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Kevin Brennan: Does the hon. Gentleman agree that a far more significant date in the development of pensions was when his party broke the link between the basic state pension and earnings, which put us in the position that we are in today?
Mr. Willetts: If the hon. Gentleman is so worried about the breaking of the earnings link, why does not his party reinstate it rather than move towards means-testing?
Mr. Levitt: I am sure that the hon. Gentleman can grasp the intellectual difference between an income
guarantee and a pension guarantee. The pension guarantee will remain universal to pensioners, but those who have as their income only the pension, or the pension and a very small amount, will be rewarded for the thrift that has produced a little bit extra. It represents an acceptance that the pension is not by itself sufficient for somebody to live on.I remind the hon. Gentleman that both the minimum income guarantee and the pension credit will indeed be index-linked, so more and more people's pensions will be put back on to that basis.
Mr. Willetts: I am afraid that I did not entirely grasp the hon. Gentleman's point. He seems to be trying to say that there is a big difference between the pension credit and the minimum income guarantee, but the figures given by the Secretary of State, which, he claimed, showed the marvellous effects of the pension credit, included the effects of the so-called guarantee credit, which is the old minimum income guarantee. Labour Members cannot have it both ways.
James Purnell: Some Labour Members found the remarks that the hon. Gentleman made over the weekend difficult to stomach. He claimed to be on the side of the poor, yet from 1979 to 1992, when he advised Conservative Governments, the income of the bottom 10 per cent. fell by 17 per cent. in real termsnot a relative, but an absolute, fall. Will he apologise for that?
Mr. Willetts: No, and I do not recognise the figures that the hon. Gentleman quotes.
I want to talk about the problem that has been created since 1997 as a result of the extension of means-testing under the minimum income guarantee. It has created a gap in that the value of means-tested benefits is now much higher than the value of the basic state pension. That is why the Secretary of State goes on about all the people who find themselves being penalised for having saved. It is a consequence of the increase in the value of the minimum income guarantee relative to the basic state pension. Now, apparently, the problem created by the extension of means-testing is to be solved by even more means-testing. I invite hon. Members to consider whether there is an alternative strategy that nevertheless targets help on poorer pensioners.
Paul Flynn: Will the hon. Gentleman give way?
Mr. Willetts: Yes, because the hon. Gentleman has a long record of concern about these issues.
Paul Flynn: Indeed, and a long memory of the hon. Gentleman. He will not remember, but in 1948 the basic pension was 24 shillings and there was an occupational disregard of 10s 6d and an employment disregard of 20 shillings. The system continued in those terms for a long time, with some modifications, until the occupational pension disregard was abolished in 1980. That is the reason for the Bill. Does the hon. Gentleman recall who abolished it, and will he give us a mea culpa?
Mr. Willetts: The reason for the Bill is the spread of means-testing that has taken place since 1997, and that is the point on which I want to focus. The consequences of
means-testing are clear from the evidence around us. Before we rush into yet more, let us consider the problems caused by that which already exists. I should like to consider first the impact of existing and proposed means-testing on present-day pensioners and then its impact on pensioners in the future.
David Cairns: On the extension of means-testing, can the hon. Gentleman confirm that it is Conservative policy to keep the winter fuel payment as a universal benefit; or does he agree with his hon. Friend the Member for Daventry (Mr. Boswell) who, on 27 November, told the all-party disability group that it would be better to target fuel poverty by doing away with the payment and moving towards means-testing? Would not that be an extension of means-testing?
Mr. Willetts: My hon. Friend the Member for Daventry (Mr. Boswell), who speaks powerfully on these issues, assures me that his comments were misinterpreted. When he speaks at the end of the debate, he will have an opportunity to make clear exactly where we stand.
I accept, however, that means-testing will be part of the social security systemas it has always been. I do not pretend that we can suddenly get rid of it. I invite Labour Members to contemplate the implications of moving to a regime where almost 60 per cent. of pensioners will be on means tests. The question is whether we should embrace such a massive extension of means-testing. There will, of course, always be some means-testing.
