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Dr. Cable: Some of us expressed scepticism about the costs from the very beginning, but we wished to be constructive and wanted the Olympics to succeed. Clearly, however, we must be prudent about costs, although it is clear that the Government have not been.
Apart from public spending growth, the other element of unsustainability in the economy relates to personal debt. We have had a remarkable recent trend of consumer expenditure running ahead of the growth of the national economy in every single year. One of the consequences of that has been that the savings ratio has fallen from 10 per cent. to less than 5 per cent. A further consequence has been the substantial build-up of personal debt. The aggregate figure, which is about 150 per cent. of income, is the highest in the developed world by a long way and the highest in British history. Much of that has been necessitated by the enormous boom in house prices, with 85 per cent. of that debt secured against houses. Of course, much of the problem is a matter between private borrowers and private companies, rather than a matter for the Government, but the Government could and should be doing many things.
Over the years, the Government have talked about promoting generic financial advice, but very little has happened. They have talked about financial education, and although a little bit is happening as part of maths education, we have seen little else. There seemed to be possibilities for debt pooling, but that has not happened on any scale. We are now faced with a possible collapse in the insurance market for mortgages, which would expose many people to vast liabilities and possible repossession owing to the failure of the market. The Government should be focusing on those matters, but they are not.
In the last part of my speech, I wish to refer to big, long-term issues, which, if properly handled, could take us very far forward. The first such issue is the response to Stern. The Government were fortunate to have access to Nick Stern, who is probably one of the really outstanding economists in the world. His analysis is outstanding and recognised internationally. The Stern report came up with several clear conclusions: action is needed urgently; action is needed initially in the developed world; and we in this country have responsibility for sharing the lead on that action. In due course, we will have a system of internationally traded permits at the European and global levels, but in the meantime, national policy will largely focus on taxation. We have led the way in that debate, and the Conservatives are following, although it is unclear exactly what they are advocating.
We have a difference with the Government, however. It may be an artificial disagreement, but I hope that in the course of this debate it will be clarified. The Government have criticised us, and the Conservatives, for arguing for environmental taxes on the grounds that there is a fundamental incompatibility between raising taxes to change behaviour and raising taxes to raise revenue. I ask the Chancellor to reflect on something that I am sure he would consider a success, the climate change levy. The levy has undoubtedly had a significant effect in reducing carbon emissions; there are good independent academic studies to support that assertion. It has also raised in total about £4 billion in revenue, which has been fed back in tax cuts elsewhere.
It seems an entirely sensible precedent, and I am at a loss to understand why the Government have such difficulty with the idea of applying that principle more widely.
I conclude with a few words on Turner and pensions. There is a broad consensus on the overriding architecture. We all accept that there has to be improvement in the basic system of state pensions and it has to be offset by delayed pension ages. We all agree that there needs to be a new system of state second pension provision with employer, employee and Government support. Our disagreements are partly about timing.
We take the view that it is unnecessary to depart from Turner’s recommendations. The Government seem to have brought forward by five years the later retirement age and postponed by five years the age at which people will be entitled to earnings linking with their pension. Of course there are costs involved in that, and there are tough choices to be made. We believe that the Government have ducked some of those tough choices in failing to deal, for example, with the issue of public sector pensions. We also disagree with the Government’s decision to depart from Turner’s conclusions in respect of women, or more generally the citizens’ chest for pensions.
The big philosophical disagreement, however, is about the role of means-testing. We take the view that the longer the postponement of the improved state pension, the greater the number of people who will be sucked into means-testing over a long period, and that will have very damaging economic consequences. The Government, and particularly the Secretary of State for Work and Pensions, of whom I have asked questions on this matter several times, believe that there is no significant disincentive effect from a marginal rate of tax and benefit withdrawal of 40 per cent., but we believe that there is. We find it very difficult to square the Government’s relative agnosticism on this question with their insistence that they must retain a system of 40 per cent. tax relief for high earners. If incentives work at the top end of the scale, why do they not work at the bottom? If incentives are important in saving for pensions, why are not the Government much more concerned about the damaging impact of means-testing?
The Chancellor will shortly have the opportunity to present his pre-Budget report. It could be an opportunity for crowing and displaying self-satisfaction, and he will be entitled to a certain measure of that, but I hope that, in the national interest and in the interest of his own credibility as Prime Minister, if that is what he becomes, he will start to acknowledge that there are very serious problems of imbalances in the British economy which will have to be addressed, and that there are big long-term challenges in environmental taxation and pensions policy which the Government are so far ducking.
Mr. Deputy Speaker: I remind the House that there is a 15-minute limit on Back-Bench speeches and that applies from now.
