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Baroness Hollis of Heigham: My Lords, I apologise for interrupting the noble Lord. Did he really mean an old age pension? No one on incapacity benefit would simultaneously receive an old age pension. Incapacity benefit ends at the point of the old age pension. I may have misunderstood the noble Lord.

Lord Pilkington of Oxenford: My Lords, I am sorry I did mean incapacity benefit. On a pension of about £6,000 to £7,000 he would lose his incapacity benefit. Incapacity means that your living costs you more. If we are to be honest, living on £6,000, £7,000 or £10,000 a year is now very near the poverty line. It is hard enough to live if you are healthy; if you are incapacitated, your having saved will result in your being disadvantaged. The Government ought to bear that in mind. There is a moral issue here.

I turn to another moral issue--the widows over 45 who lose their pension. It is true that they will be getting a £2,000 bereavement allowance, but that only

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fills a gap for a short time. The noble Baroness presented a picture that ladies who do not work are in a minority in society. But the object of a caring society is to care for minorities. These ladies could include someone who has had a husband with a serious illness whom, for many years of her life, she has had to look after and has therefore been unable to work. It might be someone with children who have had difficulties and she has therefore had to remain at home. The husband dies when the woman is in her late forties or early fifties. She has not worked since her marriage. Under the Government's proposals she has to go on to the labour market and has to try to find a job. I do not think that the sociological picture presented by the noble Baroness--which was rightly criticised by the noble Baroness, Lady Castle--actually dealt with the reality of these people.

The Bill seems to penalise those who have saved money for their retirement. More than that, it penalises a devoted woman who has a sick husband. You may say it is a minority and that anecdotes do not make cases, but these people do exist and an Act of Parliament has an effect on them.

We all want to help the truly poor and deprived. The point of my speech tonight is this. I believe that the result of the Bill will in time produce a rebellion by people who earn between £20,000 and £30,000. They will refuse to pay the higher national insurance contributions or any kind of insurance contributions. They will put enormous pressure on political parties and, since we all want votes, they will have an effect.

The Bill hits at the very roots of the welfare system. Our ability to help the poor--it is what Beveridge realised, what has been built on over the years, and what Frank Field has convinced me of--depends on the good will of the better-off to pay their national insurance. But the good will of the better-off depends on their getting some reward for their contributions. Certainly, those who are modest savers will be very angered by the Bill, which places them in a worse position than others.

It may take five years, it may take 10 years, but I prophesy that there will be pressure--pressure encouraged by some political parties--for people to contribute to private schemes rather than to national insurance and, in the end, to make the very poor depend on the taxation system. To some extent that is the situation in the United States and we are going the same way.

Of course we are all for reducing benefit fraud in order to save money. But, in the end, what we are all concerned about--and there is no political point in this, because for the last 60 years all parties have recognised the necessity for a welfare system--is to see that this system prevails. Frank Field is absolutely right. It can only prevail if there are benefits for all. If you want to alter it and get more money, then, I agree with the noble Baroness, Lady Castle, there are many other ways of doing it. To proceed with this Bill will in the end produce a disaster which will be very destructive of our community.

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I hope that the Government will think again. Certainly, when any amendment is proposed, I will vote against the proposals regarding incapacity benefit and in relation to widows. I do that in the interests of the welfare system.

8.55 p.m.

Baroness Turner of Camden: My Lords, I thank my noble friend the Minister for the very detailed and comprehensive way in which she introduced what is a very difficult and quite complex Bill. There are many good things in it, as she and other noble Lords have emphasised. I am not, however, very comfortable with the underlying philosophy, which is very different from that of past Labour governments, as the Minister herself acknowledged.

Basically, what we have here is a continuation of the policy of public withdrawal in favour of private provision, markedly so in that part of the Bill dealing with pension provision. It is clear that the aim is to confine the role of the state as far as possible to the provision of minimum incomes to those for whom the private market cannot cater and those whose working lives have been interrupted by caring responsibilities or by long periods of incapacity. Incidentally, I welcome the new provisions in regard to carers. The Bill itself represents a radical departure from the concept of social insurance with which we have lived since Beveridge.