I should now like to make some progress with my speech and consider the implications of the Government's proposals for pensioners. One of the problems with means-testing is that it breeds complexity, and complexity means declining and low take-up. The Secretary of State dismissed the figures on take-up, but his Department produces them annually. I shall not go to extremes but simply take his estimates for the mid-point in the number of pensioners who are entitled to the minimum income guarantee but do not claim it. The number was 500,000 last year, while the latest statistics suggest that it has increased to almost 600,000. That is the mid-point in the range.
The figures that we are given by Ministers always assume 100 per cent. take-up. In the real world, there is not 100 per cent. take-up, or anything like it. It is no good for the Government to try to sell us policies that assume 100 per cent. take-up. Every Member knows that that is simply not validthat is not the situation for pensioners.
Lynne Jones: Does the hon. Gentleman also acknowledge that a problem of an over-complex system is that it would be easy for future Governments, who might be less generous to pensioners, to cut back on the benefits and pensions paid to elderly people? That is exactly what happened in the past.
Mr. Willetts: I certainly accept that one of the problems of a complicated system is that it is difficult to ensure its long-term viability. For exampleto re-enter the debate that went on before the last general electionthere are questions about all the special payments introduced by the Government. I think that pensioners
would have been better off if those payments had been consolidated in the value of the basic state pension. That would have been a better way to help pensioners rather than creating a large number of special payments. Of course, those payments exist and we understand why pensioners do not want to lose them, but had I been in the Secretary of State's shoes, I would much rather have put the money into the basic state pension.One of the things I regret is that the Government could have achieved much more were they not so preoccupied with gimmicks, special schemes and extra new payments. That is not the best way to help pensioners. In a recent report on the consequences of the Government's proposals, the National Association of Citizens Advice Bureaux states:
Furthermore, the Pension Provision Group, in a long and thoughtful set of comments on the Government's proposals, states:
We want the Government to address that problem. Charities for elderly people say the same thing: there is a problem of take-up of the minimum income guarantee, despite the millions of pounds that Ministers have spent on advertising it, and there will be similar problems in the take-up of the pension credit.
Mr. Tynan: On take-up, does the hon. Gentleman not accept that stigmatising pensions by regarding them as a means-tested benefit rather than a right is off-putting to those who need them most?
Mr. Willetts: I appreciate the sincerity with which the hon. Gentleman makes that point, but in the attempt to tackle the problem, income support has been renamed the minimum income guarantee, which will now be renamed the guarantee credit, and with the savings credit it will form part of the pension credit. The frequent renaming and re-badging of benefits does not help pensioners, and it is one of the main reasons why take-up is, if anything, getting worse. It is another example of the way in which this Government's Blairite preoccupation with renaming and new initiatives is not in the best interests of the people whom they claim to want to help.
I want to discuss the faith that Ministers put in the new pension service, which will be introduced shortly, and the five-year entitlement as a solution to the take-up problem. The Secretary of State briefly referred to the pension service, which I hope will prove to be a success. However, it will be concentrated in a relatively small number of centres, and we are told that pensioners will be supposed to communicate with it on the internet and by telephone. It will be difficult for pensioners physically to visit a local branch of their pension service, because there will be so
few of them. I doubt whether the pension service will be able effectively to increase benefit take-up, which is currently going down. I hope that it will succeed, but we need more evidence as to why it will succeed than the Secretary of State has so far provided.The five-year entitlement, which is guaranteed once a person has claimed it, will not help if people do not like the prospect of claiming the benefit. It is no good saying that pensioners will be able to claim it for five years, given that it is the very prospect of providing the necessary detailed information that puts pensioners off in the first place. The Institute for Fiscal Studies said:
The right hon. Gentleman says that he will try to prevent changes in bureaucracy for five years, but he cannot prevent changes in pensioners' circumstances. If pensioners approach the pension service, detailed recalculations of entitlements to benefit will be necessary; if they do not, but their circumstances have deteriorated and their income is lower, they will get less credit than they are entitled to. I therefore fail to see how the five-year blanket fixed payment will solve the problem that the Secretary of State claims to understand. There is a problem with take-up now, and there will still be a problem under the pension credit.
The problem relates not just to pensioners today but to incentives to save in the future. Again, Ministers' claims for the pension credit's effect on the incentive to save are far too optimistic. I would much rather believe the Institute for Fiscal Studies, which says:
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