5.18 pm
Dr. Tony Wright (Cannock Chase) (Lab): Listening to the exchanges earlier, I could not help wondering what my constituents would make of them if they were listening. I was thinking in particular of two groups of my constituents: those who have been affected by the collapse of Farepak—I have at least 200 families in that position—and those who have seen their occupational pensions disappear in recent years and are looking for help to remedy that. I do not think that they would have been much cheered by some of the scenes that we saw earlier. It was difficult to be impressed by the shadow Chancellor, who gave a characteristically public school debating speech. He is not here, but my advice to him would be to adopt a rather different tone if he wants to be taken entirely seriously. He deserved the clunking demolition that the Chancellor delivered to him.
The Chancellor has said on a previous occasion that Farepak is a national disaster, and it is, in a variety of ways. It has also prompted all those who have been affected by the collapse of their occupational pensions to write. They say that although it is good that we are all getting exercised by Farepak, giving a day’s salary and participating in other campaigns to help the customers, and rightly so, what are we doing to help the tens of thousands of people who have lost all their occupational pensions through no fault of their own?
My answer is that we should help both groups of people; they are not alternatives. They expect the Government to do what they can to remedy the failings of the market.
Mr. Redwood: Does the hon. Gentleman agree that taking £5 billion a year out of pension funds’ income, causing a £100 billion reduction in capital value, was the main reason people do not have proper pensions?
Dr. Wright: Here again we see the instinctive temptation to make some instant political point that might help the general political case along. That is not what more than 100,000 people who have been affected by the removal of their occupational pensions want to hear. They want to hear something practical about what is going to be done.
Mr. Philip Dunne (Ludlow) (Con): Which would the hon. Gentleman regard as the more overtly political: making a statement, as did the Minister for Trade, that he would give up a day’s salary, or telling customers of Farepak—I am doing this with my constituents—that if their agents paid their subscription by credit card, they are likely to be protected under the Consumer Credit Act 1974 and can get their money back? Indeed, one of my constituents has already got more than £3,000 back.
Dr. Wright: People want to know how this could happen and what we are going to do about it.
I have a letter from a woman in my constituency who says that she is extremely pleased to hear what all of us are doing about Farepak. Like other hon. Members, I am trying to do some things locally as well as encouraging people to contribute to the national campaign. She writes:
“Since my last email to you, we have had very bad luck. My husband took action to salvage a small amount of money so that our three children aged one, eight and nine could at least have
some presents. He worked day shifts and night sifts and even call-outs but sadly on Sunday 5 November he had an accident at work and was taken to hospital, where they attempted to save his finger. As you can see, he is unable to go back to work. I am now totally devastated and really have no choice but to tell my children that Christmas will have to be cancelled this year. I hope that the Farepak bosses and HBOS can sleep at night because I know I can’t with worry.”
The point of mentioning that is not that it is a case of individual hardship; there are thousands of such cases and thousands of families in this position. What they want to know is how a company could behave in that way. How could a company continue to take in money, knowing that it was going to go somewhere else? How could a bank have withdrawn support, knowing what the consequences would be? We have discovered in the past few days that a firm of administrators set up a premium rate telephone line so that it will make some money out of the people who phone up to find out what has happened to their money. How can that be?
I am not surprised that some people are saying that the Farepak episode has given us a glimpse at the unsavoury face of corporate life. It has given us a glimpse into a trend whereby some people in our society behave in ways that enable them to get extremely rich, while many are desperately poor. The gap between those two groups is getting ever greater. A disconnection, which is not only financial but moral, is setting in between a world of mega-greed, about which we seem to say little on occasions such as this, and a world of desperate poverty. The Farepak episode has drawn back the veil, enabling us to glimpse what kind of world this is. The Government are rightly asked by people who have suffered as a result of the collapse of Farepak to do all that they can to remedy this market failure.
Julia Goldsworthy (Falmouth and Camborne) (LD): Does the hon. Gentleman share my concern that many people lost a year’s-worth of savings? Given that very high personal debt levels and very low saving levels are involved, we need to do all we can to encourage people, particularly those with very low incomes, to save. This matter will have destroyed their confidence not only in Farepak, but in saving altogether.
Dr. Wright: One of the features of this episode is that we are dealing with people who have tried to do everything right. They have tried not to run up debts, including credit card debt, and have sought to save in the safest way possible. One lady said to me, “You may think it silly that I did not just put the money into the bank and get some interest on it, but I know that had I done so I would have taken that money during the year.” These are the people with whom we are dealing, and they are asking how companies, banks and administrators can behave in this way. Such people then ask Government what they are going to do about it, both in a rescue sense and, more broadly, in a compensatory and a regulatory sense.
This is one of the occasions when the rhetorical demand for less regulation suddenly meets the fact that a group of people has been the victim of the lack of regulation in an area and wants that area remedied. That is one group of people who would have expected more from today’s exchanges.
