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Mr. Boswell : I thought that the hon. Gentleman started well, but was beginning to deteriorate. Even if he did not like everything that was done under the Conservative
Government, in view of what he said about the need for older people to work if they want to, I invite him to remember that we abolished the earnings rule, which was a major disincentive to their doing so.
Paul Flynn: The Conservative party must have done some things right in its 18 years in power, but they were rare events. I do not know whether the hon. Gentleman was in the Chamber when I said in an intervention that the main reason for the Bill was the very generous disregard that applied from 1948, when the pension was 24s—this may date many hon. Members—and people could have 10s 6d in their pension while earning £1, which is a vast amount in today's money. That disregard was built into the pensions system and continued for a long time, until it was abolished by the Conservative Government in 1980. That had a profound affect on the attitude towards pensions and savings.
I have grave doubts whether the Bill will have an effect on savings, as has been suggested. Clearly, there is a great argument for simplicity in our pension scheme, such as that found in France, where people seem to understand the point of their pension scheme. I find some clauses completely incomprehensible, and someone could earn a fee by translating the meaning of clause 3, which sounds like poor quality gobbledegook. I believe that, in trying to—
Mr. Deputy Speaker (Sir Michael Lord): Order. The hon. Gentleman has had his 12 minutes.
7.36 pm
Mr. Howard Flight (Arundel and South Downs): Hon. Members are aware that the reason for the Bill is, in truth, not suddenly to offer substantial incentives to people to save for their own pensions, but because the Government introduced the MIG and stakeholder pensions and suddenly realised that, for a lot of people, there was no point taking out stakeholder pensions because of the MIG. Indeed, people could be misadvised to take out a stakeholder pension if their earnings were very modest.
The Bill provides that those modestly above the MIG level should have this benefit, and it is hoped that there will be no obvious disincentive to save for those at the lower end of the stakeholder market. As other hon. Members have said, the arrangements, in essence, involve a 40 per cent. tax charge, and its impact can be much greater if people save a lot. The arrangements will really only benefit those who save up to £23 a week.
There then appear all the categories that the Bill does not address, where it will not help and where it leaves disincentives. It will not help those with less than the full basic state pension entitlement and, for the reasons that the Minister explained, this will particularly damage women because, in the past at least, many have not worked for part of their younger lives while bringing up children. As has been said, the Bill will not apply to women in the 60 to 64-year-old age range. It will not apply to the self-employed, who are often the least well provided for in old age; nor will it benefit those who have saved for a limited time—for example, up to 12 years—who will receive no benefit from the credit as a result.
I am still not entirely clear what the earnings rule will be, but the point is that the Bill has been spun as a great pension credit and incentive to save, but it will do nothing
at all for many people and it may represent a major disincentive to save for many people. We need to dig deeper to solve many of the problems that have been unleashed by the principle of the MIG and its extension. Many people have pointed out not only that the credit will be too complex, but that the Government assume there will be only a 67 per cent. take-up.
Miss Begg: The hon. Gentleman mentions the problems caused by the minimum income guarantee. On reflection, would he get rid of it?
Mr. Flight: I hope to suggest the solution in the few minutes allotted to me.
There is nothing about the cost of the credit. Hon. Members will be aware that estimates by the Department for Work and Pensions have put it as high as £20 billion by 2040 and £26 billion by 2050 if it continues and depending on the qualification rules.
The approach makes a nonsense of the Government's target to change the 60:40 relationship. In addition, I find it disturbing that at a time when occupational final salary schemes are being abandoned and alternative money purchase pension provision is going to be less generous, the Government are laying down the principle that the state will make good the lack of provision in people's savings for their retirement. That runs the risk of taking us down the economic path that is damaging the economies of Europe so much, where inadequately funded pension provision has led to taxation on employment, which damages economic growth and, above all, employment.
The Government should think again. A pensions crisis is engulfing the country and we should be cautious, albeit with the best of intentions. Although we want to help those in need in retirement today, if the policy takes us down a wrong and irreversible path, it will not do future generations any good. Both my hon. Friend the Member for Havant (Mr. Willetts) and the hon. Member for Northavon (Mr. Webb) made the point that it is crucial to target those age groups that need assistance.
People who are 75 today are fitter than those who were 65 some 40 years ago. Most people will want to work certainly to 65 and possibly, as far as I am concerned, to 75. It is the older people who are in the greatest need and a significant increase in the universal pension for those over 75, which would lift everyone off means-testing, would solve many problems. It would provide security for people when they really need it, such as when the nursing home bills start to arrive or an annuity is worth only half of what it was when purchased. It makes sense to address those problems. Although it leaves certain difficulties for those who are under 75, more of them will work in the future and they will be able to use their private sector pension savings in a more focused way during that time.
Mr. Tynan: If someone is in poverty at 65 or 66, does the hon. Gentleman think that we should not apply a measure to take them out of that? Should they have to wait until they are 75 before the problem is tackled?
Mr. Flight: My hon. Friend answered that. No one is denying that means-tested benefits will remain in the welfare system for such people, but we need a pension system that works. We do not want to give people the
wrong incentives. The system must be targeted on groups of people who are most in need. The problem with the proposed measures and the MIG is that they send the wrong signals on pension accumulation. They will end up costing more than will be deemed affordable and do not provide the pension saving incentives that the spin attached to the label implies. At worst, they lock us into a path that will cause us to have the same problems as continental Europe. We want to achieve an affordable and workable compromise. The Liberals and the Conservatives have joined together on this issue to offer a practical path that makes sense for a community in which people will live and work for longer.7.45 pm
Mr. Frank Field (Birkenhead): When this measure was first thought of, our constituents' views on their pensions and the pension promise were rather different from their current views on their pension prospects. It is beyond all doubt that when the Secretary of State rose to introduce the measure, he did so in support of a Government who have done more for poorer pensioners than any other Government in our history. However, I want to set out why I will not support the Bill in the Lobby tonight. There is a reasoned amendment, and I hope that we will vote on whether the Bill should receive its Second Reading. I believe that it should not.
