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Mr. David Laws (Yeovil) (LD):
This is a short debate on a big subject, although we have already had some good contributions, including the thoughtful one we have just heard from the right hon. Member for Birkenhead (Mr. Field). Given that we have only three
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hours, it is tempting to suggest that we should have more of these debates over the next few months and more time available for contributions, but we have had much consultation on pensions and pension reform, not only over the past year, but since the Government came to power in 1997.
Many in the House and in the country are desperate to see some proposals from the Government that arrive on the promised time scale, so that we can get stuck into a meaningful debate knowing that there is a clear position on the part of the Government as a whole and that we will not be strung along for a long time before we get some half-baked, small-scale proposals that command the support of the various members of the Government.
I will make some relatively short comments on the broad aspects of the direction of pensions policy. I hope that, in time, the Government's own pensions policy will turn up so that everybody, including outside groups, can engage seriously in the debate.
I join the hon. Member for Runnymede and Weybridge (Mr. Hammond) in congratulating Lord Turner on his contribution to the debate in his excellent and well thought through report. Liberal Democrat Members strongly agree with some of his principal conclusions, including his view that the existing pension system
"significant future growth of means-testing would . . . undermine voluntary private pension saving by the very groups of people . . . most in danger of under-provision."
Lord Turner's report was a powerful indictment of the future direction of Government pension policy. It clearly shows that, in his view and in that of the other commissioners, a fairly significant change will be needed if we are to have a pension system that the country can rely on in the decades ahead.
I welcome the contributions that the Secretary of State for Work and Pensions made to the debate. They have been modest and hedged with various conditions, but on the whole what I hear from him is promising, as is what I hear from the Prime Minister. The Prime Minister was rather quiet when Lord Turner's report emerged and did not take any opportunities to get involved in the rather sharp-edged debate that was going on between Lord Turner, the Department for Work and Pensions and the Treasury. However, his speech to the CBI conference on 29 November will command broad support across the country. The Minister is no doubt aware of his comments, but I remind him of what he said:
That is an obvious statement that does not seem to have hit home in the Treasury as yet. He went on:
"We need a system that enshrines a decent basic state pension, funded by the tax-payer; that allows top-ups in a way that is easy to save; a retirement age that begins, over time, to reflect the changing demographic reality; and a proper balance between the obligations of the employer, the employee and the state. And, of course, any reform has to be affordable."
We very much agree with the broad thrust of those comments and with the broad thrust of Turner, although there is immense detail, particularly in the proposals on the basic state pension architecture, that people will want to debate further. Lord Turner has done a good job, the DWP has, cautiously, done a good job, and the Prime Minister has, very cautiously, done a good job.
It is tedious to have to go back to the issue that dominated Lord Turner's report—the battle between the Treasury and Lord Turner—but it is fair to say that the contributions of the Chancellor of the Exchequer and the Treasury to the pensions debate have not been very constructive. In particular, they have confused the issues of affordability, which any Treasury will be concerned about, and sustainability, which those who design the state pension system must be concerned about. At the moment, we have an affordable system that is not sustainable. Unless the Chancellor can hold both those concepts in his mind at the same time, we will have a problem. It is significant that, after Lord Turner's report was published, he had to publish a document rebutting Treasury allegations about his figures entitled, "Sanity in Figures". When The Daily Telegraph asked him in an interview on 3 December whether it followed that he believed that some of the briefing by the so-called Brownites was insane, he replied:
"Yes . . . The Treasury has a legitimate role in looking at the cost implications . . . but we have to have a sensible debate about the figures."
We must hold a sensible debate about the point that the Prime Minister made gently in his speech to the CBI conference when he mentioned that our pensioner population will increase by approximately 50 per cent. in the next three or four decades. Yet the Government forecast that the amount of gross domestic product that goes into the state pension architecture will remain roughly stable. As the Pensions Commission has pointed out for months, that can only mean pensioners becoming significantly poorer compared with the rest of the population.
It is unrealistic to believe that any party, let alone the Labour party, would allow pensioners at the bottom of the pile to fall behind the rest of the population by ceasing to link means-tested benefits to average earnings and reverting to prices. No Labour Member seriously believes that any Government would entertain that option for long.
We are left with several key issues. We must consider what to do with the basic state pension architecture. Our view is similar to that of the Prime Minister and Lord Turner: there should be a much better and simpler basic state pension. There is a big debate to be held about its nature, how women are dealt with, whether it is a citizens pension and whether the contributory principle will be respected. However, the basic principle is a much simpler state pension that everybody can understand and that lifts people out of poverty. The Government's
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job is to fund that properly to ensure that people can rely on it. We need as much consensus as possible across the political spectrum so that it lasts.
Mr. Frank Field: I am pleased that the hon. Gentleman says that lifting people out of poverty should be our goal. Given the generosity of pension credit, there is a huge hurdle to surmount if one is considering only a tax-financed retirement pension. Is he committing the Liberal Democrats to only a tax-financed basic state pension or is he considering both tax and funded provision?
Mr. Laws: I am talking about a tax-financed basic state pension. The right hon. Gentleman is experienced enough in the subject to know that there are several different methods of delivering that. Some try to tackle the issues that the Secretary of State mentioned earlier, including fairness, given the limited resources.
A better funded basic state pension or citizens pension requires better methods of funding it. We must not only consider the transition from our current position to where we want to be but seek savings elsewhere in our pension system and in public expenditure. That is why the amount of money that goes into public sector pensions is so crucial. The Government imply that we cannot possibly put more money into the current basic state pension architecture because that is unaffordable. Yet the cost of public sector pensions has increased and is projected to rise by 50 per cent. as a share of GDP in the next few decades.
If it is impossible to find the money for the basic state pension architecture, it is odd that the Government are allowing the cost of public sector pensions to increase so rapidly. As the right hon. Member for Birkenhead knows, the controversial proposals that have recently been agreed between the public sector unions and the Government make a small contribution to reducing the cost in the next few decades. We believe that any Government will eventually need a version of the Turner report that must tackle public sector pension reform. We appreciate that that is controversial but fundamental reform is unthinkable without objective analysis.
As Lord Turner hinted heavily in his report, although he was not allowed to examine the issue in detail, the current level of pension right accrual is deficient in total and increasingly unequal. His main target was clear.
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