Pre-Budget Statement (Implications for Wales)

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Lembit Öpik: Perhaps it is because the Minister has an honest face that I wanted to believe him [Interruption.]

The Chairman: Order.

Lembit Öpik: I can see the strong feelings that the hon. Gentleman's comment engendered. It is my view that there is some prospect of more support for rural areas, but I shall put down a marker for the record. If the hon. Gentleman is correct and it is another smoke and mirrors trick on the part of the Government to fool not only us, but the public, it would be a very sad day, given the importance of the rural economy for the overwhelming majority of Wales, geographically speaking. If the Minister wants to intervene, I shall be happy to give way, although he implied that the matter will be covered in his wind-up speech.

With regard to the need to build the relationship between Cardiff and Westminster, Liberal Democrats have tried to be true to the promise to try a new kind of politics that most of us made at the time of the referendum campaign for the Welsh Assembly. Although, as the hon. Member for Ribble Valley reminded us, it is easy to criticise when one is not in government, Liberal Democrats are now in government in Wales, and we must act responsibly in that respect.

Picking up on the comments of the hon. Member for Ceredigion (Mr. Thomas), I hope that we can find new ways to resolve the great problems in the health service, so that real money goes into real investment and unnecessary parts are streamlined. More money must go not only to the front line, but into creative ways of preventing illness in the first place through preventive measures and improving quality of life at home. That is a big challenge that will take years to achieve, owing not least to the underfunding that I tried to pin on the Conservative and Labour parties.

In seeking to make this new partnership and new kind of politics work, I hope that the Government realise that we do not want the smoke and mirrors to which the hon. Member for Meirionnydd Nant Conwy alluded. We want them to tell it like it is. If the Chancellor really meant it yesterday when he said that the Government might start being more honest about tax if they need more tax-raising powers to put money into the health service, that is welcome. Let us not pretend that indirect taxation, which the Government love so much, is fairer than direct taxation.

Liberal Democrats have tried consistently to be honest about how we would raise the money that we wish to spend. We said that we would put a penny on income tax to put £2.5 million into education. We said that we would put 10p on the top rate of income tax for those earning £100,000 a year or more—in this Room that applies only to the Ministers—and put that money, together with the revenue from a small increase in duty on cigarettes, directly into the health service.

My appeal to the Committee is that we should discuss these matters positively, encourage Ministers to be honest about tax and recognise that the people of Wales will feel that we are taking their needs seriously only when we treat them with respect by telling them the truth about the price tag, as well as the investment, that is needed to achieve the kind of Wales that we want in five or ten years' time.

11.58 am

Paul Flynn (Newport, West): It is always a pleasure to follow the media-omnipresent Member for Tallinn, the hon. Member for Montgomeryshire (Lembit Öpik). I am instinctively searching for the channel changer so that I can press the red button to make him disappear. Unfortunately, the technology does not allow us to do that at the moment, but I live in hope.

The hon. Gentleman was characteristically over-generous to the main Opposition party in suggesting that it might, on present trends, achieve power in a century or two.

Lembit Öpik (Montgomeryshire): Eight centuries.

Paul Flynn: It will be much longer than that. He has clearly not looked at the most recent trends. There was a time in the late 1980s and early 1990s when we all believed that government parties could not win by-elections. In one of two recent by-elections, the main Opposition party actually lost some of its share of the vote, which is almost unprecedented in recent times. Then there was the triumph in Swansea, a place not unconnected with the hon. Member for Ribble Valley, where the party gave a remarkable performance, hailed as a fight back by the leader of the Welsh Conservatives, in which it hung on to its deposit by a margin of 0.24 per cent. That may console it, but it lost ground on its previous record deplorable performance. We cannot look forward to a time—even if we consider when asteroids will be pummelling us—when we shall see a Conservative government.

The pensions question is appropriate for someone of my age. From 1980 onwards, successive Conservative Governments destroyed the pensions-earnings link and promised to make it up in other ways. Every year pensioners were cheated by a salami cut in the real value of their pensions because those Governments ensured that increases were at the basic rate of inflation, rather than at the higher rate. I pay tribute to the Government for their treatment of pensioners, especially in the past 12 months. We were late starting, but we have more than made up for the shortfall during our period in government. The £200 that has been given will be greatly appreciated, and so will the rises.

The motto of the Bettws school in my constituency is ``Nid da lle gellir gwell''—there is no good that cannot be improved upon. If we examine the settlement, which includes television licences, for pensioners it is far better both than previous settlements and than if the link had been restored. However, how can the Chancellor resist restoring that link? He has made it clear that had that link been restored in the first year in which it was possible for the Labour Government to do so—1998—pension rates would now be £78.25 for a single pensioner and £125 for a couple, which would be an extra £2.75 per week. The situation in the national insurance fund is such that that is readily affordable.

