House of Commons Hansard Debates for 7 Feb 2000 (pt 9)

Mr. Webb: The hon. Gentleman has twice described the rise in the state pension as "measly". For the avoidance of doubt, can he say what he would do were

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he to be Secretary of State for Social Security now? Would he have put the pension up by 75p, or more or less, this April?

Mr. Willetts: We would carry on increasing the basic pension in line with prices. We would also encourage and boost pensioner incomes by the policies that were so successful during the previous Government's years in office and that have resulted in the statistics that the Secretary of State is always so happy to quote. However, those policies are under threat, because of the changes in advance corporation tax, the changes in the tax regime that mean that pensioners with incomes so low that they do not even come within the scope of income tax are losing the full benefit from the income from their savings and, of course, because of the planning blight caused by the perpetual changes to the pensions regime that the Government are imposing on the pensions industry.

Mr. Winnick: The hon. Gentleman said that he would, in effect, do what the Government are doing on pensions. What about the winter fuel payment? Does he accept that the £100, which is not means-tested, should be paid? What is his policy on this important question?

Mr. Willetts: We will consider the winter fuel payment as part of our wider pensioner package. What perplexes me--here I have some sympathy with the view of the hon. Member for Northavon (Mr. Webb)--is how the Government jump between favouring universalism, saying that it is very important that everyone should get the winter fuel payment, and then the case for means testing. We have no plans to remove the winter fuel payment. However, we are also planning an increase in average pensioner incomes, to be achieved by policies that, above all, reward savings and funded pensions. Our central critique of the Government is that they rely on that success to justify what they are doing by way of the uprating for the basic pension but, at the same time, they are killing the goose that lays the golden eggs. They cannot carry on relying on the increases in occupational pensions and savings that are providing the statistics from which they quote.

The Minister of State, Department of Social Security (Mr. Jeff Rooker): The hon. Gentleman is making a thoughtful speech. However, he must realise the position. If everything was so rosy in the past, why would the best part of 5 million people--moderate earners, making between £10,000 and £20,000 a year--be working with no second pension provision whatever? Surely there has to be a policy to get those people into a viable second pension operation. The previous system did not work--the pensions industry passed those people by on the other side of the road.

Mr. Willetts: Our concern is that the Government's stakeholder pension will not bring people in the income bracket that he describes into new pension provision that they would not otherwise have had. Instead, they will simply drive people out of existing occupational pension schemes into stakeholding. He will be able to announce to the House apparently large numbers of people taking

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out stakeholder pensions but, as my earlier quote from the pensions industry suggests, that will be churning out of existing occupational pensions.

Mr. Rooker: We will not count those.

Mr. Willetts: I will hold the right hon. Gentleman to that; one of the widespread beliefs of people who care about what he is doing is that he will end up simply churning existing provision.

The other issue is the interaction between the minimum income guarantee and pension planning. If the minimum income guarantee increases in line with earnings--I think that the figure is 4.9 per cent.--what is the sense of people on a very low income saving, possibly in extremely difficult financial circumstances, getting a stakeholder pension? It makes them no better off than they would have been if they had not saved before? I would welcome the Minister to the Dispatch Box a second time if he could offer us a figure for how much people have to have saved in a stakeholder pension during their working life to receive an income that will float them off means-tested benefits. If people cannot save that amount of money, they will be no better off as a result of having taken out the stakeholder pension. That is the $64,000 question. The minimum income guarantee is a further extension of means-testing.

Mr. Darling: I notice that the hon. Gentleman has not mentioned the state second pension, which is designed to help precisely those who are on low earnings throughout their lives because it enables them to accrue pensions at a substantially greater rate than at present, as well as helping moderate earners. What is his policy for the poorest pensioners? He has made it very clear that he would take away the minimum income guarantee, so that would reduce their income. What would he do for them?

Mr. Willetts: The minimum income guarantee is a mirage. It is merely what I still think of as the pensioner premium in income support. The Secretary of State, like so many new Labour Ministers, talks as if it were some extraordinary innovation in social policy. When I was in government, I believed that pensioners are entitled to something like the pensioner premium in income support, and I still support that now. However, the Secretary of State has merely renamed--misnamed--that premium as the minimum income guarantee, while keeping all the old income support rules. The old problem of low take-up remains, but there is also a problem with the capital rules.

Many pensioners who are not entitled to the minimum income guarantee have total incomes well below it. The Secretary of State doubtless receives the kind of letters that I receive from pensioners who are baffled when they see him popping up on television and radio to talk about the minimum income guarantee while they are struggling to make ends meet on incomes well below it. The main reason for that is the capital rule.

