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Mr. Webb: The hon. Gentleman's strategy for getting pensioners off means-testing is intellectually coherent, as it is to raise pensions in line with earnings, and to raise the means test in line with prices. This afternoon, the Secretary of State confirmed that the pension credit will rise with earnings until 2008. Will the hon. Gentleman confirm that his party would increase the pension credit by less than that?

Mr. Willetts: I am grateful to have the opportunity to make it clear that we accept that the pension credit should rise with earnings according to the time scale and on the basis that the Government have set out. When I
 
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costed our original proposal on increasing the basic state pension in accordance with earnings, I was careful not to make any assumptions that involved taking money from the pension credit uprating. We would also increase the pension credit in the way that the Secretary of State set out in his speech today.

Alan Johnson: Consensus!

Mr. Willetts: It is certain that the Opposition would not reduce pensioner incomes below the pension credit uprating that the Secretary of State set out. I am grateful for the opportunity to make that clear.

I want to ask the Secretary of State about his thinking on the future of the pension system. He has made bold and radical statements outside the House, but hon. Members would be pleased to hear him say something in the House about the future, and about the possibility, for example, that a citizen's pension will be introduced. It was reported in The Sunday Times that he was considering ideas for a citizen's pension payable to each individual pensioner, male and female alike, on the same basis. Is that true? If so, would it be an entirely individualised system? It would also be interesting to hear what the Liberal Democrats have to say about that.

Moreover, it would be very interesting to hear from the Secretary of State, or the Minister for Pensions, what are the Government's thoughts about a citizen's pension. A system under which every pensioner received an individualised state pension would be very expensive indeed. In a written question on 7 September last year, the hon. Member for Romsey (Sandra Gidley) asked for an estimate of the cost of extending the full basic state pension to all people of pensionable age, regardless of their national insurance contributions. The Minister for Pensions replied that the gross cost in 2005–06 would be £7.3 billion, and the net cost £5 billion. He said that that would rise over five years to a gross cost of £11.9 billion and a net cost of £8.1 billion. Is that what the Secretary of State is contemplating?

If the right hon. Gentleman is thinking of something slightly less expensive—and we have read about a figure of £3 billion in this context—does he envisage that some money could be saved by paying to couples a pension that is worth less than two individual pensions? That would mean cutting pensions for some couples. Married women who chose to pay the full rate of national insurance contributions in return for a full pension in their own right would get less money than at present. Is that what the Secretary of State proposes?

I believe that a lower rate for couples has been proposed by the Pensions Policy Institute and by the Liberal Democrats.

Mr. Webb indicated assent.

Mr. Willetts: The hon. Member for Northavon nods, but that proposal would mean that we would have to be very careful about the definition of a couple. In other parts of the benefits system, we are familiar with all sorts of very difficult questions that arise in connection with cohabitation and the penalties incurred when people are in a relationship. Similar questions will arise in respect of pensioners.
 
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The great solution presented by the citizen's pension therefore raises many practical questions. The Secretary of State has floated the idea often enough outside the House, so I was disappointed that we heard nothing more about it today. I hope that at some point the House will be able to debate the matter, and I would be grateful if the Minister for Pensions will share his thoughts with us in the wind-up. I am sure that we would all enjoy that.

When it comes to the contributory principle, I am a Blairite. I believe that rights and responsibilities go together. People pay money into the national insurance fund and in return receive a benefit as a reward for their contributions. That seems to me an admirable principle. At the next election, the Conservative party will be the only defender of the contributory principle for pensioners, which the other two parties propose to abolish. I think that those other parties will find their position distinctly uncomfortable as a result.

Mr. Webb: It is very good to debate the wider issues, but I want to return to my previous question. The hon. Gentleman replied that both the means test and the pension would be linked to earnings, but his grand vision is to reduce dependence on means-testing. Because the pension is smaller than the means-testing, increasing both by the same percentage would mean that the absolute gap would grow. How does he reconcile that?

Mr. Willetts: We do not want any pensioners to worry that the uprating of their benefits under a future Conservative Government would be any lower than what the Government propose today. We want the basic state pension to increase in line with earnings, which is why I have focused on take-up. Improving take-up would help those 1.6 million pensioners entitled to the pension credit who do not claim it. They are the people who need to be helped above all. Our policy reaches the pensioners that the other parties' policies do not reach, by extending the benefit, on a universal basis, to all pensioners who have made their contributions.

Alan Johnson: The debate is thoroughly enjoyable and linking the pension credit and the basic state pension with earnings will avoid the arguments about floating loads of people off means-testing. However, does the hon. Gentleman accept that his commitment to raising the basic state pension in line with earnings is for only four years? It would take 14 years to get the basic state pension to the level of the pension credit, so does that not mean that he will have to retain a version of the pension credit—for which he has professed his enthusiasm this afternoon—far beyond 2008?

Mr. Willetts: We have set out our plans for increasing the basic state pension at the same rate as the increase in earnings during the lifetime of the next Parliament. Provided that we can continue to identify the necessary savings—I am confident that we can—we would continue to increase the basic state pension at the same rate as earnings with the aim of reducing gradually the spread of means-tested benefits. Under the Secretary of State's approach, the problem will get worse and worse.
 
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We would, initially, at least stop it from becoming worse, and we would then want to improve the situation. We envisage continuing to identify savings to enable us to continue to increase the basic state pension at the same rate as earnings. In the manifesto produced at the end of   the first Conservative Parliament—a marvellous prospect—we would set out proposals to show how we would continue to fund the increase in the basic state pension at the same rate as earnings rather than prices. If the House wants to discuss that today, I would very much enjoy that debate.

David Taylor: The hon. Gentleman was in confessional mode a few moments ago and confession is good for the soul, if not for opinion poll ratings and electoral prospects. Will he confess to the House that his party would abandon the state second pension and, with it, the opportunity for millions of low-paid workers, disabled people and women to build up a decent pension? Does that show a commitment to the contributory principle?

Mr. Willetts: There is a problem with the state second pension—or S2P—which is not unlike the problem with the basic state pension that we are trying to tackle. If means-tested benefits are linked to earnings in the long term, it is not clear that S2P would help many people, because many would be on pension credit.

We do not require any savings on S2P to deliver our earnings link for the basic state pension in our first term. I have made it clear that, during our first term, we would look at the future of S2P and whether it should be at a flat rate. I should be interested to hear from Ministers what their thinking is. At one point, they said that it would become a flat rate, but they seem to have lost their nerve. We would also consider whether we can incorporate S2P into a higher basic state pension. We would like to do that, but these are technical matters and we would not need to do that to finance our increase in the basic state pension during our first term.

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