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Madam Deputy Speaker: Order. The hon. Gentleman should relate his remarks to the order, which is about increases.
Andrew Selous: I shall do so, Madam Deputy Speaker. If I may, I would like to come to two examples relating to the benefits.
Madam Deputy Speaker: If the examples are germane to this debate, that would be appropriate.
Andrew Selous: With permission, Madam Deputy Speaker, I shall deal with those examples relating to the benefits, increases to which we are discussing tonight.
A lone mother living with a one-year-old child in local authority housing and not in paid work would currently qualify for child benefit, housing benefit, council tax benefit and income support of £157.80. The father of her child who is living on his own in a local authority flat and not in paid work would qualify separately for benefits of £103.97, which means that the two of them have a combined weekly income, before paying rent and council tax, of £261.77. If the couple married or established a stable cohabitation, their income under the current system would fall by £70.47, and they would have a joint income of only £191.30, which is a considerable disincentive.
Mr. Webb: The hon. Gentleman has done his research, looked at the figures and thought this through. However, if those two people were living together, the second rent would not have to be paid at all, so the difference in their disposable income is not £70, but probably £20 or £30. A couple with any commitment is not going to live apart for £30, although it is fair to say that they may try not to disclose the fact that they are living together. Surely, the only alternative is for the rates we are discussing today to be not 160 per cent. for a couple but 200 per cent. That would be a huge increase in expenditure which I do not suppose the hon. Gentleman's Front Benchers would allow him.
Andrew Selous: I accept that the hon. Gentleman made a relevant point about the costs of second property. However, in the figures I looked at, £70 a week is significantly more than the cost of renting an additional
property. We have a problem with the fact that the household's taxation is based on an individual, but assessment of the benefits whose uprating we are discussing tonight is based on the whole household. I am trying to illustrate the fact that that fundamental mismatch is the nub of the problem. My thesis is that that is the core reason why a quarter of children in this country—
Andrew Selous: The hon. Gentleman may shake his head, but he needs to explain why 25 per cent. of children in this country live in households headed by a single adult; the European average is 14 per cent, and in the Netherlands and Luxembourg it is only 10 per cent.
Madam Deputy Speaker: Order. May I once again remind the hon. Gentleman that the scope of this debate is quite narrow; it is about the increase in the levels of benefit, not eligibility criteria?
Andrew Selous: I willingly accept your guidance, Madam Deputy Speaker. I was merely responding to the intervention of the hon. Member for Northavon (Mr. Webb).
The policies that I have been talking about and the perverse incentives that are their result are responsible for tying up unnecessarily a large amount of our housing stock. There is the cost to the Government in terms of council tax and housing benefit. I am aware in my constituency, as are other Members who represent other constituencies, of extreme pressure on housing. The motions that we are considering are in part responsible for tying up housing stock.
8.56 pm
Mr. Tim Boswell (Daventry): As the hon. Member for Gedling (Vernon Coaker) said, in the only Back-Bench contribution made by a Labour Member, this has been an enjoyable debate. It has also been an interesting debate, if one that has not as yet extended itself as far as it might.
The debate was introduced by the Secretary of State in a terse, though not perhaps peremptory, manner. He had some good news to bring to the House about increases in benefit, which are always welcome where they are obtainable, although they were somewhat rubbished by the hon. Member for Northavon (Mr. Webb), who made a characteristically interesting speech. I did not agree with much of the detail, but I did agree with some of the broad sweep.
We have had some heavyweight contributions from those on the Opposition Benches. The first was from my hon. Friend the Member for Havant (Mr. Willetts), who has apologised for having to leave the Chamber early to fulfil another engagement. He made a powerful speech of analysis of what was wrong with benefits and the present structure.
Perhaps my hon. Friend the Member for Arundel and South Downs (Mr. Flight) prevented me from speaking even more discursively than I might have been minded to. Indeed, he even lifted one of the quotations that I was about to share with the House. I shall not repeat it.
With characteristic concerns, my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) referred to some of the moral hazards within the present system, while not perhaps having yet reached a completely watertight solution that would resolve the situation.
All this suggests that there is much life in what most of us have learned to call social security, which we must now learn to call work and pensions. This is a worthwhile and important debate. The Government have lessons to learn; indeed, they have been taught some sharp lessons in the past, and they would be well advised to keep their ears and eyes open to the changing tides of opinion.