One factor that has interestingly left the political consciousness is that the national insurance fund lost £1 billion last year, and it will lose a similar sum in future years, because the Government decided to reduce the contributions made by employers as a trade off for green taxes.

Mr. Jon Owen Jones: My hon. Friend and I have discussed these matters in private on many occasions. The reason why the Chancellor does not want to restore the link, even though he is paying out more money with this settlement, is the same reason why all major parties do not want to. It is not because it is unaffordable now; it is because it will be unaffordable in 2020 and 2030. My hon. Friend has explained that because of his pensionable age that may not concern him, but it will concern some Members in the Room.

Paul Flynn: If my hon. Friend knew the effort it took to contribute to my pension during 30 years in the steel industry, he would realise that I plan to live for ever. I plan to live way beyond the period suggested.

This is an old-fashioned argument. Interestingly, it did not arise in the pensions debate that took place here last month. The hon. Member for Havant (Mr. Willetts) has written a splendid book called ``The Age of Entitlement'', which is a page-turner that all members of the Committee will find enthralling—Mr. Two Brains was using his better brain when he wrote it. One of its chapters is entitled ``The myth of the demographic time bomb''. He examines the demographic time bomb, which will exist with the baby boomers for a brief period beginning in 2030, and accurately states that it was used as a device by the Conservatives in the 1980s—1985 and 1986—to wreck the state earnings-related pension scheme. That excuse was used to say that pensions were unaffordable in the distant future; they are not. That is now demonstrated now as myth. We know the generations and number beyond 2020 or 2030. Pensions are affordable.

Adam Price (East Carmarthen and Dinefwr): I should like to correct one of the hon. Gentleman's comments. A major party does support restoring the link between average earnings. [Interruption.] Have a good look because that party is standing here. If the hon. Gentleman can hear me, would he agree that the collapse in annuity prices provides even more of a reason to return to the basic principle of a collective state pension paid from national insurance contributions?

Paul Flynn: I am delighted to have taken that intervention.

One great worry about pensions is annuities. At present, if someone found himself with an annuity of £100,000, it would bring him an income of about £6,000 a year, which is a great shock. Between 1990 and 1994—I remember the dates because of an Adjournment debate—the value of annuities dropped by 35 per cent. One could imagine the reaction if any other pension had dropped by such an amount. The fact that the Conservatives popularised those money purchase schemes when they damaged SERPS and got so money people into them while taking them out of good-value occupational schemes, means that those people will end up, in their retirement years, with a pension that is a gamble. They will have to buy an annuity that is of poor value now and may get worse in future.

It is important that the House recognises that great worries about pensions exist for all groups. At the moment, there is a balance in the national insurance fund that is way above what is necessary to restore the link in the foreseeable future. Further answers from the Department have pointed out that the balance in the fund was £8.2 billion in 1998. The actuaries latest projections show that by March 2003, the unneeded surplus—that above any unexpected increases in employment—will have risen to £12.2 billion, an increase of £11.15 billion or nearly twice what it would take to restore the earnings link.

It is fair for the Chancellor to say that he will increase the amount by the sum that he announced yesterday, and by inflation, which he has to do anyway. However, the question is, what level of inflation does he use to increase it? I do not want to emphasise the gap in years between hon. Members, but the main anxiety of those who are now in their retirement years is that they will see a fall in the value of their money. They are not asking for a continued increase, but for what was in the manifesto, on which all Labour Members fought in the 1997 election, which said that we will allow pensioners to share fairly in the increasing prosperity of the nations—that was how we put it. To achieve that, we must go back and restore the link and that is now affordable.

Another crisis in pensions is that some are retiring with poor money purchase schemes. They have been taken out of good value final salary schemes, which pay out well. Also, a huge group of people in their 40s and 50s did not join their occupational schemes and were allowed to opt out, which was a foolish mistake. Many others have gone into poor value personal pension schemes—Equitable Life is just the first of the pension vultures to have come home to roost, there will be many more. The new stakeholder pension scheme that we introduced, which offers great value, was negotiated by the Government at extremely low cost: it has a charge of 1 per cent. Commercial pensions have been ripping off people for many years with charges far in excess of that. Of course, 1 per cent. a year will build into a considerable sum over the life of a pension, but the scheme has not been taken up by many of those on low or medium wages, for whom it was intended. The ability to buy stakeholder pensions for their infant grandchildren was a great and unexpected boon to grandparents. It is a very good value investment and a far more effective way of helping children than showering them with Christmas presents.

People in their 20s and 30s are not interested in pensions. Those hon. Members who have tried to persuade staff to join the House of Commons free pension scheme will know how difficult it is to convince anyone in their 20s that they will eventually grow old and need a pension. They are convinced that they are immortal, and the only way to secure pensions for young people is to establish a compulsory scheme that is part of the taxation system and that enjoys the security and good value of a state scheme.

12.11 pm

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Prepared 28 November 2001