Dealing first with pensions, there is to be a minimum income guarantee. That is to be welcomed. On the other hand, it still falls short of what would have been available to pensioners had the basic pension link with the wages index not been broken by previous Tory governments. I gather that the single person pension would now have been around £90 compared with the MIG of £75. Moreover, this guarantee presumably involves means-testing, which would not have been the case had the basic pension been increased in line with the intentions of the last Labour government.

SERPS is to go, despite a manifesto commitment that it would remain. The reason given for its discontinuance is that, being earnings-related, it does not help the least well-off. Had the plan originally introduced by my noble friend Lady Castle been maintained instead of being undermined by the previous government, that aim would have been achieved. Three key elements in the Castle plan have all gone: the commitment to pay pensions based on the best 20 years' earnings, so favourable to women; the original accrual rate; and the commitment to increase the basic pension in line with wages rather than prices.

As it is, we are to have a new state second pension. It seems that the Government intend this as some kind of transitional scheme until the stakeholder provision gets off the ground and everyone who can be catered for by it, or by personal or occupational schemes, is being provided for in that way. Then the SSP will simply exist as a flat rate top-up for very poor people in receipt of a basic state pension which will be drastically declining in value.

Those moderately remunerated on £9,000 to £20,000 a year will be expected to be covered by private provision of one sort or another.

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The stakeholder concept has been welcomed by sections of the financial services industry for obvious reasons, although many of them have said they believe that the second tier pension--the stakeholder pension, if that is what it is--should be compulsory. Clearly, the Government intend that safeguards should be built in which did not exist with personal pensions and which were such a disaster. The expenses incurred in administration are expected to be lower than for personal pensions. The products will have to be simple and easily understood. Standards will apply, which it is felt will reduce the need for expensive advice, although I have some doubts about that.

Trade unions and other representative bodies will be able to act as providers and must be given access to workforces by employers. But there will be no obligation upon employers to pay into such schemes on behalf of employees. Further, it is doubtful whether individual employees will have the remotest idea of the amount they will have to put away if they are to provide adequately for themselves, without any employer contribution.

The latter leads to another concern. It is clear that we are in for a period of low interest rates. Pressure is now on in the UK for them to come down even further. They are still much higher here than in the rest of the EU. That may be fine for manufacturing industry, and one hopes that it will check the growth in unemployment. But it is no good for savers. All those people with money-purchase schemes are likely to find that the return they expected on their investment may not materialise. The Government want people to save, and, of course, putting money aside for a pension is a major form of saving, perhaps the biggest investment most people will make apart from taking out a mortgage to pay for a house. The argument that low inflation will protect savings may not appeal greatly to older people who look to savings to provide a small additional income. Moreover, it has been estimated that in order to secure a very modest pension of about £10,000 a year, a young person taking out a pension contract would need to be thinking in terms of an ultimate nest-egg of around £200,000, which is an incredibly high sum for most people.

Therefore, there seems no doubt that the best route for most people aiming for security in old age is to seek a job carrying a final salary pension. In that way, the employer bears the risk and the employee has some idea of what his or her eventual entitlement will be. For people not fortunate enough to belong to such a scheme, what is on offer does not seem to me to be as good a deal as the former SERPS. This did not have problems in regard to transferability and provided defined benefits.

I am glad to learn that the Government support occupational pensions. I hope that they will continue to urge employers to set them up where they do not already exist. They have played a major role in the past 20 years, as many noble Lords said, in ensuring that a whole generation of pensioners is a great deal better off than its predecessors. I note that the Government propose that stakeholder schemes should be established under trust

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law. Clearly, the intention is to ensure a greater degree of security and, presumably, to involve lay member trustees in scheme governance. That I welcome, but more will need to be done to ensure that trustees are well versed in the requirements of such responsibilities so as to ensure that the rights and interests of scheme members are adequately protected.

Much more could be said about the pensions aspects of this important Bill, but no doubt further opportunities will arise when we reach the Committee stage. I am sure that a great deal more needs to be explored before the Bill leaves this House. In the time available to me this evening, there is just one other aspect of the Bill to which I should like to refer. Much could be said about the provisions with regard to disability. Many of my noble friends who have spoken know more than I do about that aspect. Indeed, I believe that it has been very adequately dealt with in previous debates.

