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25 May 2006 : Column 1654
Mr. Hutton: I think I can assume from that that the hon. Gentleman generally supports the reforms that we are making through the White Paper; I genuinely welcome that, by the way. His point about consensus is well made, and we certainly intend to establish and maintain the widest and deepest consensus that we can. However, an important part of that has to be a grown-up approach to affordability issues. He cannot just brush those away, as he did by suggesting at the beginning of his remarks that affordability is not an issue. It is absolutely fundamental.
May I correct the hon. Gentleman on one or two things that he said that are not right? I have only a few minutes, so I shall try to keep to the point. He said that means-testing would be extended over the next six years. That is not true. He will have the opportunity in due course to look more carefully at the White Paper, and he will see that the changes we are making to the savings credit fix will prevent that from happening.
I agree with the hon. Gentleman that the administration of the financial assistance scheme needs to be improved, and we will set out how we intend to do that. His remarks on public sector pensions reflect two problems that he has. We all remember the Conservative party saying before the election that it had no plans at all to change any aspect of public sector pensions. Now, with the election behind him, he is waving his plans to change the pension schemes of the nurses, the teachers, the doctors and the local government workers. People will draw their own conclusions about his consistency in doing that.
More fundamentally, the hon. Gentleman is confusing occupational pension age with the state pension age. It is simply not true that people in the public sector will have the benefit and advantage that he claims.
In general, I welcome the hon. Gentleman’s support for our proposals, but I would be remiss if I did not, finally, correct some of his description of the record. He described the pensions system as being pretty well perfect when his party left office and we took office. I do not think that that is what many pensioners would say. There was no help for the poorest pensioners, and there was pension mis-selling on a scandalous scale. There was no scheme protection at all for people whose pension schemes collapsed. Anyone who thinks that is a credible record does not understand the reality of pensions policy.
Mr. Frank Field (Birkenhead) (Lab): I congratulate the Secretary of State on trying to make a silk purse out of a pig’s ear. I draw his attention to the extraordinary support for that part of his statement in which he announced that those on the Government side of the House want to give much greater justice to women working than they have hitherto received. However, can he help me with one problem that I have, given that he has rejected an investment-led and accepted a tax-financed approach?
Four years ago, the then Secretary of State sent us back to our constituencies to sell to our constituents the idea that the state second pension would not only eradicate poverty as we knew it, but would last their lifetime. Today this Secretary of State has, in effect,
announced the winding up of the state second pension as we know it. Why will these tax-financed reforms last for even four years?
Mr. Hutton: I am very grateful to my right hon. Friend— [Laughter.] I thank him for welcoming those parts of the White Paper that he agrees with—but I have to make something clear to him, and to others, in relation to the state second pension. We had always signalled our intention that over the long term, we would move to a flat rating by 2050. Lord Turner, having considered those issues, has concluded that we should be looking to do that on a faster time track.
I simply say to my right hon. Friend that he needs to consider the two reforms together—the restoration of the earnings link for the basic state pension and the changes we are making to the state second pension. Overall, this is a beneficial sequence of changes that will benefit pensioners in their retirement. I set out the figures on that in my statement.
Mr. David Laws (Yeovil) (LD): I start by adding our congratulations to Lord Turner and his fellow commissioners on what is clearly an influential report on pensions. I also congratulate the Secretary of State, as well as his team and his officials, on introducing the White Paper according to the timetable that was initially indicated, which some of us might have felt would be difficult, particularly in the light of the divisions in the Government on the issue.
I also congratulate the Secretary of State on appearing to have brought the Chancellor of the Exchequer on board for the pensions solution. Indeed, the Chancellor was even seen smiling on the Front Bench earlier. Whether that is because he feels that he is now in a position to take credit for the proposals, or whether he feels that he has succeeded in burying some of them, we shall find out over time.
