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6.20 pm

Mr. Patrick Nicholls (Teignbridge): It is a pleasure to follow the hon. Member for Newport, West (Mr. Flynn), who speaks about these matters with great passion and knowledge. I thought I would be able to agree with him to an extent that would embarrass us both, but I am happy to say that in a moment I shall be able to resume normal hostilities.

The hon. Gentleman was right to talk about the restoration of the pensions link, a theme that has run through the debate. Certainly, out in the country there is a feeling that--if I may use the phrase employed by the hon. Gentleman a few moments ago--the Conservative Government cheated in 1980 by withdrawing the link with earnings, and that although the present Government would like to restore it now, they cannot for some reason. The Government seem to be trying to have it both ways: they are blaming us for taking away the earnings link, and are trying to achieve vicarious credit by saying that they would of course restore it, but cannot quite get around to doing so.

The history is instructive. Under the National Insurance Act 1974, Labour linked the retirement pension to the rise in earnings. I think that it was honouring an election pledge, and many people greeted the move with joy. The difficulty is that it is one thing to introduce legislation, and another to implement it. In 1976, pensions were raised by less than income or earnings. In that year, the Labour Government did not implement their own legislation. Then came the uprating for November 1977, when the link did not apply, because earnings had risen faster than prices, and earnings had risen faster in any event.

The real crunch for the Labour party came in the uprating statement of November 1978. Labour raised pensions by 11.4 per cent., but earnings had risen by 13.3 per cent. Labour then proposed an uprating that it was not in a position to implement, because it lost the election. That is nevertheless relevant to the point that I am about to make.

In March 1979, it was proposed that pensions should rise by 12.8 per cent. At the time, earnings were rising by something in excess of 15 per cent. That caused outrage among pensioners, many of whom had doubtless voted Labour and seen legislation passed, and now saw their own fluffy Labour Government and their own Secretary of State avoiding their own legislation.

Trying to square the circle and work out how such an extraordinary thing had happened--extraordinary, that is, to those who had not followed the track record of previous Labour Governments--Lord Ennals, then Secretary of State for Social Services, wrote in Pensioners Voice something that, even in a cynical profession, comes across as cringe-making. He wrote:

There is a statutory obligation to take these figures (i.e., earnings) into account, which was done, but no statutory obligation to get it right--

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a Government who introduce legislation then cynically refuse to implement it.

The Conservative Government did not, in some cloak-and-dagger or hole-in-the-corner way, repeal the link; they said in their 1979 election campaign that they would remove the link, because at the time it was unsustainable. Lord Jenkin of Roding, as he then was not--he was then Secretary of State for Social Services--explained why it was unsustainable, given the state of the economy at the time. I shall say more about that shortly. He went on to say that the rise in pensions would be linked to the rise in prices instead, because that was

a more realistic, a more honest and, above all, a more sustainable, prospectus.--[Official Report, 20 December 1979; Vol. 976, c. 903.]

What has happened with the earnings link has passed into mythology. A Labour Government campaigned to introduce it, refused to implement their own legislation, and cynically sneered that all they were obliged to do was take the figures into account--they did not have to get it right. A Conservative Opposition and, in due course, a Conservative Government campaigned on the basis that those figures were simply unsustainable, and that it was better in the long run to promise something to pensioners that was sustainable.

Mr. Rooker: Will the hon. Gentleman give way?

Mr. Nicholls: I would adore to give way to the Minister, so that I can share his embarrassment.

Mr. Rooker: There is no embarrassment. The hon. Gentleman has gone over the history of what happened during those four years and I do not dissent from any of what he has said, but he has neglected to draw attention to something that was fundamentally wrong. I refer to the attempts to forecast earnings and prices six months in advance. Ministers were coming to the Dispatch Box in March announcing what they thought earnings and prices would be in November, and stating what the pension would be. The forecasts were wrong, and it was necessary to return to an historical system.

There were inbuilt errors in the design of the system. I complained at the time, as did others. There was no precision in the attempts to forecast what would happen in six months' time, which is why we have an historical system today.

Mr. Nicholls: There is something glorious about the Minister. I always enjoy my exchanges with him.

As the Minister well knows, under the Labour Government in those days it was impossible to forecast rises in prices or earnings in terms of more than a few weeks, because the economy was completely out of control. At that time--the last time that the Minister was involved in an alliance, a Lib-Lab pact--it was impossible to forecast what would happen from week to week. At that time, the country was so bankrupt that when Lord Healey was going overseas he had to turn his car around on the way to Heathrow, because the International Monetary Fund had said that it would withdraw the country's credit and make it bankrupt.

