Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. They are spending a lot of money on our behalf, should we not be more satisfied that this is the right strategy and their performance is good enough?
  (Mr Kingman) Absolutely we should be satisfied but we should give them, also, the freedom in which to make real use of the money we give them.

  121. How much freedom would you say they should have? I am particularly interested in the textile sector, and I return to this often. Having lost 30 per cent of productivity in the last five years, I think it is an industry worth saving. Are you satisfied that the RDAs do have an adequate strategy to save an industry like that one?
  (Mr Kingman) I cannot comment authoritatively on the RDAs' interventions in relation to the textile industry.

  122. Should the Treasury not be checking what they are doing?
  (Mr Kingman) I think the Treasury has a very strong interest in the performance of the RDAs, the extent to which they take up the freedoms they are given and to ensure that the money they have is well spent. I think that is not inconsistent at all with giving them freedom to make judgments about that.

  123. I am sorry, I am at a loss to understand really what you are saying. We have a large sum of money being spent through RDAs but you seem quite loose about whether or not they are succeeding or failing?
  (Mr Kingman) No, I do not believe we are loose at all. What we do believe is that for them to play an effective role they need freedoms to do that.

  124. At what point would you decide that the freedom had gone far enough and we were not seeing a fast enough turn around?
  (Mr Kingman) I think that is a hypothetical question.

  125. Not for the businesses which are closing, is it?
  (Mr Kingman) The policy position here has evolved. The RDA is a relatively new organisation. We have given them significant resources and we have given them an increasing degree of freedom to use those resources. We will judge, and ministers will judge, the effectiveness with which they discharge the remit they have been given.

  126. You said in answer to the Chairman that it was a long term strategy and you hope to see some improvement in productivity. Have you given yourself a timescale at which point you will make an assessment whether it is working or not?
  (Mr Kingman) Yes. The Government set two ambitions. One for 2004 of narrowing the productivity gap of our main competitors over the cycle and one for 2010 which is faster growth of productivity over that period than our main competitors.

  127. Are you checking against those targets in the interim? 2004 is a way off.
  (Mr Kingman) 2004 is a way off but, as I have explained to the Chairman, we believe it is right this should be judged in the medium term. Making these assessments is complex because you do need to assess how you are doing in a cyclically adjusted sense and you need to adjust how others are doing in that way. I think it is clear that in recent years the picture is mixed. The gap with the US has widened as the US has come in very strong. The gap with France and Germany has somewhat narrowed. I do not think we are complacent in any sense about the performance over that period.

  Chairman: On the issue of Pensioner Credits, would you like to lead on that, Kali?

Kali Mountford

  128. Yes. Pensioner Credits. I am concerned we are not doing enough to make sure there is enough take-up of Pensioner Credits. What are we doing?
  (Mr Holgate) Perhaps I could say that we are setting up a new service called the Pension Service next year. As you may know, up to now pensioners have been dealt with as part of the Benefits Agency and the Government thinks that it is better to have a specialised service. One of the things that the Pension Service will do is when—as is perfectly normal—you decide for a new pensioner what their entitlement is to the basic state pension, we hope we will be able to entice them into agreeing what their entitlement to the Pension Credit is at the same time. That ought to help a lot with take-up. Also, it is important that we change the connotation of an item such as the Pension Credit from being a means test, which carries all sorts of unfortunate suggestions, towards it being an entitlement. The fact is that quite a large number of pensioners will be entitled to the Pension Credit and it should not be at all a matter of discomfort that you are claiming the Pension Credit. We have to get that message across.

  129. It has been traditionally quite difficult to explain to pensioners that something is an entitlement when they perceive it to be charity. What would be different about this than anything else we have done before?
  (Mr Holgate) I agree with you to the extent that it is a very considerable challenge to encourage people to claim for something where they feel a degree of diffidence or distaste for doing so. We are going to make it as easy and painless a task as possible. To give other examples: we think it is clear that pensioners—actually this may be true for members of the population of working age as well—are keener to talk to people over the phone than to come in to, for instance, a Benefits Agency office. We have started a telephone service to that end. Another aspect, another ill connotation of the current system, was the very long form that people had to fill in. We have been able to reduce the form length from 40 pages to 10 pages.

