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Mr. Bone: My hon. Friend is making a powerful speech and has reached the crux of the issue. If the Government would only uprate pensions in line with earnings, not the retail prices index, it would help many pensioners and, over the years, remove pensioner poverty.

Mr. Stuart: That is my next point. At the election, the Conservative party laid out proposals to help to lift pensioners out of poverty, to bring them dignity and not means-testing, and to bring back the link between average earnings and the state pension. Labour Members will point out that that link was removed by the Conservatives, but I ask them when that happened. It was in 1980, at the end of a decade in which Labour Governments had brought the economy of this country to its knees. That is why we had to remove the link. By 1997, we had transformed the economy, which is why Labour Members should join Help the Aged, Age Concern and the National Pensioners Convention—indeed, everyone associated with pensions except the Chancellor of the Exchequer—in believing that we should bring back the link between average earnings and the state pension. We should not allow the number of people dragged into the hole between pension credit and the state pension to increase. It is beyond belief that
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we can even consider having 70 per cent. of people dependent on this Government's mean means-tested benefits in as short a time as 44 years.

We need a Conservative Government to lift people out of poverty, because they want dignity, not means-testing. We need to bring back the link, and we need to stop the Chancellor of the Exchequer's pernicious, poverty-inducing increases in council tax. We had proposals to deal with those issues at the last election, and I look forward, under the leadership of my right hon. Friend the Member for Witney, to my party coming forward with a considered position that will help to bring dignity back to the people of this country and provide hope for those with least.

2.8 pm

Mr. Philip Dunne (Ludlow) (Con): I am conscious of your strictures, Madam Deputy Speaker, to confine our remarks to the topic for debate, and I shall endeavour to do so. I hope that you will allow the odd lapse.

Yesterday, I received a helpful press release from the Office for National Statistics, which suggested that we are at a tipping point for the potential number of claimants. For the first time for some years, the trend in employment is declining and the number of people unemployed is increasing. That is noticeable and I shall remind the House of the statistics. The unemployment rate has increased from 4.7 per cent. to 5.1 per cent. over the period October to December 2005. The number of unemployed people has increased by 108,000 over that quarter and by 123,000 over the year, to reach 1.54 million. In tandem with that alarming increase, there has been a significant increase in the inactivity rate for people of working age. That is relevant to the debate because it affects potential claimants.

The number of economically inactive people of working age has risen by 59,000 to reach 7.95 million—the highest figure since comparable records began in 1971. At the same time, the average number of job vacancies for the three months to January 2006 was 616,800, which is down more than 34,000 over the previous 12 months. While unemployment is rising, job vacancies are declining, which suggests that there may be a significant change in the number of claimants in the coming year. It will be interesting to see what—if anything—the Chancellor makes of that in his Budget statement next month.

A connected issue relating to those in receipt of benefits is tax credit. We have been told that, from April 2006, the level of income that the Chancellor will disregard, which was £2,500 a year, will rise significantly to £25,000—a move that I welcome as it will take a large number of tax credit recipients out of the pernicious series of negotiations with the Inland Revenue into which they are required to enter to determine whether they are entitled to tax credit as their income changes during the year. All Members will have countless examples from their advice surgeries of members of the public who cannot understand the informative—I shall be polite—letters that they receive from the Revenue on that subject.

I wanted to know the cost of that move to the Exchequer, so I put a parliamentary question to the Chancellor last month. I received a reply from the Paymaster General, who was incapable of providing the information. I shall read part of the reply, which stated:
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That answer is not acceptable. It is beyond belief that the Chancellor could announce such a major measure, which will have an impact on a large number of people, without understanding its effect on the public finances. I shall be looking for clarification in the Chancellor's Budget statement.

Another aspect of tax credits relates to the issues we are discussing: the impact of child support measures. It was disappointing that, in his pre-Budget report, the Chancellor failed for at least the second successive year to uprate to any degree the family element of child tax credit, which has been frozen—as indeed has the child care element of working tax credit. Both measures would have done something to help families on the lowest incomes out of child poverty.

I turn to the pension element of the uprating. I have been following with some interest the statements about pensions of the Minister for Pensions Reform, who is not in his place, so I welcomed his comment in this debate, when he appeared for the first time to acknowledge the need to encourage incentives to save. Under the Labour Government, savings have roughly halved nationally. One of the main contributory reasons is the introduction of so much means-testing in the pensions environment. It is essential that the Government's measures in response to the Turner commission reduce dependency on the state and on means-testing, and they have acknowledged that as an important ambition. I shall look particularly at how they achieve it and should welcome the opportunity to participate in that debate over coming weeks.

