State Pension Credit Bill [Lords]

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Mr. Clappison: As my hon. Friend the Member for Daventry said, what the hon. Lady refers to as the present system is what has been created by the minimum income guarantee. The question is whether the proposal goes far enough in remedying the minimum income guarantee. Will not the situation become increasingly worse as the gap grows between the minimum income guarantee, or the pension credit, growing in line with earnings, and the basic state pension? Will not more people fall into the trap and have a reduced incentive to work or save?

Maria Eagle: As I have said before, the hon. Gentleman seems to believe that making provision for dealing with poverty among current pensioners is a massive disincentive to save for people of working age. Pension systems must be fair in how they treat today's and tomorrow's pensioners. There must be intergenerational fairness and regard. We cannot simply leave people in penury today in order to ensure that there is an incentive for people to save for tomorrow.

We believe that the working tax credit, together with the abolition of some of the rules relating to work and pension credit, such as the 16-hour rule, and bringing forward existing disregards for income-related benefits, is the best way to promote active ageing and reward earnings. The hon. Member for Northavon is right. For the guarantee credit, the first £5 of a single pensioner's earnings will be disregarded; for couples, the first £10; for carers and disabled pensioners, the first £20. In addition, working pensioners could receive a savings credit of a further £13.80 if single, or £18.60 if a couple, because earnings count as qualifying income.

Mr. Webb: I apologise. The Under-Secretary may have been about to make this point. Does the same disregard rule apply to the savings credit, or are all earnings counted for the savings credit?

Maria Eagle: Is the hon. Gentleman asking whether there are two £5 disregards?

Mr. Webb: I am asking whether, if I earn £15, I am treated for assessment for both the guarantee credit and the savings credit as having earnings of £10, or as having £10 for the MIG and £15 for the savings credit.

Maria Eagle: There is only one earnings disregard. My officials will pass me a note. They are nodding. That is taken into account at the appropriate stage of the overall calculation. I hope that that is clear. I shall be happy to speak to the hon. Gentleman further if he is not happy with what I have said.

I shall give a couple of examples of how the provision will work in practice in order to show that the earnings disregards will result in real gains to working pensioners. Let us take the example of a man aged 66 who works a day a week at a local supermarket and receives a minimum wage of £35. He has a full basic retirement pension of £77 and no other income. That is a typical example. Taking into

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account the £5 disregard, his relevant earnings are £30. His combined income of £77 retirement pension and £30 earnings takes him above the level of the guarantee credit of £100. However, he is entitled to savings credit, as his earnings count as qualifying income. Therefore his savings credit is £11. That will give him a total weekly income of £123—£77 retirement pension, £35 earnings plus £11 pension credit. A man in such circumstances would receive nothing from the present MIG scheme, but with pension credit he is £11 better off—because of his earnings, despite the fact that we are dealing with only a £5 disregard.

To give another example, involving a couple, one partner works for two days a week and earns £65. The gentleman is aged 68 and is married to a lady aged 65. She works as a cleaner two days a week on the minimum wage and earns £65. They receive a full couple rate retirement pension of £123 and have no other income. They are entitled to a £10 disregard on Mary's earnings, making £55 relevant to the pension credit assessment. Their combined income, of £123 retirement pension and £55 earnings, takes them above the guarantee credit level of £154, but they are entitled to a savings credit as the lady's earnings count as qualifying income, and their savings credit is £9. They therefore have a total weekly income of £197—£123 retirement pension, plus £65 earnings plus £9 pension credit. Again, the couple would receive nothing under the present MIG, but they will be £9 a week better off because of pension credit. Therefore it is not true to say that in such circumstances it does not pay to continue to work.

Those are fairly typical instances of the types of job that people will consider. We want to reward earnings, which is why they are included as qualifying income for the savings credit, but we believe that that is best done through disregards. We will obviously review them annually. The hon. Member for Northavon has already said of his amendment that it was probing rather than being something to which he was wedded, and I hope that he will consider withdrawing it.

Mr. Webb: The Under-Secretary's reply was helpful in clarifying the disregard, which clearly applies throughout. The earnings figure is net of the disregard and is applied throughout the calculation.

The hon. Member for Hertsmere made a good point, but it is the root of our debate about incentives to save or to work. The Government's line is that they have helped the poor, and thereby created a situation whereas, if they had done nothing, there would be nothing to save or to earn. The Bill partially remedies that problem by giving people some reward for earning and some reward for saving.

The counter strategy would have been to have put people clear of means-testing—I use that term in a non-pejorative way, in a technical sense—and everything that they earn would then have been theirs to keep instead of a tapered amount as in this system; likewise anything that they had saved would have been theirs to keep. I prefer that strategy, but it is beyond the amendment.

Mr. Clappison: Will the hon. Gentleman give way?

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Mr. Webb: I shall give way in a moment. If someone is making a marginal decision about whether to do small amounts of work, costs other than travel-to-work costs might be involved. If the margins on whether to work are fairly borderline, keeping only 60 per cent. of the net benefit of working might lead them to wonder whether it was worth working. The question before the Committee is whether the Government have gone far enough in rewarding work. In my view, the simpler system would have been to have left earnings out of the savings credit and had a nice, neat, clean disregard. People would then have much better off.

Mr. Clappison: The hon. Gentleman has actually come to the point on which I intended to intervene. I may not have the details right, but the Under-Secretary gave an example of a single person earning £35 for part-time work, the credit raising it to £123. In taking marginal decisions about whether to work, that person would be looking at the difference between what they earn and what they would receive if they did not bother to work, which would have been £100. The difference is £23 rather than £35, which is the full value of the work; if they were being paid the minimum wage, the difference would be substantially less than the minimum wage itself. That person would be wondering whether it was worth going out to work.

