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6.26 pm
Mr. Quentin Davies (Grantham and Stamford): We learn from this morning's press that the Government have lost the support of a substantial proportion of their Back Benchers on the means-testing of incapacity benefit, and it is clear from what we have seen this afternoon that they are also losing the support of their Back Benchers on their pensions proposals. Of the enormous number of Labour Members, only two Back Benchers have been prepared to turn up and defend the Government's actions.
That absence has been more than made up for by some extremely powerful contributions from Conservative Members. The hon. Member for Newbury (Mr. Rendel) made various proposals, some of which, in themselves, might have been quite interesting, but I cannot be the only one who will take a long time to take any Liberal proposal remotely seriously again, now that we have seen the Liberals running up the white flag on tuition fees in Scotland--only a week after they were apparently resolutely committed to their policy--and all for a mess of pottage: two pathetically junior seats in the Labour Administration in Scotland.
The other Labour contribution--that was a Freudian slip, because it is very hard to distinguish between Labour and Liberal these days--was from the hon. Member for Putney (Mr. Colman). I strongly agreed with him. He spoke with feeling, and evidently with some personal knowledge, about the position of local authority employees who continue to do the same job in the private sector because they are contracted out or are working for agencies that are privatised.
Clearly, such people should not lose any pension rights as a result of the change. The Opposition strongly support the hon. Gentleman's representations, and we hope that the Government will listen. We need an equivalent of the Transfer of Undertakings (Protection of Employment) Regulations 1981 for pensions in the local authority sector. That is a very good cause.
My hon. Friend the Member for Gainsborough (Mr. Leigh) spoke in original vein, as he always does on these occasions, and with much thought and obvious preparation. He suggested that it would be a good idea to continue the consideration that the previous Conservative Administration gave to the possibility of introducing a greater element of funding to the state pension system. I know that he feels strongly about such matters and we shall take his views into account. He also made a powerful attack on the evils of means-testing.
The hon. Member for Northampton, North (Ms Keeble) made a valiant attempt to defend the Government. She was alone on the Government Back Benches in so doing, because the hon. Member for Putney had his own reasonable agenda. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) spoke with great knowledge and he is a fine example of the great utility to the House of having Members of Parliament who have had a direct professional involvement in the matters under discussion. My hon. Friend made a well-informed and useful contribution.
My hon. Friend the Member for Westmorland and Lonsdale (Mr. Collins) made a powerful speech about the evils of means-testing and my hon. Friend the Member for Maidenhead (Mrs. May) made a memorable speech. She brought a new dimension to the consideration of pension issues. We forget too often how whole sections of the population--women, of course, make up 50 per cent. of the population--may lose out badly. My hon. Friend was right to say that only in the past few years have women started to benefit substantially from the occupational pension system. Unfortunately, we now have a Labour Government who have no regard for that great national asset and who may do serious damage to it. The opportunities provided by the occupational pension system are being closed off to future generations, men and women, and some women will find that they have never had the opportunity to benefit from it.
The Labour Government's handling of pensions has been almost unimaginably muddled. We have had administrative confusion, destructive departmental rivalry and, above all, incompetence and bad principles. Let us start with the bad principles. The Labour party won the election on a manifesto that made it clear that it was committed to maintaining SERPS for those who wished to participate in it. It was in the manifesto in black and white but, when the Labour party got into office, it promptly broke that electoral commitment. That was a bad start and a bad principle to begin on.
Ms Keeble:
Would the hon. Gentleman defend his party's actions in government on widows' SERPS? Does he defend the total chaos that surrounded the processing of that decision and the grief that it caused many people?
Mr. Davies:
The hon. Lady has obviously taken a course at Millbank in how to defend the indefensible by talking about something else. The Labour Government decided to destroy the SERPS system, in breach of their electoral promise, and have replaced it with another system, announced in the Green Paper as the state second pension. However, it is clear that even someone with a full earnings record will, at very best, end up with a pension that--on the day of their retirement--is marginally above the minimum income guarantee. Because the minimum income guarantee--that new
The Government will have condemned everyone in the state second pension scheme to spend their declining years dependent on means-tested benefits. What an extraordinarily unjust system. How perverse, unfair and crazy it is to decide to uprate to a lesser degree a pension to which someone has contributed than a pension to which no one has contributed. It takes new Labour to think up a system as unfair and irrational as that.
Mr. Davies:
My time is limited. The hon. Gentleman had his chance and I have already expressed my views about his party's policies. He should not take it personally.
Bad principles are the foundation of all the mistakes that the Government have made. The Government have introduced another fundamentally bad principle into our national economy by taxing savings at a higher level than other income. As if that is not enough, they have added the unfair to the irrational and have decided that people who depend on savings income--even those whose savings income is so modest that it does not take their total income above the income tax threshold--will still pay income tax on that savings income. That is a desperately unfair and cruel policy that will have a huge impact on pensioners with a small savings income.