The Secretary of State knows from our earlier discussions that there is a great deal in his White Paper that we welcome and agree with, and that we believe fundamentally that the direction he is taking on pensions reform is the right one. However, he also knows that we have a major concern that the pensions architecture that he is building rests on the sandy and insecure foundation of a basic pension system—a state pension system—that will still rely hugely on means-testing, have a very low basic state pension and therefore raise issues of complexity and disincentive to save.
We have indicated to the Secretary of State that we are in favour of the proposal to restore the earnings link, that we have broad support for the NPSS and that we also accept the increase in the state pension age in order to fund a lot of those improvements. However, I want to discuss some of our fundamental concerns about today’s statement, starting with what appears to be a Gordon Brown get-out clause in relation to when the link to earnings will come in.
The Secretary of State has given the impression today that he is signing up to Lord Turner’s proposals. In fact, he is bringing forward by five years the proposals to increase the state pension age, therefore saving money, and the Chancellor of the Exchequer seems to be moving back by between two and five years
the date when pensioners will see some benefit from the earnings link. Why is there the issue of an affordability test, when the cost of the proposals is clear? Why is it stated on page 110 of the White Paper that the earnings link and higher state pension age should be “inextricably linked”, when it is now clear that although the Secretary of State proposes to increase the state pension age, he is vague about when the earnings link will be introduced? He says that there will be a decision on that at the beginning of the next Parliament, if his party is still in power. Can he indicate what “beginning” means? Does it mean within the first Budget or within the first year? Does he accept that in bringing forward the state pension age and delaying the earnings link, he is short-changing the pensioners who will be interested in this statement?
On the earnings link, will the Secretary of State also comment on the position of the 1 million pensioners who live abroad, some of whom do not even receive a price link at present in relation to the state pension? Will he confirm whether the earnings link will be extended to pensioners abroad, including those who do not benefit at present?
Does the Secretary of State accept that he was wrong to describe the basic pension that he will deliver as in any way generous? If the earnings link is delayed until 2015, as it could be, does he accept that the average pensioner today would be just £2 better off than with a price link? In other words, does he accept that the settlement does little for today’s generation of pensioners? Does he also accept that although he has succeeded in capping the degree of means-testing in the system, he is still reliant on a system in which, even if his figures are accurate, one third of pensioners will be subject to means-testing? How will that affect the incentives for people whom he hopes will enter the national pension savings scheme?
Will he also indicate why he has not accepted— [Interruption.]
Mr. Deputy Speaker (Sir Michael Lord): Order. These are complicated matters, and the House should listen courteously to the Member addressing the House.
Mr. Laws: I am grateful to you, Mr. Deputy Speaker. These are important issues, and we are entitled to ask the Secretary of State for answers.
Why has the Secretary of State rejected Lord Turner’s proposal to have a permanent standing commission on pensions and to consider those issues on an ongoing basis? Why does he suggest instead that there should simply be periodic reviews? Can he also return to the issue of public sector pensions and tell us whether the Government will at some stage set up a similar Turner-type review to consider the reform of public sector pensions?
As we consider proposals for legislation, we also want to find as much cross-party consensus as possible. We have accepted major parts of today’s White Paper and the direction of travel. We are of the view, however, that the Government are only delivering half solution today, because of the inadequate nature of the basic pension system on which it will be built. We therefore
fear that it will not be the final settled pensions solution that all of us have sought.
Mr. Hutton: I am grateful to the hon. Gentleman for his support. I fundamentally reject his analysis that this is anything other than a comprehensive and integrated series of reforms, which will benefit pensioners. Let me respond to some of his points.
The hon. Gentleman was concerned about the spread of means-testing, and so are we. That is why I have announced these reforms, which will see means-testing fall considerably. He has mentioned the figure of a third, and it will be about a third. However, we expect only 6 per cent. of pensioners who are being means-tested in 2050 to be in receipt of the guarantee credit. The remainder will receive the savings credit, which, as he knows, is designed to reward savings. That is a good outcome, not a bad one. I ask him to reflect on that.