A second such group is made up of all those people, possibly numbering up to 120,000, who lost some or all of their occupational pension scheme when schemes wound up between 1997 and 2004. This case has now been exhaustively analysed by the parliamentary ombudsman, so we have no excuse for not knowing the facts. An inadequate regulatory framework enabled events to happen. People thought that the final salary pension schemes were safe, as they had been told endlessly.
Indeed, the previous Conservative Government took action after the Maxwell case, which affected some 30,000 people. At that time, we put together a compensation package that provided almost total compensation within weeks. After that case, the Pensions Act 1995 was enacted, setting in place a regulatory structure with minimal funding requirements and so on, which effectively told people, “Your final salary pension scheme is safe”. As the parliamentary ombudsman has shown us, official literature told people that that was the case. In fact, they were not safe, and thousands of people who did nothing wrong but believe the assurances they were given have lost the whole of their lifetime pension savings. Of course they ask, like the Farepak customers, “How could this have happened? We did everything right—we did everything that we were told to do. We were prudent. We saved—we invested in our pensions—and this has happened.” Of course they ask the Government to put together a compensation package, as happened in the case of Maxwell, and then want them to take steps, as they already have, to ensure that this does not happen again.
As I understand it, the Government have a twofold response on why they cannot do what is sought. First, they say, “It’s not entirely our responsibility.” The answer to that is that no one has said that it is entirely the responsibility of the Government—by that I mean the previous Government and this one—but the fact is that they put in place the regulatory framework within which such schemes operate, they said what would happen when they were wound up and what the order of priority was, they put in a minimum funding requirement, and they put out leaflets telling people that the schemes were safe, guaranteed and protected by law. It is therefore not surprising that people now say: “You have an obligation to do something about the collapse of these schemes and the collapse of our entire pension savings.”
The second argument that the Government use is that it would be extraordinarily expensive to provide a compensation package for those affected. I understand why they should say that—there is an argument about what the figure really is—but I do not want to be detained by that point. My point is that it is a curious argument that says that if the figure were less and fewer people were affected, it would not be so difficult to remedy the injustice, which the ombudsman found be at least partly a consequence of official maladministration. It is a curious argument that says that because the problem is serious and significantly affects large numbers of people it cannot be remedied, whereas if it were a smaller problem it could be remedied. That cannot be a tenable position to hold. I hope that the Government are still in discussions about this and that they will seek to build on the financial assistance scheme that they have already introduced in order to provide more effective assistance for these people, because whoever is culpable for what has happened, they certainly are not.
My constituents and others listening to the debate might feel more cheered by the way in which the Government are beginning seriously to engage with some of the long-term issues that transcend day-to-day knockabout party politics. That is particularly true of pensions policy, which has been dogged for decades by our inability to think other than in the short term or to think outside the box of normal tribal, adversarial party politics. That is why we have a pensions system of such complexity, with bits added on but no fundamental reform. There was a nice moment in the 1950s when the Labour party had proposed a comprehensive pensions scheme called the national superannuation scheme, causing the Macmillan Government to reflect on what to do in response. Macmillan wrote to his Ministers:
“In the long run we shall all be dead...So do not let us bother too much as long as we do not spend too much for the next two or three years.”
That is an entirely characteristic statement of what one might called the “nimto” tendency in British politics. We know about nimby, but this is “nimto”, or “not in my term of office”. However, some issues cannot be dealt with in that way, of which pensions are the key issue. One history of the politics of post-war pension policy, by Hugh Pemberton, says that
“the short-term horizons and adversarial nature of British politics are profoundly unsuited to crafting pensions policy.”
That has been the case, and the history of pensions in this country shows it.
Now, not only on the pensions front, but on many others—climate change is the other obvious example—we politicians are being asked to get outside the box of short-termism and adverserialism, and try to reach long-term agreement that will stick across generations. It goes against the grain and cuts against the culture, but it is something that we must do. I give the Government credit for establishing the Pensions Commission and the other reviews to try to enable us to deal with such issues in a rather more sensible and long-term way than we have done before. If we do that, we bring credit to ourselves and give this and future generations the kind of security that people look to us to provide.
5.36 pm
Mr. John Redwood (Wokingham) (Con): I am a company director and a pension trustee, and I have declared my interests in the register.
This afternoon was a great missed opportunity. The Chancellor of the Exchequer had a fairly full House. He could have reported on his stewardship of the United Kingdom economy over the years. He could have explained why the Treasury wishes to sponsor legislation in the forthcoming Session. He could have taken us through the legislation that the other economic Departments are sponsoring, and he could have told us how he wished to tackle the obvious problems that we see around us in the British economy. Instead, he chose to be even more juvenile than he usually is. To summarise the Chancellor’s speech, it said that a number of Conservative Back Benchers had, over the months, called for various taxes to be reduced or abolished and that if we added all those up, it would amount to a lot of money—which, by some mystery, would be the first Budget of an incoming Chancellor of the Exchequer for the Conservative party.
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