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(8B) Regulations may make provision as to income which is, and income which is not, to be treated as qualifying income for the purposes of this section.'.

No. 5, in page 2, line 40, leave out Clause 3.

No. 1, in clause 3, page 2, line 42, leave out "age of 65" and insert "qualifying age".

No. 2, in page 3, line 26, at end insert—

'(6A) In the case of men aged under 65, such regulations shall provide that the calculation of qualifying income shall include an amount equal to the amount of retirement pension that the claimant is forecast by the Secretary of State to be entitled to at the age of 65. This forecast shall be revised on each anniversary of the initial claim until the claimant reaches the age of 65.'.

Mr. Clappison: New clause 5 would require the Secretary of State to prepare a report on the effect of the savings credit on savings behaviour, and to invite the Social Security Advisory Committee to comment on that report and to consider recommending change. We have been over this ground before, but I make no apologies for coming back to it, because the effect of the pension credit on the incentive to save, and the amounts actually saved, are matters of real concern, and have been identified as such by many experts and organisations that have looked at the Bill, including those who looked at it when it was being considered by the Select Committee. Their concerns about the effects of the Bill on incentives to save are reflected in their many submissions to the Committee.

We are holding this debate on new clause 5 against the background of the salutary fact that, as a nation, we are simply not saving enough. The savings ratio is now at its lowest for 40 years, and we hear tell in the media and elsewhere of estimates of a £27 billion savings gap. Against that background, it is important that people should save more, particularly those on modest incomes, and we need to consider the effect of the pension credit on this problem.

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Will the credit make matters better or worse? The new clause would go some way towards enabling us to find out, because it would require the Secretary of State to prepare a report. We need to remember, when considering this question, that the pension credit follows in the wake of the minimum income guarantee. One of the obvious features of the MIG that was much commented on is that it leaves pensioners on modest incomes with savings in no better position than those without. For those who could see 100 per cent. of the value of their savings coming from the benefits that they received, there would therefore be no incentive to save.

3.15 pm

We acknowledge that the Bill seeks to change matters through the introduction of the savings credit. That much is obvious, but what effect will that, and the way in which it is being introduced, have on incentives? Will there be an incentive to save, when what is saved now will, in effect, be subject to a 40p in the pound tax on retirement? That is what this measure will mean for those involved.

The views of the expert authorities submitted to the Select Committee were decidedly mixed. Andrew Dilnot of the Institute for Fiscal Studies, when questioned by the Select Committee on incentives to save, said that the Government were on "a difficult wicket". Difficult wickets invite spin—I am sure that you know that as well as anyone, Mr. Deputy Speaker—and no doubt we shall be told in due course that the savings credit is an innovative and imaginative way of rewarding saving, as the Secretary of State suggested on Second Reading, when he said:

"The important point is that the pension credit removes for the first time—this has been widely recognised—the disincentive in the present system whereby someone with moderate savings can find that they are no better off than somebody who has made no effort whatsoever."—[Official Report, 25 March 2002; Vol. 382, c. 600.]

That raises the question of who introduced the minimum income guarantee and linked it to earnings in such a way that it would be likely to bring more and more people into its ambit, but there we are.

What will be the effect of these measures? Under the Bill, pensioners will, in one sense, derive benefit from having saved, and no doubt the Minister will take us back to that point. By the time people become pensioners, they will be better off through having saved, compared with those who have not, because they will have the benefit of 60p in the pound for every pound of their savings.

That, however, is not the question. The question that Ministers must address, and have so far failed to address, is: will it be worth while for workers to save earlier in their lives, when their savings will be subject to an effective 40 per cent. rate of tax later on? What will be the effect on their incentive to save, and on their savings behaviour, at that point in their lives?

The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle): Does the hon. Gentleman accept that the reasoned amendment that he tabled on Second Reading would have left the minimum income guarantee as it is, with a cliff edge, a 100 per cent. marginal withdrawal rate?

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Mr. Clappison: We set out what we proposed to do. I do not accept the hon. Lady's analysis, but she cannot get away from the question of the incentive to save, which is rather a different matter.

Mr. McCartney: Middle stump!

Mr. Clappison: I think that I am dealing with the spin rather well.

Mr. McCartney: Out!

Mr. Clappison: The right hon. Gentleman says, "Out". I might say that his judgment is as good as some other recent umpiring decisions—but we shall not go into that, Mr. Deputy Speaker. He is absolutely wrong. Neither he nor the hon. Lady will face up to the question of what the effect of this measure will be on the incentive to save. That is the question that I put to them. When one is referred back to other subjects by Ministers, one knows that one is getting somewhere with one's bowling, so let us take this a bit further.

Bob Spink (Castle Point): I am grateful to my hon. Friend for allowing me to intervene. May I give him a bit of fast bowling from Age Concern on that wicket? A briefing dated today, on just this subject, says:

"we believe that the pension credit will fail to provide sufficient incentive for younger people to save for their retirement."

Mr. Clappison: That is very much to the point and very accurate, as fast bowling often is.

Mr. McCartney: It's wide!

Mr. Clappison: I hear the Minister saying that the ball was a wide. Perhaps he will try this—

Mr. McCartney: No ball!

Mr. Clappison: Before the Minister says "No ball", I must point out that I have not even got as far as the crease. That says much about the quality of his umpiring. Perhaps he will do me the courtesy of allowing me to get that far before he proclaims a no ball.

Perhaps the right hon. Gentleman will umpire the views of the Association of British Insurers, which has sought to measure the economic benefit of saving. It has found that under these proposals, someone saving £50 a month would have to save for 10 years before they would see any economic benefit from having saved. The association believes that for 10 years, there would be a negative implied rate of return from saving £50 a month. Less value will be received in increased retirement income than will be paid in through contributions. Perhaps we will get an honest stroke from Ministers in response to that.

What is Ministers' reaction to the views of the Institute for Public Policy Research—on which the Government look favourably in other circumstances—on this matter? Further to the opinion of Age Concern cited by my hon. Friend the Member for Castle Point (Bob Spink), the IPPR, of all things, says:

"It would be very hard to argue that the Pension Credit has been designed to generate incentives for current workers to save."

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What do Ministers say to the National Pensioners Convention, which states:

"People of working age, deciding how much to save for their retirement will need to take into account the very real possibility—for some a strong probability—of any additional retirement income being taxed at 40 per cent."?

Ministers may argue—as some of their colleagues have argued in other forums—that people simply will not understand what may happen with the pension credit. They may argue that there will be no disincentive to save, because people will not look into the future and make those calculations, and even that if they do, they will not understand the pension credit. That is one view, but it was disposed of by, among others, Andrew Dilnot, of the Institute for Fiscal Studies, in his comments to the Select Committee. Ministers may not agree with him, but if so they would do well to heed the following warning from the National Pensioners Convention:

"It is tempting to assume that only a small minority of financially well-informed people will be aware of these facts and that the disincentive effect on saving will therefore be small. It seems to us, however, that financial advisers and providers of pension schemes will have a duty to inform people about such a major factor affecting the outcome of their investment decisions. Even if that were not so, it would be difficult to justify a policy which rested on the assumption that most of those affected by it would be deliberately kept in ignorance of its implication for their future well-being."

We do not want people to be in ignorance of what these important decisions mean for their future well-being. Ministers need to come clean, and to answer now the question of whether the provision amounts to a disincentive to save. The new clause simply asks that Ministers provide information for a report in due course. If they maintain that there is no disincentive to save, perhaps they could be brave and allow the report to state as much.

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