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Representation of the People (Consequences of Devolution)
Mr. Andrew George accordingly presented a Bill to make provision for a reduction in the number of Members of Parliament; to make provision for referendums on regional assemblies; and for connected purpose: And the same was read the First time; and ordered to be read a Second time on Friday 21 November, and to be printed [Bill 165].
Opposition Day[18th Allotted Day]
State Pension Reform
Mr. Speaker: I inform the House that I have selected the amendment in the name of the Prime Minister.
12.45 pm
Mr. David Willetts (Havant): I beg to move,
- That this House expresses its deep concern at Government policies that have led to a decline in funded pension provision and a massive extension of dependence on means-tested benefits; deplores the £5 billion per annum pensions tax and the erosion of incentives to save, which have caused the halving of the Savings Ratio, and have resulted in only 19 per cent. of final salary pension schemes remaining open to new members; condemns the Government for extending dependence on means-testing to over half of pensioners, despite earlier promises to the contrary, and for ignoring the interests of 1.4 million of the poorest pensioners who, on the Government's own target, will still not be receiving Pension Credit in 2006; notes that Government policies have created a big disincentive to save and led to an increase in the number of pensioners in persistent poverty; and calls on the Government to support state pension reform to reduce dependence on means-tested benefits, to remove the disincentive to save, to improve the financial position of pensioners, including the 1.4 million poorest pensioners, and to provide better incentives to save.
We have called this debate because the Government never debate pensions in this House. We have had two Government statements on pensions in the past year but no debate on the pensions crisis, despite the semi-promise that was given when my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) raised the matter during a debate held earlier this year. He called for a debate on the Government's Green Paper proposals on pensions, and the then Minister for Pensions—we miss him so much—said in his inimitable style:
- "Do not be so silly. I have made it absolutely clear that I welcome debates in the House."—[Official Report, 20 January 2003; Vol. 398, c. 58.]
Meanwhile, as the Government produce their Green Papers and make their statements, what has been happening? The pensions crisis has steadily worsened. The CBI pointed out that, in the past year alone, more than half the companies that it surveyed closed their final salary pension schemes. Final salary funded pension schemes are closing, and at the same time—the next step in this process took place last week—more and more pensioners are on means-tested benefits. The arrival of the pension credit means that, for the first time in a long while in British history, more than half of all pensioners are eligible for means-tested benefits.
We called this debate because we think that those two trends in our society—fewer funded pensions and greater dependence on means-tested welfare—
constitute the wrong direction for our country to take. We wish to reverse those trends: we want more funded pension saving and fewer pensioners being dependent on means-tested benefits, but the Government's policies have caught us in a vicious spiral. As savings go down, more and more pensioners become dependent on means-tested benefits; and as entitlement to the latter is expanded, fewer people believe that it is worth while saving. That is the pernicious and vicious cycle in which we are now caught, and out of which we need to break.
Michael Fabricant (Lichfield): Does my hon. Friend agree that although we all—particularly those who are borrowing—welcome low interest rates, the crisis is being exacerbated by the fact that the income of those who have money on deposit is also being diminished?
Mr. Willetts: My hon. Friend makes an important point that I shall come to later. He is absolutely right: as interest rates have fallen, pensioners with modest savings in a building society have lost particularly heavily, and they lose under the pension credit.
Things were not supposed to be like this. The Government made it clear in their first Green Paper of 1998—one of its authors is here today, and, as always, he is very welcome—that pensioners were then getting 60 per cent. of their income from benefits and 40 per cent. from funded pension savings, but that the Government's objective was to reverse that ratio, so that in future pensioners would get 60 per cent. of their income from funded savings and only 40 per cent. from benefits. In pursuit of cross-party consensus on these important matters, we are happy to endorse that very desirable objective, which we believe in and are committed to. Sadly—as with so many of the Government's targets—since they announced that target the percentage of income that pensioners get from social security and welfare has gone up, and the percentage that they get from funded savings has gone down.
They are heading in the wrong direction.
The latest evidence for that was the arrival last week of the pension credit, for which more than half of all pensioners are eligible. It is a far cry from the pledge made by the Chancellor—then shadow Chancellor—to the Labour party conference only 10 years ago, when he said:
- "I want the next Labour Government to achieve what in 50 years of the Welfare State has never been achieved. The end of the means test for our elderly people."
Mr. Steve Webb (Northavon): The hon. Gentleman issued a press release just before the Tory party conference entitled, "Tories to end the pensioners' means test by restoring earnings link". This afternoon, he has referred to reduced means-testing. Given that the press release promised to "end" it, in which decade does the hon. Gentleman envisage that happening?
Mr. Willetts: We have set out our proposals and I shall talk about them later in my speech. Over time, our
objective is to get more pensioners off the means test. A target is necessary, and ours is to increase the value of the basic state pension so that it catches up with the level of the means-tested benefit. That is how British social security policy has always operated. The breach in the British way of running social security came under the present Government, who have put means-tested welfare so much higher than the basic state pension. That is the source of many of our troubles.
Mr. Willetts: I want to make some progress and explain why Conservative Members are opposed to the spread of means-testing and, most recently, to the operation of the pension credit.
Ministers will say that it takes only one phone call to claim the pension credit—but some phone call it is! Pensioners have to reveal to the official at the other end of the line all the details of their financial affairs, all their savings and all their money around the house. In practice, they have to empty their pockets to a civil servant in order to receive a means-tested benefit. That is why pensioners, their representatives and the industry itself do not like means-testing. Let me quote the views of Help the Aged, which states:
- "Help the Aged believes that the Pension Credit is totally over-engineered . . . It would be so much simpler, and fairer, to boost the basic state pension".
Ministers say that after the one phone call pensioners can continue to receive the pension credit for five years without any interference or involvement. What Ministers do not say is how many different changes of circumstances have to be reported to officials. Pensioners have to tell officials if they have started marrying or cohabiting. They have to report whether they have died—I suppose that is logical. They have to report divorce or separation from a partner; change of name, address or payment location details; changes to any paid work; going into hospital or care home; going into prison and even joining a religious order. That is the information that the Government require.
The Secretary of State for Work and Pensions (Mr. Andrew Smith): In making his case, does the hon. Gentleman believe that he is encouraging pensioners to apply for what they are entitled to, or discouraging them?
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