My noble friend the Minister will not be surprised to learn that I want to talk about bereavement benefits. As she knows, I am a trustee of the Widows' Advisory Trust. I welcome the proposal that both widows and widowers will be entitled to a tax-free lump sum bereavement payment of £2,000. Of course, it has been frozen since 1988 at £1,000, so the increase is above the inflation rate for that period. It will make a significant contribution to meeting the expenses faced by bereaved people at a time when they are least able to take financial pressures. I also welcome the fact that widowers will benefit for the first time.

However, I am less happy about other proposals. I am glad that the Government have said that those currently receiving widow's benefits will continue to do so. But this will not apply to future widows or widowers. At present, the most important benefit in this category is the widow's benefit, with more than four times as many claimants as for the widowed mother's allowance. Essentially, the widow's benefit will be abolished. Widows or widowers over 45 years of age with no children will instead receive a weekly age-related benefit (with no SERPS component) for six months only. This represents a transfer of benefit support from women to men. Childless men will gain, but childless women will lose. Widows with children whose widowed mother's allowance ceases after they are 45 will lose up to 19½ years' benefit and all the additional pension their husbands paid for through national insurance contributions.

A widow whose children are no longer in education may find it difficult to rejoin the labour market, as other noble Lords have said, after perhaps 20 years spent looking after a family. She will have to sign on for jobseeker's allowance at an age when other women are preparing for retirement. I am particularly concerned about the loss of SERPS rights. The husbands of these widows will have been paying their national insurance contributions to build up entitlement to a benefit which is to be abolished.

It has been said that the benefit is outdated and that most women now work or else benefit from their late husband's occupational benefit scheme. But, as many speakers have said, this is abolition of a contributory

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benefit. I find that unacceptable; it is a breach of a contract. Moreover, most occupational schemes--unless they are expensive ones of the so-called "top-hat" variety--are based on the assumption that there will be some addition of state benefit. This is true of survivors' benefits in most occupational schemes.

I sometimes think that there is a possibility that those who draft policies believe that things have changed rather more than they have. The type of work available to a woman who has spent much of her time bringing up a family is not likely to be very remunerative, even supposing that jobs are available in her locality. The abolition of this benefit is likely to benefit the Treasury to the extent of £600 million a year. I really do not think that that is fair. I hope to return to this subject when the Bill is in Committee. In the meantime, I once again thank my noble friend the Minister for the way in which she presented this complex and, I think, really rather controversial Bill.

9.7 p.m.

Lord McNair: My Lords, I shall be brief, having omitted to put my name down to speak in this debate. I apologise to the House that I was not able to be present for the first two speeches.

It is not appropriate, speaking in "the gap", to launch into great detail about what I want to say. In any case I have described the Resource Economics UNITAX approach to reform of the tax and benefit system in previous contributions in your Lordships' House and the Minister has had the opportunity to study the relevant papers. The problem I always have in mentioning this is that it is a cross-departmental idea and therefore each department can only really consider a part of it.

There are two aspects of this proposal, however, that have a bearing on what this Bill could have been. First--I have referred to this previously--the total government spend on benefit is much higher than it should be because of the job shedding effects of value added tax. I know that this is a Treasury matter but I think that it is still worth saying in a social security debate. This is indicated by mathematical proof and starkly demonstrated by statistics from Eurostat. Unemployment in European Union countries soared from the day they adopted VAT, in contrast to Japan and the United States which did not.

Secondly, there is an issue with which this Government, or some future government, will have to grapple; and that is the matter of whether individuals are looked upon as individuals or as part of a couple. This was highlighted in an interesting debate between my noble friend Lord Russell and Frank Field at a Centre for Reform seminar a few months ago. Mr Field described how the cohabitation rule was honoured more in the breach than in the observance. The basic income element of the resource economics proposition would treat each individual person as an individual so that a couple who were, say, not married but considering living together because they had a child would be able to aggregate their basic income--which we calculate is around £117 a week on present calculations--rather than, as at present happens, being forced to live a kind

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of hole-in-the-corner existence dodging the social security inspectors. This would give the couple a greater chance of "making it" as a couple and a family. The cohabitation law should be looked at.

