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Session 2006 - 07
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Pensions Bill

Pensions Bill



The Committee consisted of the following Members:

Chairmen: Mr. Roger Gale, † David Taylor
Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)
Banks, Gordon (Ochil and South Perthshire) (Lab)
Brown, Mr. Russell (Dumfries and Galloway) (Lab)
Burt, Lorely (Solihull) (LD)
Creagh, Mary (Wakefield) (Lab)
Heppell, Mr. John (Vice-Chamberlain of Her Majesty's Household)
Hillier, Meg (Hackney, South and Shoreditch) (Lab/Co-op)
Keeble, Ms Sally (Northampton, North) (Lab)
Lancaster, Mr. Mark (North-East Milton Keynes) (Con)
Laws, Mr. David (Yeovil) (LD)
Penrose, John (Weston-super-Mare) (Con)
Plaskitt, Mr. James (Parliamentary Under-Secretary of State for Work and Pensions)
Pritchard, Mark (The Wrekin) (Con)
Purnell, James (Minister for Pensions Reform)
Selous, Andrew (South-West Bedfordshire) (Con)
Smith, Ms Angela C. (Sheffield, Hillsborough) (Lab)
Waterson, Mr. Nigel (Eastbourne) (Con)
Alan Sandall, Committee Clerk
† attended the Committee

Public Bill Committee

Tuesday 30 January 2007

(Morning)

[David Taylor in the Chair]

Pensions Bill

Clause 5

Up-rating of basic pension etc. and standard minimum guarantee by reference to earnings
Amendment proposed [25 January]: No. 1, in clause 5, page 5, leave out lines 32 to 38.—[Mr. Waterson.]
10.30 am
Question again proposed, That the amendment be made.
The Chairman: I remind the Committee that with this we are discussing the following amendments:
No. 29, in clause 5, page 5, line 38, at end insert
‘; or by a percentage not less than the percentage by which the general level of prices is greater at the end of the period than it was at the beginning, whichever is the higher.’.
No. 2, in clause 5, page 5, leave out lines 39 to 41.
No. 31, in clause 5, page 5, line 41, at end insert—
‘(3A) The general level of earnings shall be defined as the Average Earnings Index.
(3B) The general level of prices shall be defined as the Retail Prices Index.’.
No. 3, in clause 5, page 5, leave out lines 42 to 44.
No. 4, in clause 5, page 6, line 13, leave out from ‘shall’ to end of line 14 and insert
‘determine the general level of earnings as set out in subsections (8A) and (8B).
(8A) If the average earnings index (including bonuses) for the whole economy for September in any year is higher than the index for the previous September, the Secretary of State shall as soon as practicable make an order in relation to each sum mentioned in subsection (1), increasing each sum, if the new index is higher, by the same percentage as the amount of the increase of the index.
(8B) In making the calculation required by subsection (8A), the Secretary of State shall in the case of the sums set out in subsections (1)(a) to (1)(d) inclusive, round up the result to the nearest 10 pence.’.
No. 33, in clause 5, page 6, line 14, leave out ‘he thinks fit’ and insert
‘may be approved by resolution of each House of Parliament’.
No. 5, in clause 5, page 7, line 3, at end insert—
‘(6A) The Secretary of State must, within six months of the beginning of the Parliament referred to in subsection (6), inform Parliament by means of an oral statement of the date at which the provision set out in this section could be afforded.’.
No. 78, in clause 5, page 7, line 3, at end insert—
‘(6A) The Secretary if State must, on or before 5th April 2009, announce his decision as to the date from which he will implement the provision set out in this section.’.
Mr. Nigel Waterson (Eastbourne) (Con): Good morning, Mr Taylor. Welcome to week two of the Committee. I am sure that the time is flying by. It falls to me to respond to what in many ways has been a fascinating debate on this group of amendments. I will try to do so fairly briefly. It is worth just commenting at the outset that both the Minister and the hon. Member for Yeovil tried a little too hard to justify the fact that neither of their parties, unlike ours, fought the last election on restoring the link with earnings. I should perhaps remind the Committee that we got there first.
For the record, as the Minister seemed a bit confused about this, we remain in favour of restoring the link with earnings. We agree with the Government that it must be affordable—not a word that appears very often in the Liberal Democrat lexicon. The point was made last week, I think by the hon. Member for Yeovil, that this use of the increase of the state pension age as a kind of smokescreen for putting off the day of restoring the link seems to be a very recent addition to the Government’s armoury on this issue. We think that this is a bit of an afterthought and an excuse. I do not intend to press amendments Nos. 1 and 2 to a Division. We have made our points on those.
I was fascinated to hear what the Minister had to say about amendment No. 3 and his suggestion that it amounted to a spending commitment of £1 billion, although that is dwarfed by the amendment tabled by the hon. Member for Northampton, North which would cost £14 billion. One wonders how that figure is reached. Certainly we would take out the words “up or down” by removing the whole of that subsection, but how can the Minister look into a crystal ball and decide that this will be the cost in future? That will be determined by future changes in average earnings and the extent to which levelling up or down arises. Perhaps he was pulling my leg. I am a good sport, so I will take it in the spirit in which it was intended. In any event, it will be a relief to him and to the Chancellor that I do not intend to press amendment No. 3 to a vote either.
I am, however, minded to press amendment No. 4, and I was emboldened by what the hon. Member for Yeovil had to say on the subject. This is one of a series of amendments promoted, to give credit where credit is due, by Mr. David Yeandle of the Engineering Employers Federation, who has been very helpful on many aspects of this Bill. The Minister went to enormous lengths to deal with the points made by the hon. Member for Yeovil about putting in an alternative to “of earnings and prices”. To some extent, I understand the reason for that, but his only arguments against amendment No. 4 appeared to be the need for flexibility. Well, flexibility is very nice when one has a credit card or is going on holiday, but I doubt whether it is a key function of pensions legislation.
The Minister cited the fact that for one brief period in late 1998 and early 1999, the Office for National Statistics suspended publication of this particular index. It seems to us that he is getting over-anxious about this. If some ghastly development were to occur so that this index was no longer used, it would be a matter of a moment for that future Government to pass brief legislation to deal with the issue. The Minister said rather delphically:
“The point is that different circumstances may call for the use of different uprating measures”.