The hon. Gentleman asked about increases in the state pension age. I need to remind him that those increases will not take place before 2024, and we intend to introduce the earnings link by 2012. There is therefore no question whatever of the link being broken as he suggested. We are absolutely not short-changing today’s pensioners. This is a comprehensive, full and positive endorsement of Lord Turner’s report, and we have responded in a way that, as he said at the beginning of his remarks, he did not expect us to. Having heard him, however, I am delighted that we responded as we did. I do not want to set up another quango, which is why I have decided not to set up a pensions commission as Lord Turner recommended.
As for public sector pensions, let me remind the hon. Gentleman and the House that several negotiations are taking place now, scheme by scheme, to change the terms of those schemes. It is right to change those terms, and the negotiations will continue.
I am grateful to the hon. Gentleman for his support. I am surprised that he did not refer more positively to his proposals, which, as I understand it, would cost the taxpayer an extra £11 billion in 2010, rising to £16 billion in 2015 and £90 billion in 2050.
Mr. Terry Rooney (Bradford, North) (Lab): I congratulate my right hon. Friend on the comprehensive reform package that he has brought forward today. Can he confirm that he will not abolish the new deal to finance the earnings link, and that that link will not last for only four years? More seriously, getting a consensus in the House should be fairly easy, but we have had consensus in the past, and it lasted about three years—so it is much more important to get a consensus among the general public. What education and promotion programme does he envisage to get all the messages across to the general public?
Mr. Hutton: I am grateful to my hon. Friend for reminding us that the Conservative party’s policy at the general election was to pay for the restoration of the earnings link by scrapping the new deal, thereby making it harder for younger people to get jobs. That is
not the right way to build a sustainable affordable package for long-term pensions reform. That is why we have eschewed that approach.
My hon. Friend is right to talk about the need for consensus building. Now that the proposals have been made, and we have broadly received a welcome from the Opposition parties, which we very much appreciate, Ministers have a responsibility, which we would be happy to undertake with the Opposition parties, to take the message around the country about the importance of the reforms and how good they will be for pensioners in the long term. I look forward to the support of the two Opposition Front-Bench spokesmen in doing so.
Sir John Butterfill (Bournemouth, West) (Con): I congratulate the right hon. Gentleman on a thoughtful package of proposals. I want to ask some questions about it, but the all-party group that I chair will welcome pretty well everything that he has put forward.
In relation to the national pension savings scheme, to what extent does the Secretary of State envisage the participation of the private sector in its implementation? Alternatively, will it be entirely a state enterprise? In relation to tax relief, he said in his statement that there will be a 1 per cent. tax relief contribution. Who will get that tax relief? Do employers get any tax relief? How does the tax relief structure work within the system? That is an interesting point for all of us.
I also welcome the principle of the return to a link with earnings, which is perhaps long overdue. I am concerned, however, that it will take so long. The way in which society treats its elderly always involves an intergenerational transfer. My problem is that, for example, those who fought in the last war and created the conditions and freedoms that we enjoy today will be in their 90s before the earnings link is reintroduced, and many who grew up in the post-war austerity period will be in their 80s. Is it not possible to bring forward that reintroduction a little, as Lord Turner recommended?
It seems to me that there are a number of ways in which that could be done—
Mr. Deputy Speaker: Order. I think that the hon. Gentleman has probably said enough for the time being.
Mr. Hutton: I am grateful to the hon. Gentleman for his support, and I appreciate the work that he does in the House for pensioners. He asked several specific questions about the restoration of the earnings link. We aim to restore it in 2012, and that is partly a decision about affordability, but is also linked to the creation of the national pension savings scheme and low-cost personal accounts at that time. It is important to introduce those reforms together, which is why we propose 2012. The national pension savings scheme and the personal accounts will be run by private-sector providers.
Let me make it absolutely clear that the Government are not nationalising the pension savings industry, and have no intention of doing so. I hope that reassures the hon. Gentleman.
Mr. Deputy Speaker: Order. These are complicated matters, and the Front-Bench spokesmen understandably took quite a long time to ask their questions. A good many hon. Members are attempting to catch my eye. I ask for one brief question from each Member, and the briefest possible answers from the Secretary of State. If need be, I may interrupt Members if they go on for too long.