Can the Minister tell me under which aspect of the benefit system parents may receive £35 a week if their children are diagnosed as having what I and many others consider to be the spurious condition of attention deficit hyperactivity disorder? I see two problems with this arrangement. First, it invites parents to have their children labelled in order to obtain what is a considerable extra payment for poor families. Secondly, it enrols the drug companies that supply the Ritalin which inevitably follows the labelling as co-conspirators in this further drain on the social security budget.

9.11 p.m.

Lord Goodhart: My Lords, I agree with what the noble Lord, Lord Higgins, said in opening his speech; namely, that this Bill comprises more than one Bill. My noble friend Lord Russell and I have divided our responsibilities. My noble friend spoke mainly to one of those Bills, the welfare reform Bill--or perhaps in view of many of the speeches we have heard today it would be better to describe it as the welfare reduction Bill, at least as regards Chapter I of Part V. That is the shortest but most important part of the Bill and it is certainly the most controversial part of the entire Bill.

I shall speak mainly to what I might call the pensions Bill--that is, Parts I to IV and Chapter II of Part V. In terms of quantity of legislation that is, of course, much the greater part of the Bill, but it is less controversial and indeed we are happy to give it a considerable measure of support. However, there are many issues in the pensions Bill which need to be probed and some of the provisions will need to be challenged.

I start with Part I and stakeholder pensions. This is something to which we give strong support in principle. It will provide access to effective, low-cost pension schemes for employees who are on broadly average incomes or somewhat lower. I am not minded to accept that a 1 per cent charge for costs is inadequate. I believe that excessively high costs are incurred by many pension funds at present because of the amount that is spent on advertising and marketing. One potentially good result of stakeholder pensions which has been forecast in some newspaper reports is that they may bring down the charges of some non-stakeholder pension funds.

There is, we believe, certainly a need for stakeholder pensions, and the main problem with Part I is not what is in that part but what is not. Stakeholder pensions were originally visualised as part of a wider reform of the pension system, involving a state second-tier pension, replacing SERPS, together with stakeholder pensions as an alternative to the second-tier pension targeted on those earning rather more than £9,000 up to about £20,000.

The Government now say that, subject to the availability of parliamentary time, they will legislate for this in the future. I am afraid I find this depressing. The trouble with the Bill is that it therefore leaves the reform at the halfway stage. It leaves SERPS to continue for

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the indefinite future and provides stakeholder pensions as no more than voluntary alternatives to personal pensions. It does not provide for the second-tier state pension.

It therefore does not achieve the result, for example, of providing carers with adequate pensions--a proposal which was warmly and rightly but prematurely welcomed by the noble Baroness, Lady Pitkeathley. I wonder therefore whether the Minister can give us any indication of the firmness of the Government's intention to proceed to introduce the second tier state pension together with a possible date for that introduction.

However, that is not the end of it, because we Liberal Democrats have long argued for a system which combined a basic state pension with a compulsorily funded second-tier pension. In fact there was a problem with that idea in its simplest form, which was that low earners have little to gain from a funded pension because it would not take them very much above the income support level or, as it now is, the minimum pensions guarantee.

The second-tier state pension is in fact an ingenious and effective way of getting round that particular problem, and so we are very happy with the idea of a basic and a second-tier state pension, with stakeholder pensions for earners in, say, the £10,000 to £20,000 bracket in place of a second-tier pension. The stakeholder pension in our view, to be effective, must be compulsory both for employees and employers. Without compulsion, stakeholder pensions will simply not be adequate. At present employers are required to pay only 3 per cent of earnings towards SERPS or contracted-out personal pensions, and employees pay only 1.6 per cent.

This is inadequate to build up a proper personal pension for those who choose them. Aggregate contributions may be built up over time--we are not suggesting that it should be done all at once--to at least 10 per cent of wages up to the upper earnings limit, to be provided by both employer and employee. I would add that compulsory stakeholder pensions would also deal with the problem of closure of small schemes, which was also mentioned by the noble Lord, Lord Freeman, and which is, I believe, a potential problem.

