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Mr. Steve Webb (Northavon) (LD): I echo the Secretary of State's praise for staff who do such a good job. Last week, the Chancellor gave the impression that his announcement about swingeing job cuts was news. How does the Secretary of State think his staff felt on turning on the television and hearing that they were going to be sacked?

Mr. Smith: News of staff reductions is bound to cause some uncertainty and anxiety. The investment to which

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I referred had already been set out in our departmental plans and announced. The Chancellor set out the total number, including a further 12,000 job reductions to 2008. To put that matter in context, mine is a big Department of some 130,000 staff. Implementation of the reforms will be spread over four years, and we will work closely with staff and trade unions in taking them forward. I hope that much can be achieved by natural turnover, which currently accounts for 9,000 staff each year leaving the Department.

The result of our investment and reform will be a leaner, more effective organisation offering a better service to the customer, better value to the taxpayer and more rewarding jobs for our employees as we shift the emphasis from back-office and clerical processing to front-line personal advisory work. A number of personal advisers have told me that that was the job that they wanted when they first joined the service—helping clients, face to face, to move forward in their lives.

Mr. Henry Bellingham (North-West Norfolk) (Con): Having been to my local Jobcentre Plus, I endorse the right hon. Gentleman's comment that the staff do an excellent job. Is he aware, however, that the Government signed up to a European Union directive that insists on staff consultation in advance of announcements? Why has he breached that EU directive?

Mr. Smith: I thank the hon. Gentleman for his praise in recognition of the accomplishments of Jobcentre Plus. It is for him to take issue with his Front Benchers, who want to abolish so many of the policies that he praises. Before any staff are made redundant, whether voluntarily or even compulsorily if necessary—which I have not ruled out—there will of course be full consultation with staff, in conformity with all relevant agreements and regulations. That will happen not just because that is required but because it is the right thing to do. We have to carry our staff with us during a difficult process of transformation, albeit one that will bring real benefits to customers, taxpayers and staff working conditions and satisfaction.

The Chancellor also made important announcements for pensioners. We have taken action to tackle the inheritance of the last Conservative Government, under whom there were nearly 3 million pensioners in poverty, many of whom were expected to live on just £69 a week. The Conservatives increased the basic state pension once—and only because they simultaneously slammed value added tax on fuel. In contrast, we have increased the basic state pension by £5 for single pensioners and by £8 for couples in real terms; and we have introduced free TV licences for the over-75s, free eye tests, and a winter fuel payment that is worth £200 to every pensioner household and £300 for pensioners over age 80.

In this Budget, we went even further. Recognising the impact that council tax increases have on the fixed incomes of older people, we will pay all households with someone aged over 70 an extra £100 this year. Taken together with the winter fuel payment, households with someone aged over 70 will receive a total of £300 this year, rising to £400 for the over-80s.

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On top of that, we continue to make good progress in rolling out pension credit, which is now reaching more than 2.7 million people. The Budget extends the backdating period, and that means that any eligible pensioner making an application will have their credit backdated for up to a year. That is an important extra step to help ensure that pensioners get the money that is rightfully theirs.

As a result of our reforms, we will spend an extra £10 billion next year on pensioners compared with 1997. On average, pensioner households will be £1,350 a year better off in real terms—that is around £26 extra a week. The poorest third will be, on average, £1,750 a year better off, ensuring that more than 1.6 million pensioners have been lifted out of absolute poverty since 1997.

Whereas we have tackled pensioner poverty, the Tory proposals would ensure that the poorest fell further behind. We know that their policies are "wild and uncosted" and that there will have to be more painful cuts to make their sums add up, because the right hon. Member for West Dorset (Mr. Letwin) and the hon. Member for Havant (Mr. Willetts) have told us so. What they propose is unaffordable, unsustainable and above all unfair.

We will keep up our drive to raise the living standards of all pensioners while helping the poorest most of all. We will also carry forward our programme of pension reform, increasing the rewards for those pensioners who want to work beyond the normal state pension age. We will bring forward the increase in the rate of accrual on deferred state pensions. That means that someone who on retirement at 65 would be entitled to £100 a week will now get £160 if they defer for five years. For the first time from April next year, those who work beyond state pension age will be able to take their deferred state pension as a lump sum.

The forthcoming Finance Bill will also simplify the tax system on personal pension funds by replacing the eight tax regimes for pensions with a single lifetime allowance. That is a fundamental and radical reform that will be of enormous benefit to pension saving in this country. As my right hon. Friend the Chancellor said, we have listened to the concerns of employers who want to do more to support their employees in making decisions about their pensions. I am pleased that we are helping employers to make that advice available by making it tax free up to £150 per employee. That is a new incentive to strengthen the pension partnership.

To conclude: on the whole Budget, as I imagine we are about to hear, the Conservatives are clambering about, straining to find some points of argument that they can hang on to because they have been comprehensively outmanoeuvred on the argument, just as they have been comprehensively outperformed economically on their record in government. The Conservative party is now in total confusion—on core public services, its plans are in chaos. The Conservatives contradict themselves on education, because they are unable to decide whether the derided pupil passports will apply to private school fees. On health, we learned yesterday that they are trying to ditch their private health care subsidy. The Tories' spending plans do not stack up, so they are forced to ditch their flagship policies. The party is in disarray and has nothing to offer the British people.

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In contrast, this Budget locks in the economic stability that we have created since 1997. With inflation, interest rates and unemployment low, we are able to invest for the future with more money for health, education and security. Our investment and reform are delivering better value to the taxpayer, better services to the public and an economy that is the envy of the world. I commend our Budget to the House.

1.4 pm

Mr. David Willetts (Havant) (Con): I draw the House's attention to my interests that appear in the Register of Members' Interests. I shall begin by identifying issues on which I shall disappoint the Secretary of State by agreeing with some measures in the Budget. Let me take him through one or two of the measures that I welcome. In fact, I welcome some measures that he did not even refer to in his rather thin speech.

For example, I welcome the Chancellor's final abandonment of his obsession with delivering tax credits through the payroll. Five years ago, he believed that it was essential to deliver tax credits through the payroll to transform incentives to get people into jobs. He first abandoned that with the child tax credit, and in his Budget last week, he finally abandoned it with the working tax credit as well. All that metaphysical stuff about how it was essential that these benefits be delivered through the payroll has now been abandoned, and I very much welcome that.

There was something else in the Budget that I welcomed: the simplification of the pension tax regime is an improvement on the current regime. The Chancellor again made a significant concession, but did not want to admit to it. In the face of the protests about the £1.4 million cap and its potential effect on senior managers, he has increased the value of the cap significantly for people with defined benefit schemes. However, instead of doing that in the straightforward way, by increasing the capital sum, he has introduced an ingenious formula for converting the value of a defined benefit pension into a notional sum—the one in 20 formula. No one can actually convert their capital into a pension at a rate of one to 20, but for the purposes of his cap, the Chancellor will assume that they can. To get the sort of pension that would be covered by the scheme, the calculation is that the cap is now up to £2 million, if not more, for people in defined benefit schemes. It is, of course, worth much less for people with personal pensions and defined contribution schemes. Because the Chancellor did not want to make a concession in an open and honest way, he has created a new anomaly in which his provision is more generous for defined benefit than for defined contribution schemes.

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