Examination of witness (Questions 240
- 246)
WEDNESDAY 3 NOVEMBER 1999
RT HON
FRANK FIELD
240. So the conclusion from that must be therefore
that you would expect people who are better off to be prepared
to pay some of the money which they are presently paying into
their private pension into a State scheme to support the pensions
available to those less well off, at the same time not actually
getting themselves any higher benefit as a result, but simply
a guarantee of the minimum level?
(Mr Field) They would be paying into a collective
scheme, but it would not be a State scheme and I think events
are with us because increasingly we, as politicians, are going
to live with constituents who will be coming down with the results
of their contributions to private pension schemes, saying: "This
is what this has bought me", particularly as they are trapped
into the annuities market at the present time with those schemes.
Therefore the idea that you might have been able to pay into something
which, because risks were pooled, offered you a guarantee against
average earnings, I think, sadly, events will add to that the
attractiveness of that scheme and not detract from it.
241. And will that be essentially a pay as you
go scheme?
(Mr Field) Well, we are talking about how you make
claims on future national income and there are two ways of doing
it. You can say the taxpayers will give over part of what they
earn in that year to meet tax liabilities, or you can say that
we try and have a claim on national income because we own capital
which has contributed to the national income. Neither scheme is
foolproof. If, for example, politicians get pensions arrangements
wrong and in 40 years hence the working population think they
are being ripped off by pensioners, they will do one of two things.
They will either try and defeat pensioners at the polls and change
the arrangements through legislation or they will actually redistribute
by inflation. So it is a most delicate of tasks to try and guess
what taxpayers 40 years hence will judge as a fair claim on national
income by people who will be drawing a pension. My belief is that
in this country the ownership of capital probably gives you a
securer claim on future national income than does relying on future
taxpayers which currently are not born, but none of it, Mr Dismore,
is foolproof and to think somehow if we store up capital everything
is solved, it is not true. I believe the Government is right to
try and change the balance to increasing funded provision because
I believe the funded provision itself will help with investment
and, hopefully, raising the long term trend growth rate of the
economy and therefore there would be more loot to distribute,
making it easier to distribute it, come that day. But it is not
foolproof, neither the pay as you go, nor the funded and I think
the Government is right to change the balance and I think the
Government is right to keep both of them in play.
Mr Swayne
242. One of the ways in which Government has
found it so easy to undermine the contributory principle is because
the public have such a poor understanding of that, the lack of
a schedule, if you like, the lack of any sense of mutuality. Apart
from the notion that we could get a statement, what other means
are there by which the sense of a contract can be reinforced so
as to reinforce the principle?
(Mr Field) The size of National Insurance contributions
is so important to the running of the economy, you could not expect
a Chancellor totally to say "I have no interest in it whatsoever".
It is up to us on top of that what we privately do, but not on
that basic level. But I would advance a similar model that adopted
by the Chancellor in giving the Bank of England independence over
interest rates. You would actually set up a body which was running
the National Insurance scheme at arm's length from the Government.
Now clearly, just as with the Bank of England, the membership
of the Monetary Policy Committee is determined by the Chancellor;
he would be crazy not to. I mean he would not go out and say:
"Let us have the national lottery pick some names for us
on that", so there is some influence there and quite properly
so, but I believe we will increasingly see the type of model the
Chancellor has used for the setting of interest rates to be one
which not only in welfare but in other areas too, politicians
believing that is the sort of contract that they need to actually
strike with taxpayers if we are to safeguard public provision
as opposed to only State provision.
243. If you entered a private scheme or a private
arrangement it is very difficult for the provider then to change
the basis on which you made your contributions. With the scheme
that we have for the contributory principle, whether pooling the
risks or making it a universal system, how would you balance the
need to protect the contract which gives the sense of ownership
which reinforces the principle with the need of the Government
of the day to be able to change the nature of benefits given changes
in circumstances or national income?