He then talked about the flexibility
“to enable us to adapt to technical changes or different approaches if we need to.”
However, he got back on track when he confirmed:
“We have made it clear that we intend to use that index”——[Official Report, Pensions Public Bill Committee, 25 January 2007; cc. 145-6.]—
that index being the earnings index set out in my amendment.
There comes a point in every Committee on every Bill at which the Minister says, “Well we intend to do that, but we do not want to put it in the Bill.” The Opposition say, “Why not put it in the Bill if that is what you intend?”. The whole ballet goes round and round in circles. Given that the Minister has confirmed his clear intention to use that particular index, we cannot see any good reason why that should not be in the Bill. I will urge hon. Members to support amendment No 4 in due course.
With all due respect, the Minister did not deal seriously with my amendment No. 78. The amendment is still valid and important. It would require the Secretary of State to make an announcement about the intention to implement the restoration of the link “on or before” 5 April 2009. I was pretty open in my purpose, which was to ensure that, prior to the most likely date for the next general election, the Government should come clean on the issue. I find it inexplicable that they would do anything else. As I said, I even think it possible that the Chancellor, in his first 100 days, might see this as one of his eye-catching initiatives. I am sure that I also speak for the hon. Member for Yeovil, but the Opposition parties will absolutely have something in their manifestos about this, so it is a bit puzzling that the governing party is not prepared to make that commitment.
For the reasons given, the debate is a bit academic, because I am sure that things will be made clear. Particularly if the Government continue to be behind in the opinion polls, they will want to say something warm and cuddly about pensions. Announcing the date of restoration of the link strikes me as something that they could not avoid doing, unless it is completely off the agenda because the economy is in such a state by then.
So, Mr. Taylor, I would like to give notice that, at the appropriate moment, I would like to press both amendments Nos. 4 and 78 to a vote.
The Chairman: Order. The Minister has responded to the debate in the main. He wishes to respond briefly to the comments made by the hon. Member for Eastbourne.
The Minister for Pensions Reform (James Purnell): Thank you, Mr. Taylor. It is a pleasure to be serving under your chairmanship this morning. I respect the right of the hon. Gentleman to press his amendments, but I will ask my colleagues to resist. I will pick up on a couple of his points, which I did not cover earlier in the debate.
The hon. Member for Eastbourne tried to say that we were confused about Conservative policy on uprating. That is slightly tendentious, if I may say so. Even today, he still did not clarify whether his party’s policy is that the state pension should be uprated with earnings from now, which is what his shadow Secretary of State said on Second Reading. The hon. Member for Eastbourne failed to say whether that was the Conservatives’ policy or not. If anyone’s policy is confused, it is the Conservative party’s. At least the Liberal Democrats’ policy is clear—they will just spend, spend, spend. What we do not know is whether the hon. Member for Eastbourne agrees with his shadow Secretary of State; he has not resolved that confusion today.
On the £1 billion, I do not have a crystal ball, but there are analysts in the Department for Work and Pensions who do and who have looked at the precise wording of his amendment. I made it clear that I was sure that the Conservatives’ intention in tabling that amendment was not to cause an increase in expenditure, but that would be a result of the compound increases of 10p on a yearly basis.
The hon. Gentleman is trying to come up with new arrangements for specifying the amount of earnings. He is right that one always comes to a moment in Committee when the Opposition say, “Put it in the Bill”, and the Government say, “That is our intention anyhow, so it is unnecessary.” The existing arrangements have worked well. They have worked well with pension credit. There has not been an issue of substance caused by the proposals, so maintaining the flexibility which the current legislation gives us and which is mapped into the new arrangements from the current legislation is more appropriate. I say, “If it isn’t broke, why try and fix it?” I urge my colleagues to agree.
Finally, the hon. Gentleman said that I had not addressed his argument on amendment No. 78. I thought that I had. What the Conservatives and Liberal Democrats put in their manifestos is obviously up to them, but I would treat cautiously an attempt by the hon. Member for Eastbourne to write my party’s manifesto, although I am sure that he would like to do that. As much as I have great respect for him, however, I am not sure that he would necessarily do with it what we would want.
So the truth is that we have a clear policy on the matter, which is set out in the White Paper and legislated for in the Bill. The hon. Gentleman might not agree with it, but we believe that it is the right approach and, therefore, I urge my colleagues to resist the amendment.
Mr. Waterson: I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: No. 29, in clause 5, page 5, line 38, at end insert
‘; or by a percentage not less than the percentage by which the general level of prices is greater at the end of the period than it was at the beginning, whichever is the higher.’.—[Mr. Laws.]
The Committee divided: Ayes 2, Noes 10.
Division No. 3 ]
AYES
Burt, Lorely
Laws, Mr. David
NOES
Bailey, Mr. Adrian
Banks, Gordon
Brown, Mr. Russell
Creagh, Mary
Heppell, Mr. John
Hillier, Meg
Keeble, Ms Sally
Plaskitt, Mr. James
Purnell, James
Smith, Ms Angela C. (Sheffield, Hillsborough)
Question accordingly negatived.
Mr. David Laws (Yeovil) (LD): I beg to move amendment No. 32, in clause 5, page 6, line 10, leave out from ‘force’ to end of line 11 and insert ‘from 1st April 2008.’.
The Chairman: With this it will be convenient to discuss the following: Amendment No. 35, in clause 5, page 6, line 43, leave out ‘1st April 2011’ and insert
‘the first 1st April after the first meeting of the next Parliament’.
Amendment No. 36, in clause 5, page 6, line 44, leave out subsections (5) to (7).
Amendment No. 76, in clause 5, page 6, line 46, leave out ‘the relevant dissolution date’ and insert ‘6th April 2013’.
Amendment No. 77, in clause 5, page 7, line 1, leave out subsection (6).
New clause 19—Linking the introduction of uprating the basic state pension in line with earnings and the increase in the state pension age—
‘For each additional year after 2012 that retirement pensions referred to in section 23A(1)(b) of SSCBA (inserted by section 3 of this Act) or not uprated in line with the general level of earnings as defined in section 150A(2) of the Administration Act (inserted by section 5(2) of this Act) the increase in state pension age shall be delayed by an additional year.’.
