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Mr. David Willetts (Havant): I thank the Secretary of State for his statement. We welcome what he said about benefits for disabled people. At the heart of his statement, however, was a radical shift in policy on pensions. Hon. Members on both sides of the House used to regard the basic state pension as fundamental in determining the income of many pensioners. Those days are now over.
The minimum income guarantee is to be worth far more than the basic state pension and is to increase in line with earnings, not prices. It will provide the base for the pension credit. More than half of pensioners will therefore have their total income determined by that means test. The value of the basic state pension will be irrelevant for them. The Secretary of State made much play—as did the Chancellor yesterday—of the pledge that the basic state pension will always increase by at least £100, but he owes pensioners an answer to the following crucial question. Will those increases be passed on to pensioners who are on his means test, or is he only able to give that promise because it will cost so little—the value of the basic state pension being offset, pound for pound, against the minimum income guarantee and therefore, under the new regime, irrelevant for millions of pensioners? Will the Secretary of State confirm that, after the changes of which he is so proud, the only pensioners who will enjoy the full value of any increase in the basic state pension will be the most affluent pensioners, for whom it is a relatively modest part of their total income? Is that really what the Government mean by welfare reform?
By the time the Secretary of State has implemented his proposals, almost 60 per cent. of pensioners will be on means tests. Labour Members used to jeer at means tests,
but today they cheer them. Surely, however, they must be concerned—I know that some of them are—by the implications of the policy for savings in general and the Government's stakeholder scheme in particular. How can the Secretary of State be so confident that he is rewarding savings when many more pensioners than ever before will face rates of benefit withdrawal of at least 40 per cent. A 40 per cent. marginal rate is bad enough, but for many pensioners it could be far worse. For a pension credit recipient who is also on housing benefit and council tax benefit, the marginal rate could be 91 per cent.If pensioners do not lose housing benefit—I know that the Secretary of State mentions the point in his paper on the pension credit—when they receive the pension credit, it will mean that many more pensioners will be on housing benefit and will face those high marginal rates of benefit withdrawal even further up the income scale.
The Secretary of State's Department and the Treasury have made an art form of disguising true marginal rates by ignoring council tax benefit and housing benefit in the figures that they bring to the House. You, Mr. Speaker, made a very welcome statement a few minutes ago, in which you referred to the need to answer written questions fully. Last night, I tabled questions to the Chancellor about marginal rates of benefit withdrawal—[Interruption.] No, and I am giving him notice. Those marginal rates of benefit withdrawal were not merely the marginal rates of loss of pension credit, but included the loss of housing benefit and council tax benefit. I look forward to the Treasury's full answers to the questions that I tabled.
I also welcome the Secretary of State's complete climbdown on the capital rules for pensioners. When he announced that he was abolishing the old formula, he said that he would instead take account of the actual incomes that pensioners earned from their savings. We warned him then that millions of pensioners would be trapped in incredibly complicated and fine judgments with regard to reporting tiny changes in actual income. The right hon. Gentleman has now reverted to a formula almost identical to the one that he was denouncing until a few weeks ago. We welcome the fact that, instead of trying to measure the actual income from savings enjoyed by millions of pensioners, we are once more to have a far simpler formula for the treatment of savings.
Another question about the Secretary of State's pension proposals concerns the Government's promise that the pension credit would be introduced alongside the minimum income guarantee uprating in April 2003. I am glad that the Chancellor is in the Chamber today, as the table on page 170 of the pre-Budget report makes it clear that the cost of the pension credit when it is introduced in 2003-04 will be £975 million. However, that is only half the £2 billion that it is expected to cost in the following year.
That can mean one of two things—either that the Government are delaying the implementation of the pension credit beyond their original target of April 2003, or that the pension credit will be so complicated to claim that the Chancellor's forecast is that half of eligible pensioners will not be able to secure the credit in its first year of operation. I should be very interested to hear why the Secretary of State believes that the cost of the pension credit in its first year of operation will be half that of subsequent years.
I shall look with interest at the report compiled by the Secretary of State and the Chancellor on the new deal in employment. It is striking that, although unemployment has risen recently, the claimant count has risen by only a very modest amount, despite a dramatic increase in economic inactivity. We will read the debate on the matter with interest. The Chancellor suggested that there should be a big national debate on these questions, and we look forward to future debates on economic inactivity.
However, I hope that those debates do more than analyse the problem of economic inactivity. I hope that they analyse the effectiveness of the Government's claims to be tackling the problem. The Secretary of State knows, from the evaluations published by his Department, that many of the reforms for which he claims credit—such as the new deal for lone parents and the new role for personal job advisers—are not leading to more participants in the schemes finding work. That is what was promised, and the deficit is especially notable in the pilot areas. I hope that the debate analyses the effectiveness of the Secretary of State's policy measures, not just the increase in economic inactivity.
I regret that the Secretary of State omitted to refer to the changes in family benefits. The Chancellor has introduced four new tax credits already—the working families tax credit, the child care tax credit, the children's tax credit and the baby tax credit. He has now decided to scrap them, and to introduce two other tax credits—the employment tax credit and the integrated child credit. However, just in case any family in Britain was in danger of understanding the regime, the new credits have been renamed, even before they have been introduced. They are now to be called the child tax credit and the working tax credit, and they are not to be confused with the children's tax credit and the working families tax credit.
Do the Chancellor and the Secretary of State seriously expect Britain's hard-working families to negotiate their way around a system whose structure—let alone the rates involved—changes every year that the Government are in office? Is it any wonder that the National Association of Citizens Advice Bureaux gave a warning last week, which I wish the Chancellor had taken to heart? It said:
- "both the benefit and tax systems are complicated and intimidating to those lacking in financial literacy skills . . . The complexity of benefits and the claiming process is one reason why millions of pounds worth of benefits go unclaimed by people on low incomes . . . more needs to be done to ensure that all low income groups can claim the credits or benefits to which they are entitled".
The Secretary of State and the Chancellor are still refusing to give any reliable figures for the cost of their new child benefits, although they are due to be implemented in 2003. I believe that the Chancellor is in clear breach of his own code for fiscal stability, which he published with the 1998 Budget and which was subsequently incorporated into the Finance Act 1998. The code for fiscal stability makes it clear that when the
Government are planning measures with a fiscal impact, the cost should appear as soon as possible in the pre-Budget report or other economic statements. It states:
- "where the fiscal impact of these decisions and circumstances cannot be quantified with reasonable accuracy by the day the projections are finalised, these impacts should be noted as specific fiscal risks."
The Secretary of State and the Chancellor have lost their way on welfare reform. Ministers have abandoned their promise to introduce a welfare reform Bill. They published figures only last week showing that the number of people claiming income support, which is the main means-tested benefit, is for the first time above the level that Labour inherited in 1997 and has reached almost 4 million.
The Government are means-testing more and more people for benefits. I had a letter from a pensioner in Huddersfield this morning. I am pleased to see the Chancellor in his place, because the letter is quite simple:
- "I seem to remember, before the 1997 election,"
- "'If we win, all means-testing of pensioners will end.'"
"Could you check this for me?"
We read in the press that the Chancellor and the Secretary of State work hand in hand. It is true that they work together. The Chancellor puts more taxes on the pension funds that belong to pensioners and more taxes on families and the Secretary of State, then hands the money back in means-tested benefits for which he expects people to be grateful. The Secretary of State is no more a welfare reformer than the Chancellor of the Exchequer is a tax cutter.
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