The noble Baroness asks "why?". It is because the idea is at present that the small companies would often see the stakeholder pension as a way of getting out of the provision of pension schemes at effectively a reduced cost to themselves. We would therefore like to see stage two of the reform contain not only a second-tier state pension but compulsory membership for stakeholder or other approved pension schemes for those earning more than, say, £12,000 or something significantly above the £9,000 level, with a requirement of adequate contributions from both employers and employees.

Meanwhile, with the proposals as they stand in the Bill the National Association of Pension Funds has raised a number of issues, mostly of a probing kind rather than objections. I certainly hope to take these up during the later stages of this Bill. In particular I would

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want to look at issues such as whether stakeholder pensions could also provide personal pensions so that someone whose contributions are rising above the stakeholder limit does not have to transfer to a different scheme. Again I think we should look at the question of dual membership, as the noble Lord, Lord Freeman, suggested.

So far as it goes then, I believe that Part I of the Bill is broadly satisfactory but must be regarded as being only stage one of the reforms which are needed to ensure proper pensions for those in the vital target area of earnings between £9,000 and the upper earnings limit.

Part II of the Bill on bankruptcy is pretty technical and fairly straightforward, although some of the details may need to be looked at in more detail at Committee stage. Turning to Parts III and IV, pension sharing on divorce is plainly an idea whose time has come. It has been discussed for many years. The earmarking of pensions is plainly an inadequate alternative and we therefore strongly welcome the introduction of pension sharing.

Again there are some aspects which will have to be looked at in more detail, in particular the proposal that pension sharing should only apply to divorce proceedings commenced after the Act came into force. I think this will create problems. It may lead to wives--and I presume it is mostly wives who will be seeking pension sharing--deferring divorce actions until after this part comes into force, which is something that does not appear to me to be in the public interest. It might also lead to husbands bringing petitions of their own before this part comes into force in order to forestall their wives' rights to claim a share of the pension.

The alternative may be to defer financial arrangements beyond the date when they would normally be decided or agreed and to allow them to be dealt with in cases where the divorce petition is launched before the Act comes into force. I recognise that a long period of deferment is also unsatisfactory. In order to avoid a complete blockage of divorce proceedings, should not the pension-sharing powers apply at least to divorce proceedings commenced after the Bill has received the Royal Assent even though it is not yet in force?

That is a fairly limited point and there may be a number of other points that we will need to look at in more detail; some are certainly discussed in the Select Committee's report. I envisage that we will have a significant debate on the pension-sharing arrangements. However, that does not prevent us from regarding them as absolutely right in principle. We will give the Government every assistance to ensure that they pass through the various stages in the best form that can be achieved.

Perhaps I may now move on to Chapter II of Part V and, in particular, to Clause 70. The Government will be aware by now that that is a highly controversial provision. It requires that those whose services are provided by contract with their employers are for tax purposes to be treated as employees of those for whom the services are provided. I have already received many representations on this subject; no doubt the Government have received many more.

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I recognise that there is a tax abuse which needs to be stopped. A one-man company, where a shareholder simply hires out his or her own services and takes payment by way of dividend from the company rather than by way of salary is undoubtedly serious tax avoidance. It needs to be blocked. However, there are a considerable number of bona fide operations that should not be caught and which, if the regulations do not take the correct form, could be caught by Clause 70. That is especially true in the information technology world where contracting arrangements are very widespread.

In the representations I have received, some of the arguments put forward against Clause 70 are undoubtedly self-serving and should be rejected. However, that is by no means true of all of them. I will not go into the reasons, but this clause did not get anything like adequate debate in the other place, where it was introduced at a very late stage. We need to look at it extremely carefully in your Lordships' House to ensure that Clause 70 does not have potentially unfair and damaging effects. In particular, we shall need something in the nature of a specific purpose clause which will exclude cases where tax and contribution avoidance are not a purpose of the arrangements.

