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Mr. Harris: I would have to question the hon. Gentleman's arithmetic on that. Given the huge increase in the number of people who have reached pensionable age over the past seven years, saying that the same numbers were living in poverty seven years ago as are today does not mean that no pensioners have been taken out of poverty. It is still possible for 1.8 million pensioners to have been taken out of poverty. The proportion of pensioners on poverty incomes has undoubtedly decreased drastically. I do not understand why Conservative Members want to dispute that or what they have to gain by doing so, since their own policies will do nothing at all for the poorest pensioners.
My hon. Friend the Member for Hamilton, South (Mr. Tynan) mentioned earlier how damaging it is constantly to refer to the term "means-testing" instead of "entitlement". Labour Members generously welcomed that comment, but my suspicion is that the term "means-testing" will be used even more frequently by Conservative Front Benchers. They are clear in their view that the fewer people take up the pension creditand the more the Conservatives view it as a failurethe more it suits their particular political purpose. I believe that that is an incredibly cynical attitude to adopt. On both sides of the House, we should encourage our own constituents to persuade older people to claim exactly what they are entitled to. If we can adapt our language to use "means-testing" less frequently, we may be able to contribute to reducing the number of pensionerscurrently a thirdwho do not claim their benefits.
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In the aftermath of a general election, I hope that partisanshipI have to admit that I have just displayed it myself to some extentcan be put behind us, so that we can deal with the problem in an appropriately serious mode. I am sure that the official Opposition will take that into consideration next year and view the problem with the seriousness that it deserves. Whoever will be in government next yearit will be the Labour partywill have to take some tough decisions. This is not one of the matters that we can play about with or infinitely postpone taking tough decisions on.
There are three basic options that need to be considered: later retirement, which has already been mentioned; compulsory savings; and higher taxes or perhaps some combination of the three. Anyone participating in the debate who argues that we need not take account of any of those three options is kidding themselves and kidding the House.
Personally, I believe that a higher retirement age is inevitable. I was delighted to hear my right hon. Friend the Secretary of State say that he did not want to go down the compulsory route for a higher retirement age. At the same time, however, I hope that we do not rule out compulsion altogether, because when we enter the debate after the general election we need to have a genuinely open mind on all the options. Saying at the outset that we will not consider A, B or C is not conducive to producing the best conclusions.
However unpleasant the medicine, it is surely incumbent on MPs of all parties to recognise that, because an option is unpalatable, it is not necessarily avoidable. A week ago, at the Conservative party conference, the Leader of Opposition bemoaned the lack of trust that people have in politicians. How justified that lack of trust would be if we as politicians sought to avoid taking tough decisions in order to gain party political advantage.
Mr. Stephen Dorrell (Charnwood) (Con): I begin by declaring an interest. Like every hon. Member, I belong to the House final salary scheme. I am also a member of a private final salary scheme run by a company of which I am a director, and in which I am a shareholder.
I was interested in the speech made by the hon. Member for Glasgow, Cathcart (Mr. Harris). He began by trying to argue that it was important for politicians to engage in honest campaigning during a general election campaign. I welcomed his apology for a misrepresentation of which he was guilty during the 1997 campaign, but he ended his speech by reasserting the proposition that honest campaigning was consistent with the principle that although the next Government will face "incredibly tough" decisions about the future of this country's pension system, it is reasonable to withhold from the electorate the nature of those decisions until after the votes have been cast. I must say that the justification for that escapes me.
Like my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), I think that it is entirely right to say that tough decisions lie ahead of us. Honest politics requires that, in advance of the general election probably to be held in the first half of next year, we must
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be a great deal clearer than is at present the case about the subsequent direction that each of the three parties in England is likely to take.
Mr. Dorrell: There are three parties in England, but of course other parties will be involved in other parts of the country. As an English MP, I shall focus on the three parties in England. However, there might indeed be four parties in England, and I shall return to that point.
