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Mr. John Bercow (Buckingham): The Secretary of State's last intervention was woefully inadequate to meet the needs of the case. Does my hon. Friend agree that, in view of the more than halving of the savings ratio--from 10.6 per cent. to under 5 per cent--in the first quarter of 1999, as a direct consequence of the Government's policy decisions, the Secretary of State at least owes the House an explanation of what assessment he has made of the likely impact of the incapacity benefit changes on the savings ratio which he has been busily running down?
Mr. Willetts: My hon. Friend is right. We have not heard from the Secretary of State any assessment of the long-term impact on behaviour of measures such as the one proposed. We have all learned from the right hon. Member for Birkenhead (Mr. Field) that long-term implications for behaviour must be considered, as well as short-term apparent expenditure savings.
It is highly unlikely that the provisions will save the Secretary of State money. They will merely affect the way in which occupational pensions are provided and the terms on which people are entitled to them. My hon. Friend the Member for Buckingham (Mr. Bercow) is right. The measure will deter people from occupational pension provision.
I shall risk another quotation from The Guardian. The Secretary of State may not disagree with it. It is from a document that was apparently circulating during our term in office. Clearly, ideas such as the one proposed by the Secretary of State were circulating under the previous Government. I shall quote from The Guardian the response of my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the then Secretary of State for Social Security:
The Secretary of State is not engaged in some bold Blairite reform of the welfare state. He is taking the tired old options from the Treasury cutting room floor of five years ago, and recycling them as though they were part of some bold vision for the future of social security. They are not. They are the options that were rejected then. We deliberately and consciously rejected them. They were not part of the model of incapacity benefit as we introduced it. We were right to reject them then, and that is why we shall vote against them again tonight.
Sir Nicholas Lyell (North-East Bedfordshire):
I have just joined the debate, but I heard my hon. Friend refer to bold Blairite options in social security. Does he know of any such thing?
Mr. Willetts:
The gap between the rhetoric in the document and the tired and desperate measures before the House lead one to doubt whether there is any such thing.
Let me scrutinise in more detail the means test proposed by the Secretary of State to penalise people for their occupational pensions. It is a means test hitherto unknown in the social security system. It does not take account of people's income in general. It simply takes account of one form of income. It penalises people only if they have an occupational or personal pension. They can have as much money as they like in a building society account and they can have PEPs, TESSAs and other financial savings. The one thing that they must not have is an occupational pension. That is a bizarre route for a Government who claim that they want to encourage occupational pension provision.
Mr. James Plaskitt (Warwick and Leamington):
There is a gap in the hon. Gentleman's argument. If he is arguing that the measures are an attack on savings and occupational pensions, why did he support his right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) in 1994, when the legislation introducing the benefit was going through? The right hon. Member for Hitchin and Harpenden said:
Mr. Willetts:
That was the argument for removing the earnings-related supplement. That is precisely the point. The argument was that people could not have the earnings-related supplement plus occupational pension provision. That is why we moved to a benefit that has a flat rate rather than an earnings-related element. That is
Mr. Willetts:
I have already accepted an intervention from the hon. Gentleman. [Interruption.] The Secretary of State's Parliamentary Private Secretary, the hon. Member for Stockport (Ms Coffey), is urging me to accept the hon. Gentleman's intervention because she does not want any of her colleagues to speak in the debate. The fact that she wants me to accept the hon. Gentleman's intervention is another argument against doing so.
I referred briefly to the means test. I shall refer to two other pernicious aspects of the Government's proposals--the combined impact of the 50 per cent. rate of withdrawal, and the fact that the benefit is taxable. We accept that the benefit is taxable, of course. We regard as unacceptable the combined rate of 73 per cent. It will impose much higher rates of combined benefit withdrawal and taxation on people on low incomes than the Government say they are prepared to accept for people on high incomes.
The attack on the contributory principle is unacceptable. No private insurance company or private pension scheme could get away with changing the conditions for entitlement in the way that the Government propose. They would probably be breaking the law and would certainly be named and shamed by Ministers. People have a legitimate expectation, on the basis of their national insurance contributions, which the Government are undermining with no clear assessment of the distributional impact. There is no targeting or focusing on people with low incomes. They are simply changing the contributions test for receipt of the benefit in order to save money and, despite what the Secretary of State said, there is no assessment of the overall distributional impact of their measures.
We have made it clear that we are willing to look at ways in which further savings can be achieved in incapacity benefit--even though the measures that we introduced are already reducing the amount of expenditure on it. That should be done by properly policing the entitlement to benefit in the first place. That is what the all work test is supposed to do. The Disability Benefits Consortium is right to say:
Mr. Roger Berry (Kingswood):
I would love to spend some time attacking the Tories' record on disability issues, but I am here to speak in support of amendments
I ask myself why the Government are pursuing this course of action on incapacity benefit. What are the problems? The first problem is that the Government's proposals will reduce benefit for disabled people who are unable to work. Those disabled people, as future claimants, will have paid the existing national insurance contributions and been judged unfit for work according to a medical test with criteria set down by the Government of the day. Why should future claimants who have paid the current contributions and satisfied that medical test be worse off? For the life of me, I cannot answer that question.
I can say how many people will be affected. Even under my right hon. Friend's revised threshold, 310,000 disabled people who are unable to work will be worse off as a result of the proposals. A total of 110,000 will be worse off because of the restriction on the entitlement conditions whereby contribution has to have been made in the past three years, and 200,000 will be worse off because of the means test on those who are able to access incapacity benefit. That is my first problem with the proposals. Why are we making disabled people who are unable to work worse off? I cannot understand it.
"I do not favour this approach. Apart from the disincentives to make private provision it would introduce, I think it would raise some very difficult questions about the future of the contributory benefit system before we have fully thought through the direction we want to take."
The then Secretary of State for Social Security was saying that measures such as the present Secretary of State is introducing were wrong because they would attack private occupational pension provision and undermine the contributory principle. My right hon. Friend was right then, which is why he won the argument then.
"Too many people regard invalidity benefit as a readily available supplement to their occupational pensions when they take early retirement."--[Official Report, 24 January 1994; Vol. 236, c. 37.]
If that was an argument for reform then, why does not the hon. Gentleman support the argument for reform now?
"If the Government believes that there are people on IB who are not sick or disabled then the way to deal with this is through the design and operation of the All Work Test."
That would have been the right way to set about achieving what the Secretary of State claims is his objective. These random measures, plucked from the cutting room floor of the Treasury, will have a distributional impact that he cannot defend. They will have a long-term effect on behaviour that will be perverse and damaging. They will undermine people's confidence in the contributory principle in which the Secretary of State claims he believes. They are measures that the House should reject.
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