In winding up for these Benches, I cannot ignore the welfare reform part of the Bill, even if I have concentrated mainly on pensions. There are indeed many aspects which raise concern and we have heard many eloquent speeches about them from all sides of the House. The question of the widow's pension causes concern, as to some extent does the single gateway. But I refer above all to the changes in incapacity benefit in Clauses 57 and 58.

There may be a case for saying that incapacity benefit should depend on a contributions record that indicates a commitment to work on the part of the contributor. But I simply cannot imagine how anyone could have come up with a set of rules that ignores 30 years of unbroken contributions and takes into account only the contributions record in the last two years. How does that deal with the problem of the miners or shipbuilders whose jobs have simply disappeared and who live in communities where work is simply not available for untrained 50 year-old men? How do those rules deal with people who find it difficult to get work at a late stage because of a slow deterioration in their condition which has not yet been diagnosed but is sufficiently serious to damage their capacity to work to the satisfaction of their employers?

Turning to Clause 58, I can see, although I do not agree with it, an intellectual case for saying that incapacity benefit should be converted into a means-tested benefit. But the Bill does not make incapacity benefit a fully means-tested benefit. It simply sets off incapacity benefit against one type of income, and one only; that is income from pensions or disability insurance. Why should someone who has taken out an insurance policy to pay mortgage instalments on his or her house and to provide for the security of a young family lose the right to incapacity benefit when, if the same person had been fortunate enough to have inherited wealth, he or she would receive incapacity benefit in full? I ask the Government to listen to the

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arguments that have been so powerfully expressed by the noble Lords, Lord Ashley, Lord Rix, and many others, and to drop Clauses 57 and 58 from the Bill. If that is not done, when the noble Lord, Lord Ashley, moves his amendments we on these Benches will give them our unconditional support.

9.27 p.m.

Lord Astor of Hever: My Lords, I begin by declaring an interest as an unpaid director of the Officer's Pension Society Investment Company. I also have a daughter who is autistic and dispraxic, and who therefore needs full-time care. In declaring that interest, I feel that I have hands-on knowledge of the frustrations experienced by the parents of disabled children.

This has been a full and thorough debate. I agree with my noble friend Lady Fookes that it has been an honour to take part with so many distinguished speakers. I also echo the admiration expressed by the noble Baroness, Lady Castle, for the Minister's presentation skills at the Dispatch Box. I thought that the noble Baroness's own presentation skills were also pretty good. I was particularly interested in her comments on means-testing.

I feel a certain sympathy for the noble Baroness the Minister, who has had to listen to some critical and very effective speeches from her own Benches. I suspect that her natural inclinations are to sympathise with such principled views, which show great concern for the less fortunate in society, and in particular the disabled.

I remember the noble Baroness's powerful speech on the amendment introduced by my noble friend Lord Swinfen to the Disability Discrimination Bill in 1995. It is worth pointing out, in the light of the problems that she may experience at later stages of the Bill that her primary tactic on that amendment was to encourage my noble friends to take a principled stand on the issue and vote against their own side. After much personal lobbying, the noble Baroness even persuaded me to vote with her.

The Government's approach to the Bill is clearly dictated by a need for sound bites rather than a desire for genuine reform. It is clear that behind slick presentation and loud fanfare, there is considerable panic and confusion in the Government about how to deliver on their promises. The Bill is a further example of confused thinking. My noble friend Lord Blackwell pointed out that the Government have no clear strategy.

Employers have voiced strong opposition to the proposals that will require those firms without occupational schemes to nominate a stakeholder pension. My noble friend Lord Buckinghamshire touched on the point. Many employers without schemes lack the resources and experience to judge which one is most likely to be in the best interests of their employees. A small manufacturing company making, for example, bin liners, will hardly be expert in the field of pensions. After all, actuaries get paid large sums of money for pension scheme selection precisely because the area requires such expert advice. Furthermore, small businesses will have to take regular financial advice to ensure that a nominated scheme continues to buy good value. It is yet another example of costs that this Government are forcing onto small businesses.

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If employers have to select a scheme, their employees will inevitably associate them with the nominated scheme and look to them if things go wrong. The problems around personal pensions have made employers particularly sensitive to the dangers inherent in recommending a particular product. The Government have not thought this through.

