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Mr. Quentin Davies (Grantham and Stamford) (Con): We have had an extremely interesting debate and we have before us an extremely interesting report. The report is an authoritative source of facts that will be the locus classicus of discussions on this matter for many months to come, and the debate will prove to be an authoritative and much-referred-to source on the range of arguments that have been exchanged.
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I want to make a few brief remarks under three headings. First, I shall comment on the responsibility for the situation that we are now in, because the Government are getting away with it a little too lightly; secondly, I shall discuss some of the new ideas that have come out of the debate; and thirdly, I shall make a few suggestions of my own.

There is no doubt that the present situation represents a crisis—that emerges clearly from the pensions commissioner's report. It is actually a double crisis, which is the worst of all possible crises because one reinforces the other. The first crisis is that of occupational pension schemes, particularly defined benefit schemes, which were once the pride of this country. Only seven years ago, people felt very confident about the future of those schemes, but since 1997, as the report states, 63 per cent.—virtually two thirds—of existing schemes have been closed to new members and not a single new one has been opened. That is a disastrous sea change in pension provision. Our occupational pensions, which were the envy of so many places around the world, are now in crisis.

The second crisis is that of the collapse of the savings ratio. That, too, emerges clearly from the report. Those two crises reinforce each other in undermining our people's prospects for a secure retirement. It is a very serious situation.

The Government have tried to evade responsibility for all this by saying that it is caused by the strains placed on pension schemes by increasing life expectancy or by disappointing stock market performances over the past few years. They say, "It's nothing to do with us, guv; it's not the fault of Gordon Brown's pension tax." That argument will not wash. We have had steadily increasing life expectancies over the past 50 years or so during which the occupational pension movement gained strength. Figure 1.1 of the report is a graph showing that the curve of rising life expectancies between 1970 and 1990 was distinctly steeper than it has been since 1990 or is projected to be over the next few years. Occupational pension schemes have to face a greater hurdle in terms of dealing with increasing life expectancy and actuarial risk than they did over the past seven years when many of them were closed to new members.

The fact that the stock market has not behaved very encouragingly over the past few years is a problem, but we have experienced far worse stock market crashes before. The occupational pension movement managed to survive the appalling stock market crash of 1974 as merely a blip in its history. Equally, the 1987 stock market crash was a good deal more serious than what has happened over the past few years. I have to tell the Minister that those excuses will not wash.

As for the collapse in savings, the key factor is undoubtedly means-testing. There is nothing new about my saying that—I have been saying it since 1997. I recall saying, when I was pensions spokesman at the beginning of the last Parliament, that the Government could not get away with increased means-testing. They were means-testing everything that moved. They means-tested incapacity benefit, widows benefit and support for students. All sorts of benefits that previously depended merely on a contributions record were suddenly means-
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tested. I remember saying at the time that that could not be done without having a devastating effect on the savings rate.

On pensions, I remember saying in the Chamber some six or seven years ago that a financial adviser could not with integrity advise anybody on less-than-average earnings to save for a pension.

Mr. Tom Harris rose—

Mr. Davies: I will not give way, if the hon. Gentleman will forgive me. We have only a short time available.

I made the calculation then that a person would need to save £80,000 by the time of their retirement, whether in a pension fund or elsewhere, in order to get nowhere—in order for all that money to be wasted, because the £80,000 would produce an income of £4,000 or £5,000 at the then annuity rates, which would mean that the person would have to forgo all the means-tested benefits, such as housing benefit and council tax relief, not to mention personal care and so on. Saving £80,000 would require a heroic effect—I think I used that term all those years ago—from someone on low earnings, and the money would be wasted. Think what £80,000 could buy by way of increased consumption in the course of a working life.

It follows mathematically that if someone saved £160,000 they would end up with half the rate of return that the market would require, for the sacrifice of saving and the risk of saving. It was clear that people on small incomes would be deprived of every rational ground for saving. The crisis in savings was thoroughly predictable.

We heard this afternoon from the right hon. Member for Birkenhead (Mr. Field). I remember debating with him when he was my opposite number six or seven years ago. I well remember a conference at Oxford when I first said that means-testing was not part of the solution; it was part of the problem. The right hon. Gentleman was in some consternation because he secretly agreed with me. He did not agree at all with what the Chancellor was doing at the time, but he could not very well say so in public. He told us this afternoon, and I am sure he is right, that half the tax relief on pension savings that the Revenue forgoes is taken up by people on the 40 per cent. marginal tax rate. The implication was that there was something wrong with the tax relief system.

There is nothing wrong with the tax relief system. What is wrong is that people below the 40 per cent. marginal tax rate have had their incentive to save destroyed by the means-testing policy. The responsibility lies fair and square with the Government. It would have been nice if we had had a higher savings ratio in this country in the 1990s. It was always low by international standards and certainly by European standards. I accept that, but the Government turned the situation into a crisis and they did so on two fronts—occupational pensions and incentives to save. That is a serious matter and they should not be allowed to escape responsibility for it. Those were the deliberate policies and the specific contributions of the Labour Government to occupational pensions and to saving for retirement and other purposes.

I shall deal with some of the interesting ideas that have been thrown out during the afternoon. One is compulsion. The right hon. Member for Birkenhead, for
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whom I have the greatest regard in every respect, seems to be in favour of compulsion. It would be disastrous, for the reasons so ably and lucidly set out by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), to which I might be able to add two. First, if the state gets into the business of compelling people to save, it takes on a moral responsibility for ensuring that the real value of that money is at least maintained, even if there is not a substantial savings return. That is a difficult position for the state to be in, given that moral responsibility and, conceivably, legal responsibility.

Another related issue is that it is enormously morally dubious for the state to tell people to save irrespective of whether it is in their interests to do so, particularly when the state, by its own deliberate action, has made it cease to be in their interests to save by, for example, means-testing, as I outlined. If, in those circumstances, the state said to people on low incomes, "You would be a damn fool to save now. You will make an absolute idiot of yourself if you save because of the way in which the means-tested benefits system is structured, but, nevertheless, we will compel you to save. Taking a sensible view of your own interests, we know that as a rational human being you will not save, but we will compel you to do so", it would not be compulsory saving; it would be a tax, and everybody would see it as such. Let us remove from our minds the temptation of trying to deceive the public.

Miss Begg: I am interested in the hon. Gentleman's remarks about disincentives to saving. The Turner report points out that people have not saved enough for their pensions for the past 20 years, but the pension credit was introduced only last October. How does he explain the historical gap, when the measures that he describes as disincentives to save have existed only for the past year or, in the case of the minimum income guarantee, for slightly longer?

Mr. Davies: I do not know whether the hon. Lady was following my remarks about five minutes ago, but when I explained how the Government have increased means-testing, I did not talk about the pension credit for the precise reason that she mentioned—it was introduced only last year. I discussed other means-tested benefits and the minimum income guarantee, which has been in place since the beginning of this Government. Means-testing has increased substantially. A few minutes ago, I also made the point—perhaps the hon. Lady missed it—that I have been saying exactly the same thing since 1997–98. I do not make the point because of the institution of the pension credit, but the pension credit is another means-tested benefit and it has perverse and damaging effects.

I listened to the hon. Member for Northavon (Mr. Webb) with great interest, because he is extremely well-informed and I admire his work. When I was a Front Bencher, he used to contribute to debates, and I have learned many things from him over the years and do not mind paying him that compliment in public. However, he made two points this afternoon with which I must take issue. First, he suggested that National Savings is a proper vehicle for pension saving. I have no
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objection to the Post Office collecting the money, but did he mean that those savings should be invested in National Savings?

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