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Sir John Butterfill: If I understand the hon. Gentleman correctly, is it his party's policy to get rid eventually of the national insurance contribution system altogether that, presumably, would be subsumed by the tax system? Would that be welcomed by pensioners who continue to work, one advantage of which is that they will not have to pay national insurance?
Mr. Webb: We propose that revenue from national insurance contributions will be ring-fenced and spent on the NHS. It will be levied in exactly the same way and on exactly the same people as at present, so pensioners will not experience any difference in their liabilities. However, once we have got rid of contributory pensions it would be quite inappropriate, as the hon. Gentleman said, to levy a national insurance contribution to pay for them. We therefore advocate spending the money instead on the health service and using general taxation to pay for retirement pensions.
I shall conclude shortly, but first I want to ask the Secretary of State about the position of people who lost their occupational pension rights before the introduction of the pension protection fund. He will know that, after pressure from Members on both sides of the House, the Government introduced a financial assistance scheme of £400 million over 20 years, or £20 million a year. It is widely accepted that that sum will not meet the scale of liabilities, especially as pensions operated by Turner and Newall fall within its scope. However, there is an ambiguity about the scheme, which I hope the Secretary of State can resolve. Some people say that individuals who have lost their occupational pension since June this year, when the priority order on winding up changed, will not be covered by the financial assistance scheme. Some Government officials have intimated that when a scheme winds up the workers' position is slightly better than it used to be so the financial assistance scheme does not apply. That has created great anxiety among people who know that their firm is going to wind up its pension scheme before the pension protection fund is introduced. Will the Minister clarify whether they will be in or out of the financial assistance scheme?
The general stance of the Liberal Democrats is well known and well respected, so I shall say only a few words about our alternative approach to such issues. At our conference, a motion on a detailed package of proposals to deal with the pensions crisis was carried almost without opposition. At its heart was reform of the state pension system by making the pension universal and basing it on citizenship. It will be paid without means-testing and will be earnings-linked. We are the first to admit that we cannot do everything in one go, so we will phase our reforms, starting with our proposals to increase the pension for the over-75s by £25, lifting 1 million people out of means-tested benefits at a stroke. We believe that that is the right way to start.
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We also have proposals to encourage private saving. Clearly, the higher the pension, the less the means-testing and the bigger the incentive to save. We propose an opt-out system for occupational pensions. I am glad that the Secretary of State mentioned that, and I think that it was the subject of an initiative by the hon. Member for Stalybridge and Hyde (James Purnell). Under such a scheme, the presumption is that people are in a scheme unless they actively opt out, although they can still make an informed choice to do so. That would improve coverage and make a significant contribution, and I believe that it offers some scope for agreement.
Another suggestion that I want to put on the table—I hope that hon. Members will refer to it—is that of a National Savings pension. Whenever I talk to people about pensions, they tell me that they simply do not trust them. They have more trust in company pensions because of the pension protection fund and the opt-out rules, but they do not trust private pensions. They are worried about Equitable Life, and Standard Life is getting itself a bad reputation at the moment. They want a brand that they can trust—a company that is not going to rip them off with commission, try to make a huge profit out of them or go bankrupt. Why not have a personal pension whereby people can make a long-term investment through National Savings? They will not be ripped off with commission charges, the provider will not go to the wall, and they will know that their pension has a secure organisation behind it—to the extent that the Government can be regarded as such.
I think that the public would warm to that innovative idea. When I put it to the pensions industry, the principal criticism was that it might be too successful. I am regularly criticised for Liberal Democrat policies that have the potential to be too successful, and that certainly applies to this one in particular. The people in the pensions industry were afraid that such a product might undercut the market. However, the more I talked to them, the more they said that it would appeal to a section of the market to which the private sector cannot deliver—that it does not reach because it is not economic to do so. If people could go to their post office, if they can find one, to put money into a pension with a brand that they trust, that would help to provide security in old age.