My noble friends Lord Buckinghamshire and Lord Freeman raised the issue of concurrent membership of a stakeholder and occupational pension scheme. I agree that, if a future mis-buying or mis-selling scandal is to be avoided, it is essential that membership of a stakeholder pension scheme should not preclude concurrent membership of an occupational one in relation to the same period of employment. I strongly urge the Government to reconsider the issue.

I turn now to pension sharing. The Opposition welcome the relaxation announced during the Committee stage in the other place to allow scheme members who, at the time of their divorce, earn less than a quarter of the earnings cap to rebuild pension rights lost as a result of a pension-sharing order. However, we are concerned that in practice this relaxation will be of little real value. Those individuals who are entitled to will often not be able to afford to do so; and those who can afford to do so will not be allowed to. We urge the Government to extend this relaxation to all individuals who become subject to a pension-sharing order following a divorce.

We are concerned that the proposed arrangements will mean that the beneficiaries under a pension-sharing order will be able to take their share of the pension and add as much as they want up to Inland Revenue approved limits. The scheme member, conversely, will be constrained and unable further to build up his pension. Does the Minister agree that this doubly penalises the divorcing scheme member who has built up the pension fund?

The Government have stated that they expect that pension-sharing will be optional and not used in all cases. Is it not likely that that is precisely what will happen, since pensions are often the most significant element of financial planning that a working spouse makes? I should be grateful if the Minister will indicate whether the Government have any estimated figures as to the proportion of divorce cases in which they expect a pension-sharing order to be made. The noble Baroness states that it is 50,000.

I turn now to the aspect of this supposedly "fair and reasonable" Bill which attacks widows' benefits. There is no widespread suggestion that widows are cheating the state. Yet instead of the current guaranteed widow's pension, bereaved spouses will henceforth receive benefit for only six months, after which they will be expected to get a job. My noble friend Lady Anelay hit the nail on the head when she said that the Government had managed to attack vulnerable people, the contributory principle and the institution of marriage in one fell swoop.

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Several noble Lords have referred to the restrictions on entitlement to incapacity benefit. They include the noble Lord, Lord Rix, who has devoted himself to helping the disabled, and the noble Lord, Lord Morris, the guru of the noble Earl, Lord Longford. The noble Lord, Lord Morris, made some very powerful points--as one would expect from the first Minister for the Disabled and someone who has had such an outstanding record of service to disabled people--as did the noble Lord, Lord Ashley, who said that these measures defied understanding, logic and morality. His words carry especial authority, not least because he is chairman of the All-Party Disablement Group which he set up with a Tory MP, my uncle, the then Member for Newbury.

The Government have made mention of their manifesto over and over again when debating House of Lords reform. I have searched high and low through their manifesto without success to find anything on proposed cuts in incapacity benefit. I was intrigued to note that Tom Clarke, the shadow Minister for disabled people's rights in the previous Parliament--with whom the noble Baroness worked so closely in opposition--voted for Amendment No. 12 at Report stage in the other place. I shall not tonight ask the Minister whether she agrees with her colleague who said that the Government's policy was logically flawed and morally without justification.

The Government's proposals penalise those disabled people who have attempted to save for their retirement. The Government claim to encourage people to save and yet in practice they penalise those who do so. Those with degenerative diseases will be particularly discouraged from working. Disabled people make a valuable contribution to our society and these changes are a huge step in the wrong direction.

My noble friend Lady Anelay referred to the Disability Benefits Forum set up by the Government to give the disabled a pivotal role in shaping policy and to ensure a proper dialogue between the Government and disability organisations. What was the result of that dialogue? As my noble friend Lord Campbell said, 12 charities resigned from the forum, claiming that consultation was a sham and that the Government had no intention of listening to them. My noble friend Lord Pilkington referred to Frank Field. The Government's commitment to welfare reform really died the moment that Mr Field was forced from government last July. I am sure that this Bill would be very different if he were still a Minister.

