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Paul Flynn (Newport, West): Does my right hon. Friend recall that for five successive years under this Labour Government, early-day motion 1 called for a restoration of the link between earnings and pensions. In some years more than 100 hon. Members signed the motion, but no Conservative Member ever did.
Moreover, the Conservatives did not support the restoration of the link after the Conservative Government broke it in 1980. Does my right hon. Friend think that the Opposition's sudden Pauline conversion to the idea of restoring the link is nothing more than a shameless piece of opportunism?
Mr. Smith: Yes, I do, and I shall have more to say on that later.
Andrew Selous: How can the Secretary of State tell the House that the Government are giving money to the pensioners who need it most when we have just heard that the pensioners in the most persistent poverty are either unwilling or unable to take up the very benefits that he is talking about?
Mr. Smith: This Government have introduced the minimum income guarantee and improved it by means of the pension credit. That means that we are getting much more help to the poorest pensioners. That is borne out by the statistics for households on below-average incomes. On the basis of an absolute measure of poverty, more than 1.5 million pensioners have been taken out of poverty thanks to what this Government have done.
The hon. Member for Havant (Mr. Willetts) referred to cross-party consensus. I am all for a bit of that where we can establish it. However, that cause will not be helped by a Conservative party that has learned so little from its last time in office. We will take no lectures from a party whose record on pensions has so often been part of the problem and not part of the solution. The truth is that on one issue after another this Government are acting where the Conservatives failed to act. When the Conservatives were in power, they chose to increase the value of the basic state pension just once in 18 years—and then only to compensate for imposing VAT on fuel. They left millions in poverty, and expected the poorest pensioners to live on just £68.80 a week. It is this Government who have made sure that no single pensioner need live on less than £102 a week, and that no pensioner couple need live on less than £155 a week.
Mr. McLoughlin: My hon. Friend the Member for Havant (Mr. Willetts) pointed out that the pension credit deems that some pensioners will earn 10 per cent. interest on their savings. Will the Secretary of State tell my constituents where they can get 10 per cent interest on their savings?
Mr. Smith: I do not blame the hon. Gentleman for asking that question, as the hon. Member for Havant (Mr. Willetts) slipped in what he really meant so quickly that one might not have noticed. The claim was not that people could earn 10 per cent. He actually referred to a 10 per cent. attributed rate above £6,000. We must remember that 93 per cent. of pensioners have less than £10,000 in savings. There is no attributed rate on the first £6,000, but the rate is £1 for each £500 of savings above that level. On £10,000, that equates not to 10 per cent. but to 4.2 per cent. That is the truth hidden in the small print of what the hon. Member for Havant said.
I am proud that it is this Government who are guaranteeing, through the pension credit, an income of £102 a week for single pensioners and of £155 for
couples. We are also rewarding saving, whereas the Opposition penalised it by pound-for-pound withdrawals. Carp though they do about the pension credit, means-testing and the rest, the Opposition should have the grace to admit that, with the introduction of the pension credit, the Government have taken an important step away from pound-for-pound withdrawal. In government, the Opposition gave the strongest possible signal that it did not pay to save. Under this Labour Government, it does pay to save.
Gregory Barker (Bexhill and Battle): The Secretary of State has spoken about taking action, but the Government have in fact taken billions and billions of pounds out of pension funds. Since the Chancellor's first £5 billion tax raid, how much money year on year has been taken out pension funds in the past six years?
Mr. Smith: All hon. Members know that that was part of a comprehensive reform of corporate tax. The rate of corporation tax was cut by 3 per cent. as a way of ending the perverse incentive that existed in the system to distribute money through dividends rather than to reinvest it. I respect the sincerity with which the hon. Gentleman speaks, but I would have a great deal more respect for Conservative Members when they make such complaints if one of their Front-Bench team would pledge to reintroduce the dividend tax credit. They have been challenged time and again to do so and that is not their policy, so it is an argument that carries no force.
Mr. Smith: I shall make a little more progress before I give way.
As a result of the pension credit and the other measures that we have introduced since 1997, the poorest third of pensioners are on average £600 a year better off than if the same money had been put into raising the basic state pension. The Conservative party was happy with the situation where pensioners who had saved had their benefit withdrawn pound for pound, giving the strongest possible signal that it did not pay to save. This Government, with the pension credit, are for the first time rewarding those who have saved and who have so often just missed out.
People will never forget that it was the Tories who presided over the pension mis-selling saga, leaving hundreds of thousands short-changed, just as they changed the rules on inherited SERPS, halved their value and forgot even to tell those affected. This Government have had to sort out the mess and take action to rebuild confidence in the system. This Government will stop employers walking away from their obligations, stop companies using takeovers to scrap pensions, and stop firms changing schemes without consultation.