Mr. Laws: Mr. Taylor, it is a pleasure to serve under your chairmanship again. I say good morning to all Committee members. Mr. Taylor, you will recall that I held back from making a long and detailed speech on the last cluster of amendments, in the knowledge that we would have a great opportunity this morning to discuss those now before us. Obviously, I did not want to repeat myself.
The amendments deal with some of the issues touched on by the hon. Member for Eastbourne when he spoke to the last set of amendments, and they deal in a bit more detail with the timing of the restoration of the earnings link. They raise other interesting issues about affordability, the implications of delaying restoration and the extent to which restoration of the link is inextricably linked to increasing the basic state pension ages.
I had better begin, however, with an admission. There comes a time in the consideration of every such Bill when a scantily resourced Opposition spokesman must admit that an amendment does not reach the intended heights of perfection. There may be some ambiguity in amendments Nos. 32 and 34, which the Minister will have spotted, although the latter was fortuitously not selected for debate, so I do not have to discuss it.
In case there is any cause for doubt about what my amendments and new clause seek to achieve, I shall explain in plain language. I hope that the Minister will be generous and kind enough, after the weekend break, to conduct the debate on that basis. We believe that the restoration of the earnings link should take place as soon as possible. We are very disappointed that the Government are waiting until 2012—two years after the Turner Commission indicated was appropriate. We are also disappointed that there is an element of uncertainty, as the hon. Member for Eastbourne mentioned; it is possible that the link will not be restored until 2015.
We want the Bill to make clear when the Government will make an announcement on that issue. I am assuming that this Parliament will go the full five years and that there will be an announcement about the earnings link in the first year of the next Parliament, which is where the April 2011 date comes from.
10.45 pm
We are wondering why the Government have not sought to put a detail into the Bill to clarify that whenever the start of the next Parliament, there will be an announcement on the uprating within the first year. We all know that there is a lot of speculation at the moment about the changeover of power at the top of Government in this country, and the possibility that there might be an early general election—perhaps as soon as this year. If that were to be the case, we would not want any uncertainty about the commitment that the Government have already made in very clear terms, which is that there will be an announcement on the timing of the restoration of the earnings link at the beginning of the next Parliament. We want to make sure that there is appropriate flexibility to ensure that that will happen, even if the next Parliament occurs surprisingly quickly.
The third issue that we are seeking to raise in these amendments and which is in new clause 19, is the extent to which the restoration of the earnings link should be tied to the increase in the state pension age. We know that prior to the Turner commission no British political party has proposed that there should be higher state pension ages. This is potentially an unpopular and controversial matter with the public. It has been acceptable to all the parties, and to Back Benchers in all the parties, precisely because the offset has been a restoration of the earnings link. So there is a piece of good news to go against the piece of bad news about the state pension age. The Government have said a number of times that these two things—the good news and the bad news—are inextricably linked. New clause 19 will test whether there really is an inextricable link, or whether the Government might delay the good news while not even contemplating delaying the bad news.
It is worth starting off by noting that there is quite broad concern about the fact that the Government are going to take so long to restore the earnings link. This was an issue that the Select Committee on Work and Pensions looked at in detail when it took evidence on the Government’s proposals. The hon. Member for Weston-super-Mare will be aware that the Committee concluded on a cross-party basis that, although it welcomes the decision to re-link the basic state pension to earnings, it was
“concerned by the inconsistency between the unequivocal statement that the link will be re-established by the end of the next Parliament ‘in any event’ and the Secretary of State’s statement that affordability would come first.”
The Select Committee concluded:
“We ask the Government to clarify this. In our view the link should be restored as soon as possible, and certainly no later than April 2012.”
This is a big issue for the existing generation of pensioners right across the country. The Committee will be fascinated to know that I was in Worthing yesterday, talking to a large group of pensioners. The particular issue that they wanted me to raise with the Minister was why there is nothing in the Bill for the existing generation of pensioners. Why will they have to wait so long before the earnings linked is restored?
The Minister will be aware that a number of the representations on the Bill from pensioners groups highlight their concerns about the delays that will be involved. I have a good briefing note here from the National Pensioners Convention, which points out that, relative to the wider population, the pensioner’s income will continue to fall for at least five or six years, as a consequence of the delay in the earnings link. On the basis of its calculations, 3 million of the present pensioner population will not be around to see the link restored because they will not be alive by then. It also points out—as do a number of the other pensioner representative groups—that by the time the restoration of the earnings link takes place, the basic state pension will have shrivelled further in relation to earnings to just £75 a week in current earnings’ terms, or 12 per cent. of average earnings. Other groups, such as Age Concern, made similar points. Even one of the Government’s favourite think-tanks, the Institute for Public Policy Research, indicated that it would like to see the earnings link restored immediately.
Therefore, there is this issue about why the Government are delaying the restoration of the earnings link, and what the implications of that delay will be. Not only will pensioners be worse off than they might be otherwise, but every year that the restoration of the earnings link is delayed the number of pensioners who will be on means-tested benefits in the future will rise. That rise will be locked in for the future, undermining the Government’s hopes that the proportion of pensioners facing a life of means-testing will fall.
The Work and Pensions Committee, when it took evidence, helpfully highlighted how the failure to restore the earnings link until 2012 or 2015 will increase the proportion of pensioners on means-tested benefits. In a note of evidence, dated 30 June 2006, that was given by the Department for Work and Pensions itself, there are figures—figures from the Department, not from the Pensions Policy Institute or another independent body—that seem to indicate that, if the earnings link were to be restored immediately, the proportion of pensioners on means-tested benefits by 2050 would only be about 26 or 27 per cent., which is below the existing estimates. By contrast, if the restoration of the earnings link is delayed until 2015, about 32 per cent. of the pensioner population would be on means-tested benefits, based on the Government’s own figures. That is quite a large difference. It means that, compared with restoring the earnings link now and restoring it at the latest date that the Government concede that they might restore it, there would be about 6 per cent. more pensioners on means-tested benefits, which would be nearly 25 per cent. more pensioners on means-tested benefits than would be the case if the earnings link were restored immediately.