Arguably, a well-designed capital rule would enable people to receive an income from capital roughly equal to their putative entitlement to the benefit of which they are being deprived. I asked the House of Commons Library to calculate, at current interest rates, how much a pensioner would need in bank or building society savings to yield an income equalling the current average income

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support figure. How much would one need, given all that has happened to interest rates, to receive an income flow matching average income support?

In 1998, a pensioner would have required £49,100 in savings to receive an income matching average income support entitlement. Many pensioners have savings between £8,000--the upper limit for the capital rule--and £49,100. They are clearly worse off, living on incomes below the minimum income guarantee. Many are irritated and surprised by the Secretary of State's grandiose rhetoric about a minimum income guarantee when the treatment of capital is an enormous hole at the centre of it. Many pensioners fall below the minimum income guarantee, and that position has not changed since 1990. We expect Ministers, after promising for years to review the situation, to take some action.

Mr. Tony McWalter (Hemel Hempstead): I am confused by the figures that the hon. Gentleman has offered. Clearly, anyone with that level of savings could more than make up the deficiency between the minimum income guarantee at £78.45 and the pension at £67.50. As the hon. Gentleman is clearly talking about a much larger deficit, will he clarify what additional income component he is describing?

Mr. Willetts: Pensioners live in many different circumstances. Much will depend on basic state pension entitlement. The hon. Gentleman is assuming full entitlement to the contributory pension, which all too often is not the case. I am glad that the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) and the Select Committee on Social Security are inquiring into a contributory principle problem that often strikes us in our constituency surgeries involving those whose incomes fall below full entitlement. My example relies on the average income support payment, and on how much someone would require in capital to achieve a matching income. That is the basis of the House of Commons Library figures.

I should like to remind the Secretary of State of what Ministers have promised in previous uprating debates, going right back to 1998--before he or I held our posts. In February 1998, the then Under-Secretary of State for Social Security, the hon. Member for Manchester, Withington (Mr. Bradley), said:

"I do not dissent from the view that there are problems with capital and disregards. In our review of benefits and the general review of the welfare state, capital and disregards will have to be considered".--[Official Report, 18 February 1998; Vol. 306, c. 1148.]

"All hon. Members will agree that, above any other source of complaints, pensioners tell us that they have saved all their lives but are penalised for it . . . I made it clear that the Government want to consider the matter."--[Official Report, 28 January 1999; Vol. 324, c. 486.]

The Government have been considering the matter for a long time. It is about time that those capital disregards were properly reviewed and uprated, in order to match them more closely to current interest rates. Alternatively, the Government could do something straightforward and

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simple; they could stop calling the minimum income guarantee a minimum income guarantee, because plainly it is not one.

The Secretary of State briefly touched on tax benefit integration and child poverty. He knows that we shall watch closely the implementation of the working families tax credit. The Government claim to believe in evidence-based policy, but I have never heard evidence from any Minister or ministerial adviser that paying a benefit of given value through the tax system instead of through the benefits system has any effect whatever on incentives.

We shall be interested in whether the WFTC has any impact on the "wallet-purse" question--the distribution of income within the family. We shall also want to know what it means for the employers who are implementing the system. In Social Security questions, I was encouraged to hear from the Under-Secretary of State for Social Security, the hon. Member for City of York (Mr. Bayley), the cast-iron assurance that the WFTC will be paid through the pay packet in April, although that does not sit easily with increasing reports from employers' organisations of the enormous practical problems of implementing the measure.

I hope that Ministers will give also us their response to the Government's thinking on the subject as set out in the Treasury working paper, "Supporting Children through the Tax Benefit System", published in November 1999. Pages 39 and 40 of that document rather shoot Ministers' fox. They undermine the rhetoric about the essential importance of paying the WFTC through the pay packet.

The Treasury's latest idea is to put that policy into reverse, by reverting to what the Treasury refers to as an integrated child credit--not to be confused with the children's tax credit--which, lo and behold, will be paid as a benefit to the caring parent. Having painfully pushed through the House the controversial proposal that family credit has to be renamed the working families tax credit and paid through the pay packet, the Government's latest piece of thinking is the bold suggestion that they should make a U-turn and revert to paying it as a benefit.

The hon. Member for Colne Valley (Kali Mountford) looks baffled. I recommend that she read the Treasury document. The Treasury is working on the introduction of what it describes as an integrated child credit. However, I am not aware that we have heard any comment on that proposal from Social Security Ministers; we do not know whether they are also working on it, or whether they think that, having lost the WFTC to the Treasury and the tax system, they should regain the "integrated child credit".

If Social Security Ministers believe the analysis in the Treasury working document as to the case for paying the credit as a benefit to the caring parent, most of the rhetoric that they deployed when they were putting the WFTC through the House is shot to ribbons. This will be the next U-turn in social policy; we shall watch closely to see what the Government are up to.