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14 Nov 2002 : Column 215—continued

4.40 pm

Sir Michael Spicer (West Worcestershire): Like the hon. and learned Member for Dudley, North (Ross Cranston), I want to talk about the relationship between the economy and public services, although the hon. and learned Gentleman will forgive me if I come to rather different conclusions from his, if I understood them. I suppose that I am more of a Trevor-Roper man than a Tawney man. Before I forget, Madam Deputy Speaker, I ought to declare an interest as stated in the Register, in case it is necessary, although I do not think that it is relevant.

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I do not believe that we can consider health and pensions without reference to the general state of the economy. That is particularly true given that the Government's primary solution, whatever they have said this afternoon, is to throw more money at the problem. The specific issue is the way in which the Government are funding the health service. If the extra money were really being spent on specific, discrete front-line investment projects, that would be one thing. But it is not.

Through a combination of private finance initiative funding, which has long-term expenditure implications, and wage increases, unstoppable spending increases are being set up which will have relatively little impact on the quality of services provided but will make enormous medium and long-term demands on financial resources. In that context, the firemen's dispute is highly relevant. If we assume, despite what the Deputy Prime Minister said this afternoon, that what will finally emerge is a wage increase of approximately 16 per cent. over two years, that would be four times the rate of inflation. The knock-on effect of that on the rest of the public sector will be enormous, and it will be largely the Government's own doing.

The fault has been to leave the impression that, especially in the health service, there are vast public resources slopping about for employees' taking. So enormous public sector pay settlements lie ahead. The question is whether the economy can afford them and how strong the economy is. The Government's answer is that the economy is very strong. We have heard the points made this afternoon. The Government say that we have low unemployment, low inflation, low mortgage rates and high earnings.

However, that is the veneer. Peel off the outer skin and a different picture emerges. Let us begin with Britain's competitiveness, and particularly her ability to pay her way in the world. This has been slipping very fast indeed, as IMD showed last week. According to IMD, Britain has just moved from 13th place in the world to between 16th and 19th. Part of the reason for that is that Britain's employment costs are rising rapidly. Until recently, we had the most competitive labour costs in Europe, but the UK is now superseded only by Germany and France. With the #8 billion in new national insurance rates biting in the new year, the British position will be further greatly weakened in Europe. Europe's position is itself weak compared with competitive areas such as the United States and the far east.

One remedy for high labour costs is high investment. Indeed, that is what sustained the United Kingdom in the mid to late 1990s. Recently, however, low net returns for investment, largely due to rising taxes and regulatory controls, mean that investment rates have collapsed. The effect has been declining rates of productivity. In fact, productivity rates have been weak since Labour took office, but recently they have become so bad that the Government no longer publish them in what is ironically called XProductivity in the UK"—a pamphlet that they produce once a year.

The impact of the decline in the competitiveness of the British economy is already being felt in our balance of payments. In 1997, the current account deficit was #1.7 billion. By 2000, it had risen massively to more than #19 billion and by 2001 it was more than

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#20 billion. No economy can continue to sustain this kind of haemorrhage without matching inflows of capital. Something will have to give. What will go first is the projected growth rate, currently forecast by the Chancellor of the Exchequer at some 2.5 per cent. per annum. That brings me back to public expenditure, especially on health.

The pattern of PFI-related expenditure and irreversible wage increases makes it highly unlikely that public expenditure will slow down as the economy declines. Indeed, the reverse is likely to be the case. So we will have exploding public expenditure and falling growth rates. That can mean only one of two things—rising public borrowing and with it rising interest rates, or rising taxes. As the Adam Smith Institute recently showed, taxes are rising faster in the United Kingdom than anywhere else in Europe.

Tax rises of such magnitude, especially rises in indirect taxes, which the Government have chosen, hit the poorest hardest. They also deter investment and enterprise and so further slow the growth rate. We have the classic socialist vicious circle—high taxes, low growth, higher taxes and lower growth. That is not so much boom and bust as bust and bust. We need the opposite—low taxes, high growth, high revenue take and thus even higher growth. We have in prospect the opposite—higher and higher taxes and lower living standards.

When they rumble the situation, as they probably will when the national insurance tax bites in the new year, the British people are likely to react angrily. In that case, the polls will look very different next year from the picture that they present today.

4.47 pm

Kevin Brennan (Cardiff, West): In welcoming the Queen's Speech, I am pleased to see a Bill designed to meet the needs of the NHS in Wales. It is an example of devolution in action that there seems to be a guaranteed annual slot in the Queen's Speech for legislation specifically for Wales. The National Assembly for Wales does not have primary legislative powers, so it is welcome to see Bills introduced annually in the Queen's Speech.

We have heard some interesting speeches, and I shall focus on pensions. We have heard some thoughtful speeches about pensions—for instance, from the right hon. Member for Hitchin and Harpenden (Mr. Lilley), although I did not agree with all that he said, and from my hon. Friend the Member for Stalybridge and Hyde (James Purnell). My hon. Friend spoke of the Xengine of change", while the right hon. Gentleman referred to the Xdynamo of choice". I did wonder whether the dynamo of choice drove the engine of change—

Mr. Pound: Into the lay-by of lost dreams.