Mr. Webb: There is a certain amount of truth in that. Those who are earning £35 receive £23 benefit for it, so they are effectively facing a marginal tax rate of about a third. That is above the typical basic rate of tax; at that level of income, they would not expect to pay tax at all. The Minister might say that that is better than nothing, but it may still represent a missed opportunity for people who are looking at £35 jobs who would still not be inclined to take them. In a sense we should be considering those people who are not working who have been put off by the 100 per cent. marginal rate and who have not been sufficiently induced back to work by the 60 per cent. marginal rate.

I shall not labour the point unduly. To use a technical drafting term, my amendment is a complete botch. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Boswell: The clause contains a lot of meat, not all of which has been amended. I sense that the Committee would like to make progress tonight and I am relaxed about that. Today, I have put forward some alternative suggestions and concepts. I hope that they will commend themselves to those who select our amendments in due course, and that we shall have an opportunity to return to them before the end of the Bill. The rather dry terms of the clause make it difficult to amend but easy to comment on.

I should like to take up a point that was initiated by the Minister of State who is, I happen to know, a touch younger than I am. I must defer to the hon. Member for Hamilton, South (Mr. Tynan), whose birth date I recently checked in ''Dod's Parliamentary Companion''. He is already, by definition, in the household of a person aged over 60. I congratulate

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him on that and declare to the Committee, if I have not already done so, my interest in reaching that age later this year. [Interruption.]

I note that the Under-Secretary is worried about how long I intend to go on. I can assure her that, in the words of Baroness Thatcher, I might go on and on—but not tonight. However, I hope that I can provide a contemporary reference, because some of us do not spend all Sunday night thinking about the Bill. It is probably fair to say that this Committee would divide itself into two: a minority of those who can, and a majority who possibly cannot, or choose to claim not to, remember ''The Forsyte Saga'' the first time around. I should make it clear that I am in the former category, but I am doing my best to watch it this time around. Probably it is not as good, because ''they don't make 'em like that any more'', but that is another debate for another occasion.

The reference to the Forsytes is germane to subsection (6). I have gone through the Bill and applied what I might loosely call the Soames test. By that I do not refer to my hon. Friend the Member for Mid-Sussex (Mr. Soames); I mean the Soames Forsyte test. I can perfectly imagine him assenting to the propositions that circumstances might be prescribed in which a person is treated as possessing capital or income that he does not possess, although he would be a bit sceptical about it. In particular, clause 15(6)(b) talks about circumstances in which

    ''Capital or income which a person does possess is to be disregarded''.

That might suit him. I find it difficult to see how either Soames or any of our Victorian forebears would have felt easy with the assertion in clause 15(6)(c):

    ''Income is to be treated as capital'',

or that in 15(6)(d):

    ''Capital is to be treated as income''.

That way, Soames would have seen ruin. I comment on that briefly because it is about the extreme liberality of the drafting of the clause, which allows Ministers to do more or less whatever they want. They will be, if not constrained, at least influenced by debates that have taken place here and in another place.

However, I must say to Ministers in all seriousness that the comments of Help the Aged are nothing if not terse. Equally, they are nothing if not dismissive. They read:

    ''Capital is shabbily treated and equity released has no locus.''

Help the Aged is concerned about some of the detail of the clause. I do not want to rehearse earlier debates and I am aware, although I did not participate in them, that there was some exchange this morning—going back to subsection (1)—about the interaction of earnings and the working tax credit. Ministers may want to comment on that in relation to subsection (1).

We have had an interesting debate on earnings, but I would like to reserve my fire for one or two other matters to which we may return—for example, the concern expressed by Help the Aged about the clause. The organisation asks which of the prescribed social security benefits mentioned in clause 15(1)(e) will count as income and whether winter fuel payments or

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the schemes covering transport concessions or television licences are included.

6.30 pm

More serious is the issue of deemed income from capital and the principle basis on which that is to be determined. That is set out tersely in subsection (2) and referred to again in subsection (3), which states:

    ''Income and capital shall be calculated or estimated in such manner as may be prescribed.''

I am a connoisseur of generalised or permissive legislation, but I do not remember seeing anything as permissive as that before. The measure bears on the overall number of areas or heads of income that may be included. We should feel easier if we could be sure that Ministers had completed their list and knew whether they might want to add to it in the light of events. That is not an inherently unreasonable request.

At least two areas will require elucidation. The issue of tax privilege schemes such as tax-exempt special savings accounts was discussed in another place, but I do not know whether Ministers have got any further in their thoughts on it. As pensioners have been put outwith the tax system by legislation, it is a pity to reinsert them into the withdrawal of benefits represented by the savings credit and not to treat their income as being entirely outwith. Furthermore, who will be able to produce a 10 per cent. return on capital from any asset at the moment? No doubt Ministers will tell us that benefits derive from the possession of capital, but the implicit rate is very high, may well be inappropriate and may remain inappropriate for several years.

We should discuss those matters because the provision is amazingly general. It displays an ability to turn income into capital or capital into income and represents a remarkably constructive use of legislation, even from a new Labour Government. It is not far from a general enabling Act, but we shall not go into that. Other concepts and interactions remain unclear, such as those between earnings and working tax credit. There is much to do before we can feel comfortable that the system will work at least half-sensibly and is reasonably fair in its treatment of the interests of the various parties.

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