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Mr. Flight: I fully agree with the hon. Gentleman, but is he aware of one of the resulting problems? People who may be old and not that mentally clear go into nursing homes, the costs of which have risen dramatically particularly in the southern half of the country, without
realising that they will lose their attendance allowance. I have had many constituency cases of people who thought that they had done their arithmetic, settled in a nursing home and then found that they could not afford the care. Relatives had to be dug out to try to help. Therefore, such a worthy benefit illustrates one of the problems of means-testing.
Vernon Coaker: The hon. Gentleman makes a reasonable point about attendance allowance and nursing homes. As I said, points about various benefits can always be made, and that argument has been put to me and no doubt to many hon. Members. We often talk about the fact that many pensioners and others who are entitled to the minimum income guarantee do not claim it. Indeed, I have tabled a question on the matter for Monday's Question Time. My point is that a substantial number of elderly people who live in their own home do not claim the non-means-tested attendance allowance available—or claim the allowance at the lower rate when they are entitled to the higher rate. That benefit is hugely important and should be mentioned when discussing benefits and supports available.
I broadly welcome the social security uprating order, and I am to a certain extent pleased with the way in which the Government are trying to integrate the tax and benefits systems and with the work that has been done on tax credits. I say that because one important thing that a Department for Work and Pensions should do is to try to address a problem that we all recognise: the need for the social security system to avoid creating a culture of dependency. It should create a culture that not only, of course, supports people when they are out of work or in need, but encourages people back into work, because that is the best form of welfare.
One of the most depressing things which I am sure we all experience when we visit some houses, estates, streets and parts of our cities—as well as, indeed, some rural areas; the problem is not just in cities—is seeing generations of people who have become dependent on benefit. Entire families have become dependent on benefit and have been workless for a considerable time. Indeed, whole communities have been workless.
The Government are trying more effectively to integrate the tax and benefits systems, so that work truly pays. One problem with the benefits system is that when people return to work and gain pay, they lose benefits, which means that it is not worth their going to work—
Madam Deputy Speaker (Sylvia Heal): Order. The debate is about increases in social security benefits and pensions rather than the wider points that the hon. Member is making.
Vernon Coaker: Thank you for bringing me back to the debate, Madam Deputy Speaker.
In the context of wider Government policy, I support the orders.
8.39 pm
Mr. Howard Flight (Arundel and South Downs): I am disappointed by the uprating order. First, it illustrates, as my hon. Friend the Member for Havant (Mr. Willetts)
said, that the Government have given up tackling the more difficult areas such as housing benefit. Secondly, although no doubt with the best will in the world the hon. Member for Gedling (Vernon Coaker) would rather means-tested benefits were called something else, the reality is that the hassle of filling out forms means that individuals perceive them as means-tested benefits. There is a major difference between targeting and means-testing. The order shows the Government going further in reshaping the welfare state into one that is means-tested. The children's tax credit and working tax credit yet to come increase that likelihood.In addition, it is clear, as the hon. Member for Northavon (Mr. Webb) said, that the Government view national insurance merely as an alternative tax source. The Government should be more honest—if they want to take welfare in that direction, people should be aware of it. Many elderly people still believe that national insurance is national insurance. That is the system under which they paid, and their children are now doing the same to pay for broadly universal entitlements to benefits in their later years.
I want to focus particularly on pensions, the pensions credit and the minimum income guarantee. This is a serious mess—if Ministers had set out to smash private pensions, they could not have done it better. It is worrying that on several occasions when the Secretary of State has had the opportunity to express his concerns or thoughts about the major rundown in occupational pensions and final salary schemes, he has apparently not done so, although admittedly we await the findings of the Pickering report. Candidly, the alleged target of provision for pensions coming from private pensions savings—increasing from 40 per cent. to 60 per cent.—is becoming a farce.
There are many good things in the stakeholder arrangement. However, the minimum income guarantee and pension guarantee mean that for more than half the people for whom stakeholders were intended, there is no point in saving for one. As has been demonstrated in Canada, people do not want to be forced to sink their precious pension savings in an annuity where the real returns are nearly halved.
