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David Taylor (North-West Leicestershire) (Lab/Co-op):
I endorse the point my hon. Friend makes and pay tribute to the staff of the DWP at Loughborough, who are incredibly effective in North-West Leicestershire in targeting the sort of people to whom she refers. The proportion of take-up will increase significantly due to a sea change in attitudes.
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Kali Mountford: Absolutely; my hon. Friend is correct. The consensus that is growing—at least on the Labour Benches—will build opportunities for pensioners in all communities, whether or not their MP has recognised the brilliance of that service delivery. I recommend it to everyone.
As time is short, I shall end on a happy note and repeat that the Pension Service is marvellous. I commend my hon. Friend the Minister for Pensions for his administration of that service and, in particular, my right hon. Friend the Member for Oxford, East for his vision for it in the future.
2.55 pm
Mr. Stephen Dorrell (Charnwood) (Con): I begin by declaring a personal interest. Like all MPs, I am a member of the final salary scheme of the House, but I am also a member of the final salary scheme of a private company of which I am a director and shareholder, and in that capacity I am involved in how to work through the pension funding crisis that is the main focus of the debate.
One of the most attractive aspects of the House is that although we can have passionate arguments across the political divide, when people leave office we usually find something nice to say about them. It is not difficult in the case of the right hon. Member for Oxford, East (Mr. Smith) to recognise the obvious decency and humanity of the man, but that should not in any way detract us from recognising the central failure of the Government that was accurately described by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley).
The Prime Minister has clearly noticed that failure, because the No. 10 briefing machine was in overdrive during August, making it clear that the pensions crisis was the responsibility of anyone in the Government but the Prime Minister. The main concern was to ensure that responsibility attached to the previous Secretary of State, seeing him, to a degree, as a surrogate for the Chancellor of the Exchequer. For the reasons to which my right hon. Friend referred, this developing crisis is indeed a key responsibility of the Chancellor.
Let us understand the key elements in the background to the present pensions issue. My right hon. Friend rightly referred to the fact that until the end of the 1990s, under Governments of both political complexions, we had built up a system of co-funding of pension liabilities between the state and a growing private sector. That was healthy in principle, because it encouraged saving self-help, and was attractive in practice, because it meant that each new generation of retirees was able to look forward to better-funded retirement—better retirement benefits—than previous generations. That is not to detract from the fact that there was a continuing problem of pensioner poverty for those who had been retired for some time, but until 1997 we were able to point out that each new generation saw that problem decrease because benefits for new generations of retirees were on a continuously improving trend.
Since 1997, we have seen that process go sharply into reverse. In July, Mercer estimated that, even after the considerable stock market recovery that has taken place, the FTSE 350 companies between them had a £64 billion deficit in their pension funds. According to the CBI earlier this year, all companies had a total deficit
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of £100 billion in their pension funds. That means that those companies have made commitments of £100 billion to their former and current employees that they cannot finance.
Against that background, it is no surprise that we have seen the majority of final salary schemes close to new members. Replacement schemes are less generous in the benefits they provide and there is a continuing and developing problem of how we deal with unfunded deficits when companies get into difficulties—as happens occasionally, hence the discussion earlier this afternoon about the pension protection fund and the way in which the Government's financial assistance proposals will work.
I do not blame the Government entirely. It is clearly true that a number of other factors have been involved: declining investment returns and increased longevity, unmatched by increasing working lives, as my right hon. Friend the Member for Hitchin and Harpenden said. All those things are true and have contributed, but the Government cannot escape from the fact that it was their choice that imposed a £5 billion additional burden on pension schemes. If we apply the minimum funding requirement rules, for which my right hon. Friend was responsible when he was the Secretary of State, to express the net present value of the reduced contribution that the Government are making through dividend tax relief to those pension funds, we find that roughly £40 billion of the £100 billion deficit in today's pensions funds is the result of the Government's policy choice. So although the Government are not the sole author of the developing crisis, they are a very major contributory factor.
My central point, therefore, is that against the background of a developing crisis, in which huge additional burdens have been put on employers and new generations of retirees face declining benefits into the future instead of improving benefits, the time has come—indeed, it has long since passed—when we urgently need a new approach to rebuild the public-private partnership strategy. The Government love to talk about partnership, but they inherited a partnership strategy—a co-funding strategy—in pensions that was broadly working. That is not to say that it did not need to be maintained and refined; of course, it did.
We urgently need to rebuild the co-funding of pension liabilities that was the cornerstone of the policy pursued by my right hon. Friend when he was the Secretary of State. The rebuilding of that partnership requires individual employers and employees, the private sector and the state to play a part in rebuilding a new consensus. There has been a fair amount of talk this afternoon about the need for a new consensus, and I wholeheartedly endorse that, but it must be based on a move away from the mass means-testing of pensioner benefits.
It is ironic that the Chancellor loves to talk about the need to give people incentives when they are in work—he loves to talk about welfare-to-work—but his policy has created the deep problem of disincentives for people to save. I listened with great respect to my right hon. Friend make the case that we cannot get out of the hole without compulsion. Like him, I am instinctively resistant to that case; but, like him, I suspect that, in the end, that will be an important part of the new consensus that must be built.
