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Mr. Letwin: What does the hon. and learned Lady make of the 1 million pensioners who are entitled to pension credit and do not take it because of its awesome complexities—including, of course, many hundreds of thousands of women?

Vera Baird: As I am sure the right hon. Gentleman knows, the figures show an improvement in take-up of pension credit. He must also know that the application forms have been made much more strikingly similar to others. The Pension Service's telephone responses are being praised by all those in my constituency—I have mentioned them—who help elderly people with means problems. The right hon. Gentleman is barking up the wrong tree.

Mr. Tom Harris: If some pensioners believe that the forms are too complicated, might that not be at least partly because every time a Conservative MP goes on television to talk about pension credit he or she never misses the opportunity to perpetuate the myth that they are far more complicated than they are?

Vera Baird: My hon. Friend makes a powerful point. It is time the Tories stopped saying how hard it is to obtain pension credit, and started to encourage a few more elderly people to claim it.

I hope the right hon. Gentleman takes my point that his proposals to alter the basic state pension are profoundly sexist, and will certainly not appeal to female voters.

Mr. Goodman: The hon. and learned Lady overestimates our influence if she believes that we are responsible for the present non-take-up rate of pension credit, which is 40 per cent.

Vera Baird: I would not dream of overestimating the Opposition's influence. I do not believe that they have a great deal of influence, or that they have exercised much of it tonight.

I look to the right hon. Member for West Dorset to explain how it is possible to advocate what he has advocated tonight in regard to basic pension increases without being profoundly sexist, as well as redistributive in a regressive way.

9.34 pm

Mr. John Gummer (Suffolk, Coastal) (Con): I refer the House to my declaration of interests, and particularly to my independent chairmanship of the Association of Independent Financial Advisers.

I wonder how we have managed to talk about mortgages for a whole evening without mentioning the shortage of homes. There is another issue besides the
 
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price of a mortgage—the issue of supply and demand. One of the reasons why house prices have risen so sharply is the Government's failure to ensure that enough homes are built, and enough land released on which they can be built. But we in this House must be careful not to take the doom and gloom view that everything is bound to get worse, nor to adopt the unbelievably self-congratulatory attitude of the right hon. Member for Brent, South (Mr. Boateng), who introduced the Government's case. There ought to be something in between, and that is what the Opposition are trying to underline.

The simple point is this. It is not surprising that concern exists if the very high level of debt is based on the belief that interest rates will for ever remain low, or if such debt is being forced on people because of a shortage of homes, and they are pushing up the proportion of income that they are prepared to risk in such circumstances, simply to get a roof over their heads. Such concern is indeed what the Opposition are expressing. In doing so, we are not being party political, for this is precisely the concern that the Governor of the Bank of England has expressed, as have many independent and largely left-leaning commentators.

Our concern is increased because of the Government's complacency. Have they read their own alternative motion? It is the most self-congratulatory and complacent statement of the situation that one can possibly have read—a fact that should concern us all. The second worry is that huge disagreement exists within the Government, with the Chancellor on one side and a whole range of people from different elements of the Government on the other. This is, after all, a Chancellor who is at odds with the Governor of the Bank of England. This Chancellor thinks that he can do better at solving the housing problem than the Office of the Deputy Prime Minister. Most people think that, but this is a very curious situation. Two major offices of state have publicly announced different ways of solving the housing problem, and both are pushing forward their ideas in total contradiction of each other. The Chancellor has also fallen out with the Department for Environment, Food and Rural Affairs over how we are to deal with housing and planning issues.

All those issues feed into the considerable concern that we must feel at the fact that the level of debt is based on the Micawber-like principle that everything will be okay because interest rates are not going to rise. Well, they will not rise very fast, but I certainly do not want this nation to be dependent not only on interest rates not rising, but on the value of houses not falling—for that, too, is a major issue. I doubt whether there will be a collapse, but it will be avoided not because of the Government's management of the economy, but because of the shortage of houses. There is now huge pressure on the system in terms of supply and demand. Some 58 per cent. of the new homes needed are needed by those whose marriages have broken up. The deposits that such people can put down are significantly larger than those that first-time buyers can put down. Such factors complicate the situation, but the Government have not properly considered them.

