---

Mr. Speaker: Order. Let the hon. Gentleman reply.

Mr. Willetts: Thank you, Mr. Speaker. I have to work very hard reading these tedious documents and now and again I like to share the little gems that I find with the House.

Page 200 contains a chart entitled "Percentage of older people living in low-income households" and it shows the percentage of pensioners with persistent low incomes who have had incomes

15 Oct 2003 : Column 126

"Below 60 per cent. of the median income in three out of the previous four years".

It shows a slowly increasing trend in the number of pensioners in that group, from 16 per cent. in the mid-1990s, to 17 per cent. and, in the latest three-year period, to 18 per cent. The Government's policy is not working because people do not like all these means tests.

As the Secretary of State knows, I have great respect for him and I do not lightly throw around charges that he has produced misleading information. However, I am very troubled that his information leaflet on the pension credit contains the assertion, which he endlessly repeats, that the pension credit

"guarantees everyone aged 60 and over an income of at least £102.10 if you are single; or £155.80 a week if you have a partner."

That is simply untrue. It is not correct. That is not how the pension credit works. As my hon. Friend the Member for Lichfield (Michael Fabricant) pointed out, if someone has modest savings, the pension credit assumes an income from those savings of 10 per cent. That is an interest rate on savings way above what any pensioner in the real world is able to secure. However, that assumption was made for the purpose of modelling the pension credit. I shall not inflict the detailed calculations on the House although I would be happy if the Secretary of State wished to intervene to correct my calculations. They show that a single pensioner with savings of £20,000 held in national savings, earning 3.1 per cent., would be assumed to receive an income of £26.92 a week on the £14,000 of her savings above the limit of £6,000, which she would simply not receive. As a result, her total income from her savings, the basic state pension and the pension credit to which she is entitled would be £98.78 a week, not £102.10. Any pensioner with savings of between £6,000 and £54,000 is caught in that trap. It is not the case that pensioners are guaranteed £102.10 a week under the pension credit. I hope that the Secretary of State will accept that the information leaflet is seriously misleading. It is just not the case that the pension credit works in the way that he claims.

Mr. Patrick McLoughlin (West Derbyshire): My hon. Friend should not be surprised by that. The Government do not want pensioners to save, because they want people to be dependent on the state. That is the message that pensioners get time and again from the Government. They are told to forget saving because it is irrelevant and even irresponsible.

Mr. Willetts: My hon. Friend gets to the heart of the issue. One of the worst and most pernicious examples of intrusive government is requiring millions of pensioners to fill in detailed claim forms to get means-tested benefits. The Conservative way is to try to roll back the means test, and provide people with a decent state pension, under which they are £1 better off for every £1 they save. That is what pensioners want.

Ms Sally Keeble (Northampton, North): Will the hon. Gentleman give way?

Mr. Willetts: No, because I must conclude so that the other hon. Members who wish to speak in this debate have a chance to do so.

15 Oct 2003 : Column 127

We have been driven by an ineluctable logic through the following stages of argument. We have concluded that means-testing under this Government has increased, is increasing and should be diminished. We wish to see pensioners off the means test. We also do not believe that it would be right to take any benefits away from pensioners. We do not propose to take cash off pensioners, because none of us believes that that would be the right thing to do. The only way, therefore, to roll back the means test is by increasing the value of the basic state pension so that it catches up with the value of the means-tested benefits. What more powerful way is there to signal a slow but steady process of increasing the value of the basic state pension than by saying that we will increase it in accordance with earnings rather than prices? That is the policy that we have put forward as a way of rolling back the means test.

Paradoxically, the policy can be financed because the Government have spread means-tested benefits so far. They have got more than half of pensioners on the pension credit. For all those pensioners, we will replace—gradually and over time—the income that they get from their means-tested benefits, and instead provide them with money on the basic state pension.

Labour Members always argue that the problem is that large numbers of very rich pensioners will gain from our policy, so I refer them to another classic publication from the back catalogue of the Department for Work and Pensions. The pensioner incomes series measures pensioner incomes by quintile—every 20 per cent. of population. It shows that nearly 80 per cent. of pensioners have below-average incomes. It is not the case that there are large numbers of rich pensioners. The figures for the five quintiles are as follows. The poorest pensioner couples have a gross income of £165 a week. The next poorest get £221 a week, rising through £276 and then £373. The top fifth of pensioner couples get £889 a week.

It is not the case that there are large numbers of very affluent pensioners. Only the top 20 per cent. of pensioners are anywhere near what the rest of society would regard as prosperity. I would rather that they faced a 40 per cent. tax rate on their incomes than that millions of pensioners on much lower incomes faced a marginal rate of 40 per cent. at the best, and quite possibly of 100 per cent.

The Conservative party has proposed a clear direction of travel that tackles the two problems at the heart of our savings crisis. First, we are proposing increases in the value of the basic state pension that will enable us, over time, to take pensioners off means-tested benefits by replacing those benefits with a decent state pension. Secondly, we are proposing measures to tackle the problem of the lack of incentives to save by introducing a much better way of using the incentives currently in contracted-out rebates. We believe that the combination of a simple, decent and straightforward basic state pension, with strong incentives to save, is the only practical way of solving the pensions crisis faced by the country.

I commend the proposals to the House.

15 Oct 2003 : Column 128

1.12 pm

The Secretary of State for Work and Pensions (Mr. Andrew Smith): I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:

"welcomes the fact that people are living longer than ever before; welcomes Government action to tackle pensioner poverty and to promote retirement flexibility, occupational pension security and informed choice; condemns the inheritance of 1997, with millions of pensioners in poverty, many being expected by the Government to live on under £68 a week, and the legacy of pension mis-selling; endorses the Work and Pensions Committee's judgement that "current policies have been successful in reducing pensioner poverty"; notes that the Government is spending £9 billion extra per year in real terms on pensioners compared with the 1997 system; further notes that this is £5.7 billion more than if the basic pension had been linked to earnings; applauds the fact that the poorest third of pensioners will be £1,600 a year better off; welcomes the successful payment of Pension Credit from this month to over two million pensioners and the fact that 1.3 million are gaining more money than they had before; further supports the Government's approach to renew the pensions partnership, outlined in the recent Green Paper and Action Plan; commends plans to introduce a Pension Protection Fund, guaranteeing protection if a company scheme winds up; welcomes proposals to allow individuals to defer their state pension and draw it as a lump sum; looks forward to further measures enabling people to make an informed choice in pension provision, increase flexibility approaching retirement and to work free from age discrimination; and condemns the unfair, unaffordable and unsustainable policies of Opposition parties."

In moving the amendment, I am happy to set the record and proposals of this Labour Government against what we have just heard from the Opposition. This Government recognise the challenges that this country faces on pensions, and we are taking action to deal with pensioner poverty, to protect the pension promise, to help people save and to enable people to choose when to retire.

On pensioner poverty, pension credit is getting more money to those who need it and rewarding those with modest savings. On occupational pensions, we have said that we will legislate for a pension protection fund, and take action to stop firms dumping their pension obligations. On savings, we are simplifying the tax regime, enabling people—especially women—to build up rights in short-stay jobs, and giving people the information that they need to make their own choices on pensions.

On flexible retirement, we are giving people more options on when to retire, tackling age discrimination, and giving a better deal to those who defer their state pension. However, we will not force people to work longer, which is why we have not proposed raising the state pension age.

The House should remember that it is thanks to the reforms that this Government have put in place that, from next April, we will be spending more than £9 billion extra in real terms than in 1997. That is £5.7 billion more than if the basic pension had been uprated in line with earnings.

---