In 1979 our economy was a thoroughgoing basket case, and it was certainly true at the time that the earnings link was unsustainable. We are now in a vastly different world. We now have an excellent economy, bequeathed by a

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Conservative Government who had learned from the mistakes of their predecessors. Although the economy will slow down as stealth taxes begin to bite, the present Government have not yet wrecked the economy that they were bequeathed. As it is a strong economy, I think it fair to consider whether the earnings link could be restored in some shape or form.

I say that without for a moment making light of the figures that would be involved. I understand that if the earnings link were restored for this year, it would cost £1 billion, and that by 2010 it would amount to £8 billion. Those are substantial sums, even if we allow for the amount that the Government have stored up to give back to those from whom they took it forcibly in the first place to persuade them to vote Labour next May, and even judged by the sums that are in reserve.

But--it is an important but--this is a vastly different world from that of 1979. Although all three parties have, in a sense, followed the historic and traditional view that the earnings link is unsustainable, I think it fair to ask whether there is something in it that we should try to revive or retrieve.

I think it comes down to this. I think that Members on both sides of the House always see such action as a sticking plaster. One thing that unites the hon. Member for Newport, West and me is our wish to see something done for pensioners that is better than what has been done for them by either of the last two Administrations. That much is clear; but we must also ask what is the underlying, and overriding, consideration.

When we talk of the earnings link, we are not just trying to outbid each other. We are saying that we want the elderly, who have played their part in producing the economy we have today, to be able to benefit in the future. That is the core of what we are trying to achieve, and I should have thought it was possible. I do not know whether it will be necessary to define it in relation to gross domestic product, but it should be possible to state the aspiration in regard to an earnings link, while ensuring the existence of mechanisms to deal with any substantial downturn in the economy without the need to refuse to implement legislation that we have ourselves passed.

I think that a debate on that should take place in my party, and I think it would be healthy for it to take place in all three principal parties. I should like it to be acknowledged that, although such action was indeed unsustainable in the world of 1979, we should now ask--given the present state of the economy--how pensioners can have a stake in rising prosperity, while not ultimately saddling taxpayers with burdens that they cannot afford.

The hon. Member for Hastings and Rye (Mr. Foster) made an offer, but I do not know whether he is prepared to come down to my constituency on his holiday and keep his promise. He offered to give a cheque to anyone who, in a public meeting, could honestly say that, as a pensioner, he or she was worse off under the present Government. I hope that the hon. Gentleman has his cheque book ready, as the first person to whom he must send a cheque is Mr. Allen Bridges of Shaldon in Devon. Mr. Bridges wrote to the Prime Minister about the interesting matter of the financial burdens of partially sighted people and concluded his letter by saying:

But no matter, I have my 75p increase plus my 75p "over 80" gift and to cap it all, £100 fuel allowance. Minus £97 tax credit loss, this then equals £3 for fuel plus increase plus age allowance. It makes the mafia appear as Fairy Godmothers.

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I am sure that a cheque should be made out to Mr. Bridges, which is spelt with one "d".

I have dozens of such letters, which are completely unsolicited. If time allowed I would read them all, but I shall read out just one from Mr. Howell, again from Shaldon, who, I am sure, would also appreciate a cheque from the hon. Member for Hastings and Rye. Mr. Howell writes:

Dear Mr. Nicholls,


My wife is 77 years of age and is registered disabled; I submit her tax return to the Inland Revenue each year.


I am enclosing photostat copies of statements for the tax years ending April 1999 and April 2000 which reveal a substantial drop in income due to the changes made by the Chancellor . . . in respect of the taxation of dividends.


Throughout her working life my wife endeavoured to save, out of taxed income, in order that she would not become a burden on the State. The Government boast that they have kept their promise not to increase basic rates of tax but are careful not to mention the many significant increases in indirect taxes.


There are, most probably, large numbers of pensioners who have been affected similarly and I hope that protest continues to be voiced in . . . Parliament and the media.

Mr. Howell then sets out figures that have been accepted by the Inland Revenue, so there is no doubt about them. Mr. Howell says that for the year 1996-97 his gross income was £5,220 and his tax refund was £601-- I shall leave out the pence for the sake of brevity. In 1997-98, his gross income was £6,853 and his tax refund was £619. In 1998-99, his gross income was £5,345 and his tax refund was £588. In 1999-2000, his gross income was £5,062 and his tax refund was £10.66. Mr. Howell concludes in irony, I assume, rather than sorrow:

I had thought that the Government were encouraging people to save for their later years!!

We must be straight about the matter.

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