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Mr. Christopher Leslie (Shipley): On the point about making announcements that people do not believe, is the hon. Gentleman still standing by his party's pledge to spend £28 billion on increasing the personal income tax allowance from £4,100 to £10,000?
Mr. Webb: Many pensioners would welcome a significant increase in the personal income tax allowance, because, at the moment, it is barely above the level of income support. That is extraordinarily low for pensioners and should be increased. The hon. Gentleman asked about our long-term goal, over the course of two Parliaments, of raising tax allowances to £10,000. I used to work for the humble Institute for Fiscal Studies, which has received much praise this afternoon. The first thing I did as an employee of that institute was to examine Conservative allegations that the Labour party would spend £28 billion--strangely enough, it was the same figure--which was calculated by adding together everything it had ever said it wanted to do and assuming that everything would be done in one go in one Parliament. That was absurd. The hon. Gentleman's party regarded it as absurd then and his question is an absurd way to approach matters, too.
The issue of means testing is central. At this point, I wish to introduce the House to my father-in-law. When I see him, he asks me one question.
Mr. Frank Field (Birkenhead):
Why are you in the Liberal Democrats?
Mr. Webb:
Apart from that, he asks me what the point was of saving his money when the person next door gets everything for nothing. He suggested that I should find out how much someone would have to save to match the level of means-tested benefits.
I tabled a question to the Department of Social Security asking what someone would have to have in a pension pot to buy the extra benefits that people on income support receive over and above the basic state pension. They get an extra tenner a week in cash, some £2,000 a year on average in housing benefit, council tax benefit, free dentistry and so on. The answer was that it would cost £41,000 to buy an annuity to match those additional benefits. That means that there is almost no point in people saving £20,000, but if they can save £40,000 they can buy an annuity to provide all the same goodies that someone on income support gets.
The last thing that I am suggesting is that people on income support are well off, but we want to encourage people to save and the over-reliance on means-tested
benefits discourages them. I was shocked to learn that the value of the additional benefits was equivalent to a £41,000 pension pot.
What should the Government have done and what could they do in future? First, they could provide a firm foundation for the basic state pension, not a foundation of sinking sand. By that, I mean that it should rise with age. The poorest pensioners in the land are not the ones entitled to, and getting, income support: they are those who are entitled to income support but are not getting it. The hon. Member for Colne Valley (Kali Mountford) nods, because she is aware that the Government are trying to pay income support to more people. I welcome that, but the Government assume in their costing supplied in written answers that 15 per cent. of those entitled to the so-called guarantee will not get it. That means that hundreds of thousands of pensioners will not get a penny from the so-called guarantee. Most of them are over 75 or 80 and would get every penny of the basic state pension for older pensioners. That is why we want a firm foundation for the basic pension. Even a modest rise of £5 for the over-80s and £3 for the over-75s would guarantee putting 40,000 or 50,000 pensioners above the poverty line.
What can we say of the Government's long-term policies? We need a firmly founded basic pension. The Secretary of State said that, under his policies, adding together the basic pension and the state second pension, we will bring people up to the target minimum of about 20 per cent. of average earnings. That is true in the year in which those people retire, but what happens the next year? We do not know how the state second pension will be indexed but, while the basic pension will be linked to prices, the guarantee will be linked to earnings. They will have achieved their goal in 2050 for one year but the year after retirement, those who have got into this wonderful new Government scheme will be back on means-tested benefits; back on the guarantee; back on the chain gang. That is not something to be proud of. It is crazy to get people just up to the poverty line for a year and then let them slip below it.
Mr. Duncan Smith:
Does not moving to a means-tested system progressively trap people and bind those who would otherwise have been free of it to a process where they might as well not bother to save?
Mr. Webb:
The hon. Gentleman is right in that, if the Government can say, after 50 years of their pensions policies, a quarter of pensioners will still be on means-tested benefits, as we are told by written answers, it is not something to be proud of. Even in 2050, the oldest pensioners will be the poorest, simply because they are women. Unless much changes, women are likely to be poorer than men. The way to get people off means-tested benefits is to tier the basic pension and get the basic pension for older pensioners to subsistence level so that it is worth having in its own right.
Kali Mountford:
Many women, especially carers, have no entitlement and are totally reliant on means-testing. Will not the new system take them off that and give them the opportunity of a pension in their own right?
Mr. Webb:
The hon. Lady is right to say that, under the proposed scheme, people who, for example, care for
Mr. Viggers:
I have attended pensions seminars with the hon. Gentleman and respect his view. Will he expand on his last point? Would not a carer who worked until 2050 and managed to save more than £8,000 be worse off?
Mr. Webb:
The hon. Gentleman is right. The Government plan to review the capital limits, and I welcome that. I am sure that the review is in response to the question that I tabled long before the Green Paper. I asked what would be the cost of raising the upper threshold of £8,000 to, say, £20,000. It is negligible, about £20 million or £25 million. The Department of Social Security can spend that in the blinking of an eye. The Government should have done that for this April. At the very least, they should undertake it as part of the review. I welcome the noises from the Government on that front, but much more needs to be done.
Kali Mountford:
The Liberal amendment talks of raising expectations, which is what the hon. Gentleman seems to be doing. Can he tell the House how he would fund them?
Mr. Webb:
I would be delighted to. The £5 and £3 figures could be funded in a variety of ways. First, one could cap the overall amount of tax relief. The Secretary of State shied away when my hon. Friend the Member for Torridge and West Devon (Mr. Burnett) asked about higher rate relief. We are not necessarily suggesting restricting it to the standard rate, but if one were to cap at a certain amount for the year in which one was putting in tax reliefs, it would greatly simplify the whole system and would not put a huge amount into the pensions of the highest earners. In other words, one could cap at a generous figure, but money would still be freed up for the oldest pensioners, who are also the poorest.
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