I would not be proud of a record that shows that per capita wealth in Britain is now lower than that of the Irish, much as I like and am enthusiastic about the Irish,
 
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and much as I am pleased that the European Union has improved Ireland's economy, as it has done in many other cases. That is a great achievement that Britain never managed, and it is another good reason why we should be extremely pleased to be part of that organisation. But it is important to point out that this Government do not make that comparison, and the reason why is that they have presided over an economic policy that has made it more difficult for business to thrive, thanks to the restrictions that they have placed on it. Nor would I be enthusiastic about defending a savings rate as low as we see today.

It was difficult to follow the Minister's argument, because he essentially said, "We have done this, that and the other, and we have done more and extra, to try to encourage saving, but people have ceased to save." We have done everything for them, and we have a wonderful committee—on which I sit with the Financial Secretary—to educate people, but the savings ratio continues at a very low level. Indeed, it is much lower than it safely should be.

I return to the point made by my right hon. Friend the Member for West Dorset (Mr. Letwin). A society that does not have a relatively high savings ratio and in which savings—large and small and across the social structure—are not considerable in proportion to the assets and earnings of individuals is a society that in the end destroys its own cohesion. A safe society is one in which each individual has a real stake in their future and knows that when they save they are contributing to the improvement of that future. A society that makes it better not to save is a society that removes from people that important social asset of a commitment to order, progress and security. Societies that have ignored that have ended up in political disorder, have destroyed their progress and have removed their security. History is a hard teacher on that issue, and this Government have done much to undermine this society.

9.41 pm

Mr. Paul Goodman (Wycombe) (Con): That was a very fine speech by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer). It was a fine contribution to what has been a good, serious and reflective debate. It is worth saying that debt is not always bad, and indeed that point was made by my hon. Friend the Member for Fareham (Mr. Hoban). Firms must often borrow to invest and people must often borrow, for example, to improve themselves, their homes and their lives. None the less, the facts on debt are extremely worrying, and the hon. Member for Twickenham (Dr. Cable) made a fair attempt at trying to establish just how worrying they are.

Lending to individuals has almost certainly now broken through the £1 trillion barrier, so it has soared. The facts in relation to saving—a point on which my right hon. Friend the Member for West Dorset (Mr. Letwin) dwelt at some length—are alarming. Between 1998 and 2003, the savings ratio was never higher than 6.7 per cent. In the previous seven years, it was never lower than 9.3 per cent., so saving has fallen sharply. It is around the two polarities of debt and saving that this debate has turned.
 
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According to the family resources survey, 27 per cent. of households have no savings at all and a further 23 per cent. have savings of less than £1,500. The Bank of England's chief economist has noted that the gap between what British households should be saving to ensure a comfortable retirement and what they actually save is £27 billion a year. Unsecured personal debt is now £172 billion, or more than £500 a person. What does all that mean for homeowners and for the vulnerable? The latter group includes some homeowners, but of course not by any means all of them.

According to the Council of Mortgage Lenders, a household with average earnings, average mortgage and average levels of unsecured debt now uses 34 per cent. of its income to service that debt. According to Capital Economics, a 1 per cent. rise in interest rates would take the gearing on that debt to just over 24 per cent.; a 2 per cent. rise would result in households paying just over a quarter of their income in servicing debt; and a 3 per cent. rise would raise that figure from a quarter to 28 per cent. Indeed, as we have heard from the Governor of the Bank of England, house prices are

"well above what most people would regard as sustainable in the longer term".

The trend of rising interest rates has the potential—I put it no more strongly than that—to damage the lives of millions of homeowners who would be hit if the Government won a third term, a prospect that is looking increasingly unlikely given the damaging combination of interest rate rises and Labour's third term tax rises, to which my hon. Friend the Member for Fareham alluded. Of course, there is always the risk of the transfer of debt to the next generation.

