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1.44 pm
Mr. David Willetts (Havant): I am pleased to see so many of my hon. Friends present on the third day of debate on the Queen's Speech. My hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) summarised it well. Sadly, I was not here in time to hear my hon. Friend's whole speech, but the key words gave me its flavour. They were: regulation, costs, burdens,
dogmatic, dog's dinner, damage, opportunistic, vacuum, cock-up, red tape, farce and incompetence. Who am I to disagree with my hon. Friend's forceful critique of the Queen's Speech?
I want to focus on the social security aspects of the Queen's Speech and Government policy on social security more generally. The Queen's Speech promised us the next instalment of the Government's welfare reform agenda and I must hope that they have a happier time with their forthcoming Bill than they had with the Welfare Reform and Pensions Act 1999. May I offer the Secretary of State some advice? In the past two years, the Government got themselves into most difficulties with the so-called welfare reforms for which there was no clear strategic vision or underlying principle supporting what they were trying to achieve.
When the Government got into their troubles with single parents, they caused confusion to their own side because it was not clear whether they were signalling that they expected single parents to work. They got into their more recent difficulties over disability benefits because it was not clear how their approach to the savage means-testing of disability benefits was compatible with their claims about encouraging pensions and savings. It is important to have some sense of direction for and a strategy behind the so-called welfare reform agenda.
As the Government get deeper and deeper into welfare reform, our fear is that, instead of achieving a clearer sense of their strategy, they are becoming more muddled and confused. The direction in which they are trying to take the social security system, and why they are doing so, seems less and less clear. I hope that the Secretary of State will enlighten us on some of the big questions on which the Government's philosophy is becoming less clear as every week passes. One, of course, is the contributory principle and the future of national insurance, so I am pleased to see in the Chamber members of the Social Security Committee from both sides of the House.
It is possible to construct an authentic third-way argument in favour of the contributory principle by saying that it is rooted in our political culture and all to do with rights and responsibilities. A striking number of people still think of their national insurance contributions as giving them an entitlement to benefits--most obviously, the retirement pension--and to health care. That gives them a self-confidence as consumers that would be lacking if they felt that there was no contractual basis for what they were expecting to be delivered in return. There is a good, clear argument for the contributory principle, but the Secretary of State might want to argue that it is a load of actuarial mumbo-jumbo, that few people can see any real connection between the size of their contributions and their ultimate entitlements, and that as part of modernisation--we heard that word a lot during the Queen's Speech--it has to be swept away.
I think that Members on both sides of the House would like to know what is happening, one way or the other. We cannot have increasing confusion and uncertainty about what the Government think about this important subject. If they carry on in the way that they have so far, contributory benefits will survive in nominal form, but they will gradually disappear as they are submerged by a rising tide of means-tested entitlements. That will not do as a serious approach to so-called welfare reform. Perhaps the Secretary of State will enlighten us on that.
There is also the whole question of the Secretary of State's approach to means-testing. We remember the attacks made by Ministers on means-testing when they were in opposition. When the Secretary of State came to the House only the other day to make his uprating statement, he made bold claims about how he would take pensioners out of means-tested benefits. As the hon. Member for Northavon (Mr. Webb) has pointed out today and on other occasions, claims have been made about how the state second pension will take people out of the means test, but it seems that an awfully long run-in will be required before anybody feels the effects. Meanwhile, an increase in the minimum income guarantee for pensioners in line with earnings and an increase in the basic pension in line with prices were announced. The uprating statement brought tens of thousands more pensioners within the scope of means-tested benefits.
There is increasing confusion and uncertainty about how the minimum income guarantee will interact with the stakeholder pension and the new state second pension, but it is very important that future pensioners should know on what basis they are saving. If they are saving simply eventually to find themselves caught in a means test, by which their savings are penalised at up to 100 per cent., it will not be a very good deal to offer them. It is very important that they should know the basis on which the Government are formulating their pension strategy.
Mr. Webb:
The hon. Gentleman mentioned next April's basic state pension uprating of 75p. I advise him that I and other Liberal Democrat Members will vote against the uprating statement--will Conservative Members join us?
Mr. Willetts:
Our policy has not been that we should necessarily vote against the uprating statement. Our questions will be on the scope of means-testing for pensioners, and the effect that that will have on pensioners' savings.
We are able to discern already the effects of means-testing on savings in the catastrophic decline in the savings ratio, which is the economic background against which any social security debate has to take place. Conservative Members believe that the best way of financing future pension provision and, if at all possible, other social provision is by genuine private savings. The savings figures, however, are extremely worrying. In the second quarter of 1997, when we left office, people saved 10.6 per cent. of income, but that percentage is now down to 5 per cent. That is a very significant decrease in the savings ratio.
Part of the decrease could be explained by cyclical economic factors that drive savings, but that is not the full story. It is clear to anyone who talks to people working in the pensions industry and trying to encourage people to save that planning blight, uncertainty and confusion are also driving a retreat from savings products that were developed in the past 20 years, under a very favourable regime--a supporter and sponsor of which, my right hon. Friend the Member for Sutton Coldfield (Sir N. Fowler), I am pleased to see in the Chamber.
We certainly do not want catastrophic declines in the number of people taking out new personal pensions. The latest Association of British Insurers figures show a fall of more than 10 per cent. in new personal pension provision. Such developments are taking us in the wrong direction.
I hope that the Secretary of State will also tell us in his reply exactly when we might be given the details of the regime for stakeholder pensions. It is absurd that, although the House has passed legislation on stakeholder pensions, we still have not been given any indication of the final regime. It would be a great pity if we were asked to debate and vote on proposals for a state second pension in conditions of similar uncertainty.
It would be far preferable if we could know in advance what we are supposed to be legislating on. If anything brings the House into disrepute, it is--despite the best efforts of my hon. Friends who served on the Standing Committee that considered the Welfare Reform and Pensions Bill--passing such general provisions without being able properly to scrutinise them, simply because the meat of the proposals is not available. I hope that the situation will be better in our consideration of the state second pension.
I wonder also whether the Secretary of State will feel a slight twinge of guilt about what, in their manifesto, he and other Labour Members promised the nation on second pensions. The manifesto stated:
Perhaps--while we are on the state second pension--the Secretary of State will explain rather more fully than he has been able to do so far the significance of the £9,000 limit. Below £9,000, people will essentially have an unfunded entitlement to the state second pension, whereas--as the hon. Member for Northavon said--there seems to be an expectation that, in the long term, people above £9,000 will not be in the state second pension. That looks like a form of social exclusion. It appears as though we shall end up with two pension regimes, with a clear cut-off at £9,000. It will be interesting to see how anyone with less than £9,000 and the purely nominal entitlements will ever build up a pension fund in future. Those are my questions about the pension provisions that we expect to see in the social security Bill.
"Labour will retain SERPS for those who wish to remain in it."
The Government's current policy to abolish the state earnings-related pension scheme and replace it with the state second pension does not seem entirely to match the manifesto on which they were elected. Moreover, as we know from events earlier this week, Ministers attach great importance to people's commitment to the manifestos on which they were elected. It would be interesting to hear--if they were asked to explain why they abandoned part of a manifesto on which they fought an election only two years ago--how they defended that U-turn.
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