I agree with the Secretary of State that in speaking thus, one allies oneself with people with whom one would not normally agree. It is true that when I was on the Opposition Benches, I spent all my energy, as did other Labour Members, in opposing the Governments of 1979 to 1997, who extended means-testing. I will continue to vote that way tonight. Of course we must be careful with people who push one line of policy in office and another in opposition. However, if the Government can change their mind, presumably Oppositions can do so as well.
Although there might be a dispute about whether anyone understands the Bill or what its likely effect might be, there is agreement on both sides of the Chamber that taxpayers need to spend more money on supporting retired people. We have not had that point of agreement for many days, and it is much more significant than divisions over the Bill itself.
There are four reasons why I oppose the measure. First, it breaks a manifesto commitment. In 1997, our general election manifesto highlighted the rising number of pensioners on means-testing, which had increased to one in three under the Tories. We found that an appalling state of affairs and promised to reverse the trend. Early in the life of our Government, we set the aim that when all our pension reforms were complete, the number of means-tested pensioners would fall from one in three to one in five. As has been pointed out, we will not achieve that objective if the Bill becomes law. Instead, the objective will be to increase the number to two out of three of our retired constituents. So breaking a manifesto pledge is the first reason why I will reluctantly vote against the Bill on Second Reading.
Secondly, we opposed means-testing not merely because we opposed the Tories; we had clear reasons for thinking that it was a damaging policy for the country as a whole. We did not oppose it only for the reasons that were given in the 1930s. In the last debate on this subject, my hon. Friend the Member for Stalybridge and Hyde
(James Purnell) quoted an essay, which I consulted, about people's fear of the means-test man, as he put it. That fear clearly operates in some instances, but that is not the only charge that one makes against means-testing. As the House has already been told, the Bill will design out of eligibility many of the pensioners whom we would like to gain benefit, so it will not even be an effective means test for targeting help on those in greatest need.There was another reason for our opposition to means-testing, apart from our simply being bloody- minded and wanting to oppose the Government of the day. We began to see that means-testing had an effect on how people behaved, and not simply on those who learn to work the system, although one can hardly blame them for that if we design and put in place mean-testing systems, which encourage it.
As the hon. Member for Northavon (Mr. Webb) explained to the House, people have a responsibility to try to calculate how they can make themselves and their families better off, and they change their conduct accordingly. Means tests undermine most of the attributes that we want from strong citizens, and that was one reason why we pledged ourselves in 1997 to reverse what seemed to be an ever-growing tide of pensioners on means-tested benefits. The Bill therefore goes against a manifesto pledge. We had specific reasons for thinking that means-testing was a bad policy.
The third reason why I oppose the measure is that I do not believe that it will last. Before you, Mr. Deputy Speaker, were chairing our proceedings, my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) said that he was rather surprised to be called at that point in the debate. All I can say is that if surprise leads him to deliver a speech of the quality that he gave us tonight, I hope that he is surprised on many more occasions and engages the House as he did tonight.
If my hon. Friend was right, and the Bill could last, there could be a case for it, but I do not believe for a moment that it will be on the statute book in 10 years, nor do I believe it should be, given the issues that people who are trying to save for their retirement currently face. The Government's own projections of the cost of the measure show that, when it is fully effective, in today's terms it will cost 8p on the standard rate of tax. Does anybody think that future Governments will see this system grow and prosper with a tax bill of 8p in the pound for every taxpayer? Perhaps some people think that is realistic; I do not think that it is.
In a few weeks, in the Chancellor's Budget, we will cross a threshold when we debate with the electorate the need possibly to raise taxes to support the health service. That will be nowhere as easy to negotiate as some of my colleagues think, even though we will be fronting a tax rise on the service that this country cares most about—the national health service.
The fourth reason why I oppose the Bill, therefore, is that whereas people planning for their retirement want as much certainty as possible in the regimes that they have to negotiate, the Bill will add to uncertainty. It will not last. One has only to look at the record of previous Governments, let alone the record of previous Oppositions in responding to Government measures, to realise the likely fate of the Bill, no matter how noble its objective.
Although we agree across the House about the voters' growing sense of unease about how pensions will be paid for and about how an increasing share of that will come from taxation, the Bill is not adequate.I shall end my speech by suggesting how I hope the Government, through their programme, will shape the next move. The real weakness of our system is that people can work for 48 years and not get a pension that takes them out of poverty. The inadequacy of the first tier is the stumbling block to longer-term successful reforms. I hope that, at some stage, the Government will recast the state second pension. Instead of being a safety net benefit, it should be one of which everybody has membership. Instead of operating as a pay-as-you-go system, it should be funded. It should be bound up with the existing national insurance pension. At the end of the day, people participating in both schemes would have an adequate first-tier pension. That would simplify the system and there would be no disincentive to save. People would be able to make their own provision as they thought fit.
There would be a balance between risking the pension promise through investments and trying to deliver the crucial first-tier pension through a pay-as-you-go system. It does not take much to begin to reshape the Government's measures to give us the basis of long-term, sustainable and successful reform. The Government need soon to respond to people's increasing concern about whether there will be an adequate pension for them when they retire. I hope that they will do so not by throwing away all the measures that they have taken, but by recasting some of them, putting aside this measure and looking at the state second pension. They should realise the potential that it will have if it is funded, if everybody is included, if it is compulsory and if it is linked to the national insurance state pension.
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