Therefore, this is not just an issue about the incomes of existing pensioners; it also relates directly to the range of concerns that have been expressed about the sustainability of the Government’s pensions policy and the reliance on means-testing.
It is necessary for us to touch briefly on why the Government have decided that there should be a delay in restoring the earnings link. The Secretary of State set out the Government’s position when he made his statement on pension reform on 25 May 2006. He indicated that the Government’s objective of restoring the earnings link in 2012 was subject to affordability and to the fiscal position. He made it clear that the Government would make a statement on the issue at the beginning of the next Parliament—not in 2011, but at the beginning of the next Parliament.
There were some very interesting exchanges indeed in the Work and Pensions Committee about this issue—about why the Government had decided that it was not possible to restore the earnings link now. The hon. Member for Putney (Justine Greening) was magnificently persistent—for about three pages of the transcript that has been printed from that sitting of the Select Committee—in trying to get an answer from the Secretary of State about why he was delaying the restoration of the earnings link. It was quite clear that the Secretary of State understood that there is a big problem with the delay in restoring the earnings link. He said:
“It is not desirable. I clearly accept that.”
As the hon. Member for Putney also pointed out in that sitting, Lord Turner had indicated that, although he was just about willing to tolerate having his proposals about the 2010 date ignored and the Government delaying the restoration of the earnings link until 2012, he had also said that any delay in the implementation of the process in 2012 could undermine the balance of the overall policy package. That was obviously a serious concern for Lord Turner to express.
The interesting element of that debate between the Secretary of State and the hon. Member for Putney was that the Government appeared to be taking the position that they could not give a cast-iron commitment to restore the earnings link in 2012, because of issues about affordability and the fiscal position at that stage in the economic cycle. However, under questioning from the hon. Member for Putney, the Secretary of State indicated that there was no concern about public service expenditure. So it seemed to be in the Secretary of State’s mind that there was concern about the 2012 date; the concern that somehow the economy would go off the rails and that the fiscal position would deteriorate, and therefore that it would plainly be irresponsible to be firmly pinned down to a date. However, as the hon. Member for Putney persistently pointed out, it is somewhat bizarre to suggest that there will be uncertainty about affordability in 2012 but that there will be such certainty three years later that the Government are in a position to announce the restoration of the earnings link come what may. They seem to be trying to hold two different positions: that they cannot make a commitment with regard to 2012 because that might be unaffordable, and that it will be affordable in 2015, come what may. How it is possible to be sure that something will be affordable in 2015 when it is not possible to be sure that it will be affordable in 2012 was beyond most members of the Committee, as they indicated in their conclusions.
We must also point out that in his evidence on that occasion the Secretary of Sate threw further uncertainty into the mix under intensive questioning by the hon. Member for Putney. When she asked what would happen if there were an affordability issue—whether the package of pension reforms or affordability and the public finances would come first—he indicated that the priority would be affordability. He almost seemed to suggest that the Government have a problem with the policy, because the Chancellor is not allowing the earnings link to be restored until 2012 and possibly not until 2015, so we have uncertainty as to whether the situation will be affordable by 2015. The Committee pointed out in its conclusions that it was concerned about that inconsistency in the Government’s position. In their response to the report, the Government claimed that there was no ambiguity about the commitment. I hope that we will find out about that today.
The other element of the earnings link issue is to understand how clearly the restoration of the earnings link is tied to the higher state pension age. We know that when Lord Turner made his recommendations he wanted the earnings link to be restored in 2010, and that he thought that that was affordable. We also know that he wanted a higher state pension age, and suggested that that should come in in the late 2020s. However, in the package that was announced by the Secretary of State, the Government brought forward the higher state pension age and delayed the restoration of the earnings link. That was regrettable—it has caused concern among a lot of people, not least the existing pensioner population—and it raises a further, more fundamental, issue about whether the two parts of the policy package are tied up very closely. The White Paper published in May 2006 claimed at paragraph 3.25 that the restoration of the earnings link is “inextricably linked” to two other elements of the reform package.
Another Conservative Member raised the issue on Second Reading. He asked why the restoration of the earnings link would be affordable in 2012 but not today. The Secretary of State responded by saying that it was
“Because it is linked with our policy for increasing the state pension age.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]
That appeared to imply that the funding of the pledge was inextricably linked to the increase in the state pension age.
New clause 19 simply seeks to ask the Government to confirm what appears to be their position, namely that the two pieces of news, one good and one bad, are inextricably linked, and that we are not going to end up in a situation in which they keep delaying the earnings link yet implement the increase in state pension age on the stated date. I invite the Minister to accept that those two things are inextricably linked in the package. If there is a delay beyond the date that the Government have given in restoring the earnings link, they ought to delay the increase of the state pension age. Those are important issues; we discussed some of them in the debate the other day, led by the hon. Member for Eastbourne, but the amendments probe the Government further. We hope for some detailed responses from the Minister.
11 am
Mr. Waterson: I shall be brief, because as the hon. Member for Yeovil pointed out there is a danger of repeating oneself on this group of amendments.
As long as these are genuinely probing amendments, we support them, as this issue remains in need of probing. The Government cannot have it both ways. In a great burst of glory, they announced that they will restore the earnings link, following the Chancellor’s personal odyssey from opposing the link to coming round grudgingly to restoring it. They then said that it would happen some time in the medium term: 2012, 2015, or perhaps even later depending on affordability. Why the Government are not prepared to advance at least the announcement of the restoration of the link remains a mystery to us, as it does to the hon. Member for Yeovil. I agree with him that it is difficult to see how affordability can change dramatically between 2012 and 2015. I will be interested to hear from the Minister why he thinks it will be unaffordable before then. On the basis of what calculations does he think that?
At the risk of breaking my own rule, I should like to repeat something that I said in the last debate. I am still rather sceptical about the much more recent linking of the increase of the state pension age to the restoration of the earnings link. Like the rest of the Committee, I am agog to hear what the Minister says on those points.
Ms Angela C. Smith (Sheffield, Hillsborough) (Lab): I shall speak against the amendment. This is not an argument about affordability from the point of view of the Treasury; it is about economic stability and the potential impact of instability on pensioners and their children and grandchildren.
