Select Committee on Social Security Minutes of Evidence



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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