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Lord Higgins: I first debated the concepts which underlie the amendment as long ago as 1964. In my maiden speech in another place, I put forward the idea that, although the contributory principle was important, a group of people had been left out of the national insurance scheme when it was first established. They were not allowed to contribute. I argued that they were entitled to that part of the national insurance pension which was not covered by contributions. Alas, when I was fortunate to get a Private Member's Bill--No. 1 on the list--and introduced it, the then Labour government carried out a filibuster all night under the leadership of Dick Crossman and Douglas Houghton. The noble Baroness was a member of that Government. The filibuster succeeded--disgracefully, I thought at the time, and still do. My Bill was defeated. However, I am happy to say that when we came into office in 1970 the first thing we did was to give pensions to the over-80s who had been left out of the scheme. I still believe that that was right.

The concepts are complex and, in replying to the previous debate, the noble Baroness described the matter as "repackaging", as regards the minimum income guarantee. I am fearful, as was the noble Baroness, Lady Turner, about the future of the basic state pension. I believe, as she does, that it ought to form the bedrock of our system. The move towards a minimum income guarantee, which is means-tested, may be in danger of being considered as a substitute for the basic state pension, although those who have contributed over the years feel they are entitled to it and should not be subject to a means test.

As regards Amendment No. 44B, the present situation is very different from that in 1964. At that time, the state pension was the important thing. There has been an enormous increase in occupational pensions since that time. Of course, they tend to be much more earnings-related, although it is still the case that, to the extent that the national insurance pension is not up-rated

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in line with earnings rather than prices, there will be some who fall behind the general level of prosperity in the country as a whole.

What worries me about the amendment, if it were to be pushed at this time, is that it would increase the pressure on the Government and more particularly on the Treasury to do away with the basic state pension. For the reasons I mentioned, it would be a more expensive operation than now. Therefore, as the noble Lord, Lord Goodhart, said, it is right that we should maintain it and uprate it in line with prices. But I believe that there are dangers in going further than that.

Having said that, the issue is a very important one. I am worried about the way in which we are moving closer and closer to means testing. It is important to maintain the right of people to contribute to what is not, as the noble Lord, Lord Goodhart, points out, an insurance scheme. We must move towards a situation of steady improvement. I do not believe that this amendment should be accepted.

The Earl of Clanwilliam: I entirely agree with the aim of the amendment moved by the noble Baroness, that pensions should be increased in line with earnings. The noble Lord, Lord Goodhart, referred to the stakeholder pension and compulsion. I do not know whether this is the right moment to mention it, but for seven years I have been advocating compulsory pensions in this country at a lower level. That is the only way that those in the bottom range, the 6 million to 8 million people who are not contributing now, will ever be persuaded to do so. The simple fact is that in their opinion their earnings are not high enough for them to consider providing themselves with a pension. If they do not do it now they will become a serious burden on the rest of the population in future. Therefore, rather than speak in support of the noble Lord, Lord Goodhart, I recommend that there should be compulsory pensions.

Baroness Hollis of Heigham: The new provision introduced by the amendment moved by my noble friend Lady Turner seeks to restore the link whereby the basic state pension and related increases paid for dependants are uprated each year in line with the growth in earnings or prices, whichever is the higher. We understand the strength of feeling associated with a return to the earnings link. Equally, my noble friends will be aware of the position of the Government and will not be altogether surprised by my response to the proposed new provision.

I remind the Committee that the automatic annual link between earnings and the basic pension was in place for only five years between July 1974 and November 1979. Before that, for quite a few years it was not uprated at all. Even when the earnings link was in place, on two occasion in those five years the rate of price inflation exceeded the rate of growth of earnings. Therefore, in those years of the late 1970s the basic pension was uprated in line with prices, and this continued to be the case under the Conservative government from 1980 onwards.

We have looked carefully at what would be involved in restoring the earnings link. That was one of the very first things that we looked at when the Government were

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returned to office. The cumulative cost would exceed £10 billion after five years and reach £10 billion each year in less than 15 years. They are huge sums of money. I am sure that the Committee understands that, with costs of that magnitude, we must be extremely careful in considering whether such spending provides the best value for those in need. As with the previous amendment, none of this would benefit the poorest pensioners who are entitled to income support and have insufficient capital to disqualify them from that benefit.

The basic state pension will continue to be uprated each year at least in line with prices. It will not be means tested or privatised, as the previous government's basic pensions plus proposed. The basic state pension remains the basic-building block of the pensions system. Beyond that, we have concluded that we must concentrate our help and available resources on the poorest pensioners, largely single women over 70 years of age, often widows, who by virtue of their life chances have not had the opportunity to build up a pension in their own right.

6.15 p.m.

Lord Higgins: Can the Minister make clear to what timespan the commitment she gives is related? Is it related to an indefinite period of a Labour government, should that happen--it may not--or merely this Parliament?

Baroness Hollis of Heigham: This is a commitment of the Labour Government. Obviously, should we be replaced by a government of a different persuasion we would be unable to honour that commitment.

The reason why we now have a problem with the poorest pensioners, largely women, is that they worked at home without wages. They were not in the labour market and therefore were unable to build up a pension. Compared with the 1960s and 1970s, today about 70 per cent of all women work and, including those who work part-time, three-quarters are over the lower earnings limit and will build up a second pension in their own right. I am sure that my noble friend will be pleased that one of the by-products of the minimum wage is that it will raise above LEL at least three-quarters of a million women, both part-timers and full-timers, who were below it. As a result, they will acquire and be able to build up pensions in their own right. In future, those who become the poorest pensioners, or who have been so in the past, will be able to build up a pension entitlement in their own right.

The problem of pensioner poverty and the need to go for the minimum income guarantee, with all its complexities--I accept that entirely--is one that we hope will be overtaken by our response through the state second pension, the stakeholder pension and the capacity of those in the past who have not been eligible to join those pensions, either by virtue of crediting in through carers' responsibilities and the like or by earning enough by means of the national minimum wage, to qualify by virtue of their contributions.

In addition, not only are we increasing income support by the minimum income guarantee but we are also providing immediate help with winter fuel

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payments, which have been increased to £100. Ten million pensioners benefit from that. We have introduced income tax changes, such as the minimum tax guarantee, which mean that two-thirds of pensioners pay no tax at all. We have also introduced free sight tests and plan to legislate for minimum concessionary fare schemes. As a result, we have produced a package over the lifetime of this Parliament of an additional £4 billion for pensioners. Over and beyond that, we seek to build up the two-tier pension: the state second pension unfunded to replace SERPS but with a more generous redistributive effect than SERPS could ever achieve.

I turn to the first question put to me by the noble Lord, Lord Goodhart: what are the implications of the state second pension? I take an individual who is mid-way between the lower earnings limit of £3,500 and £9,000. The figures that I give are relative to earning levels in 2050. In real terms, if someone is earning £6,000 his basic pension together with current SERPS is £45. With basic pension plus state second pension the figure is £84. Therefore, in real terms the extra help provided by the second state pension for someone on £6,000 a year at 2050 is £39 a week. Those sums can be done all the way up. The lower the income the more generous the entitlement provided by the second pension in comparison with SERPS. It pays all those earning between £3,500 and £9,000 as though they were earning £9,000 and gives a pension accordingly.

The second point raised by the noble Lord, Lord Goodhart, in a way supported by the noble Earl, Lord Clanwilliam, related to compulsion. The noble Lord, Lord Goodhart, spoke to an amendment moved, I believe, by my noble friend Lady Turner on the previous Committee day that sought a compulsory contribution from employers.

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