I want to test the Minister on the commitment to introducing the new link as soon as possible. Of course, 2012 is a much preferred date: I would not like to think that the delay would stretch to 2015. I would like to hear from the Minister about the DWP’s commitment to press the Treasury for the earliest possible introduction of the link after the next general election.
The background to this debate bears rehearsing. Pension credit has reduced pensioner poverty considerably. In a previous debate, I intervened to point out that the net income of the poorest 20 per cent. grew by just 28 per cent. between 1980 and 1997, while for the top 20 per cent. it increased by 76 per cent. The pension credit is now paid to 2.65 million households. In Sheffield, Hillsborough, the average credit for the 5,340 pensioner households that receive it is £40. That is a considerable contribution to reducing the gap between the richest pensioners and the poorest.
Mr. Waterson: Does the hon. Lady accept that there are still 1.5 million pensioners not receiving pension credit who are entitled to it? Does she agree that the best way of helping the poorest pensioners is to boost the basic state pension, of which the take-up, I guess, is 99 per cent.?
Ms Smith: The hon. Gentleman makes an important point. In a previous debate, the Minister said that every effort is being made to ensure that all those eligible for the credit are encouraged to apply for it. The pension credit has got us to a point at which we can start to think about universal measures to reduce pensioner poverty even further.
Ms Sally Keeble (Northampton, North) (Lab): Does my hon. Friend accept that contrary to what the hon. Member for Eastbourne said, if the basic state pension is increased it misses out a swathe of the poorest pensioners who are not on the basic state pension: women who have never had the entitlement? That is fundamental in tackling pensioner poverty and inequalities.
Ms Smith: My hon. Friend makes a valid point. The Bill contains a settlement, a package that is designed to give the right combination of universal coverage to increase the number of women who get the full basic state pension—up to 90 per cent. by 2020. It is a combination of security and incentives to save for retirement and I applaud it.
However, we need to test the date of introduction and I look forward to the Minister’s comments on that matter. We must remember that people in the generation coming up to retirement age who are 65 this year, are not ready to put their feet up— Paul McCartney is 65 this year. It is the generation that produced the Stones and the Beatles, and it does not consider itself old in any way. That generation has contributed a great deal to British society, but it also suffered rising unemployment in the 1970s, the three-day week and the mass unemployment in the 1980s. In my constituency, Corus, one of the main employers, employed 6,000 people in the early 1980s and now employs only 600, albeit in very high-value, highly skilled jobs. It is the generation that suffered a collapse in the housing market, high interest rates and inflation in the 1990s.
The key point to bear in mind when we consider the introduction of the earnings link is that the generation that is retiring now values economic stability more than any other in recent years because it has experienced the full impact of economic instability. We cannot do anything that destabilises economic prosperity or risks doing so, because that generation of pensioners understands the importance of having the money in the Treasury in the first place to pay for the earnings link.
Members of that generation value economic stability for their children and grandchildren. It is not true that pensioners are selfish people who think of no one but themselves. Pensioners have worked all their lives, they have brought up children and they want to be able to enjoy their retirement and to see their children and grandchildren enjoying life, enjoying prosperity and seeing that their young ones are doing better than they did, if possible.
We must put the issue in a wider context: that economic stability provides the Government with the resources to invest in health, education, housing and all the other things that are as important as the subject of this debate. It would be reckless to tie the Government to the introduction of the earnings link in 2008-09. Nevertheless, I ask the Minister to respond to the genuine concern about a potential delay to 2015. It is important that the link is introduced as soon as possible, but the judgment about when that will be is incredibly important and I want to know the criteria that underlie it.
People often also say that it has gone to people on means-tested benefits only because of pension credit. It is of course true that we have prioritised the incomes of the poorest. That is because when we came to power there was a scandalous amount of pensioner poverty in this country, which has been significantly reduced because of the introduction of the pension credit. The poorest third of pensioners in this country are £2,000 a year better off because of what we have done. That is something for which we make no apology, but it was resisted by and large by the Opposition parties.
It is also true that even pensioners who are not on means tested benefits have seen their income from the state go up roughly in line with earnings. The average pensioner is £1,400 a year better off than they would have been under the policies that we inherited in 1997. It is therefore partly as a result of those policies that we can now say that for the first time in a generation pensioners are less likely to be poor than other parts of the population. The general principle that pensioners should share in the rising prosperity of the nation is well established.
Mr. Laws: Can the Minister confirm that over the years between 2007 and 2010-11 there will be a decline in the proportion of GDP going on pensioner benefits?
James Purnell: That is not the case. We have had that debate. The hon. Gentleman tries to quote figures that are not just about pensioner benefits. I am happy to point him yet again to the figures that point to the fact that the amount of pensioner benefits is flat broadly in GDP terms over the period to 2020. That is because of state pension equalisation, so the amount going to pensioners on a like-for-like basis is growing. The hon. Gentleman also assumes that he can write the Budgets for the next few years. Much as I am sure that he would like to write the Labour party’s Budgets over the next few years, it is something that we would resist in principle.
So the general principle that pensioner benefits should be in part shaped by the growing wealth of the country is one that we have accepted all the way through. We have always rejected making a pledge to link the basic state pension to earnings without having a way of doing that for ever and locking that in in legislation. The danger of the Conservatives’ policy at the previous election was that they were saying that they wanted to restore the link but they had no policy for doing so beyond one Parliament. Indeed, during the election their policy for doing so fell apart as first they had to say that they were not going to abolish guarantee credit and they then came under some pressure as to whether they were going to abolish the state second pension. Much as the policy of the hon. Member for Yeovil on citizen’s income does not bear scrutiny, I am not sure that their policy at the last election would have borne the scrutiny that it would have required had they thought that they were going to get into government.
Andrew Selous (South-West Bedfordshire) (Con): The Minister has taken us back down memory lane so fairness dictates that we can reply. To quote briefly from our campaign guide:
“A Policy for the Long Term...We are confident that we will be able to identify the savings that will enable us to carry on this process. Provided these are achieved, successive Conservative Governments will continue the policy”.
James Purnell: Exactly; they did not have a policy but how to fund it. I think he may regret having made—
The Chairman: Order. Would the Minister care to direct his attention to the amendment?