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Finally, I urge on the House the proposition that all this is part of a much bigger issue. I strongly believe that the modern welfare state, given our constituents' expectations, is affordable only on the basis of co-payment. I have spoken in health debates, along with my right hon. Friend, and in education debates about the need to establish co-payment—individuals and the private sector contributing to the cost of those services—as the only basis on which the welfare state of the future can be built. Pensions funding is but a part of that issue, and the most serious charge against the Government on pensions is that they have allowed the co-funding, the partnership between the public and the private sector on which my right hon. Friend's policy was built, to crumble. In doing so, they have done no favours either to this or to future generations of pensioners. Furthermore, they have undermined the principle that is important way outside the pensions issue, but goes across the whole of the future planning of the welfare state.
3.4 pm
Mr. Tony McWalter (Hemel Hempstead) (Lab/Co-op): I will try not to use up my full time, to allow other hon. Members to take part.
Like many other hon. Members, I very much want to commend the record of my right hon. Friend the Member for Oxford, East (Mr. Smith), who was not only a man of deep compassion and responsiveness to the concerns of Back-Bench Members, but was highly numerate—a virtue that is not always displayed in such debates, particularly by the Liberal Democrats.
In the short time available to me, I want to concentrate on the fact that, in a pensions system, we look for justice and responsiveness to need. Reconciling those two things can be very difficult. Certainly, it is pretty easy to have a system that gives people incentives, thus rewarding those who have saved and worked hard all their lives. The best way to give an incentive is to do what the last Conservative Government did: to put people who have not managed to save and build up a strong pensions record on income support, which, I seem to recall, was about 50 quid a week. Of course, that was not the only taxpayers' contribution. People got some council tax benefit and, if appropriate, housing benefit and so on, but the reality was that they were forced to live on poverty incomes. Sure, that was a great incentive for people to fear those conditions and to save; but, as a result, large numbers of our citizens were in fear, want and in the cold.
I speak with some passion because I recall the plight of my own parents—now, sadly, some years deceased. They died at a time when my earnings were relatively humble, and I was unable to help them from the condition of living on income support under a Conservative Government. I do not want to go back to those days. The Government saw that need, and we acted and sorted it out.
I was at a lunch the other day with a woman of 82, who told me that she has never in her life been less concerned or worried about money. The result of our policies has raised her income from that derisory 50 quid to £105 a week. That is not a fortune; she has financial problems, of course. There are things that she would like to do—visit her grandchildren more often and so on—
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that she finds hard to do on that money, but she has a degree of confidence and assuredness about that £105. The only thing that she did not want to do—other people do not want to do it either, but she bit the bullet and did it—was to ask for it. It is true that many people still will not ask for that money, but our system says that, if people do not have a full pensions contribution record, we will still ensure that they have the money to live on in some level of comfort and decency.
The National Pensioners Convention, which is lobbying outside today, goes on and on about the basic pension. Well, the basic pension was no good for that 82-year-old woman; it was no good for my mother; and it was no good for people who worked hard all their lives because the pension system is contributory and, under the rules, they were regarded as non-contributors. The basic pension never addressed their concerns.
I can think of a fairly old Labour solution: first, it says, "Money is no object," and, secondly, its asks, "Why not raise the basic pension to exactly the same level as the minimum income guarantee?" That is what the National Pensioners Convention leaflet says. It also says, "By the way, ignore the contributions principle, because that principle will still create a differential."
That is a nice response to need and it would certainly simplify the system. I do not know whether the Liberal Democrats have quite reached that point. That policy is very old Labour in that it does not worry about the cost, but the crucial point is that it is grotesquely unjust. How would it distinguish between those who have worked hard to contribute all their lives and those who have not? For a working man to receive the full pension of £80 at 65, he has to have contributed for 44 years. I will not get the full pension myself, unless I do something about that. If someone starts work after 21—I did a post-graduate course and started full-time work after that age—they will not have a full pensions record. I may decide to make up those contributions, but under the old Labour policy that I have described, there would be no incentive for anyone to do so.
Those people who paid for 44 years—or perhaps made additional contributions to build up their record—would get the same as everybody else. That is not fair, and that is why the Government introduced the pension credit. If people have savings, the Government will not rip them off, but give them credit for those savings. If people have additional pensions, the Government will give them additional money to recognise the contribution that they have made and the extent to which they are not claiming state benefits, such as council tax benefit.
People need to ask for the means-tested benefits, but if they do so they will receive a sum that most pensioners feel is comfortable. If people have saved or made additional provision for themselves, that is taken into account. In that way, we try to combine responsiveness to need with justice. All the other solutions we have heard today are based on violating the principle of responsiveness to need. The Hitchin and Harpenden solution—I remember it well—was to lower the amount people received in income support to an appalling level to frighten them sick at the prospect of having to rely on it, and thus encourage them to save.
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