Mr. Hutton: I had not intended to intervene on the hon. Gentleman, so I am grateful to him for giving way. Will he clarify whether he is suggesting that the Government should go back on the agreement that we reached with the public sector trade unions? If that is his position, will he explain why he made it clear during the election that he had no plans to change any aspect of the public sector pension deals?
Mr. Hammond: The Secretary of State should talk to his right hon. Friend the Chancellor of the Exchequer. The Secretary of State for Trade and Industry said that the deal is done and that it is set in stone. However, according to the minutes recording the Chancellor's appearance at the Treasury Select Committee on 15 or 16 December, the Chancellor clearly suggested that that was not the case and that it was not set in stone. He said there was merely a framework in place and that negotiations are still to be conducted.
There is therefore a chink of light, and we need to understand what the Government's position is. Everyone needs to understand their position on this vital issue. [Interruption.] My position is that we are all in this together, whether we have a state, public, or private sector pension. A sometimes painful and difficult adjustment must be made if we are to achieve a sustainable settlement. May I tell the Secretary of State that it is not sustainable to say, before the debate begins, that any group in society should be excluded from facing up to the realities of demographic change, reduced investment returns and all the other factors[Interruption.] The Secretary of State may talk about U-turns now that the election is over, but his Government took on the public sector unions only to back off for party political reasons when the election was called.
Kelvin Hopkins (Luton, North) (Lab):
I am glad that the hon. Gentleman does not want anything to be ruled out or ruled in, and that he wants an equitable and fair arrangement. Will he throw into the mix the £20 billion of tax reliefs that go mainly to the richest 10 per cent. of the population, and thereby help the rest of the population?
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Mr. Hammond: I do not think we can honestly conduct a debate on the basis that we are trying to build a consensus if we rule anything out before the debate begins. We must consider every aspect, as it would be unreasonable not to do so. People outside the House would not understand what we were trying to do if we were not prepared to look at every aspect of the way in which our pension system works. On the table is a set of proposals from Lord Turner. No one will agree with all of them, but it is a serious piece of work, and it should be the starting point for our debate. I hope that the Minister for Pensions Reform can make it clear that while public sector workers, like their private sector counterparts, are entitled to expect fairness and proper recognition of the accrued pension rights that they have acquired during their period of employment, they, too, are part of the real world and cannot be insulated from the reality of rising life expectancy, which is the key factor underlying our debate.
Affordability is another critical issue. We cannot have a serious debate unless we are transparent about the financing assumptions underlying the proposals. The Chancellor has already dismissed Turner as unaffordable. A serious debate needs a clear baseline, and Lord Turner sets out his baseline on page 13 of his report. The Government should come clean. We need to know whether we are costing Turner's proposals against a baseline of a minimum income guarantee rising in line with incomes, or against one that rises in line with prices. If the Chancellor wishes to make his baseline assumption an end to the income link in 2008, let him do so and defend the decision publicly. He should not use de-indexing as a stick with which to beat Turner, or as a tool to undermine Turner's proposal, without being prepared to announce and defend that policy.
The Government must come clean, too, about the savings from the equalisation of women's pension agea net £10.1 billion a year by 2020. Turner assumes that that money is available, but will the Minister confirm in his winding-up speech that the Government's position is that it is not available, because it has been spent on something else? Alone among Organisation for Economic Co-operation and Development countries, the UK will see the percentage of gross domestic product spent on state-funded pensions and state-funded pensioner benefits declining between 2010 and 2020. If that is the Chancellor's response to the pensions crisis, he should say so. If not, he should have the courage to acknowledge that Turner's assumptions are no more than realistic politics.
At a time when the private sector has been forced to acknowledge and confront its pension deficits through the Pension Protection Fund levy, FRS 17 and the explicit statement of pension fund liabilities on companies' balance sheets, we can no longer accept the Government shrouding the public sector pension liability in a smokescreen. We need an objective, independent, regularly updated assessment of public sector liabilities as an integral part of the public accounts. Perhaps the Secretary of State will have a word with the Chancellor to see whether the Chancellor
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can manage that in time for the Budget in March or April. If there is not time to work out the figure, an estimate has been published today, which is somewhat ahead of the Government's most recent estimates.
Finally, a small but important request to the Ministerif we and others are going to engage in this debate at a serious level, we need the tools to do it. The Turner report contains a wealth of detail, but not the disaggregated data required seriously to examine the options. I have written to the Secretary of State requesting that the Opposition have access to the Department's software model, PenSim2, which was made available to Turner and other outside bodies, because only by using PenSim2 can modelling outputs be directly and robustly compared with Turner's conclusions. Surely the Department is currently examining a range of options, and even if it is not I assure the Minister that the Treasury is. Will the Minister take the opportunity in his winding-up speech to underline the consensual approach by sending a real message to people outside this House that this is not politics as usual and that we are trying to build something together by announcing that he will allow appropriately qualified researchers from the official Opposition and, indeed, any other parties that want to avail themselves of the opportunity, access to the PenSim2 model?
We are ready to engage in a real debate about long-term solutions to the pensions challenges facing Britain, and we are ready to work with the Government to build a consensus, which is what the British people want and expect.
