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Mr. Stephen Dorrell (Charnwood) (Con): Which is unaffordable.

Mr. Webb: That policy is projected to involve a modest increase in the share of national income going to pensioners. That is the projection of the Government's policy. If we are to have a system in which four fifths of all pensioners have to jump through a means test and have an earnings-linked income at the end, a policy of one decent earnings-linked pension—perhaps thought incredible at the end of the '80s—becomes a mainstream sensible approach, which as the Conservative leader said at Prime Minister's questions is becoming part of the wider consensus.

Mr. Kenneth Clarke rose—

Mr. Webb: I have huge respect for the right hon. and learned Gentleman, but he has criticised me for spending too long on his party and I want to make one further observation.

The hon. Member for Havant makes the proper point that as well concentrating on state systems, we have to think about incentives for private savings. He proposes the lease of a lifetime savings account. As I understand it, he is saying that the answer to the problem of people not saving enough for pensions is an instant access savings account. In other words, the Conservatives would establish an account that people can use in any way they like—to put money in or to take money out—and that that will solve the pensions crisis.

As someone who is just under 40, the idea that folk in my age group would put money into such an account and leave it in the hope that it will one day become a pension is implausible because without a tie-in we could take the money out at any time. The hon. Gentleman says that the carrot is that the Government will put money in if we leave the account untouched, but where would that money come from? Are the Conservatives going to touch pension tax relief? No. Are they going to touch rebates in the short term, because this is a short-term policy? Not as far as we know. So where would the money come from for the incentive to save? The hon. Gentleman stands up and says, "Buy one, get one free" and tells us to bog off—he said that to me mainly—but he has never said where the Government money would come from. It is another uncosted implausible Tory pension proposal.

The hon. Gentleman is an expert in these matters. We share many platforms and agree on many things. He carries great credibility with him. However, when one
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examines what he says, it is full of holes. The House and the country deserve a better alternative, which I shall set out, to the Government's policies.

Miss Begg: Before the hon. Gentleman moves on, in the light of what he said about providing a basic state pension for everyone regardless of their contributions, how much does he estimate that that will add to the global sum paid out to pensioners in future?

Mr. Webb: We have costed our policy, including the citizenship component, the earnings link and the £25 for the over-75s, at roughly £3 billion year. The cost of the citizenship component is relatively modest, although it would increase over time as we extend it to more people. On the other hand, as the Turner commission says, some trends in women's pensions are going the right way, which means that in the medium term women's contribution records will improve anyway. The additional cost of filling the gap in the citizenship pension will therefore fall. The cost of the citizenship component is not huge, but it is an important way of valuing carers' work and so on. It is important to increase the £80 weekly pension to £105, as a huge shortfall has been allowed to develop.

Kali Mountford: I have enjoyed the hon. Gentleman's speech so far, and am glad that he is moving on to his own proposals. All pension proposals depend on a high proportion of people earning money, and pension contributions, whether state, personal or private, depend on people working. How do his party's proposals for the Department of Trade and Industry help that policy?

Mr. Webb: Interestingly, we propose that the DTI would not do some of the things that it does at the moment, such as subsidising arms exports. Some of its worthwhile responsibilities would be transferred to other Government Departments, and my hon. Friend the Member for Twickenham (Dr. Cable) has estimated in our published spending plans that the amount spent on DTI-related activities by other Departments would be the same in real terms as in 1997, when the Government came to power. The suggestion that such activities would be decimated is therefore quite untrue.

Turning to the important issue of citizenship as the basis of pensions, coverage and commentary on today's debate will focus on the Secretary of State's interesting and encouraging response to our proposal. Previously, I feared that the Government's response to citizenship-based pensions was not warm. On 14 September, before the Secretary of State took up his post, the Under-Secretary of State for Work and Pensions, the hon. Member for Gravesham (Mr. Pond) said:

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In fact, that pension would still be there. However, I am heartened that a new broom has swept through the Department. Barely a month later, the Secretary of State has an open mind—indeed, he said that he was "veering towards the very positive"—on our proposals.

Annabelle Ewing : I am obviously a big fan of citizens pensions, as the Scottish National party came up with the proposal in the first place. However, having listened carefully to what the hon. Gentleman said about the scope of his party's policy, how many pensioners in Scotland will be excluded from the citizens pension, which he proposes to introduce on a targeted basis, unlike the SNP?

Mr. Webb: As the hon. Lady will be aware, our proposal will initially benefit pensioners aged over 75. She will know better than me how many pensioners under 75 there are in Scotland. She will know that our plans to scrap the council tax—I do not know whether the SNP has a similar proposal, as I sometimes lose track of its policies—would benefit pensioners under 75. The House attaches great importance to the credibility of Opposition promises, so it is regrettable that a fringe Opposition party should promise the earth on pensions.

The notion of a pension based on citizenship is an interesting one. I am sure that the Secretary of State has encountered the category D retirement pension but, if not, he can be forgiven. To refresh his memory, it is a citizens pension in the British pension system payable to people over 80 who do not have a pension or who have a very poor one. It is not means-tested and is paid regardless of contribution record to 23,000 people, three quarters of whom are women. It is based on a citizenship or residency test. Provided people have lived here for 10 years of a 20-year period they can draw the pension. Should the Secretary of State have to do battle within Government over a fundamental breach in the national insurance principle, I hope that he will remind his colleagues that we already have a pension that is based not on contributions but on a residency test. Admittedly, it is paid to older pensioners, and we propose that it should be paid to the over-75s, not just the over-80s. However, our proposals are not radically different from current arrangements, but are more generous. I hope that the Secretary of State is emboldened by the fact that the principle that some people claim is sacrosanct has already been breached, I assume by the Government who set up the national insurance system 50 years ago.

The Secretary of State asked why people do not make more of the state second pension that, he said, benefits carers. I would not want him to be under the impression that it benefits them to the extent that he believes. Although it is true that parents with children aged five or under receive credits, as soon as the children go to primary school they do not receive anything. A young mother, for example, whose children start at primary school, may work part-time, but if she is under the lower earnings limit she does not pay national insurance. She therefore does not receive credits for the state second pension, so that category of women is still excluded. Likewise, if carers work for 35 hours a week and draw carers allowance they receive help, but if they work for 30 hours a week they do not receive anything. Even with the improvements brought about by the state second
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pension, large numbers of carers continue to be excluded. The basic pension and the state second pension are still so limited in value that someone retiring on a full pension from both schemes, which are price-linked, will typically end up receiving pension credit. The Secretary of State is therefore right that there has been a marginal improvement for women, but it is much more limited than he realises.

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