Examination of Witness (Questions 60-79)
RT HON
TONY BLAIR,
MP
8 FEBRUARY 2005
Q60 Mr Sheerman: Would you agree if it
was 40% of our population that do not think they are getting a
fair crack at getting out of the minimum wage, to get into skills,
to get into social mobility, then that is not a very good situation
that we are in?
Mr Blair: We need to do a lot
more. I am in total agreement with that. All I would say is that
I think the policies that we have put in place so far have worked,
but this is a long business.
Q61 Mr Sheerman: So the question I asked
you six months ago you would give the same response to, ie this
Government has not yet run out of steam?
Mr Blair: I am pleased it is consistent
with what I said six months ago. It is always alarming when people
put those things in.
Q62 Chairman: Prime Minister, a few weeks
ago we had a hearing of the Public Accounts Committee on inheritance
tax and what became clear was that now larger numbers of people
are moving in at the bottom housing bands and are being subject
to it. What is more important and why you will never solve the
gap unless you make a change at the top end of inheritance tax
is because they are the super wealthy, they do not keep their
money as cash, they keep it in works of art and things that can
be party to access agreements, so they are able to slide the wealth,
which is already going up in value, between the generations. The
rest of us do not have that opportunity. Are you going to do something
about closing that gap?
Mr Blair: I do not mean to be
uncooperative in answering a question like that, but I think I
should say that any issues to do with inheritance tax or potential
for tax avoidance are best left to the Chancellor in the Budget.
Chairman: Have a word with him.
Mr Blair: Okay.
Q63 Mr Denham: Prime Minister, let us
turn to pensions. I am sure it is not a coincidence that we will
not know the result of Adair Turner's work until after the General
Election. He has already said that it is widely known that if
we want decent pensions we are going to have to work longer or
save more or pay more tax or quite possibly all three. He also
said there was a fourth option, which was to muddle through, making
the odd change here or there but not really getting to grips with
the pensions system. If we look at the history of pensions policy
in this country over 25 years, is there any reason to believe
that muddling through is not the most likely outcome because is
that not what we have really had for the last 25 years?
Mr Blair: It is a fair enough
point. We took certain risks in setting up that Commission, especially
with someone like Adair Turner in charge of it. I do not think
he will be saying his chief recommendation is to muddle through.
He is likely to give us some fairly hard edged solutions to this
and that is certainly what we want. I think the question then
will be whether you can establish a broader consensus about it
given that I think everyone knows this is a very, very difficult
long-term issue.
Q64 Mr Denham: We have an election coming
up and pensions is bound to be a hotly contested issue. If you
are a 25-year old today looking at your income in 40 years' time,
you know the Government will change party to party several times
probably over the next 40 years. Prime Minister, how can you go
about getting the sort of consensus on pension policy which means
that there will not be a sudden disastrous change as we had between
the mid-Seventies and the mid-Eighties when there was a change
of Government before?
Mr Blair: The best way is to set
up an independent Commission, which we have done, and then to
use the outcome of that Commission as a springboard for a properly
informed public debate. That is the reason I set it up. I set
it up very deliberately in order to try and get somebody objective
to set before people what are the difficult options and questions.
I do not know whether we will be able to achieve a consensus on
it. Obviously it is more difficult to do that when you have got
potentially a very heated political debate coming out. In a period
of calm and reflection I think it will be important to have this
debate and to have it on a basis where hopefully you can establish
some rules that will stand the test of time because I agree with
you, I think it is very, very difficult for any younger person
in employment today or anybody to work out exactly what the forward
path of pension policy is likely to be and to work out what their
best options are. If you were advising someone on a relatively
low income what would you advise them about their pension possibilities?
I think it is very, very difficult.
Q65 Mr Denham: Adair Turner's report
was seen by everyone as very good but there is nothing in it that
was not already in the report that Tom Ross and the Pension Provision
Group published for this Government five or six years ago, yet
nobody grasped the nettle then, nobody sat down with the other
political parties and said "Here is the nature of the crisis".
What can you tell the Committee so that when we get Turner's report
there will be a different approach that actually takes it from
being the pages of an informed report into serious consensus long-term
policy?
Mr Blair: I can simply give you
my commitment that I will do my best to do that and to achieve
it on the basis that such a policy would survive a change of Government
since I think the point that you are make is absolutely right,
that unless you do get a policy that has a significant buy-in
from more than one side of the political spectrum then that is
difficult to sustain.