  130. It is still not easy.
  (Mr Holgate) No.

  131. Is this the simplest way we can deliver an adequate income to old age people?
  (Mr Holgate) We have to trade off between lifting a threshold or an amount which applies to everybody with giving more help to those who are currently on the lowest incomes. Pension Credit I think forms a sensible balance between tackling pensioner poverty on the one hand, rewarding savings on the second hand and, if I am permitted a third hand, ensuring that pensioners share to some degree in wider prosperity. It is trying to achieve three aims for a large swathe of the pensioner population.

  132. Is that terribly efficient? What is the cost of administration of the scheme?
  (Mr Holgate) One can overdo the complexity. Again, to pick up your earlier point, one of the challenges for the Pension Service, within the Department for Work and Pensions, is to be able to explain to the customer what it is they need to know in order to understand that it is very much in their interest to apply without assailing them with every single dot and comma of the regulations. It ought to be possible with modern technology to do more of that kind. The essence of the Pension Credit is quite a simple proposition, I would say. It is simply that if you have made some provision for yourself above the basic state pension then the Government will recognise that to the tune of 60 pence in the pound beyond the Minimum Income Guarantee. So, to take an example, let us assume that the state pension for a single pensioner is £77 in 2003 and that the Minimum Income Guarantee is £100. If a pensioner had currently got £20 a week additional income from an occupational pension, currently he or she sees no benefit from that whatsoever: they are on £100. With the Pension Credit they will get 60 per cent of that £20 on top of the £100, so they will get £112 a week instead of £100.

  133. I understand the concept. It is everybody's complaint that there is a relative poverty trap for people just out of the MIG limit. For example, if we did something quite astonishing like linking pensions at a higher rate to earnings, and the simplicity of that, what would be the cost? If you offset that against the cost of administration, is there any advantage to pensioners of the MIG and credit than having the straight forward state pension they understand?
  (Mr Holgate) There is a very considerable advantage to the poorest pensioners to approach it via the Pension Credit rather than via the basic state pension. These numbers depend on a lot of assumptions. I think it is the case by 2030 we will be paying out an extra £27 billion a year were we to link the basic state pension to earnings, not prices. If we do it via the Pension Credit route, we are talking about roughly half that level.

Mr Cousins

  134. Single women who get the pension at 60 will not be able to get the Pension Credit until they are 65, will they?
  (Mr Holgate) I think that is right. I think 60 to 65 year olds will get the guarantee part of the Pension Credit, so they will be able to get the Minimum Income Guarantee, and the savings credit will come in later.

  135. That is bound to affect people's perception of the scheme, is it not?
  (Mr Holgate) Well, 60 to 64 year olds will have benefited from other things the Government has done. I think some will benefit from the change to the capital rules which the Secretary of State announced last week where we will have abolished in 2003 the £12,000 ceiling and we will have reduced the rate at which —

  136. Do forgive me, I am not in dispute, this Government will have done a lot of things for women drawing pensions at 60 but if they cannot get the savings element of the Pension Credit, which of course is the major innovation, until they are 65, that is bound to affect the perception and may affect take up.
  (Mr Holgate) Well, I think the predicament we are in there is that we have to treat men and women equally and hence the savings credit comes in at 65.

  137. Let us look at that then. Assuming a man and woman are married, an increasing number of people in those situations will each be drawing a state pension in their own right, because of the increased participation of women in the labour market, will they be assessed for Pension Credit separately?
  (Mr Holgate) No, they will be assessed as a couple.

  138. Right. As you can see, if Pension Credit is to be seen as a tax based payment, not carrying the connotations of a traditional welfare benefit means test, then the fact that for the purpose of Pension Credit you have gone back on the principle of independent taxation is bound to affect perception and take-up, is it not?
  (Mr Holgate) It is not straight forward that the Pension Credit should be seen as a tax credit. There are some characteristics that it shares with tax credits. For example, we hope that both the Pension Credit and tax credits will incorporate longer awards and, as I explained a few minutes ago, a simpler administration process. The fact is that pensioners are largely a different group from those the new tax credits are designed to help. Most pensioners in the group that Pension Credit will assist do not pay tax. We are talking about different horses for different courses.

  139. Well. If two women lived together and drew separate state pensions, would they be assessed for Pension Credits separately?
  (Mr Holgate) I am not sure I know the answer to that question.

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