I urge the Government to take care that they do not damage the existing savings regime in our pensions industry. It has already suffered significant damage from measures taken by the Government, as we heard earlier, so it would be the height of folly if the introduction of a low-cost national pension savings scheme, or its equivalent, caused the migration of all existing savings arrangements to that scheme to the detriment of pensioners and the savings industry.

It is also important that the Government do not fall into a mis-selling trap of their own making. It could be avoided if there were an element of compulsion in the national pension savings scheme. If there is an auto-enrolment system, as proposed by Lord Turner, individuals must be given some advice, one way or another, to determine whether saving for their pension is right at a particular stage of their working life. I am thinking particularly of graduates at the beginning of their careers who have to pay off tuition fees and so on. Is it really appropriate for them to be saving for their pensions at the beginning of their career when they have costly debts to pay off?

I also urge the Minister to ensure that there is sufficient confidence in whatever savings scheme is established to allow people on lower incomes to participate if they want to do so. Experience has shown the difficulties of previous Government schemes that were rolled out with great fanfare but not taken up in the
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numbers that the Government wanted, in part because people felt that the Government would not play fair with them and the rules were changed. I do not criticise this Government particularly because all Governments have a tendency to change the rules as they go along, so whatever regulatory oversight regime is in place, there should be an element of independence. Just as, to their credit, the Government introduced independence for the Bank of England, they should consider a regulatory oversight regime for the national pension savings scheme that is independent of Government.

Danny Alexander: Does the hon. Gentleman agree that one of the most significant disincentives for people on low incomes to make provision for their retirement is the spread of means-testing in the pension system? People on low incomes are likely to be much more affected by means-testing, so the current system is much less likely to encourage them to make provision for their retirement.

Mr. Dunne: I completely agree. Indeed, until two years ago when the Government made the change, it made no financial sense for many people on low incomes to save because they were better off depending on the state in their retirement. The Government have taken some steps to reduce that disincentive to save but it still exists to some extent.

Incapacity benefit is also being uprated. I do not want to comment at length on the welfare reform Green Paper, as I am aware of Madam Deputy Speaker's strictures on the subject. However, it discusses the need for a reduction in the number of IB claimants over the next 10 years, and how we achieve that is relevant to the debate. All Members can agree that the aim is desirable, but it is a major challenge for the Government and there are some specific problems that they need to address.

The vast majority of the 2.7 million IB claimants have been in receipt of the benefit for more than four years. We are dealing with a large proportion of people who are in the most difficult category in terms of getting back to work. They include some of the most vulnerable people—the most severely disabled and the most persistently unemployed. Whatever the Government may say about the previous Conservative Administration's attempt to shift people from unemployment benefit to incapacity benefit, the number of IB claimants under the Labour Administration has risen significantly—it has gone up by more than 300,000—so they cannot make that accusation without acknowledging that the number has risen significantly under Labour as well.

The pilot pathways-to-work schemes that the Government have introduced over the past couple of years are making modest progress in increasing take-up, thus getting more people back into work. The percentage for each pilot area varies between about 7 per cent. and about 11 per cent. I acknowledge that that is an improvement, but that is the percentage increase for all claimants in the area, irrespective of the duration of their being on incapacity benefit.

Our performance, even in the pathways areas, is not as good as that in other countries. As a member of the Select Committee on Work and Pensions, I had the
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advantage of visiting Holland with other Members last week, and some dramatic and significant reforms have taken place there over the past few years, as I am sure the Minister is aware. Particularly in addressing long-term incapacity benefit claimants, great strides are being taken in changing the attitudes of people in receipt of benefit and putting in place an array of measures to encourage people back into work.

The main focus in Holland is on making employers and individuals who have disability aware of the fact that they have the potential to work. The focus is on what they can do, not what they cannot do. Although that is a rather simplistic description, that change in attitude is dramatic. Unfortunately, the pathways pilot schemes do not provide that. They continue to encourage people to think that they have a right and an entitlement to benefit and to think about what they cannot do and what they are entitled to if they cannot do it. The Government need to address that change in attitude.

The Minister is aware of the final issue that I should like to raise, which relates to how the Department for Work and Pensions copes with the voluntary and private sector agencies with which it enters contracts to supply training and other services to long-term incapacity benefit claimants. The Department is in the midst of reviewing its relationships—and it needs to do so, because they have been chaotic. We have evidence from many of those organisations to show that the Department has been running its supplier contracts in such a way as to shut them all down—

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