My right hon. Friend the Leader of the Opposition said earlier today that we need to establish a consensus in respect of the future evolution of pensions policy. The same point was made by my right hon. and learned Friend the Member for Rushcliffe. I agree, but the consensus that we need most urgently is one between Nos. 10 and 11 Downing street about where the proper balance lies when it comes to using mass means-testing as the foundation for pensions policy.
One key reason for the establishment of the Turner commission was to avoid the need to find a consensus on this matter between Nos. 10 and 11 Downing street. If the Labour party is to abide by the injunction for honest campaigning expressed by the hon. Member for Glasgow, Cathcart, the inhabitants of Nos. 10 and 11 must work out between them whether they favour the continued development of mass means- testing as the basis for UK pensions policy. On the other hand, the Prime Minister may succeed in persuading the Chancellor that that is an historic dead end, and that the emphasis of pensions policy needs to change.
An incipient consensus on this matter emerged before the 1997 general election and was potentially available immediately afterwards. We need to be clear about why that collapsed. It is not a matter of huge controversy that pensioner poverty was an issue in that election, but the huge difference between then and now is that at that time a system was developing to allow private funding to improve pensions.
That was especially true for the new generations of retirees who emerged through the Conservative Government's years in office. Pension provision improved for those new retirees, and the pensions that they enjoyed in retirement grew more generous as living standards rose. However, pensioner poverty was a problem for people whose private provision proved insufficient.
Immediately after the 1997 election, the Prime Minister famously appointed the right hon. Member for Birkenhead (Mr. Field) to think the unthinkable about how the issue should be addressed by the incoming Labour Government. The Prime Minister made stirring speeches at the time about how the evolution of the welfare state was one of the great challenges that his new Labour Government would address. The right hon. Member for Birkenhead, as Minister with responsibility for pensions and welfare, pointed out early in the process that the best way to deal with pensioner poverty was to recognise that it could not be remedied exclusively through means-testing and that the time had come to revisit the decisions that had been made in the early 1980s to de-link the state retirement pension from earnings. He argued that if we were to address the issue
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of pensioner poverty in a way that was consistent with a continued incentive to save for future generations of pensioners, we had to have a more generous level of basic pension available to all.
Mr. John MacDougall (Central Fife) (Lab): The right hon. Gentleman makes a valid point. People now live longer than ever before and spend more time in education than ever before. There is a greater draw on the public purse than there has ever been. How does that square with the Conservatives' intention to cut public expenditure?
Mr. Dorrell: The hon. Gentleman may be aware that the shadow Chancellor has published some spending plans for an incoming Conservative Government that set out clearly how we intend to continue to deliver proper spending for health and education. We had a debate between my hon. Friend the Member for Havant (Mr. Willetts) and the Liberal Democrat spokesman this afternoon about how the precise spending commitments that the Conservative party has made on state retirement pensions would be financed. If the hon. Gentleman chooses to research the issue, he will find that the arithmetic has been done.
I wish to confess a personal error, and this element of my contribution may appeal to the hon. Gentleman. The right hon. Member for Birkenhead was early in recognising the need to revisit the implications of the de-linking of the state retirement pension from earnings. I did not think that he was right in 1997, but I now fully recognise that he was. My hon. Friend the Member for Havant, who is an acknowledged expert on the issue, was among the first Conservatives to recognise that the right hon. Gentleman was right. My right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith), when he led for the Conservatives on social security policy, also recognised that the right hon. Gentleman was right.
In fact, there is an emerging consensus that the de-linking of the state retirement pension from earnings has to be revisited. The consensus appears to include everyone apart from the Chancellor of the Exchequer. The consensus includes my hon. Friend the Member for Havant, the Liberal Democrats, most of the pensions industry, the right hon. Member for Birkenhead, who acts as the Prime Minister's shock troop on the subject, and even the Prime Minister himself. It does not, of course, include the Chancellor of the Exchequer.