I am conscious that there is a fine line to draw. You have already rightly reminded the House, Madam Deputy Speaker, that we are discussing uprating motions that are about mathematical adjustments to benefits that have not broadly been changed in scope on this occasion. They may have been altered in their sweep and their effect by substantial changes in one or two instances, but the structure remains largely unchanged.
It is very much within the sweep of Government policies that there should be a parallel consideration of the current state of the private sector in terms of the provision of retirement incomes. I shall have occasion to refer to the Government's objective to rebalance the financing of people's income in retirement between state provision and private sector provision. All of us on both sides of the House agree that those should operate like two blades of the scissors. We will not immediately remove one blade; we may just put one blade on top, instead of underneath.
There are genuine concerns, which is hardly surprising. The right spirit, especially when the Government have a reasonable amount of time to respond to the debate, is that they should take seriously the points that are being made and answer them.
The House would not expect me to be over-solicitous of the interests of Ministers. It must be extraordinarily distasteful for any Work and Pensions Minister to have to read the recent press, particularly the weekend press, with the cornflakes.
The Minister for Pensions (Mr. Ian McCartney): Porridge.
Mr. Boswell: Indeed. The right hon. Gentleman rightly reproves me. There is nothing wrong with porridge. It no doubt accounts for his achievements today in the hospital downrating issue, to which I shall return.
At the beginning of our constituency week of absence, under the rather terse headline "Pensions crisis deepens", The Sunday Telegraph reported:
- "Stakeholders have bombed, annuity rates are tumbling and companies are ditching final salary schemes".
- "How did it all go wrong?"
I have no quarrel with that objective of the Government's, but along with the authorities whom I have already mentioned, there is the palpable fact that companies are bailing out of defined benefits schemes and replacing them with defined contributions, with generally less generous employer contributions to pensions. That means that any realistic prospect of achieving that objective is fast receding. The reliance on state benefits may well increase, not diminish, in future.
I toss in two other points. The first is that a major culprit in all this was that disastrous decision in Government's very first Budget in 1997 to remove payable tax credits from dividends, at a cost of some £5 billion a year to pension schemes alone. I happened to be serving on our Treasury team at the time and alongside my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), we fought hard in Committee to explain the dangers, though perhaps not many were listening at the time. They are now. The Government were then prepared to rejoice in what they felt was an entirely painless stealth tax. Now they are living to regret it.
My second point, to which we shall properly return in another context shortly, when the State Pension Credit Bill reaches the House, is that the Government's vaunted pension credit legislation will make matters worse, by both increasing complexity and providing direct disincentives to long-term saving.
The right hon. Member for Birkenhead (Mr. Field), who is an unusual absentee from tonight's debate, was quoted in the article in The Sunday Telegraph to which I referred as saying that
- "it would be madness for anyone in Labour's target stakeholder group to even think of buying one."
- "There's no way they can save enough to provide a better pension than they'd get from the minimum income guarantee."
This year—let us make no bones about it—the basic pension will increase by £3 for single pensioners and by £4.80 for couples. Effectively, the Government have committed themselves to a 2.5 per cent. minimum increase in future years, regardless of the rate of inflation. At the same time, however, the risk remains that the minimum income guarantee, which is tied to earnings, certainly for the remainder of this Parliament, may outstrip even the ratcheted-up basic pension increase. I notice that the Institute for Fiscal Studies has suggested
that by 2038, the MIG could be worth twice the value of the basic pension. To put it another way, the value of the MIG at that time would be equivalent to an implied pension pot that would, if converted into an annuity, approach a six-figure sum. People would have to save at least that sum to get more than they would have done from the minimum income guarantee.The first result is more means-testing, however it is described. I accept that there is a difference between careful targeting and means-testing. The issue has to be handled with very great sensitivity and, dare I say it, a degree of scepticism. The second consequence is a downgrading of the value of the basic pension, so that it becomes a mere supplement to other sorts of income, including those generated by the minimum income guarantee. We must also consider poor take-up—perhaps only two thirds of the MIG target group. The Secretary of State referred to a figure of 2 million, but I understand that some previous official take-up figures have suggested a level of 1.7 million. If he has improved take-up, that is welcome. It has also been suggested that, as pension credits develop, about two thirds of all pensioners could be sucked into what is a means test by any standards. A final concern, which was raised by the hon. Member for Northavon, is that all these arrangements still give very little acknowledgement to the growing number of elderly patients, with their distinctive needs and characteristically high poverty.