Q66 Mr Denham: If we look to the future,
I know detailed answers need to await Turner's final report, but
you were talking earlier about younger people not knowing what
to do. If we carry on with current policies, the increase in the
value of pension credit, the changes that are taking place in
occupational schemes and so on, then the vast majority of young
people today will end up on means tested benefits when they retire,
if they are about 25 today. When you think about what the pensions
system should look like in 25 years from now, do you think that
is the way we will be going, with most people retiring on means
tested pensions, or are you looking to a future where we will
manage to reduce the number of people who retire on to means tested
pensions?
Mr Blair: Obviously, as we have
often said, you do not want a situation where the majority of
people are on means tested pensions, but the reason for the pension
credit is particularly to deal with pensioner poverty and pensioner
poverty today. As I think Alan Johnson and the Chancellor have
said, how this then develops over time is one of the very things
we want Adair Turner's report to look at and there are really
difficult questions in respect of that, but the reason why we
went for pension credit over the past few years has been as a
response to the immediate concerns about pensioner poverty and
to try and also reward those people who have had some savings
and on the whole it has been remarkably effective in doing that
and in reducing pensioner poverty.
Q67 Mr Denham: So your own view, looking
at it in the medium to long term, is that we should be aiming
for a system that reduces dependence upon means testing?
Mr Blair: What you want is to
get to the stage where there is a proper partnership between state
and citizen and one that recognises that what the state puts in
it takes from existing taxpayers and therefore you have got to
have a contract between the generation that is working and the
generation that is retired that is fair all ways round. The difficulty,
as you rightly say, is that at the moment what you have as a situation
is one where people are living longer, people are often retiring
earlier and they want a high standard of living when they retire.
What is more, the income of different pensioners is becoming more
varied than it would have been 30 or 40 years ago and that will
increase over time. I do not think these things are anything other
than immensely difficult. The fact is that it will all come back
to money and who pays it in the end.
Q68 Mr Denham: Obviously one of the ways
of reducing dependence and means testing is to increase the value
of the state pension system. A few months ago, I think in a speech
in Germany, you suggested that we might find money for the state
pension system by reforms to incapacity benefit. We saw those
reforms last week and I think there was a pretty widespread welcome
for them, but it is also pretty clear that there is not some instantly
accessible pot of money from those reforms and that we are going
to have to invest money before we can start saving it. If there
is not going to be an immediate flow of money from incapacity
benefit, where else can you look in order to put extra support
into the state pension system?
Mr Blair: You have to look over
time at how you are going to reconfigure your welfare spending
to get more money into pensions. I think that is precisely the
issue that the Turner Commission has got to look at and then give
us a series of options for. I certainly never meant to suggest
that you could do an easy switch from incapacity benefit into
pensions. What I was saying is that if you are going to put more
money in from the state—and it is the taxpayer that puts
that money in—then you have also got to make sure because
this is part of the social contract that keeps the whole system
together, that those that can work and who are able to work are
actually helped into work.
Q69 Dame Marion Roe: Prime Minister,
I am sure that you are aware that the Pensions Commission found
in their report in 2004 that the private pensions system is not
developing to offset the state's retreating role, instead it is
in significant decline. I am sure you are also aware that in total
11.3 million people in work are not making contributions to any
private pension scheme. Why in seven years has Britain gone from
having one of the strongest pension provisions in Europe to one
of the weakest, and what steps will the Government take to reverse
the decline of funded pensions?
Mr Blair: I do not accept the
situation was quite that rosy when we came in. I think all the
problems that have come to beset us now were there then and they
are becoming more and more obvious as we continue. I think there
are people who could be part of occupational pension schemes who
should be in them. However, there are a larger number of people
on relatively low incomes for whom the rules are immensely complicated
at the moment, which is why we are introducing simplifications
to them. Even if you do all of that, you are still left with the
basic issue, which is that for someone on a relatively modest
income to invest the sum of money they would need for a decent
retirement is a big call on their resources.
Q70 Dame Marion Roe: Prime Minister,
do you now regret endorsing Gordon Brown's policy in his 1997
Budget to remove the right of pension funds to reclaim dividend
tax on the equities they owned, thus taking out £5 billion
a year from the private pension funds? Is it not this action that
triggered the present day occupation and private pensions crisis
as well as reducing pension fund investment in the stock market
with a devastating detrimental knock-on effect?
Mr Blair: No is the short answer
to a nicely put question.
Q71 Dame Marion Roe: No regrets, Prime
Minister?