James Purnell: The key point has always been, how could one have a plan that would allow a Government to legislate on this? The hon. Member for Eastbourne tried to say that the link between the basic increase in state pension and the rise in the state pension age was only something that had arrived recently. That is the opposite of the truth. One has always had to answer the question of how one would fund the provision for the long term. One can do so through the Bill because those very two things come together in it, exactly as the Pensions Commission recommended. So, this Bill moves from a situation where pensioners have, in practice, been sharing the growing prosperity of the nation to one where we can legislate for that. We can only do that thanks to the difficult choice in this Bill on the rise in the state pension age.
11.15 am
Mr. Waterson: May I use this opportunity to clarify one confusion on the Minister’s part? He seems to be claiming that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said on Second Reading that the Conservatives believed that the link should be immediately restored—today, tomorrow or whenever. It is worth pointing out that he was responding to a specific intervention by the hon. Member for Dumfries and Galloway on the pledge for the one Parliament point that we have just discussed. I have tried to make it clear that we agree broadly that this package can go forward and that it should be affordable. Our only concern is why the Government are so coy about making an announcement.
Mr. Waterson: I have said, am saying and will continue to say that it is not our policy. If that is not good enough for the Minister, then I do not know what is.
James Purnell: I know that you want us to move on, Mr. Taylor, so I will, but what the hon. Gentleman says is a contradiction of what his hon. Friend said on Second Reading.
Amendment No. 32 would do away with the convention whereby increases in relevant pension amounts come into effect from the first Monday in each tax year. It would replace that with a commitment to increase pension amounts from 1 April 2008, regardless of which day of the week that may fall on. To clarify, the tax year begins on 6 April rather than 1 April, so the intended effect might be for increases to take effect from the tax year beginning April 2008. The hon. Member for Yeovil asked me to draw a curtain over the precise implications of the words and the slight “Groundhog Day” nature of the amendment: I am happy to do so. I know that that was not his intention, which is to bring in uprating from 2008. The point about those extra costs remains, and he has still not told us how it is to be funded—whether by a 5p increase in income tax or by abolishing state second pension and the guaranteed credit premium. I am sure that the hon. Gentleman still does not want to answer that question.
Given the importance of earnings uprating as a central plank of our reforms, it may be helpful if I first provide some background on why clause 5 has been drafted this way. It is because we have a clear policy of guaranteeing in the Bill that this will happen in the next Parliament. Our objective is to do that in 2012: we will make a statement on the exact date at the beginning of the next Parliament—exactly as the Bill says.
Mr. Laws: Is the Minister making it absolutely clear, on behalf of the Government, that there is no question whatever of restoring the earnings link before 2012?
James Purnell: I said exactly what I said, which is that our objective is to do it in 2012, and we will make a statement on that at the beginning of the next Parliament. At one point, the hon. Gentleman was saying that the earnings link would never happen—an argument that has been rather undermined by our putting it into legislation. It will happen as a consequence of this Bill and our policy, unlike his, is absolutely clear.
As I have mentioned, earnings uprating is part of an integrated package of reforms. Our plans, including timings, are subject to affordability and sustainability tests, which although not Liberal Democrat tenets, are central to our reforms.
Mr. Laws: Why is the Minister not certain that the proposal will be affordable in 2012, but is certain that it will be in 2015?
James Purnell: If the hon. Gentleman will hold his horses, I shall come on to that later in my speech. I shall try to answer all the questions that he raised.
I shall provide some background: the Pensions Commission proposed that earnings uprating should begin in 2010, as the hon. Gentleman said, although Lord Turner has since confirmed that a short delay beyond that would not seriously undermine the overall direction of his reform. In the hon. Gentleman’s opening remarks, he quoted figures that seemed to imply that the delayed implementation would result in a massive difference between the numbers of pensioners on means testing—between about a quarter, under his plans, and a third under ours.
Actually, we have projected that, as a result of our proposals, about 28 per cent. of pensioners will be on pension credit in 2050. As the hon. Gentleman knows, those projections are statistically ambitious—it is more than 40 years away and the projection is subject to many different factors. We have, therefore, always said that we are aiming for less than a third, rather than pinning ourselves to exact percentages based on very long-term projections. His figure of 26 per cent. and ours of 28 per cent. are not hugely materially different. The material difference will be this: a reduction in the number of pensioners on means testing from 70 per cent. to less than one third.
Mr. Laws: Does the Minister agree that, based on his Department’s figures, some 6 or 7 per cent. more of the pensioner population will be on means testing as a consequence of delaying the restoration of the earnings link from now until 2015?
James Purnell: Our policy is that we will make a statement on exactly when that will happen in 2012. Our central projection is about 28 per cent., but, as I said, it would be inappropriate to pretend that differences of 1 or 2 per cent. in the projections are reliable given that we are projecting to a date that is 40 or more years away. The hon. Gentleman might have a better statistical engine than we do, but we set out quite clearly in our forecasts the reasons why those variations in the statistics need to be taken into account.
So I have dealt with the effect of amendment No. 32. Amendment No. 35 could conceivably bring forward the date by which the order has to be made if, for example, this Parliament were to run for four years, ending in June 2009. That would mean that an order identifying the first review year would have to be made before the first day in April 2010. We doubt whether it will be possible to make legislation based on a start and end date of a Parliament so we thought that the best approach would be to pin it to the existing arrangements on uprating, which is what we have done. That will clearly implement the Government’s overall policy, which I have mentioned already to the hon. Gentleman.
Amendment No. 36 would also remove flexibility and inadvertently the provision to bring into effect the earnings uprating of the pension credit standard minimum guarantee as soon as possible after the Bill receives Royal Assent—in other words, from the tax year beginning in 2008. Similarly, amendments Nos. 76 and 77 would remove flexibility. Like amendment No. 36, amendment No. 77 would remove the link between the commencement of earnings uprating and the dissolution of Parliament. Amendment No.76 then seeks to ensure that the year in which earnings uprating would take effect must begin before 6 April 2013—in other words, no later than the tax year beginning in April 2012.