None the less, I want to assume, for the sake of argument, that the Council of Mortgage Lenders is right to say that

"current . . . levels of debt are clearly an issue, but they are not as dramatic in the secured sector as in the unsecured sector".

I want to assume that the council is right, because although most home owners may be able to endure the debt culture, there can be no doubt that the poor and the vulnerable—a group that includes some home owners—cannot endure the debt culture. That group of people is losing out, as the hon. Member for Glasgow, Cathcart (Mr. Harris) reminded us in his interesting speech, so I shall turn to their plight.

The debt to income ratio is highest in the poorest households; it doubled between 1995 and 2000. Forty-two per cent. of families with a new baby are in arrears, as are 48 per cent. of lone parents and 53 per cent. of recently separated couples. Over the last five years, inquiries to citizens advice bureaux rose by 46 per cent.

The Council of Mortgage Lenders said:

"There are some signs of financial pressures building in the unsecured sector. Recent trends in consumer credit appear to suggest that the debt position of a significant minority of households leaves them vulnerable to default."

We believe that the Government's White Paper does nothing substantial to help that group. It does not address the growing failure of people to save. It does not address the growing problem of the debt culture and it contains no significant proposals on education, savings or alternative sources of finance. As my right hon.
 
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Friend the Member for West Dorset said earlier, that is why the Conservative party has set up a commission to report on debt and savings. The debt commission will be independent of the party and will report later this year. It will be chaired by the distinguished figure of Lord Griffiths of Fforestfach, who was of course head of the Downing street policy unit when Baroness Thatcher was Prime Minister—[Interruption.] Before Labour Members work themselves into paroxysms of wrath, I remind them that Lord Griffiths is an adviser on third world debt to the Chancellor of the Exchequer, so they should not laugh too loudly, because the Chancellor, who is a very influential man these days, as the right hon. Member for Hartlepool (Mr. Mandelson) reminded us recently, might hear them. The members of the commission include the Right Reverend James Jones, the Bishop of Liverpool and Keith Tondeur, the national director of the money education charity, Credit Action.

The commission is charged with finding ways of relieving the debt burden and of reviving the savings culture and will examine ways of improving education and saving. However, we do not believe that the Government have to wait for Lord Griffiths before acting to slow the debt culture and to revive a savings culture, because one fact is clear: there will be no savings culture if three quarters of all pensioners end up on means-tested benefits, and that is exactly where we are heading. Half of all pensioners are already on means-tested benefits. By 2025, three quarters of them are expected to be on means-tested benefits. In short, 4 million pensioners will have to reveal all the details of their personal financial circumstances to a Government official so that he or she can determine the total income they should have.

Means testing not only increases dependency and decreases dignity but also destroys saving. The Government's mania for means testing is throwing their pensions strategy into chaos. Ministers have declared that they want to shift the pensions balance; they want 40 per cent. of pensioners' incomes to be funded by the public sector and 60 per cent. by the private sector. When they came to office, those figures were almost the reverse: 58 per cent. were funded by the public sector and 42 per cent. by the private sector. Since then, the shift has been not from public to private but from private to public.

The percentage of pensioners' incomes funded by the public sector has risen to 61 per cent. while the percentage funded by the private sector has fallen to 39 per cent. The pensions industry cannot plan while the Government say that they want to decrease state dependency yet act to increase it. People will not save if the shift to means-tested benefits penalises them for saving. The Government are unwittingly creating a vicious cycle, in which low saving boosts dependence on means-tested benefits, which in turn boosts low savings.

That cycle must be broken. The way to break it is evident: a lifetime savings account—a flexible way to reward saving—and a pension linked to earnings. That would float 1 million pensioners off means testing in just one Parliament and would allow them to save on top. However, I doubt that the Financial Secretary to the Treasury will announce either proposal tonight. The Opposition certainly would not expect that from a Government whose raid on pension funds has cost a scandalous £5 billion a year.
 
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Slowly but surely—perhaps unwittingly—the Government are destroying our savings culture, which is why I urge the House to vote for our motion.

9.50 pm

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