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8.26 pm
Mr. George Osborne (Tatton): I apologise for not having been here for the whole debate. I feel a little cautious about contributing, partly because I have been preceded by a host of former Conservative pensions Ministers, as well as the distinguished former Minister, the right hon. Member for Birkenhead (Mr. Field). Collectively, they have forgotten more than I ever knew about pensions. I was preceded also by my hon. Friend the Member for East Devon (Mr. Swire), who made an excellent speech. I am also cautious because, as the youngest member of the Conservative parliamentary party, and one who has been here only a year, I am uneasy about talking about retirement—but I suppose that that is one of the hazards of politics.
I have great respect for the right hon. Member for Birkenhead, and even more so now that I sit next to him on the Public Accounts Committee. He talked about the need for consensus. Among the party political brickbats of this debate, there has been much consensus, as expressed in the opening speeches my hon. Friend the Member for Havant (Mr. Willetts) and the Secretary of State.
One consensus is that, whatever our good intentions as politicians, we cannot rely on the state indefinitely to provide a secure income in retirement. On all the polling evidence, that consensus is shared by most people of my age or younger. It is even questionable whether the amount provided now is adequate.
The second point of consensus for most people, including most Government Members, is that the answer is to increase the contribution of the private sector—by how much is an issue that I will return to later. The Opposition support the Government's target, stated in their 1998 Green Paper, to increase private sector contributions to the nation's pensions from 40 per cent. to 60 per cent.
I hope that we can also agree that, sadly, progress towards that target has hit choppy waters in recent years, although we may disagree about the causes. The evidence is there. The right hon. Member for Birkenhead was right to say that there is a sense of urgency among our constituents about the pensions crisis, which now appears every day in our newspapers, and a feeling that the people whom they elect need to tackle it urgently.
The evidence is clear. The Association of Consulting Actuaries produced figures showing that fewer than four in 10 of final salary pension schemes are still open to new members. The parliamentary scheme is an exception—as I can say as a new Member. The Department for Work and Pensions' own long-term prediction for the pension credit suggests that 65 per cent. of pensioners could be receiving it by 2050. That is hardly evidence of that Department's confidence that we are moving in the right direction in terms of reducing dependence on state provision.
As I have said, I suspect that the consensus starts to break down when we consider the causes of the crisis in funded pensions. Although hon. Members do not all agree on those causes, there is a great deal of agreement within the pensions industry. Some of the causes are outside the Government's control. The hon. Member for Brent, North (Mr. Gardiner), my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) and others talked about growing life expectancy, but life expectancy is increasing at only about one year per decade. In terms of the existing £1,000 billion-worth of pension liabilities, that represents an extra liability of only some £3 billion—a large sum, but not that impossible to deal with in relative terms.
Of course, we must also consider the recent problems in the stock market, and the double whammy—to use a very good phrase—of a falling stock market and low gilt yields. As a result, people have not only smaller final pension funds but low annuities. However, they are not the only factors. Earlier this year, the Minister for Pensions himself conceded in Personnel Today—a publication of which we are all doubtless avid readers—that the
- "layers of regulations have been loaded on to the pension regime resulting in too much red tape".
If Labour Members are a little suspicious of Chantry Vellacott, they should at least take note of Tesco, which gave the pension tax as the reason for increasing
contributions to its final salary scheme by 15 per cent. As Peter Thompson, chairman of the National Association of Pension Funds, said last month, the Government's actions since 1997 have
- "led to a scenario where employers can be forgiven for taking a view that the Government is at best neutral about whether they make pension provision for their employees".
The consensus is that we need to look again at the FRS 17 rule, which has clearly damaged company confidence in pension schemes, particularly in the current financial market. As the Minister accepted, we need to reduce red tape dramatically, and to clear the current mine field of Government pension schemes that almost no one—except perhaps my hon. Friend the Member for Havant—can understand. The Government also need to acknowledge the impact of changes such as the 1997 pension tax, and to see what can be done to address it. Conservative Members believe that the annuity rule also needs to be dealt with. In that regard, my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) has introduced an excellent Bill, which has consistently been voted for at various stages during its legislative passage.
Those important steps would go a long way towards tackling the current crisis, but I wonder whether we should think more boldly than that. This is the point at which the young Back Bencher usually gets into trouble, but there we go. One of the greatest divisions in our society is between those who have capital and the security and confidence that that brings, and those who do not and who, as a result, lack security and are exposed to some of the cold winds of life. The Government talk about raising people out of poverty, but all their measures are directed at increasing people's weekly income. Important though that is, it does not address their lack of capital—by which I mean property, savings, a private pension and the resulting security and confidence. The introduction of the right to buy council houses was a massive boon to those people, as even Labour Members now accept. It gave many thousands of people a chance to own their own home, and we can see the difference on visiting most council estates. We can tell almost with the naked eye which properties are owned by people and which remain owned by the council, because people often take a lot more pride into property that they own. That is a visible example of the pride and some of the benefits that ownership brings.
However, that policy is more than two decades old, and precious few new policies have been introduced to address capital poverty since then. The Government's now forgotten, half-hearted and ill-conceived baby bonds scheme was originally intended to address precisely the problem that poorer people do not have a capital base to help them as they start out in life. Is it not time that we
turned to personal pensions as we consider how we can give everyone a stake in the future and the security of a decent income in retirement?
Mr. Love: The motion before us calls for
- "better incentives for people to save".
Mr. Osborne: I certainly want to increase savings among the poorest in society, but how we do that is another matter. Although it became lost in the election battle, the Conservative party had the very good idea of taking all savings out of tax, so that people are taxed only once on their saved income.
Before the 1997 general election, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), as Secretary of State for Social Security, produced a breathtakingly innovative scheme that was of course misrepresented in the party political battle. I suppose that that is just a hazard of democratic politics, but the scheme showed us the way forward. Indeed, my hon. Friend the Member for Havant came up with a voluntary version of it at the last general election.
Given that the political consensus has moved on and there is now recognition that a problem exists with pension provision, it is time to look again at how to provide a personal pension for all, without preconceptions and accusations of privatisation. We need to give people real security in retirement, the confidence that comes with capital ownership, and a real stake in society. The Government once said that they were prepared to think the unthinkable on welfare reform, but they have not had the courage to match that early rhetoric. The greatest prize of all in welfare reform is giving everyone a funded personal pension. That prize is within our grasp, and we should reach out and take it.
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