My noble friend Lord Higgins and the noble Lord, Lord Goodhart, referred to the Government's new Clauses 70 and 71. These target what the Chancellor sees as tax avoidance by one-man limited consultancies and have alarmed business lobby groups, accountants and professional bodies alike. Accountants know their business. They see the rules as little more than tax increases by stealth. This is all the greater since it appears that this legislation will apply far beyond the area in which the Inland Revenue perceives abuse, to the point where it will adversely affect many small companies engaged in the knowledge-based industries. Because of skill shortages in this area, it is likely that any increased tax or national insurance burden on such

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companies will be passed on to their clients. Therefore, the proposed legislation could produce severe price increases.

Alternatively, it may lead to many of the people who work for these companies going abroad to countries offering tax incentives, especially in computing, with a subsequent brain drain in the United Kingdom economy. The Institute of Chartered Accountants, in a scathing memorandum to the Inland Revenue, has attacked the proposals. It says that they would create a massive administrative burden, prevent small companies from growing and fail to generate the expected £450 million revenue.

The operation of the rules is extremely burdensome if not unworkable and indiscriminate in that they apply whether there is disguised employment or not. We have seen from the Tax Credits Bill that this Government, despite their claim of wanting to help small businesses, are intent on dumping on them more and more complicated rules, regulations and red tape.

I was particularly touched by the speech of my noble friend Lord Campbell. I have always admired him for the brave way he has withstood his long personal experience of disablement resulting from his war wounds. I agree with him entirely that the Government are proceeding the wrong way on this Bill.

I opened my remarks with reference to the politics of principle. The Prime Minister himself has stated that,

    "If this Government is to be judged by no other measure in its time in office, then it must be judged by its approach to welfare reform".

This Bill is far removed from the politics of principle and is more to do with the politics of deception. What has been introduced is not welfare reform; it is an attempt not to pay out, masquerading as reform, supported by new Labour's tales of mystery, imagination and spin. Many noble Lords on all sides of the House have raised powerful concerns on a number of key points related to the Bill. After it was debated in the other place, and when hostility was expressed by many of the Government's own Back Benchers, the Social Security Secretary was quoted as saying that constructive amendments by your Lordships' House would be considered. I therefore urge the Government most strongly to reconsider their approach to this Bill in the light of the many flaws that have been exposed. If they are serious about delivering on their manifesto commitment to reform the welfare state, they will have to do a great deal better than they have done so far.

9.42 p.m.

Baroness Hollis of Heigham: My Lords, it is wonderful to have some exercise! We have had a powerful and eloquent debate. We have also had a debate of almost six hours. To answer all the points would take almost as long, and I am sure that your Lordships would not wish for that. Therefore, with permission, I shall write to noble Lords. Nothing would give me greater pleasure than to reply in writing in particular to some of the more detailed points on pensions, service contracts and so on. I hope that your

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Lordships will allow me to answer in writing not because I do not feel able to give an immediate response but simply because of the pressure of time tonight.

The noble Lord, Lord Higgins, and many others complained that the Bill lacked principles. I shall return to that issue at the end of my speech. The noble Lord then went on to say that we had failed to cut the budget. I was not sure whether he was arguing that we should spend more or less, but on both counts he did his best to damn us and said that we had failed to cut the budget. What we have said, which remains the case, is that we have cut the rate of growth to half that which was anticipated by the previous government, given the natural demographic trends of more elderly people living longer. The growth during the previous Parliament was 4 per cent and we have cut that to 2 per cent. We have been able to do so by cutting expenditure on economic failure--that is on unemployment--by encouraging more people into work with the New Deal and, in time, the working families' tax credit. At the same time it allows us to increase our costs on disabled people and pensioners and, of course, to invest £40 million in health and education. My noble friend Lord Morris said that the government social security bill and budget was manageable. He was right, if you compare it with other countries, primarily because at least half of the social security budget goes on benefits to those over 65 and, of course, that responsibility--I do not call it a burden--is properly shared in this country with private providers in a way that is not done in Europe.

The noble Lord, Lord Higgins, then went on to say that we were undermining the contributory principle. I have to say that I thought that was a bit rich from a government that could cut contributory unemployment benefit, and various other contributory benefits, down to six months. But, as he will no doubt tell us, the job of opposition is to oppose and to hell with consistency. Throughout this, we have been trying to retain a link with the principle of contribution--

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