(Mr Field) I think it comes back to the very beginning
of the meeting and that is the sort of role, Mr Swayne, you see
for welfare and if it is about providing a minimum floor and letting
people get on with it and you see that works, and that people
do thrive, then that is a great engine force in society for social
advance. You would have to be a pretty silly government to try
and overthrow that—although there may be occasional temptations
to do so. But in this sense, maybe not in others, governments
are sovereign—they can make these decisions—and they
are accountable finally to the electorate for the decisions that
they make. The more transparency there is in contributions and
benefits earned, the more difficult it is going to be for the
government to plunder National Insurance benefits, and it would
be a brave government to ensure that transparency, but I hope
we will increasingly see bravery from this Government which has
been really brave on New Deal and so on. I mean, it is right for
everybody to sit around and nod now, but when the welfare to work
ideas emerged there were a lot of people on our benches who were
very deeply unhappy with this approach. Almost nobody in Parliament
now disagrees with that pro-active approach to welfare. There
may be some partial criticism of particular aspects, but not of
the approach. But I hope we increasingly see the insurance fund
gaining semi-independence so that there is a powerful non-state
body in society which looks after our interests. I think that
would be popular and it would be Government saying: "We genuinely
believe in devolving power and sharing our power with other people"
and I think it would be for the benefit of the country. It is
even more difficult to expect private providers to jump to in
changed conditions. One of the worries with the new stakeholder
pension is that because we rightly say stakeholder would be so
much cheaper to run, the danger will be not that new people who
are currently not saving will join, but people who are in private
pensions now will think it must be better, because we have all
said how bad private pensions are. So the next scandal will be
a churning scandal of people who have largely paid their contributions
up front jumping from a private scheme into another private stakeholder
scheme and there is no way those private providers can, for past
members, change the contribution conditions for their scheme,
because people have actually joined on those terms and many of
them will have paid quite a lot of the administration costs up
front.
Chairman
244. Mr Field, we are trying to get a report
put together substantially by the end of the calendar year and
we still have some important witnesses to see, not least among
whom is the Secretary of State himself. Are there any kind of
suggestions that you would have for the Committee, because you
have seen it from both sides of the fence, as to how we might
complete the work before we start going down to the Heads of Report
and drafting evidence into a written report? Do you have any suggestions
for example about the kind of things that we might put to the
Secretary of State for Social Security when we see him on 24 November?
I am not trying to be mischievous.
(Mr Field) I can think of lots of suggestions, but
I can guarantee he will not answer the questions because that
is the very nature of how Government operates. I do not think
it would be helpful if I made suggestions on that, Chairman.
245. The burden of your evidence really this
morning is that you think there is life yet in the social insurance
contributory based principle and that there are modernisations,
some of which you have adverted to very helpfully and your evidence
this morning will help us to concentrate and focus on that, but
that is basically the thrust of your argument this morning, that
there are things that can be done of a positive nature that would
underpin and modernise the system in a positive way?
(Mr Field) There is that, Chairman, and also Ms Buck's
point that politicians have a duty to help poor people now, but
not to compound their problems in the longer term. So how do you
get a medley of mixtures which actually meet that immediate need?
How do we encourage and increase the incentives to work, but in
a way which does not, in the longer term, make it more difficult
for them? For once people are in work by their own efforts, which
after all is one of the great reasons why civilisation actually
advances, they can often find longer term problems pushing them
down. And thirdly, I would say that—I mean, I think there
is a big debate there—there is a debate between advancing
on the insurance or the tax credit line, and the Committee I think
would be doing an enormous public service if they were able to
feel that was a debate to which they could contribute. Who knows
who is right in this at the end of the day, but these are momentous
decisions which are being taken, and I believe they would benefit
from an open debate rather than no debate at all.
246. Excellent. Mr Field, thank you very much
indeed. That has been typically thought provoking and very, very
valuable and useful. Thank you very much for your time and your
written memorandum and no doubt we will see you again before too
long.
(Mr Field) Thank you very much for inviting me.
Chairman: The public session is now closed.
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