It is interesting to contrast what is happening now with the long-term figures, which suggest that one third of all benefits are means-tested—I refer not only to pensions—compared with only 8.5 per cent. of total benefit spending at the initiation of the modern scheme under the Attlee Government. Today, one modestly encouraging concession has been given: extension of the qualifying period for hospital downrating to 13 weeks. However, I have never seen a concession so rushed out, having been so unexplained, by any Department at any time.
The Minister for Pensions will have some time for his reply. Perhaps he can clarify the figures that the Secretary of State gave earlier and confirm the maths. There is a confusion between pensioners and other beneficiaries, but can he tell us the number of people who will benefit and at what cost in terms of the £60 million that is currently raised through hospital downrating? How many will remain in the scheme and at what cost to them? When we prepared our case on hospital downrating, I did some figure work. The total disallowance could be £2,000 a head. That means a sharp descent when benefit is withdrawn.
As my hon. Friend the Member for Havant said, restoring benefit remains a genuine administrative problem, to which Ministers need to pay more attention. For example, they should consider what are technically called the outliers in distributing the restored benefit. It is all very well saying that the average time taken to restore benefit is three or four days, but reapplying for benefit is not the first matter that a pensioner leaving hospital considers. Uneven distribution may mean that some pensioners lose out for an inordinate length of time.
Although the Government's concession is welcome, they should explore further with representative organisations whether flaws, especially administrative flaws, remain in the system. Now that they have taken the heart out of the system in terms of cost, they should consider how much benefit and revenue they continue to get from it.
Our emphasis tonight has been on the pension increase above inflation, but we should not overlook some of the wider implications. Everyone knows the financial strains of the current system; they will not go away. They were well set out in the context not only of this country but of the world in a recent survey in The Economist. If all hon. Members studied the table that shows the change in distribution of pensioner numbers in Japan between 1950 and today, they would understand why Secretaries of State will always have a problem of containment.
Of course the Government want to relieve some of the burden of dependency. I doubt whether they will admit to wanting to adopt the method of increasing the retirement age, or, to put it more positively, removing some of the disincentives to continuing to work. We may have further comments to make about ageism and age discrimination. Employers' simple acceptance of continuing to employ fit and able employees will be an important social change. It matches the wider objective of encouraging people to stay on at work while they feel able to do that and thus enhance their pension. They may need to do that.
Some unfairness and potential policy hazard is buried in uprating. Although the basic pension is increasing by more than 4 per cent., the extra components such as the additional pension and the graduated pension allowance continue to increase by 1.7 per cent. If the Government are prepared to be generous on the one hand, the imbalance will increase and convey the worst possible signal to those who contemplate staying on at work.
No one has commented on the new pension service that will come into play in only a few weeks and provide the benefits. Ministers may choose to reflect and, indeed, comment on the fact that, now that we have had the press release and the characteristic flood of adjectives about the new service—it is "modern", it is "high quality", et cetera; that is all I get in written answers on the subject—they now have to provide the service for pensioners.
I am a keen reader—and, dare I say it, a modest advocate—of the Department for Work and Pensions newsletter for advisers, intermediaries and other professionals. I am not sure whether I qualify as one of those, but I do my best. The newsletter is known as Touchbase, and we can all get it if we ask for it. The edition that has just reached me is the winter 2001–02 edition, so it is a bit late, rather like the winter fuel payments—but we will leave that aside. An article in the newsletter makes it clear that 26 new centres are to be provided for the pension service. These centres are only just getting under way, and claims will not, in the rather charming phrase of the article, even begin to "migrate from local offices" to the pioneering centre in Burnley until mid-April.
By 2005, however, everything will be all right, because the article concludes that all sites should be operating the optimum best-practice model, and that the policy of the Government is clearly one of continuous improvement. Of course, that will be the case only if one happens to be a pensioner who can send an e-mail or succeed in getting through to the centre by phone.
More seriously, perhaps, there are genuine concerns among the retirement associations and those representing older people about the division of departmental responsibilities implicit in the division between the
pension service and Jobcentre Plus. Pensioners have an interest not only in pensions. For example, they may well have dependents, and some might still be in receipt of child benefit. Others might be at work, or might need to access disability services.
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