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Ms Keeble: Does my right hon. Friend agree that the Conservative proposals represent a shift from purse to wallet? Getting rid of the pension credit and the state second pension and putting the money into an increase in the basic state pension would hit women very hard, because only 14 per cent. of them qualify for the state pension through their national insurance contributions, despite the fact that record numbers of them work. Our policies seek to overcome the problem that their pension prospects are defined by motherhood and widowhood.
Mr. Boateng: My hon. Friend makes a fair point; she has long championed the cause of women in that regard. She knows that if one is serious about tackling poverty the best thing to do is to put money into the pockets of women. That is the way to tackle family and child poverty. Opposition Members must provide an answer for carers, disabled people and low earners and tell them what will actually happen to them in the absence of a second pension.
The Conservatives claim that they would introduce a new savings account, yet the right hon. Member for West Dorset has made it clear that he is committed to cuts of about £18 billion across the board. They tell us they will earnings-link the basic state pension, but we have heard nothing about how they would pay for it, and what we have heard is far from convincing.
We know that the Conservatives want to axe the new deal, but even the right hon. Gentleman has admitted elsewhere that after four years he would have to make some painful decisions in order to fund his commitment. We need some indication about just how painful those decisions will be and where the axe will fall. Who will actually have to pay for that policy? Or does the right hon. Gentleman agree with the pensions commentator who said that returning to the earnings link
"is not affordable and would not be well targeted"?
That particular commentator said those words on "On the Record", and now we have them on the record; he is the hon. Member for Havant. To pretend that their policy will not have a cost is disingenuous.
I have tried to outline a range of measures that we seek to take to deal with the problem. We recognise that that package of measures—about which we have talked during the debate and which includes financial education and access to secure, quality savings vehicles—has to be seen in the context of the overriding imperative of helping people off benefit and into work; to help make work pay and to provide affordable housing. All that would be put at risk if the Conservatives had their way, because they would axe the new deal and scrap the tax credits. They would scrap the very things that make work pay—that move people off benefits and into the world of work.
Ms Keeble:
Will my right hon. Friend comment again on the fact that the Conservative programmes would particularly disadvantage women? The child care tax
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credit has revolutionised things for women; it pays their child care costs so that they can actually have choices about going out to work.
Mr. Boateng: My hon. Friend is right. [Interruption.] Ah, that is very interesting. Of course, I give way to the right hon. Gentleman.
Mr. Letwin: The hon. Lady made a very serious intervention about wallets, purses and pensions, and it is something with which we are wrestling, but, on her last point about the child care tax credit, I am afraid that she is completely up the spout. We have made it perfectly clear that we have no intention whatsoever of doing any damage to the child tax credit. [Interruption.]
Mr. Boateng: I give way to my hon. Friend.
Ms Keeble: I hope that the right hon. Gentleman will clarify his point about children's tax credit, child tax credit and the child care tax credit because, as my right hon. Friend knows, it is the child care tax credit, which pays about £105 a week for child care costs, not the children's tax credit, that has been so important. If the Opposition are prepared to give that assurance, that is great, and we will hold them to it as we approach the election.
Mr. Boateng: I give way to the right hon. Gentleman.
Mr. Letwin: I am grateful to the right hon. Gentleman for giving way, as it is rare for these debates to constitute a useful purpose, but this is one. What my hon. Friend the Member for Havant (Mr. Willetts) and I have made abundantly clear is that, although we believe that we need to raise the basic state pension and lift people off pension credit, as for the working life tax credits, including all those the hon. Lady describes, we have no plans to remove or diminish them whatsoever. My spending plans specifically provide for them to continue and for current and expected expenditure on them to continue.
Mr. Boateng: That has been a very interesting and informative exchange, and I am grateful to my hon. Friend and the right hon. Gentleman for that clarification. It is interesting how the hon. Member for Havant so often lets the cat out of the bag. We look forward to hearing what was said in tonight's much vaunted speech. I am interested in the fact that the Conservatives have gone back on what he said not so long ago:
"But most of all I want to end the ludicrous tax credit system Gordon Brown has introduced, which was a failed idea from the 1970s."
The Conservatives have now apparently changed, but I am not the slightest discomfited by that. The right hon. Gentleman said earlier that we might be discomfited by his support. I am not discomfited in any way, but I am very interested in it because it demonstrates the journey that Opposition Members have apparently travelled. We remain unconvinced because we know what their record was. We know that their sums do not add up, and
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we are determined never again to return to the boom and bust that characterised their stewardship of the economy.
We have strong fundamentals. We are making great strides towards improving the consumer credit and financial product markets. There is no room for complacency, but we are increasing incentives to save and improving financial literacy, and we have put in place a secure and stable environment to encourage savings. With that record and that assurance, I urge my right hon. and hon. Friends to follow me and my hon. Friend the Financial Secretary into the Lobby tonight, against Opposition Members.
8.32 pm
Dr. Vincent Cable (Twickenham) (LD): I broadly agree with the motion moved by the right hon. Member for West Dorset (Mr. Letwin) and am happy to support it. I am pleased that there has been some recognition of the scale and seriousness of personal debt. I have been banging on about it now for two years and was initially dismissed with some ridicule, so I am glad that it is now being taken further. I take the view that imitation is the best form of flattery. I therefore feel flattered that the right hon. Gentleman has taken up the issue and even more flattered that the Governor of the Bank of England now takes it seriously, too.
I wish to say a few words about pensions, because the right hon. Gentleman's comments raise many questions about his own proposals, which, frankly, rather worried me. Clearly, his basic point is right: there is a serious, fundamental crisis in the pension system. The data that have emerged in the past week reinforced that view. Statistical evidence shows that average pensioner incomes fell in the last financial year for which data are available—2002–03—because of falling annuity income and falling income from private pension schemes. The average pensioner income is currently falling in nominal terms before taking account of inflation.
The Office for National Statistics has also produced alarming figures on the collapse in contributions. The initial estimate was £76 billion a year. It is now down to £27 billion. That is the second revision. These are tricky numbers—they are difficult to get hold of—and they may be revised again, but it is clear that, because of the difficulties of occupational pension schemes, there is a collapse in contributions going into the system. All those things are building up difficulties for the future, and many of the explanations that the right hon. Gentleman gave were right, not least the massive disincentives in the benefit and tax system. I accept that the pension credit is a considerable improvement on its predecessor, but the effective marginal rate of tax is still 50 per cent., which creates a massive disincentive to save.
The right hon. Gentleman's basic conceptual approach on providing a solution to the problem is right, which is getting people out of means testing altogether. However, my mind started to boggle when he came up with what I thought was the proposal that all pensioners should be removed from means testing—
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lifted above the means-tested level—and have their pensions earnings-linked simultaneously. That is an attractive idea.
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