New clause 19 is at the core of the debate initiated by the hon. Member for Yeovil. His proposal is that, from 2012, for each additional year that the basic state pension is not increased by earnings, the increase in the state pension age should be delayed. I glad that the House has a general consensus on the principle of increases in the state pension age, which is to the credit of the Pensions Commission and the way in which my predecessors ran the national pensions debate. What might have been a very difficult issue for politicians to agree on has been tackled effectively, which is a credit to the way in which the process worked.
The question that the hon. Member for Yeovil asked was whether, if there is a delay in the earnings link, there should also be a delay in the increase in the state pension age. That is to mistake short-term for long-term affordability. The state pension age decision is important because the commitment is long term. We and the Pensions Commission had to come up with a package that was affordable for the long term. On its own, uprating the basic state pension in line with earnings would cost around £56 billion in 2050. That is the main cost in our reform package. By the time that the first increase in the state pension age occurs, from 2024, the basic state pension will already have been linked to earnings for a decade. Increases in the state pension age from 2024 will, by 2050, reduce the cost of our reforms to the state pension system by around £32 billion. That is the bulk of the way in which it is made affordable, and in which it is made fair. By increasing the state pension age gradually, we will be ensuring that the costs of rising longevity are shared fairly between those contributing to and those receiving state pensions.
A more generous state pension and a rising state pension age, therefore, go hand in hand for the long term. They are part of an integrated package of complementary reforms, so they are of course linked. The crucial point is that they are quite different in nature. People must have absolute certainty about when they will get their state pension, so that they can undertake meaningful planning. It would be irresponsible not to provide this.
Let me confirm our commitment on earnings uprating. I said to the hon. Member for Yeovil earlier that our objective, subject to affordability and the fiscal position, is to introduce the earnings link in 2012 or, at the latest, by the end of the next Parliament. I hope that that gives my hon. Friend the Member for Sheffield, Hillsborough some of the reassurance that she was looking for.
Flexibility around affordability is essential if the package is to stay within the envelope of affordability at the time. Neither the hon. Member for Yeovil nor I know what will be the precise budgetary position in 2012. Framing the decision in terms of affordability at that stage has always been important. The issue of the state pension age is quite different and is about affordability in the long run. We do not think that saying to people, “Here’s a timetable, but it might shift”, is appropriate. People have to know when they are going to retire. That is why we are planning to legislate on that basis for the state pension age. We are clear that we can legislate the linking of the state pension for the next Parliament and we have set out as an objective a year for achieving that. We believe that to be the right approach.
Mr. Waterson: Can the Minister see that people who are being told that, whatever else happens, they are going to have to work longer to get their state pension might see it as unfair that 2015 is not set in stone? If I understand what the Minister was saying, if the promise is unaffordable then, it could be unaffordable later?
James Purnell: No, that is not right. We are legislating to make sure that that comes in during the next Parliament. That is guaranteed by the legislation. The legislation would have to be changed if that were not to be the case. The legislation gives people that guarantee. We set out the objective date of 2012, which is clear in our policy, but it is appropriate that that should be subject to affordability. All policies have to be subject to affordability, which was the Secretary of State’s point in response to the Committee.
11.30 am
Mr. Laws: Could the pledge to restore the earnings link be unaffordable in 2015?
James Purnell: No, we believe that we can do it in the next Parliament, and that is why we are legislating on that basis. We are giving people a legislative guarantee that it will happen in the next Parliament, and our objective, subject to affordability, is to do that in 2012. That is a clear position. It is much clearer than the hon. Gentleman’s policy; it might include a citizen’s pension, but he cannot tell us what it will cost, or how it will be funded, or about the second state pension or premiums in guarantee credit. I hope that the hon. Gentleman will accept that we have set out our position clearly, we have costed it and we are legislating for it.
Let me answer a couple of the points raised. It was claimed that we were bringing forward the increase in state pension age proposed by Turner. That is not the case. The proposal that the Turner commission made was for introduction in the decade up to 2030, the decade up to 2040, and the decade up to 2050. Introduction in 2024, phasing to 2026; in 2034 phasing to 2036; and in 2044 phasing to 2046 is completely compatible with the Turner model—it is in no way a bringing forward of what was proposed. I hope that that answers all the points that have been made, and I would urge the hon. Member for Yeovil to withdraw what I think are probing amendments. However, if he does not, I would ask my colleagues to resist them.
Mr. Laws: We have had a relatively good, if somewhat subdued, debate. I was expecting more fireworks, but perhaps it is too early in the morning for that, or perhaps hon. Members, including those on the Government Benches, understand that there is genuine disappointment among the existing pensioner population that they will have to wait so long for the restoration of the earnings link. It might be that hon. Members are also concerned about what those delays will do in relation to the amount of means testing and the incentive structures that people face.
The Government have some logical hurdles to clear—if one can do such a thing. The Minister set out the merits of two completely contrasting and perhaps incompatible principles. One appeared to be certainty, which apparently people welcome in relation to bad news such as the increase in the state pension age. The other is the principle of flexibility, which apparently people welcome in relation to things that are good news, which they would not want introduced too quickly in case that were imprudent.
James Purnell: I obviously failed to explain this point in my speech, so I shall try in an intervention. Does the hon. Gentleman recognise that delaying the increase in state pension age in 2024 would make no difference to affordability in 2012?
Mr. Laws: What I recognise is that the Government have said that the restoration of the earnings link is really an issue for the longer-term costs, even more than for the short-term costs, and that therefore the two things must be inextricably linked. I am saying that pensioners ask me how they can be inextricably linked when they are told with great certainty that they are going to have to work for longer even though they do not know for sure when the earnings link will be restored.
James Purnell: By definition those pensioners will not have to work for longer because they are already retired. Future generations will have to work longer.
I have still not heard a satisfactory explanation of why the restoration of the earnings link is going to be affordable without any shadow of doubt in 2015. This is a definition of uncertainty which baffled the Select Committee and which baffled me. This all begs the question why the Government have made this decision. Is it because the Chancellor of the Exchequer is still not very happy with this policy or that he was bullied into it? Will he change his mind later? Will he attempt to short-change pensioners in some way? Or is it the opposite of this? Does the Chancellor of the Exchequer want to make this announcement of good news himself? Does he want the flexibility, perhaps even within months of becoming Prime Minister, if he does become so, to make this grand announcement?