The debate did not start on a positive note, but it has developed one. The Secretary of State gave an encouraging response that indicated some fresh thinking and openness to ideas. I have said in the past day or so that after seven years in office it is a bit late for the Government to start a national debate, but I withdraw that comment. If the Secretary of State is genuine and is willing to debate our ideas for a citizenship pension, we will accept that invitation. We will meet him privately, publicly, wherever and whenever he wants to, to take forward these positive ideas to benefit women and pensioners as a whole. Opposition and Government should engage in such dialogue in partnership, and I look forward to working with the new Secretary of State.
2.32 pm
Mr. Frank Field (Birkenhead) (Lab):
I congratulate the Liberal Democrats on adding new ideas to our debate, particularly their proposal on selling pensions at post offices. As the hon. Member for Northavon (Mr.
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Webb) probably knows, Mr. Gladstone advocated that policy in this Chamber but was not successful in delivering it. I wish him luck where the grand old man failed.
I ask my right hon. Friend the Secretary of State to be careful in extending his goodwill to the variety of proposals that are advocated, particularly by Opposition Members. The right hon. and learned Member for Rushcliffe (Mr. Clarke) quickly exposed the fallacy on which the longer-term financing of Liberal Democrat proposals is based. The hon. Member for Northavon suggested that because Labour is committed to a means-tested pension credit that will rise with earnings, and because that will encompass an ever-growing proportion of the pensioner population—our Green Paper said that some 83 per cent. would eventually receive it—it is fair enough to transfer those funds into his citizenship pension.
The reason why today's debate is so important is that the pension credit, which we have committed on to the statute book, is not sustainable in the long run. In presenting it, the Government said that when 2050 arrives an 11p increase in the standard rate of tax will be required to pay the bill. I have never seen a shorter political suicide note. Although the pension credit is a valuable tool to help poorer pensioners now, it is not the basis for a long-term policy.
I want to make three short points arising from the Adair Turner commission's report, which was published yesterday and which I welcome, not only because it is written in very good English but because it helps us to centralise our ideas on where the debate should go.
My first point is a warning about the desirability of basing pension policy on evidence-based research. I challenge any hon. Member to stand up and say, "What new evidence is there in that report that we did not have before?" Let me go back to the Tom Ross report that the Government commissioned, which listed areas on which we need information if we are to take an evidence-based approach to pension policy. For example, we know how many people are in company pensions, but we do not know who is paying what contributions or, therefore, who will get what out at the end of the day. The report says that we cannot yet link people who happen to be paying contributions to a company scheme to any other wealth that they may have. It says, above all, that we cannot link knowledge about occupational pension rights and other wealth to housing ownership; nor can we produce a breakdown of the distribution of housing ownership in a way that is valuable in advancing the debate on pensions.
It is wonderful to have research—let us have it by all means—but nobody should kid themselves that if we only waited a little bit longer for even better research that would excuse us from having to make hard decisions, because that is what politicians are paid to do. As we go into the election, we will have to make a political judgment about what we advocate to the electorate in respect of pensions reform.
Now that I have heard it, I fundamentally disagree with the Liberal Democrats' idea of a citizenship pension. While no single measure will help to shore up our society, which is fast falling apart in too many of our
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constituencies, we cannot unthinkingly abolish the contributory principle, which gives ordinary men and women the right to build up a stake in society in respect of their pension. We cannot cast all that aside and advocate a system that says, "Irrespective of what you do, how worthy you are, how much you have worked or how effective you have been in putting your shoulder to the wheel, because you are a citizen you will get a pension." That is directly opposite to the way that we need to go when we consider how people earn their entitlements and subsequently draw them. The electorate will be very disturbed to hear about that proposal.
That is not to say that we do not want to help people who should be gaining a pension entitlement but have been unable to do so in the past. However, in reforming the state pension we must ensure that the contributions of people who do valuable work for the community, such as caring for young children and frail elderly people, are paid for them, and that we thereby salute them for their role. We must not demean what they do by saying, "Roll up, roll up—anybody who happens to be around can have a pension paid for by other people who have to work jolly hard."
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