John Robertson (Glasgow, Anniesland): Does my right hon. Friend agree that the Opposition have shown their true colours here today by speaking about the top 10 per cent. and forgetting the bottom 60 per cent.—the
people they should be looking after? Once again, the Opposition show that they have no concern and no care for the poor.
Mr. Smith: Yes, indeed. The Conservative party's proposals would do relatively more for better-off pensioners and relatively less for the poorer pensioners. It was ever thus.
The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle): What a surprise.
Mr. Smith: Indeed. The truth is that both on state pensions and occupational pensions we are taking the action that is necessary. We are concerned that a pension promise made must be a pension promise honoured. That is why we will introduce a pension protection fund to give employees the protection that the Tories never saw fit to provide. The fund will step in to guarantee that, when a sponsoring employer goes bust and the pension scheme is underfunded, pensions already in payment will continue to be paid out in full and, subject to a salary cap, those who expect a pension will be guaranteed up to 90 per cent. of that entitlement.
I listened to what the Conservative spokesman was saying about pension credit. Not for the first time, we heard those on the Opposition Front Bench twisting and turning—first, deriding Labour proposals and then being forced by public opinion to accept them. Does the hon. Member for Havant remember the winter fuel payment? He called it "a gimmick" and pledged that the Conservatives would abolish it. We do not hear much about that any more, do we?
On the pension credit, the Conservatives have carped and criticised. First, they said that they would scrap it; then they said that they would "reconsider" it; now, they say that they are going to keep it—and so they should, because around half of all pensioner households will be eligible and stand to gain £400 a year on average. As of last week, pension credit is helping more than 2 million pensioners throughout the country.
Despite the claims from the Opposition parties, the systems are working well. More than 1 million pensioners have already contacted us and feedback is showing that they like the help that they are getting from the Pension Service—the first ever dedicated service for pensioners in this country.
Mr. Michael Jabez Foster (Hastings and Rye): About 4,000 of my constituents are up to £30 a week better off in real money than they would have been under the old Tory system of simply keeping income support up to inflation levels. More importantly, does my right hon. Friend understand the Opposition's policy to be that they will not give another rise for the next seven years if we have to wait for pensions to catch up with present benefit levels?
Mr. Smith: That certainly seems to be the case. My hon. Friend is right. As I told my hon. Friend the Member for Glasgow, Anniesland (John Robertson), Conservative policy consistently skews the odds against the poorest in the pension system, which is just what the Conservatives did when they were in office.
We all realise that big challenges are facing the country in relation to pensions. Thanks to the good news that people are living longer, between us we need to save more or work longer, or some combination of the two, if we are to sustain a given standard of living in retirement. We have already set out a number of proposals for addressing these challenges.
The recent announcements of the hon. Member for Havant and what he told us today fail three basic tests. First, they fail the test of affordability. It is just three years since the hon. Gentleman said that he opposed reintroducing the earnings link as it was "not affordable". Nothing has changed. That is why his figures continue to show that the sums do not add up. Even after taking more than £200 million off pensioners in extra tax—that is part of the cost calculations that he left out of his list today—there would be a £500 million shortfall by year four of a Tory Parliament. That £500 million black hole would in reality be far bigger because they are claiming "savings" where there are none to be had. For example, they claim that they can save hundreds of millions of pounds by scrapping the new deals—new deals that have now helped more than 1 million people into jobs. The evidence shows that the new deal for lone parents alone has saved the Exchequer £40 million pounds a year by getting people off benefits and into work. The report of the National Institute of Economic and Social Research on the new deal for young people showed that it was virtually paying for itself. The truth is that scrapping the new deals would make it harder to pay for pensions, not easier.
Once again, the Conservative party is making the mistake of imagining that it can put Britain's finances in order by keeping people on the dole. The Conservatives have learned nothing from the last time they were in power, when the British people saw all too clearly that mass unemployment was the way not to stronger public finances but to a net public debt of 44 per cent. of gross domestic product, which is where they left it. They have not learned the lesson that we cannot pay for pensions tomorrow by pushing up unemployment today.
Their failure on a second test, sustainability, is even more abject. I cannot honestly believe that the hon. Member for Havant does not know that. The further forward one looks, the more unsustainable Tory policy becomes, even though we all know that pensions policy should be for the long term. The hon. Gentleman told this House just three years ago that restoring the earnings link would be
- "a wild and uncosted policy".—[Official Report, 8 June 2000; Vol. 351, c. 440.]
- "ending the link between the basic pension and earnings"
- "seductive politics, but dangerous economics"
- "bedevilled state pension arrangements in other countries". —[Official Report, 8 July 1993; Vol.228, c. 516.]
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