The Chancellor is not part of the consensus because he is responsible for the great historic error in pensions policy over the past seven years, which had two key elements. The first was the huge increase in mass means-testing, and the second was the £5 billion tax increase on the pension funds. What people do not recognise is that a £5 billion hole in the revenues of pension funds is, because of the way in which they work, not a one-off. When expressed at a net present value, discounted at 7 per cent., it is a £70 billion hole in the capital financing of pension funds.
The Chancellor of the Exchequer was personally responsible for both those errors. They are not the only reason that we are in our current position, but both are huge contributory factors to the pensions crisis we face. It is because the Chancellor is responsible for those two
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historic errors that we face the need to build consensus from much further back than we would have been if the Prime Minister and the right hon. Member for Birkenhead rather than the Chancellor had won the argument at the beginning of the Government's period in office.
The Turner report provides a basis on which we can start to rebuild that consensus. The report is very good and, like all complex subjects, it can ultimately be reduced to some relatively simple, stark choices. As Members have said, there are three options. A fourth option is also listedfurther pensioner poverty in the futurebut we can dismiss that without dwelling on it for too long.
The three workable options are, first, increased tax revenues to pay for a tax-funded scheme; secondly, increased individual contributions for private funded pension provision; and thirdly, a longer working life. Those are the three variables open to us. The report suggests that it is unlikely that we will get through the crisis without some contribution from all three.
It seems inconceivable that the new consensus will not recognise what the right hon. Member for Birkenhead has been arguing since 1997that mass means-testing must be substantially reduced. My right hon. and learned Friend the Member for Rushcliffe was right to say that we cannot eliminate means-testingwe are talking about balancebut the pendulum has swung much too far towards the means-testing option, so one element of the consensus must be less reliance on means-testing. I served as a junior Minister in my right hon. and learned Friend's Treasury team and as I listened to what he said I recognised the scepticism that he has always displayed, both in and out of office, about huge spending ambitions, but more generous basic benefits must inevitably be part of the overall package.
The area of uncertainty on which I want to focus my concluding remarks is the role to be played by the increase in retirement age. I agree with those who say that increasing the retirement age must inevitably be part of the total package. It is impossible to sketch a solution to the pensions problem that does not involve the majority of people contributing more to their pension scheme by working longer.
I have several points to make on the issue. There is a huge danger that we conduct an old-style political debate on it and imagine that the decision can only be collective, that we have to meet in Parliament and make a decision about the age at which people should retire in the world of the future. That is wholly contrary to the implications of the choice agenda that both sides of the House broadly agree should be part of our future social policy planning. We need to recognise that today's citizens expect to be able to make more of those choices for themselves and that our role as policymakers is to ensure that there is a structure that allows them to do that, consistent both with their objectives and with their wider obligations to the society in which they live.
At a quick reading, I think we still need to think through some of the implications of emerging pensions policy in terms of what the world will look like when voters and individuals expect increasingly to have a bigger influence on the decisions.
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At one level, of course, this is very simple: if people retire early, they must expect a less generous pension; if they retire late, they expect a more generous pension because they have saved longer and will live for a shorter period in retirement. However, that is not good enough. It is based on a key assumption, which is simply not true, that all of us as individuals make decisions about how we provide for our retirement in a fog of complete ignorance about what our life expectancy will be in retirement and what the quality of life that we can enjoy is likely to be in retirement.
I referred in my declaration of interest to the fact that I am a director and a shareholder of a company with a private sector pension scheme. We are undertaking reforms of that scheme. One of the things that strikes me in talking to people about their plans for their own retirement is how realistic they are about their life expectancy and how it is influenced by a number of things in their lives that they know but are completely unknown to the actuariesfor example, how long their parents and grandparents lived, what life choices they have made in their own lives and whether they are smokers or non-smokers. Those are elements of knowledge that people have when they make such decisions for themselves, and they do, in fact, influence the choices that they make. For us to seek to make public policy on the assumption that it is not quite nice to think about those issues is to run the serious risk that we shall make policy that is unable to accommodate the choices that people want to make about their own lives.
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