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Mr. John Greenway (Ryedale): Is my hon. Friend aware that the Association of British Insurers informed the all-party group on insurance and financial services this morning that it calculates that the savings gap is now £27 billion, most of which relates to pensions? Will he look carefully at proposals to encourage employers to operate better schemes?

Mr. Willetts: I am grateful to my hon. Friend for that intervention. He is correct about the scale of the savings gap that we face.

I wish to press the Secretary of State for more information on the two serious errors made by his Department in the past few months. The first mistake was in respect of the assets in our pension funds. Originally, the Government said that at the end of 1999 we had £784 billion in our pension funds—quite a lot of money. Then, without any explanation or prior notice, they produced a revised set of figures that showed that at the same date—at the end of 1999—they had reduced their estimate of the assets in our pension funds to £679 billion. That is a reduction of £104 billion—probably the biggest single change in the history of British economic statistics.

The sum that the Government managed to lose is equivalent to the entire national output of Portugal, but, fortunately, three and a half months later we discovered that the money had only been mislaid, and it popped up again. The Government put out a new set of figures, announcing that they had discovered, after all, that in 1999 our pension fund assets were worth £812 billion. So the figure for the value of the assets at one date in time had moved around by £150 billion. Then the Government carried forward the series, to show that having been £812 billion in 1999, the figure was down to £765 billion in 2000 and, on the latest estimates from UBS in the City, £684 billion in 2001.

That would mean that the assets in our pension funds peaked in 1999 and have been in decline ever since. It might be that 1999 was the peak year of our funded pension assets, not to be seen again. That was the first mistake: the Department revealed a £104 billion reduction in the value of the assets in our pension funds, with no explanation whatsoever. That surely should have set the alarm bells ringing about how unreliable the Government's statistics were, but no.

We investigated the figures that the Government were producing for the annual flows into our pension funds. Ministers were saying, "Don't worry. Everybody else might say that there is a crisis in our funded pensions, but we know that everything is all right, because we are saving £86 billion a year in our pension funds." If that figure were true, if the Government had stood back and thought about it for a moment, it would have meant that almost 9 per cent. of the entire national output of our

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country was going in savings in our pension funds—enough to buy for every worker in Britain a two thirds final salary pension, index-linked with inflation. The Government were saying, "Don't worry, £86 billion a year is being saved."

We warned the Government, and we were not alone, that those figures were not credible. Let me quote from the chairman of the Association of Consulting Actuaries, who said:

"We are extremely worried that the impact of the changes that are taking place in terms of future pensioner incomes is being under-estimated by the Government and, as a result, there has been an inadequate policy response."

The Secretary of State was quoted in the papers this morning as saying that within 72 hours of being told that there was a mistake in the statistics, he acted. Let me tell the Secretary of State that I wrote to his predecessor on 8 March 2002, telling him about the mistake and setting out in considerable detail exactly how I believed the mistake had arisen. It is not the case that the Department acted within 72 hours; it took 72 days for it to address the fundamental points that I made in the letter to the right hon. Gentleman's predecessor.

There is now an unseemly row going on between the Secretary of State and his own officials. The Secretary of State, in a way that is all too typical of Ministers nowadays, is happy to blame everybody but himself. Referring to statistics on pension contributions, he said yesterday in the House:

"We have now been informed by the Office for National Statistics that there are problems with the series from which they have been estimated in the past".

He was blaming the Office for National Statistics, but in this morning's Financial Times the Office for National Statistics states:

"The national statistician is not known for his apologies, and there won't be one here."

The ONS is busy briefing that it is Ministers' fault and telling the press that it warned Ministers that the information was unreliable, but that they nevertheless kept on producing the figures.

I hope that the Secretary of State will today give us an end to that briefing and counter-briefing between him and his officials and a clear explanation of when they were first warned by the ONS about the mistakes in the figures, what steps they took to correct them as soon as they heard about them and what advice he was given by the ONS when the Department received my letter of 8 March.

Mr. Patrick McLoughlin (West Derbyshire): My hon. Friend referred to the letter that he sent on 8 March. Presumably, a letter sent by the shadow Secretary of State for Work and Pensions containing such serious accusations would have had an immediate reply from the Secretary of State. Can he tell me when he received the reply and what it said?