The future retirement security of the British people is too important an issue and too long-term a challenge to be allowed to become a political football. However, the debate must be genuine. The Government must act now to provide the transparency to allow the debate to be conducted seriously. They must rule out special treatment or exemptions for any group in society. In short, they must sign up to the notion that we are all in this togetherthen, together, we can find a lasting solution.
Mr. Frank Field (Birkenhead) (Lab): This debate is narrowly focused on the Pensions Commission report, which is not fit for purpose in three significant ways. Any one of the issues that I hope to raise this evening suggests that we should not go down the path advocated by Turner.
First, the Pensions Commission report ignores the golden opportunity created by the Chancellor for serious, long-term pension reform. Secondly, it does not examine the dangers to long-term security for pensioners posed by the proposed measures. Thirdly, the proposals simply will not last politically.
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I turn first to the golden opportunity that the Chancellor has created for us. Every major pension reform put before this House in the past 30 or more years, by Governments of both persuasions, has been bedevilled by the fact that, while trying to think about long-term reform, the Government of the day had to deal with how long-term reform might help to deal with the immediate problem of rising pensioner poverty. Through the pension credit, the Chancellor has not merely redistributed more funds to the poorest pensioners than any other Chancellor since 1948I say merely, but that is immensely important to our constituentsbut opened the door for Governments to think carefully about the long term. They no longer need be tripped up by thinking that they should modify the proposals because of the mega-issue of desperate and rising pensioner poverty.
My disappointment with the Pensions Commission report is that it fiddles around with the furniture, which the Chancellor said he was not happy to do. Such fiddling is also against the report's original terms of reference and distracts our attention from the opportunity for long-term reform. Serious as that is, the report does not stop there: it also presents particular dangers for pension provision. Tucked away in an appendix is the devastating fact that five sixths of the final salary schemes that have closed have done so since 2000; in other words, they have closed under our watch. My worry is that the commission's soft option of trying to entice employers who are not currently contributing directly to their employees' pensions will result in many more employers thinking, "Thank God! We can get off this longer-term liability that our predecessors committed us to." Far from extending funded pension coverage, the commission's proposals, if implemented as drafted in the report, could mean the end not merely of final salary schemes, but of defined contribution schemes. Many employers will think that the way for them to remain competitive is to opt into the new national pension saving scheme.
There is another danger that Turner holds: mis-selling. In his charming and non-controversial way, the Secretary of State warmly shook the neck of the Opposition and reminded them of their responsibilities in respect of previous mis-selling. What will be the charge against any Government who introduce the national pension saving scheme? It is being set up with Government approval, the contributory agency may well make the collections and presumably, the Government will make some warm noises about its being an ideal way to save. They are having difficulties with the ombudsman's report, for which we are waiting, because they produced merely a leaflet telling people that occupational pensions are a good thing, so imagine the rumpus that will occur if one of the proposed schemes does not perform as well as the other savings products to be provided under this particular pension hat. That is not an avenue to go down.
In my efforts to build a consensus with the Liberal DemocratsI have not yet done so with the ToriesI, along with Matthew Owen, a Liberal Democrat, proposed a national pension savings plan back in 1993. We looked at the real strength of the national savings movement in this country. If the Government wanted
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additional savings, why not capitalise on that route and set up a national pension savings plan? There would be one product and it would be clear what that was. There would be minimal charges because it would be index-linkeda tracker fundwith trustees elected by the members to make sure the Government did not get their sticky fingers on those funds, and it would not leave the Government open to mis-selling charges.
The third disadvantage of the provision that the Pensions Commission proposes is that it ignores the huge risk to individuals when they save through individual pots of savings in the private market. I thought that the hon. Member for Runnymede and Weybridge (Mr. Hammond) would continue his analysis of the dangers that companies were facing. We all know what those dangers are, but private individual savers are facing even more horrendous problems than are companies. To say that a well-managed private pension scheme will advise people to move at the right stage from equities into bonds ignores the fact that that advice might be given just when the equity market has collapsed, so the money being moved into bonds which will buy the annuity has been devalued. For all those reasons, there are huge dangers in going down the Pensions Commission route.
Finally, I do not think it will last. A serious reform that tries to raise the basic pension significantly for all our citizens and which is on a pay-as-you-go basis will not last the course. We tried that model before. A previous Secretary of State asked me why we opted for SERPS to be pay as you go and not funded. I said, "Secretary of State, we were against capitalism then." "Ah," he said. "That explains why we went down the pay-as-you-go route."
For all the faults inherent in a funded scheme, it gives us property rights in the capital of the country, but we need to share the risks attached to property owning as a means of providing pensions. When the Government Actuary has costed the proposals with which I am associatedthe pension reform group proposalsI hope we will have an alternative that takes as a starting point the chance of a huge breakthrough in this debate, by uncoupling the question of how we deal with today's poor pensioners from the question of long-term reform. To a huge extent, pension credit has done that.
We can therefore think genuinely about the long-term, which must be a funded provision. That, combined with the state pension, offers us a minimum pension that does not merely take means-testing for old people down to 30 per cent., but abolishes it for practically all. We ought to grasp that opportunity. We ought not to be concerned with moving the furniture about in a way that does not deliver that important objective. I ask other speakers in the debate to say, if they have time in their 10 minutes, to what extent their proposals aim for a future that ensures that all those who are part of any new reform will draw a minimum pension free of means-testing.