Mr Blair: No, I do not. I would
say, also, it is important to realise, as indeed we said at the
time, we cut corporation tax by several billion pounds a year
and the main problem we have had with the Stock Market is not
to do with the change in the dividend tax credits, which was something
begun, in fact, under the previous government, admittedly carried
through to its logical conclusion by us, but I do not think that
is the issue, the issue on pensions has been an issue building
for a long period of time and we are in no different situation
from any other country, probably a better situation than many,
because the fact is the money has to come either from companies,
employees or from the general taxpayer, there is no way out of
that. As people live longer, retire earlier and want a higher
standard of living so the constraints financially on your system
become more intense.
Q72 Dame Marion Roe: My final question,
Prime Minister: will the Government publish its proposals before
the next General Election so that the electorate will be able
to compare the Government's plans with those of the other major
parties? Surely the electorate needs to know where it stands on
this very critical issue before votes are cast and not await the
conclusions, if I might say, of the Commission's consultative
programme which is going on at the moment? After all, recent research
does show that millions of workers face cuts to their pensions
after a 50% rise in the cost of providing traditional final salary
schemes? I am sure you are aware that pensioners of tomorrow are
very, very concerned indeed about their financial security and
the quality of life in old age which they can expect.
Mr Blair: We will publish proposals
on pensions. Obviously they will be subject in part to what comes
out of the Turner Commission. On the other hand, there is a record
on the pensions that we have and that we are very proud of. In
particular I look forward to debating the withdrawal of the pensioner
credit and the state second pension which I think, Marion, if
I can introduce a slight note of political controversy, you will
find difficult to justify yourselves. Anyway, we will wait for
that moment to arise whenever the election comes.
Q73 Sir Archy Kirkwood: Prime Minister,
Peter Pike has some very important questions about the tension
that is now mounting between private and public sector pensions
but I wonder if I could ask you a very brief supplementary in
the interim on a wider longer term issue about ageing. I think
that it could be said that, whether it was right or wrong, your
Government had been very active in the child age group with childcare
and SureStart and all the rest of it and, indeed, as well in the
working age population with an active labour market policy. It
is beginning to be quite noticeable, not to mention astonishing,
that you particularly have never, to my knowledge, in the course
of your term in office as Prime Minister, ever addressed the wider
issue of ageing. The demographics are dramatically changing, and
it is not just an issue of pensions, it is not just an issue of
health, it is an issue of where we are going to get the workforce
in the future, how we are going to construct society in 10, 15,
20 years' time and you have been silent on the issue. Do you not
think that is something you need to address rather quickly?
Mr Blair: Address in what sense?
Sir Archy Kirkwood: Is it saying something
about yourself, about what you think the problems are? Do you
think there is a problem? There are a lot of people saying the
demographic change in the Western World, never mind the countries,
is one of the most dramatic political challenges of the age and
yet you seem to be deaf on the subject, dumb on the subject, deaf
and dumb.
Mr Mates: Nothing personal.
Mr Blair: One of the issues we
have just been discussing is pensions. I think you have to get
to specifics. There is not much I can tell you about ageing that
is not perfectly obvious, indeed very obvious when you look at
me.
Chairman: More obvious for me.
Mr Blair: I think it is in the
issue of pensions this is most clearly a problem.
Q74 Sir Archy Kirkwood: I do say to you
we will be looking at this very carefully. Pensions, of course,
are an element of that, and getting the certainty and the confidence
which does not exist at the moment. Prime Minister, I do promise
you there is a much wider agenda. I do not want to spend a lot
of time because we have not got time this morning to go into it
in great detail but I do urge you to look carefully and I think
a statement from you looking at some of the longer term wider
dimensions for this problem is something that is very much needed
now. I hope you will go away and think about that.
Mr Blair: I can give you even
better news than that, Archy, there is in fact to be a Government
paper published on the very issue of ageing and the ageing society
in the coming weeks.
Sir Archy Kirkwood: Okay. We will look
forward to that.
Mr Blair: I have said things about
the impact of an ageing society in the past but you will find
this said in ringing terms in a few weeks' time.
Sir Archy Kirkwood: I will look forward
to reading this with interest.
Q75 Mr Pike: Prime Minister, I want to
raise three issues about local government. The first one links
in on the pensions because we have dealt with the normal state
pension system, we have dealt with the private sector pension
system, I want to refer to the public service in local government.
