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Mr. Kenneth Clarke (Rushcliffe) (Con): I congratulate Adair Turner and his commission on producing a substantial body of work. I also congratulate them on their optimistic assumption that it will oblige politicians of all parties to concentrate their minds and turn to the difficult problems that future generations will face unless we start tackling the pensions problem. I wish that I could say the same for the Government, whom I congratulate on having set up the Pensions Commission. However, the Government are losing control of the process because they did not think through the timing.
As the right hon. Member for Birkenhead (Mr. Field) said—as usual, I fear that I agreed with rather a lot of what he said—the commission has not told us anything terribly new. We all knew that we face a demographic time bomb, which we in this country tend to assume will hit us rather later than it hits some of our continental colleagues and the Japanese. However, the commission's authoritative work tells us that unless we make some difficult and tough decisions in the near future, future generations will not be able to finance the level of pension provision that we all think people should enjoy in retirement, if they have behaved with reasonable common sense and responsibility.
The Government's track record on pensions is poor. The situation has deteriorated through neglect and some bad decisions over the past six or seven years. The report says that something must be done soon on what the Secretary of State acknowledged in his speech as probably the biggest single social problem that the country currently faces. The Government's problem is that they have nothing new to say.
I agree with the right hon. Member for Birkenhead—he did not prompt me, because I had decided to start with this point before he made his speech—that the Government cannot put the report on the desk just before an election and say to the public, "We will decide our response to the report after the election. Vote for us, and shortly thereafter we will begin to enunciate some policies on the pension problem that will save future generations from difficulty and, incidentally, make
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every pensioner better off." No member of the public should believe that. It is absurd that we are meant to go through a period of purdah until just after May next year, when, having faced the electorate, the Government, if they are returned to the office, will say what they propose to do. In interviews this morning, I said that that point strikes me as today's oddest feature.
At moments during this debate, I thought that it might be best if we all went into purdah and did not start floating ideas until after the election because, as Adair Turner himself warns in his foreword to the report, the pre-election period is dangerous because politicians start committing themselves to some rather curious things. Those of us who have debated these matters for long enough know that politicians are never more prone to making incautious promises than in the run-up to an election and on the subject of pensions, and we heard a bit of that today.
The Secretary of State, whose appointment I welcome, can be excused because he is new to his post, but I was astonished when he cheerily hinted with a smile that he is tempted by the idea of abandoning the contributory principle. Has he read Adair Turner's report? Has he consulted the right hon. Member for Birkenhead, who probably knows more about the contributory principle than any other hon. Member?
The Liberals immediately pre-empted the Government. They offered us a vision in which the declining number of working-age people in this country paid for utopian pension provision for their elders. The vision included abandoning the contributory principle, much more generous pension provision for absolutely everybody and pensions rising in line with earnings, year by year. I sometimes wonder whether silence might be better until we all sober up and return to this House to face our responsibilities.
No Treasury spokesman from any party is present in this debate. The hon. Member for Northavon (Mr. Webb) rightly says that times have moved on since my day, and since the days, to which neither he nor I will confess, when the right hon. Member for Birkenhead and I first started debating these questions, but the rules of arithmetic are one thing that has not moved on. The new Secretary of State and the hon. Member for Northavon should talk to whoever is supposed to be responsible for costing their parties' future programmes. I am neutral—I have never aspired to the leadership of the Labour party and am neither a Brownite nor a Blairite—but the Chancellor should be alerted to what is being said.
I participated in a debate this morning with the hon. Member for Twickenham (Dr. Cable), the shadow Treasury spokesman for the Liberal party, who tried to persuade me that the Liberal party's programme for the next election is carefully costed. He only mentioned the proposals for pensioners over 75 and concealed the wider vision that has been unveiled today. I will send him a copy of the speech by the hon. Member for Northavon and ask him how on earth it squares with the responsible restraint that he tried to impress on me this morning. Today's contributions by Labour and Liberal Front Benchers failed to address the issue that Adair Turner has asked us to examine, and it behoves us all to do something about that.
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The time bomb keeps ticking, and the situation has become more urgent over the past six or seven years because the Government's record is at best patchy and at worst damaging. Like the public, I am already fed up of hearing the mutual recriminations about who made which mistakes, but we should remind ourselves of some of the recent events in the Government's record.
With hindsight, the Chancellor's changes to the tax treatment of pensions were plainly scandalous. I was not the only. Member who criticised the Chancellor's first Budget on social grounds, because it was bad social policy to take away the tax advantage from pensions. The cumulative effect has been disastrous and, as far as I am aware, nobody is paying attention to how we can deal with it. Tax incentives to get people to provide for themselves on pensions are essential, and that therefore includes tax concessions for those who manage pension funds.
The Government have also greatly damaged the climate for savings generally. One of my criticisms of Adair Turner's report—to the extent that I have managed to get through it—is that I do not believe that we can consider pension provision wholly apart from savings provision. When examining the wider question of how to enable as many people as possible to take some personal responsibility for matters such as social welfare, health and care in old age, we must consider the extent to which a section of society can be encouraged to build up a stock of savings as well as providing pensions entitlement to give them income in old age.
The Government's record on savings is disastrous. I do not want to stray too far outside pensions, but let me remind hon. Members that the previous Government spent much time trying to encourage savings and spread the idea of savings throughout a much wider section of the population. Nowadays, not many people argue with Mrs. Thatcher's doctrine of, "Every man a capitalist, every man a saver."
We had personal equity plans and tax-exempt special savings accounts and we gave tax concessions to those who were prepared to make some savings each year. The Government's record is dreadful. They replaced both schemes with individual savings accounts, which were never as attractive as PEPs and TESSAs, and the Chancellor continues to squeeze out the tax concessions available to ISAs and ISA holders. He proposes to reduce the amount of tax-protected savings that people can make each year. In that and in other ways, the climate for savings has worsened.
The fact that the savings ratio has sagged so badly in the past seven years poses a serious economic as well as social problem for the country. In 1997, the savings ratio as a percentage of gross domestic product was 6.8 per cent.; it is now 4.2 per cent. The figure has been falling steadily, especially in the past three to four years. At the same time, household liabilities—household debt as a proportion of GDP—has risen year in, year out throughout the Government's lifetime. It has increased from 73 per cent. of GDP in 1997 to 95.7 per cent. now. My guess is that the figure continues to rise. Although that may have helped the growth of our economy in that people spending rather than saving keeps the economy going in the short term, it is not sustainable—and not good when viewed alongside the demographic time
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bomb and general pensions problem that we are discussing. The Government's record is, therefore, not good.
The Prime Minister said at Question Time that he inherited a calamitous situation. We have heard various descriptions of what happened in 1997, when the problem started. None of us perceived it in that way then. I admit that it is obvious now, when considering the position that the seeds of the problem were there, but I suspect that no hon. Members realised that. We did not know what would go wrong with company and personal pensions. Indeed, we were rather complacent as British citizens about the fact that we had licked the problem while the feckless French, Germans and others would have to keep trying to solve it. My Eurosceptic friends even said that we would have to pay for German pensions if we stayed in the European Union because when other countries realised that we had solved a problem that they could not, the British taxpayer would find himself paying for German pensions. I hope that the German pensioners listening to the debate are not waiting for the money because we now have our own problem.
In 1997, we all worked on the principle of a basic state pension that was reasonably affordable—that is why we broke the link with earnings; heaven knows what the fiscal position would have been if we had not broken it in 1979—and placing emphasis on encouraging the growth of funded occupational and private pensions to give people the living standards that they expected in later years. That was perfectly sound and I do not regret it.
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