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Mr. Willetts: I invite the hon. Gentleman, who might have more success than I did, to ask the Secretary of State whether the value of means-tested benefits for pensioners will rise in line with earnings in the next Parliament, if the Government are re-elected.

Paul Flynn: I am touched by the hon. Gentleman's faith in my ability to persuade the Government. For about five years, I got up at an ungodly hour to table early-day motion 1, urging that the link between the basic pension and earnings should be restored. Despite all my endeavours and those of the 100 or so fellow Members who signed those early-day motions, I failed so to persuade the Government. It is dishonest of the Conservatives to propose a programme that clearly would relatively reduce the income of the poorest pensioners. They suggest that the basic pension should be increased by earnings, which is fine, but increasing the means-tested pension only by prices would guarantee an increase in the disparity of incomes between better-off pensioners and the poorest pensioners.

If the Government cannot state their policy today, we must not gaze into a crystal ball but study their record, which is one of fairness, generosity and innovative policies that, as a pensioner of some four years' standing, I know people of my age greatly appreciate.

2.31 pm

Mr. Steve Webb (Northavon) (LD): This annual debate affords the House the opportunity, which the Secretary of State and the spokesperson for the Conservative party took, to examine in detail benefit rates throughout the social security system and to reflect

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on Government strategy. I propose to follow them in doing so, but first I want to don my anorak—having been goaded by the hon. Member for Havant (Mr. Willetts)—and refer to article 20(3) of the regulations, which is obviously a contentious subsection:

The explanatory notes state, in the context of housing benefits for pensioners:

There is a corresponding section about council tax benefit.

Will the Minister explain the Government's thinking? Following pressure from others and us, there have been some welcome concessions on benefits for people in hospital, but are such people able to pay council tax any more than those living at home? Why should anything in the regulations cut council tax support for pensioners just because they are ill? Their other bills will continue. When will that provision cut in, and what effect will it have? Do the Government have any plans to review that arrangement? I cannot see any justification for reducing that support. I give the Minister notice of that detailed point, so that he will have a chance to respond.

The Secretary of State referred to the proposal to defer a lump sum for five years, which is an interesting notion. I have no problem with the idea of new options, but I must admit to some concerns. The hon. Member for Havant queried whether that money will be disregarded for the purposes of pension credit—one of two key questions. I was dismayed that the Secretary of State was unclear, saying that the principle is that the recipient will be no better but no worse off. What will that mean in practice? A man of 65 needs to know unambiguously whether the lump sum will count towards pension credit. If it does, that will change the entire calculation and it will become excruciatingly difficult. Although a 6 per cent. gross allowance might be achieved by deferring, which would probably be subject to tax, would the individual lose all future entitlement to pension credit, or lose it only until they had run down some of their capital stock? Some existing capital stock from another source might count, whereas new capital would not. Unless that scheme is implemented simply, pensioners might be asked to make complicated calculations. The Government's record on simple implementation is not particularly strong.

I understand that that proposal has been associated with the Pensions Bill, but I am not sure whether it requires legislation. I hope that the Government will soon be a good deal clearer on how that provision will work. Presumably the typical £100 that rolls up would be taxable, so one supposes that the lump sum also would be taxable. Would it be taxable only at the basic rate—the rate at which it would probably have been taxed when it accrued—or, because the £100 would grow into a socking great sum that would take someone way into the higher rate band, would there be some special tax rate? Would a person at the age of 65 be offered £26,000, or whatever the sum is at age 70, or £26,000 gross, which turns out to be £20,000 net? If so, the individual might have achieved the same return by putting their pension into an ISA. The Government talk about simplicity in pensions but are creating something that is not nearly as simple as has been suggested.

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Although some of the Government's ideas are not bad, they have been grossly overspun. The option of going without a pension for five years is not one that the masses will go for. The people to whom the Government want the scheme to appeal will predominantly be part-time workers. I do not believe that the Government have in mind people who work full time until age 70. People in good full-time jobs and on high incomes are probably well placed to sort themselves out anyway.

The Secretary of State mentioned women. The suggestion that women on modest part-time earnings would defer their pension for two or five years is far-fetched and fanciful. I hope that the Secretary of State will not oversell the proposal. We do not have a problem with people being offered new choices, provided that they are simple and will not place them at risk of making the wrong decision. I hope that the Minister will not pretend that the proposal is some sort of revolution, because most people cannot afford to do other than take their pension as soon as it becomes available.

The main national insurance benefits for non-pensioners are linked to the retail prices index, excluding housing costs—and because of real increases in rents and housing costs, the rate is lower than inflation. The money spent on schemes such as the contributory jobseeker's allowance is now pathetically small—60p per week for under-25s and 80p per week for over-25s. An unemployed 25-year-old with a good contributions record receives £55.65 a week, whereas average earnings must be approaching £400 or £500 a week. When such allowances were created, they were meant to serve as earnings-replacement benefits. If they continue to be linked to a low measure of inflation year after year, their potential for serving as earnings-replacement benefits must have disappeared long ago. Do the Government plan to permit such allowances to wither, dwindle and become an anachronism, because they cost a lot to administer—money that could be spent helping unemployed people who need support. The Government have an interest in permitting such benefits to wither, but is any systematic policy in place to re-examine the role of benefits, rather than let them die from natural causes?

The age addition for the over-80s remains at 25p. It has stayed at that level for nearly a quarter of a century. Five shillings was once a lot of money, but it is not today. There is a fundamental difference between the Government and us over the potential for using that money to reach the most needy pensioners. There is some common ground between the official Opposition and us in respect of persons who do not receive pension credit, the majority of whom are elderly pensioners. The Government have missed the opportunity to do something with the age addition, rather than let it wither. The length of the regulations is testimony to the complexity of the entire system, which contains all sorts of bits and pieces that do not do what they were originally designed to do but that nobody will sort out. One occasionally wishes that, instead of producing the same document setting the figure at 1.8 per cent. practically every year, someone would take a strategic look at the system rather than let it drift on with bits falling into disrepair. The social security system is like a house that nobody has lived in for many years—things are gathering dust because they have always been there.

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I want briefly to raise three strategic issues. First, we have not touched on the transfer responsibility for poor families with children from the social security system to the tax credits system. When I first saw the regulation, I rang the Library and asked whether there had been a typing mistake because the rate for children is £42.27, which is a strange number that looks a bit odd. It became apparent that the figure is not actually a social security rate; it is a tax credit rate per year converted into a weekly amount.

Whereas last year's transition from supporting families through the social security system to supporting them with tax credits was a mess, at least the people covered by that system were generally workers who had some other source of income. This April, people who are wholly dependent on the social security system will transfer to the Inland Revenue's clutches. Most of their money will come from tax credits rather than from social security, and it is vital that the process is right. When the Department for Work and Pensions says on day one, "You are not our responsibility any more. We will give the amount for the adult, but it is over to the Revenue", the Revenue must not say, "We will get it right in July." Such families cannot be put in that position.

I asked the Paymaster General for information on the transition, and she promised the House a statement, which we have not yet heard. It is nearly March and the transition occurs in April. What is going on? Why have we heard nothing from the Government about how the transition will happen? Are low-paid families on income support confident that support for their children will seamlessly—that adverb is not often used in the context of the tax credit system—continue the day after the DWP pulls out? I hope that the Minister for Work can reassure us that he is actively ensuring that such people, for whom his Department is currently responsible, will have their welfare protected and that the transition is already being properly planned. The people involved with the dreaded computer systems that lie behind the transition say that they are behind schedule on the testing, and one's heart sinks at the prospect of the mayhem that might arise.

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