We have got teachers, police, firefighters and the local government
pension scheme and we are seeing some changes there. All these
funds have got major deficits in them at the present time. With
the recovery of the Stock Market to some degree obviously that
has been narrowed a bit again but there are still major problems
there. These funding gaps would cause major problems to the council
tax or major cuts in local services unless we have a consensus
or a Government willingness to meet these deficits. How do you
see the way forward? They are all causing controversy. I am sure
you receive letters, Prime Minister, from local government workers
and others, just as every other Member in the House does.
Mr Blair: Absolutely, but the
problem, as we explained to our colleagues in the local government
unions, is very simple. What you have got is an actuarial report
that there is a £400 million shortfall, you have got to deal
with that in some way. We have put forward a series of options
but we need to discuss those options with the local government
trade unions and try and find a way forward. We have said that
provided we can deal with this situation now that in the time
to come we hope we will be able to put forward a better and more
sustainable package for people. It all comes back to the same
thing, which is sometimes what I find about the pensions debate,
there is an agreement about the problems and the issues that arise
but a sort of unwillingness to accept that in the end it comes
to money. You need to put more money in because people are living
longer, and that is what it comes to.
Q76 Mr Pike: All those pose a problem
but obviously the local government pension scheme is different
from some of the others that I have referred to because they are
not all funded schemes. With the pensions that the workers in
those particular fields expect to get, there has to be funding
there to meet them and at the end of the day that has to come
from the public whether it is national taxation or local taxation.
Mr Blair: The other option is
that you try and deal with some of the rules in the scheme which
are more difficult to justify in the modern age, like the 85 year
rule.
Mr Pike: There has to be discussion on
these issues.
Mr Blair: There does, you are
absolutely right, Peter. I should say to you we have made it clear
we will sit down with the local government unions and try and
work a way forward for them and with them. There is no getting
round the fact that we cannot properly ignore the fact that we
have got actuarial advice saying there is a £400 million
shortfall.
Q77 Mr Pike: Can I move on to the second
point which is a point I have raised on previous occasions. Large
sections of local government expenditure are now met from short
term funding and, again, wherever MPs go we find people are bidding
to get their next lot of funding because time is running out.
Prime Minister, you referred to the importance of SureStart, most
of those schemes are short term funded, Neighbourhood Warden schemes
play a vital part, and I could list a whole number. Do you see
at some stage that these things really should be transferred to
main core traditional local government funding rather than this
short term? If SureStart is as good as you say it is, and I believe
it is, then really we should not have to bid to ensure the schemes
continue.
Mr Blair: We are looking at this
now. You are absolutely right, there is SureStart, there are things
like Neighbourhood Wardens, Community Support Officers, and so
on which it is extremely important you keep the funding for and
there is a guarantee of those. You have then got a whole series
of regeneration schemes which fall into maybe a slightly different
category but we are looking at this now.
Q78 Mr Pike: We do need to take decisions
on it.
Mr Blair: Yes.
Mr Pike: My third and last point is council
tax. Obviously for understandable reasons we want to see a ceiling
of 5%, and I support that. At the end of the day we inherited
a seriously flawed system that was rushed through after the Ribble
Valley by-election in 1991. It is flawed, we have got reviews,
when are we going to implement a system that is fairer and more
workable than the council tax system that we have got? We keep
getting told it is under review, we have been in Government now
nearly eight years, when are we going to see a new system?
Mr Blair: When the review comes
back and reports.
Q79 Mr Pike: When is that going to be?
Mr Blair: Within the next year
is what the ODPM's department have said. Let me just say this
about this reform of council tax, because everyone likes to leap
up, including us, and say "The council tax is an unfair tax,
we want a change" but it will come down to money in the end.
What there is not, which is what we all look for in politics,
is a way of getting rid of a particular tax which raises money
which leaves you still with the money but without the tax. I am
on the constant look-out for such a policy proposal. You can change
it to local income tax, as some people say, but you run into a
whole lot of problems with that. I remember with the rates, some
of us remember when we grew up with the rates, everyone was always
saying "That is a terrible system, you have to get rid of
that". There was then the poll tax, that is true, that was
not supremely popular either. The council tax at the time was
announced as the great way through and the trouble with that is
the gearing which means that any increase in spending ends up
with a quite disproportionate council tax. I hope this year we
will have council tax under 5%. This is what the Government wants,
we have made every effort to do it. I think we have got a good
chance of achieving that. We have said we are prepared to use
the capping powers and so on. Whatever system you put in place
you will come back with the fact that here are the local services
and we need to raise the money to fund them.
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