violence on the streets, they may seek to raise money by issuing bonds. We know perfectly well that Governments make those bonds more attractive by raising interest rates. Britain would not have to do that as we do not face the same unfunded liabilities as other countries, but we might be affected by higher interest rates abroad. Even if we did not join a single currency, the British economy would not be immune to the trend in interest rates elsewhere. It is not a simple matter. The single currency will affect us directly or indirectly.

Secondly, Governments can opt for what was historically considered to be the easy option. When they are faced with liabilities that they cannot meet, they can print money. We can assume that that will not happen through the new European central bank. However, the chairman of the Bundesbank has expressed his anxiety in that respect. He is fearful that when he has to share responsibility for issuing the currency affecting Germany with bankers from other countries who may take a different line on inflation--often for the simple reason that those countries have not suffered the same terrible history of inflation--the decisions will not be as strong as those taken by the Bundesbank to ensure that the currency is not devalued by printing money.

Thirdly, Britain may be asked to share the cost of other countries being less careful about meeting future pension liabilities. It was not mentioned in the report, so I mention it now. The European Community is not static. It is rightly an evolving organisation. It is quite possible that, in future, countries will acknowledge publicly what they have clearly acknowledged privately--that they have serious financial problems in meeting future pension

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liabilities--and declare it to be a new European issue that requires a European strategy. Although that would be good for many of our European colleagues, it would not be a sensible approach for Britain to take, as we might have to carry some of the costs.

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