Many people have not realised that the shift from final salary to money purchase pension savings—
Madam Deputy Speaker: Order. I remind the hon. Gentleman of my earlier comment. We are debating the increases in social security benefits and pensions.
Mr. Flight: I thank you, Madam Deputy Speaker. However, the point that I am coming on to is that the Government's response to what is happening in private sector pension provisioning is shown in the increases to the minimum income guarantee made in the order. That takes us, as a nation, in the opposite direction from the one that I think right hon. and hon. Members on both sides of the House want to go in.
The Government looked to stakeholder pensions to boost private sector pension saving, but that is not happening. Instead, we are seeing a very generous increase in the minimum income guarantee. It is well intended because it is designed to deal with the problem now. However, what worries me is that it leads to behaviour that is simply not sustainable. On the assumption that the minimum income guarantee continues
as it is, the reaction of the public to perceiving that they will have a very adequate income in retirement is, if anything, not to bother with private sector pension saving, or to do less of it.The right hon. Member for Birkenhead (Mr. Field) has said that, by 2005, the costs of such an approach would be the equivalent of something like 5p on income tax, rising to about 11p by 2050. It would cost about £26 billion in today's money. Some 65 per cent. of the population would be dependent on a means-tested pension. Surely that is the exact opposite of the Government's intended pensions policy. I am particularly worried that, economically, it will take us into the very territory that has proved so problematic for continental Europe. Employment taxes are high, growth is relatively disappointing and overall taxation is higher than continental Europe would wish because pensions have to be financed on a pay-as-you-go basis.
Geraint Davies (Croydon, Central): Is the hon. Gentleman's basic thesis that it is wrong to give the poor more because it encourages them to be poor?
Mr. Flight: I am surprised that the hon. Gentleman should make such a crass observation. My point is essentially the same as that made by the right hon. Member for Birkenhead. The policy that addresses the immediate issue of providing an adequate income in old age for those with inadequate private sector pension provision is shaping the future. It will affect behaviour and take us down a relatively unsustainable path. There are other ways to address the issue.
Madam Deputy Speaker: Order. Once again, I remind the hon. Gentleman that he is going rather wide of the scope of this debate.
Mr. Flight: Thank you, Madam Deputy Speaker. I was endeavouring to deal with the intervention from the hon. Member for Croydon, Central (Geraint Davies).
Some Conservatives have welcomed the minimum income guarantee and pension credit increases as a well intentioned attempt to address a current problem. However, targeting would be much more appropriate than means-testing, and we should consider treating older pensioners as a block, which would be better than giving them the ridiculous 25p increase that many of them regarded as a joke. I fear that, unknowingly and with good intent, the Government are presiding over what will become a major problem in the area of pensions. They are adopting an approach that, economically and in terms of the effect on private sector pension saving in particular, is the very opposite of their alleged policy, which we all want: healthy and rising private sector pension saving.
8.48 pm
Andrew Selous (South-West Bedfordshire): I wish to look at some of the order's consequences for couples, families and the care of children in particular, and to consider the philosophy and structure that underpins the uprated benefits.
I welcome the increases in individual benefits, but I want to draw the House's attention to the overall collective impact of such benefits, particularly on couples and children. I ask the House to focus on the reason why
a quarter of dependent children in the UK live in households headed by a single adult. The European Union average is 14 per cent., and even in northern European nations such as the Netherlands and Luxembourg, the figure is only 10 per cent. One main reason for that difference is the structure of our tax and benefits system.Britain bases tax on an individual assessment, with no allowance for the number of dependants whom one income must sustain. The benefits system that we are looking at is based on joint assessment, which carries penalties for marriage or stable cohabitation. Remaining in an undeclared or informal partnership means that each partner is assessed separately for benefits. I shall come on to a couple of examples in a moment, but generally it is the case that openly cohabiting couples have a reduction in their welfare entitlements of about £70 a week. Although the Government, and, indeed, all parties talk about supporting family life and stable relationships, they must realise the penalties in the current system of which the benefits are part.
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