Kevin Brennan: My hon. Friend finished the sentence better than I could have.

We look forward to the Green Paper on pensions. They are not a quick-fix subject, although the right hon. Member for Hitchin and Harpenden seemed to suggest as much. My hon. Friend the Member for Stalybridge

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and Hyde told me earlier that when Sweden wanted to change the law, it took 14 years to conduct a review. The Government are right to reflect and consult, and to move slowly and deliberately. Those who legislate on pensions in haste repent at leisure—and there might not be much leisure in retirement if the Government get it wrong.

I liked my hon. Friend's proposal—it could be called a third way proposal, which is hardly surprising, given that it came from him—to introduce compulsion with a small Xc". People would be automatically registered with a pension scheme, but could opt out and consider alternatives if they thought that that scheme was not in their interests at that time or, indeed, throughout their working lives. There would have to be a proviso: they could not expect the state to pick up the pieces during their retirement if they chose that option.

There is an injustice in pension law, with which I hope the White Paper will deal. I am thinking of what happens to those with occupational pensions whose companies subsequently go into receivership and liquidation. That recently happened to workers at Allied Steel and Wire in Cardiff—and to Allied Steel and Wire workers in Sheerness, but obviously I was particularly interested in what had happened in Cardiff.

Some workers in that company were required, when they joined it or its predecessors—it had had various guises—to join an occupational pension scheme as a condition of their employment. They had no choice. Some have been with the scheme for well over 20 years, and are approaching retirement. They have paid 5 per cent. of their salaries into the scheme throughout that time. The company has made contributions, assuming that it was building a pension at an accrual rate of one sixtieth. It was assumed that those who retired after 30 years with the company—as many would have done—could reasonably expect half their final salaries, and a fair chance of security in retirement.

When the workers signed up to that arrangement—as I said, in some cases it was a condition of employment—they thought that they were signing up to something that would give them security in retirement. They did not think that it was a risky investment; they thought that they would be guaranteed a reasonable pension. What they did not understand, and what I think is little understood by those with occupational pension schemes, is that when companies go into receivership—as, sadly, they do from time to time—and the pension funds are wound up or frozen, their pension-holding employees may lose everything. It turns out that final-salary occupational pensions are not the risk-free, or low-risk, investments that those workers believed them to be, and that some of them might have done better to leave their money in building societies. Pensions should be about security, not risk.

It is bad enough to lose a job, but when those workers lost their jobs they suddenly discovered that, owing to recent sharp downward fluctuations in the stock market, the pension fund had fallen significantly in the last 12 months or so. The company had been meeting its minimum funding requirement, laid down in legislation since the Pensions Act 1995, but there was not enough in the pot to meet the needs of the deferred pensioners—the current workers who are not yet drawing their pensions.

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Under current law, those who have made additional voluntary contributions are first in line and existing pensioners second, but the last in the pecking order for anything left in the scheme when a pension fund is wound up when a company goes into receivership are the existing work force. They are often the best and most loyal workers who have stuck with the company for decades and who will not have been laid off or sacked.

In the case of Allied Steel and Wire in Cardiff, the latest information that we hear from some members of the work force—we do not have hard and fast information, because we have not yet seen the interim report by the independent trustee appointed to wind up the pension fund—suggests that some of the deferred pensioners may end up receiving from the occupational pension scheme a pension that amounts to as little as 20 per cent. of what they might have expected from their final salary scheme if the company had not gone into liquidation. It is a jaw-dropping injustice for people to pay into an occupational pension scheme and face that prospect after being loyal workers in a company.

Worse still, under the current system, if such people are concerned about what is happening and write to the independent trustee who is appointed to value the fund, purchase the annuities for existing pensioners and do whatever is necessary to wind it up, he will charge the fund #300 for his reply. In some cases, the independent trustees of smaller occupational pension funds that have been wound up have depleted the bulk of the resources, leaving the workers with nothing. There is no limit on what the trustees can charge for their services. Very few companies engage in such work, so they can charge whatever they like. Their position is the only example I know of one in which the person who is appointed can write their own cheques for as much as they like in return for doing the job. There is every incentive in the system for trustees to prevaricate and drag their heels.

Another injustice is the way in which occupational pension funds are used to provide early redundancies, especially for those in management. In the case of Allied Steel and Wire, two of the company's managers, who had inside knowledge of its financial status, left less than a year before it went into receivership, taking with them a large chunk of the pension fund. Those people, who are in their 50s, are now back in employment, working as consultants in highly paid positions, leaving the workers with nothing.

I had thought that it was shareholders and the banks that lend money to companies that are supposed to bear risks. In this case, however, the people who bear the greatest risk to their livelihood in retirement are the workers. That cannot be right, and I hope that the Government will put it right. The pension fund does not even have secured status when it comes to seeking the money that is to be paid back. That cannot be right and is a fundamental injustice.

I hope that, when the Government publish their Green Paper on pensions, they will consider that issue closely and ensure that what they publish is about security and fairness in retirement for workers, and not insecurity and injustice of the sort that has been suffered by the steelworkers from Cardiff.

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