When I asked the Minister whether he was absolutely sure and could give me a guarantee that the Government were committed to not introducing the earnings link before 2012, I thought I detected a little bit of wriggling. The Minister knows that it is quite possible that the Chancellor will suddenly decide that this is immensely popular and that, if he is going to get all the credit for it, the measure may suddenly be brought forward. Then the Minister and all his honourable Friends will say how marvellous it is and what genius this man has and how wonderful the Labour Government are and tell us all that we should be grateful for it.
We know that positions can change. We know sometimes that even the Minister has not been updated on the latest policy thinking of his Department. He told us last week that the Government did not have it in their mind to change the basis on which lone-parent benefits were available and we wake up this morning to discover that that is back in the melting pot. How confident can we be, therefore, that the Government really have a clear policy on the 2012 date? Maybe we should all be optimistic and actually think that this deliberate uncertainty—or flexibility, as the Minister described it—is actually designed for the Chancellor of the Exchequer.
On the final point, the Minister said that there was a great deal of uncertainty about means testing and that we should not rely too much on the estimates that I cited earlier about the consequences of delaying the earnings link for the number of people on means testing. I pointed out to him that all I did was to quote the figures that are available in the notes supplied to the Select Committee from his own Department. All members of the Committee have the very highest view of the effectiveness and ability of his officials to make these detailed calculations. That is why we take seriously the fact that they have indicated that there could be a gap of 5 or 6 per cent in the number of people on means testing, based on a potential delay in the earnings link.
James Purnell: I have great respect for the hon. Gentleman and I would not want him to take what I said out of context. What I was saying was that single percentage figure differences in 2050 should be treated with the caution as set out in the paper that we published on this issue. If one is projecting 40 years away, that is well within the margin of error. What I said in my intervention was that the forecast that we have for the means-tested population in 2050 is 28 per cent. The figure that the hon. Gentleman got for introduction in 2008 was 26 per cent. That was the only point that I made.
Mr. Laws: I do not want to labour this, but the 28 per cent. that the Minister cited is precisely the amount that appears in the memorandum, based on the dates that the Government envisage introducing this policy. Surely I am correct to say that the earlier the link is restored, and the higher the basic state pension, the more reasonable it is to assume that the number of people on means-testing will be lower.
I accept that the proportion of people on means-testing in 30 or 40 years’ time is very uncertain and, as the Minister knows, we have had plenty of debates in which we have aired the issue of uncertainty about the total level. Surely he would accept, however, that, whatever the central estimate for 2050, it stands to reason that the earlier the earnings link is restored, the lower the proportion of people who will be on means-testing. Whatever that estimate is at the current time, it must surely be less the earlier the earnings link is restored, and that is a fundamental part of the Government’s policy.
James Purnell: Of course that is right but that is only a theoretical point until the hon. Gentleman tells us how he would fund such a policy—whether the 5p increase in pension spending or the abolition of S2P in the guaranteed credit premium.
Mr. Laws: Without going too far astray of my amendments, we will certainly set out before the next general election very clear and costed plans which will not require increases in taxation but will demonstrate how we will reduce existing areas of Government expenditure in order to deliver on our policies on the earnings link and the citizens pension. I detect that that is probably as far as you want me to go, Mr. Taylor, but I look forward to the Minister attending my seminar in the same way as I look forward to attending his—neither of which has a date yet.
The one area where we have made some progress in clarifying the Government’s thinking is that the Minister did not appear to have an objection to the suggestion that an announcement on the restoration of the earnings link should be made at the beginning of the next Parliament, whenever it comes. I think his objection to our amendments on that point was not so much that they were objectionable on principle, but simply that he could not see how the Bill could be amended to make that point. If he is willing to confirm that the earnings link announcement will be made in the first year of the next Parliament, however early that is, that would be extremely reassuring. I note that he is not looking at me so perhaps I am being excessively optimistic. He may want to write to me to give me that warm assurance in the event that the Chancellor rushes to the polls after the Brown bounce.
We have had a useful airing of some of those issues. As the Minister anticipated, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: No. 4, in clause 5, page 6, line 13, leave out from ‘shall’ to end of line 14 and insert
‘determine the general level of earnings as set out in subsections (8A) and (8B).
(8A) If the average earnings index (including bonuses) for the whole economy for September in any year is higher than the index for the previous September, the Secretary of State shall as soon as practicable make an order in relation to each sum mentioned in subsection (1), increasing each sum, if the new index is higher, by the same percentage as the amount of the increase of the index.
(8B) In making the calculation required by subsection (8A), the Secretary of State shall, in the case of the sums set out in subsections (1)(a) to (1)(d) inclusive, round up the result to the nearest 10 pence.’.—[Mr. Waterson.]
Question put, That the amendment be made:—
The Committee divided: Ayes 6, Noes 9.
Division No. 4 ]
AYES
Burt, Lorely
Lancaster, Mr. Mark
Laws, Mr. David
Penrose, John
Selous, Andrew
Waterson, Mr. Nigel
NOES
Banks, Gordon
Brown, Mr. Russell
Creagh, Mary
Heppell, Mr. John
Hillier, Meg
Keeble, Ms Sally
Plaskitt, Mr. James
Purnell, James
Smith, Ms Angela C. (Sheffield, Hillsborough)
Question accordingly negatived.
Amendment proposed: No. 78, in clause 5, page 7, line 3, at end insert—
‘(6A) The Secretary if State must, on or before 5th April 2009, announce his decision as to the date from which he will implement the provision set out in this section.’.—[Mr. Waterson.]
Question proposed, That the amendment be made:—
The Committee divided: Ayes 6, Noes 9.
Division No. 5 ]
AYES
Burt, Lorely
Lancaster, Mr. Mark
Laws, Mr. David
Penrose, John
Selous, Andrew
Waterson, Mr. Nigel
NOES
Banks, Gordon
Brown, Mr. Russell
Creagh, Mary
Heppell, Mr. John
Hillier, Meg
Keeble, Ms Sally
Plaskitt, Mr. James
Purnell, James
Smith, Ms Angela C. (Sheffield, Hillsborough)
Question accordingly negatived.
The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.
Question agreed to.
Clause 5 ordered to stand part of the Bill.
 
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