Mr. Denis MacShane (Rotherham) (Lab): I welcome my right hon. Friend’s package, especially his action in reducing the shadow of the means test, which has stalked pensions for too long. Will he also think again about the financial assistance scheme? Although he has gone some way towards meeting the concerns of the 85,000 steel engineering and other workers whose case is before the European Court of Justice, he has not gone all the way, and we do not want a ruling from the ECJ that would turn his hand. May I invite him to continue to consult on and consider that sensitive issue as he examines the White Paper further and implements its proposals? A great many people feel that their pensions were stolen from them.
Mr. Hutton: We will certainly do that. I think that what we have announced constitutes a significant extension of the financial assistance scheme. I was asked earlier about the cost: it will be an additional£2 billion.
Sir Nicholas Winterton (Macclesfield) (Con): May I ask a direct question about the state second pension? There has already been a certain amount of publicity and comment in the broadsheets following leaks of the Secretary of State’s announcement today. Is it true that anyone earning more than a reasonable salary who is contributing to the state second pension, whether directly to the scheme run by the Government or to a private scheme if they have contracted out, will receive no benefit whatever from that contribution?
Mr. Hutton: That is certainly not the case, as Lord Turner has made clear. We must take into account not just reforms of the state second pension, but the impact of the restoration of the earnings link to the basic state pension. People will be better off as a result of our combined reforms.
Jim Cousins (Newcastle upon Tyne, Central) (Lab): I congratulate my right hon. Friend on his statement. I hope he will not mind my spoiling the consensus by saying that it is not necessary to look at the small print of what he said to see that it has Labour origins and a Labour direction, which comes as a relief in these troubled times.
I hope there will be no attempt to cherry-pick Turner so that the personal savings scheme starts in 2012 and the earnings link does not. Will my right hon. Friend assure us that the two dates will be coupled, and that the start of the personal savings scheme and the restoration of the earnings link will constitute a single package?
Mr. Charles Walker (Broxbourne) (Con): I welcome much of what the Secretary of State has said. He is aware that many people with quite small pensions are still paying income tax. Has he considered raising the threshold at which pensioners start to pay income tax?
Mr. Hutton: We have done that already, and those are matters for my right hon. Friend the Chancellor of the Exchequer.
Alun Michael (Cardiff, South and Penarth) (Lab/Co-op): I warmly welcome the statement, and everything that my right hon. Friend has said. May I ask specifically about the help that he will give to, for instance, the workers at Allied Steel and Wire—whose headquarters were in my constituency—who lost their pensions when the company collapsed?
I am grateful to my right hon. Friend and the Chancellor for listening to the representations made by my hon. Friends the Members for Cardiff, West (Kevin Brennan) and for Sittingbourne and Sheppey (Derek Wyatt), by me and by others, and for giving such a major boost to the financial assistance scheme. Will he tell me how individuals will learn about their specific circumstances, so that they can be certain about their futures: must they apply, or will they be approached by the Department?
Mr. Hutton: I thank my right hon. Friend for his support, and pay tribute to the work done by him and others in highlighting the predicament in which many pensioners found themselves when their insolvent employers’ pension schemes collapsed. I am truly grateful for the work he has done.
My right hon. Friend’s constituents need do nothing. They will be informed of their entitlement under the new arrangements. As I said earlier, I think that we need to improve the operation of the financial assistance scheme, and we will present proposals on that shortly.
Greg Clark (Tunbridge Wells) (Con): The Secretary of State has made it clear that the earnings link will be restored in 2012, subject to affordability and the fiscal position. We understand that that has been agreed with the Treasury. As he will know, the Treasury green book contains a section on projects with uncertain outcomes, which advises Ministers and officials to attach probabilities to each of the likely scenarios. Assuming that he has followed the Treasury guidance, may I ask what probability he has attached to the earnings link not being restored in 2012?
Mr. Hutton: This is not a project with an uncertain outcome.
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