Mr. Willetts: I received a reply that was prompt, but brief and uninformative—exactly the sort of reply with which we are all too familiar.

Of course, this is not just a matter of whether Ministers have confidence in the advice of their statisticians and whether statisticians have confidence that Ministers will take heed of their warnings. It ranges beyond that, as it also raises the question whether the structure of pensions

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in our country is right. Many Ministers were trotting out amazing statistics showing how much we were saving in our pension funds and cited them as evidence that the "structure of pensions" in Britain is "right". If the evidence is wrong, is the conclusion that they drew from that false evidence wrong as well? I hope that the Secretary of State will also refer to that issue.

Mr. Douglas Hogg (Sleaford and North Hykeham): My hon. Friend is coming to the question of the structure of pensions. Will he confirm that a pensioner would have to accumulate a fund of about £100,000 to be better off than he or she would be having saved nothing at all? That is the case because of the deprivation of top-up payments on the basis of the fund.

Mr. Willetts: My right hon. and learned Friend makes a very important point on which we have regularly pressed Ministers. The least that people who are considering taking out a stakeholder pension, for example, are entitled to expect is information from Ministers about how much they believe that they need to build up in that pension during their working lives to float them off means-tested benefits. That is the $64,000 question; indeed, the answer might be $64,000, but we have never had any answer from Ministers. The level could be £100,000, but they have never been willing to address the important point that he makes. Again, I hope that we will hear about that from the Secretary of State.

The real question is not just misleading statistics—something with which we are all too familiar from this Government—but what is going on with the pension funds and pension savings of the people of this country. That is the central question that the House is debating. Before the Secretary of State points it out, I accept that there are many reasons for the decline of final salary pension schemes in this country. I understand that there is a range of factors, some of which are not in the Government's control. We are seeing improvements in longevity, and I am sure that hon. Members in all parts of the House will welcome that as good news. The fact that people are living longer is a success that we can celebrate. There have also been changes in the labour market that will change the pattern of pension provision.

We understand that not everything can be controlled by Ministers, but that very fact makes it even more important that the things that they do control are got right; and that, in so far as the Government control the environment in which people plan for their retirement, they get that right. Our central criticism of the Government is that Ministers have got the things that they control—above all, the burden of tax on occupational pensions—catastrophically wrong.

Mr. Michael Connarty (Falkirk, East): While the hon. Gentleman was recounting some of the things that might have had an effect and which Ministers controlled, did he not think that the Conservative Government's decision to encourage and allow withdrawal of contributions and the taking of holidays by pension fundholders might have caused the massive deficit in the pension funds on which people are now looking to draw for their retirement?

Mr. Willetts: I undertake to cover that point later in my speech, but I want to set it in the context of the other changes. If the hon. Gentleman then thinks that I have still not addressed his question, he can come back to me.

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I want to set out the background to the tax decisions that the Chancellor has taken. At the time of the 1997 Budget, when he introduced his notorious stealth tax on our pension funds, he said:

"Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays,"—

he was celebrating the very thing that the hon. Member for Falkirk, East (Mr. Connarty) just mentioned—

"so this is the right time to undertake a long-needed reform."—[Official Report, 2 July 1997; Vol. 297, c. 306.]

The Chancellor explicitly linked the tax imposition on pension funds to the fact that those funds were in surplus.

Last year, when the Prime Minister was challenged on this matter, he told the House of Commons:

"The value of pension funds has gone up dramatically as a result of the success of the economy. The abolition of payable tax credits was done for the reasons that we stated at the time. It is the right reform, and as a result of the buoyancy of the stock market the value of people's pension funds has gone up."—[Official Report, 7 March 2001; Vol. 364, c. 285.]

The Government justify their tax increase by saying, "Don't worry, the stock market is going up and share prices are rising; it's all okay." But the value of the stock market has now fallen below the level that it was at when the Chancellor originally made that tax announcement in 1997; it has fallen almost to the level that it was at at the 1997 election. Since the justification for the tax has gone, will the Secretary of State tell us what possible reason he can have for imposing this tax on our pension funds?

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