Examination of Witnesses (Questions 120
- 139)
TUESDAY 4 DECEMBER 2001
MR GUS
O'DONNELL, MR
NICHOLAS HOLGATE,
MR ADAM
SHARPLES, MR
ALEX GIBBS
AND MR
JOHN KINGMAN
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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