It is also a bad principle to increase taxation on pension funds, as the Government did with the withdrawal of the dividend tax credits--the introduction of the pensions tax. It is no surprise, therefore, as my hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) pointed out, that the savings ratio in this country is declining. It has fallen from more than 11 per cent. when the Government came to power to around 7 per cent. now. It may have fallen even lower since I last saw the figures. That is a potential catastrophe for this country and it was brought about by the application of deliberate policies that were extremely ill conceived.
Stakeholder pensions are in an extraordinary shambles. The Government's introduction of stakeholder pensions will become a locus classicus--a case study--in political science classes in many parts of the world on how not to make effective policy. The Government came to power with a manifesto commitment to introduce a stakeholder pension, but they did not have the faintest idea what to do. For 18 months, nothing happened. The Government went through two Secretaries of State and three Pensions Ministers. After 18 months, we still had not seen the Green Paper that was promised in the summer, then in the autumn.
The Government were desperate and had to publish something by Christmas. They lifted the Australian superannuation model--which has now been abandoned by the Australians, although the Government probably have not noticed that--which was based on compulsory contributions by employees and employers to a funded scheme. Everyone in Australia who was earning above a certain minimum income--A$450 a month--had to
take part. The Government changed the figure here to £9,000 a year, but the system was basically the same. However, they then changed their minds.
I do not know whether it was the Chancellor of the Exchequer or the Prime Minister who vetoed compulsion, but one of them did. I was shocked this afternoon by the way the Secretary of State tried to bluff his way out of that. My hon. Friend the Member for Chingford and Woodford Green put to the Secretary of State the reference on page 105 of the Green Paper to compulsory funded pensions for those earning more than £9,000 a year. Clearly, that contradicts the rest of the Green Paper and is a leftover from the original proposal. It shows that--in panic, at the last moment, and without taking the time or trouble even to proofread the document--the Government have allowed a trace of the previous model to survive.
The Secretary of State said earlier that that interpretation was a misunderstanding and that the reference was to the existing system. The right hon. Gentleman should return to the House and make a statement to clarify the matter. As all hon. Members know, this country has no compulsory funded pension system. It never has had. There is a compulsory non-funded system of national insurance, and there are various funded schemes--occupational, personal and others--that are voluntary. However, the phrase in the Green Paper to which I have referred could not, by definition, apply to anything that exists at present. Therefore, this attempt to cover up--I shall not use the possibly unparliamentary term that first springs to mind--has been blown wide open.
When the Government abandoned compulsion, the rest of the package--the trust system, for example, and the promise of low costs--stopped making sense. The absence of compulsion means that there are no economies of scale, that there are marketing expenses and that there is a great need for advice.
The Government do not understand that people earning between, say, £9,000 and £20,000 a year and who have a personal pension face a dilemma. Should they move out of that pension to join a stakeholder pension? If the Government fulfil their promise, the stakeholder costs may be lower, but the costs of a personal pension might have been paid already at the front end. Should people whose incomes are just above £9,000 stay in the state second pension, or take out a personal pension? If the opportunity exists, should they join an occupational scheme? If they are in a personal pension scheme, should they remain in it?
Grotesquely, people on £9,000 a year cannot now take that decision in an educated way--avoiding the traps and the possibility of mis-selling--without expert actuarial advice tailored to their circumstances. Any solution to such a problem will depend on people's ages, their promotion prospects, whether they intend to stay in the same job, and so on.
The Government have the effrontery to say that people on £9,000 a year are supposed to pay for tailored actuarial advice. That shows how little they know about pensions or about the circumstances of such people.
As if that were not enough, the Government further fragmented the market with the unnecessary and gratuitous introduction of differing tax regimes for
stakeholder pensions and for personal and other pensions. The Secretary of State made a concession this afternoon when he said that he may allow group personal pensions to count as stakeholder pensions. For the first time, under pressure from Conservative Members, he is considering that positively. However, if he does allow that, what tax regime will apply? At present, group personal pensions enjoy the tax reliefs applicable to personal pensions. If they are to count as stakeholder pensions, will they have to accept the stakeholder regime's maximum limit of £3,600 a year, or will different stakeholders come under different tax regimes?
These are important matters. They add to the complexity and to the number of traps. They add also to the likelihood--nay, the certainty--of mis-selling unless people take complicated actuarial advice when they decide to join a pension scheme.
The LISA has introduced further complications. What tax regime will apply there? Will there be one regime for LISAs when offered as stakeholder pensions, and another for other provision?
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