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Lord Goodhart: My Lords, I speak for myself but I suspect also for almost every other Member of your Lordships' House here this evening in expressing my envy of the remarkable stamina in her 90th year of the noble Baroness, Lady Castle. Therefore, it is with regret that we are able to give her Amendments Nos. 53 and 55 only a rather limited degree of support.

We accept that the earnings link for the basic pension is not sustainable in the long run. We believe also that a blanket increase in the basic pension to a level of £75 will not directly help the poorest pensioners, because it just brings that amount up to the minimum income guarantee. Therefore, it follows that most of the extra money will go to those whose incomes are already above the minimum income guarantee.

Of course, it will relieve poor pensioners from the need to claim the minimum income guarantee, and we accept that that is indeed a significant benefit. In the long term, we hope that the problem will be dealt with by the government proposal for a second state pension, which will indeed lift many state pensions above the MIG level.

However, we believe that there is a better way in which, without giving an increase to all other pensioners whether or not they need it, many of the neediest pensioners could be taken more or less immediately out of the need to claim the minimum income guarantee: that is, we should target increases

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on older pensioners. That proposal has been made on many occasions by my honourable friend Professor Steven Webb in the House of Commons.

Older pensioners are those who are likely to have the greatest needs and, simultaneously, the lowest incomes. Therefore, we should like to see a substantial increase in the basic pension for pensioners at the age of 75 or 80 as opposed to the absolutely absurd increase of 25p per week which is now paid to 80 year-old pensioners. To that extent, we are glad to be able to support the principle behind the amendments moved so powerfully by the noble Baroness.

Baroness Turner of Camden: My Lords, perhaps I may add a few words to what my noble friend said about the earnings link. The removal of the earnings link and its replacement by a link to the retail price index has meant a decline in the relative value of the basic pension and consequent impoverishment of large numbers of today's pensioners. There is no doubt at all about that. That means that large numbers of them are dependent on income support, which is, of course, means tested.

Many who are entitled to it, estimated by the national pensioners convention at about 700,000, do not claim it, which has been referred to already by my noble friend, largely because older people in general particularly loathe and fear means testing. The problem with the Government's minimum income guarantee, to which the noble Lord, Lord Goodhart, referred, is that that too will be means tested.

The Government seem desperately concerned that any increase in the basic state pension may go to people who, in their opinion, do not really need it. I presume that that means largely those who are already benefiting from occupational pension schemes. But many of those schemes were based on the assumption that they top up the basic state pension and so the state pension is frequently a necessary element in the pension provision of even those with an occupational pension.

Moreover, the really well-to-do will have any increase which comes to them taxed out of existence because taxes will be payable by people who are really well off. One cannot help feeling that state benefits are looked upon even by this Government as some form of charity. Contributory benefits are not charity. They are part of the social insurance scheme to which we have all contributed during our working lives. There is a right to benefit at the end of such a working life.

A return to the principle of the earnings link henceforth--we are not asking for it to be backdated--would at least give older people the right, which has been denied to them, of a basic level of living without the need to justify it by some form of means testing, which many regard as humiliating. We are talking about benefits for people of the

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wartime generation--people who made sacrifices and laid the basis for our present prosperity, and the future advances that we may make. They really do deserve better than to have to rely on means testing to provide them with a decent standard of living. I support Amendment No. 53 and, very much, Amendment No. 55.

Baroness Crawley: My Lords, my noble friend Lady Castle makes powerful arguments that will find support throughout the House, but Amendment No. 53 in particular does not answer the case of the growing divide between pensioners at the top in terms of their financial means and those at the bottom.

That gap between rich and poor has grown dramatically over the past 20 years. The income of the top one fifth of single pensioners has increased 76 per cent since 1979 and those in the bottom half--many of them women--saw their income grow only 28 per cent. I cannot agree that Amendment No. 53 answers that enormous and growing divide, which needs to be addressed. The amendment offers a blanket solution that does not address that growing divide.

1.15 a.m.

Baroness Hollis of Heigham: My Lords, the noble Baroness, Lady Castle, clearly explained that the purpose of Amendment No. 83 is to increase the basic state retirement pension to £75 per week, while the second amendment would allow for uprating each year in line with the growth in prices or earnings--whichever is the greater.

I cannot anticipate the Secretary of State. He is required by law to review the rate of retirement pension and other benefits each year. He will announce the outcome later this year in the usual way. I understand why the noble Baroness has again tabled these amendments, which she withdrew previously, but the key drawbacks remain--the huge costs of the increases and, as was said by the noble Lord, Lord Goodhart and my noble friend Lady Crawley, they would put extra money in the pockets of those who do not need it as opposed to those in greatest need.

This Government, with the devolved assemblies, are determined to tackle poverty and social exclusion. The gap between the richest and the poorest pensioners is widening. For both single pensioners and pensioner couples, the average income of the richest one fifth has increased twice as fast as the poorest one fifth in the past 17 years.In 1995/96, nearly one third of pensioners--around 3 million people--had household incomes in the top half of the overall income distribution for the population as a whole.

Recent research by Professor Robert Walker of Loughborough University was published in The Times in September. As he says, times have changed:

    “A generation ago, the stereotype of the poverty-stricken pensioner was grounded in truth. Not so today. Some pensioners are very poor but most are not".

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He adds that the Government's problem is that public opinion--in this House as well as outside--

    “has not caught up with the mass of changes that have occurred".

He goes on to show that the average income of pensioners in real terms from 1979 to 1996 grew by 70 per cent, whereas that of the rest of the population grew by 40 per cent. In 1979, nearly half of all pensioners were in the lowest fifth of income. Now it is only about 24 per cent; almost the same proportion as you would expect on any distribution. In 1979, 57 per cent of pensioners were on means-tested benefits; now, it is 40 per cent. Our task, therefore, is to help the quarter of pensioners in the lowest fifth of income without spending money on those who frankly do not need it.

As my noble friend said, her amendment would increase the pension to the level of the minimum income guarantee, which this Government introduced to help the poorest pensioners from this April.

Professor Robert Walker of Loughborough University, who is head of this research, goes on to state:

    “Raising the state pension would make richer pensioners richer and would not help the poorest, since the latter would lose out on means-tested benefits".

Those are not my words but those of the head of one of the most well-regarded research institutes in the country.

In other words, the amendment would give better-off pensioners more, including everybody in your Lordships' House who is of pensionable age. It would not help the poorest on income-related benefits who would lose it pound for pound. It would go to all when perhaps only one-fifth would need it, and they are precisely the ones who will not get it.

Therefore, it would give better-off pensioners more, but it would not help the poorest on income-related benefits. That does not fit well with our policy priorities which are seeking to tackle the problems of those on low income and to establish a decent pension structure for those coming through of working age.

Next April, the minimum income guarantee will be increased in line with earnings. This is a substantial increase for those pensioners who need it most. After next year's rise, a pensioner couple over 80 will be over £8 per week better off in real terms over the two-year period. However, we can only make such a substantial difference because we have concentrated the extra help on those who need it most. Had we not done so, I suspect that the amount for those who are the poorest would have been a quarter, a fifth or a tenth of that sum if we had to spread it across the pensioner population as a whole.

My noble friend's second point was about the affordability of the increase. The initial cost of increasing the basic pension, and the linked benefits

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such as incapacity and widow's benefits, would be about £4.3 billion a year initially. Even with price uprating thereafter, it would be necessary to increase National Insurance contribution rates by about 1 per cent after two to three years. But the cost of uprating the proposed £75 pension in line with earnings would be much more substantial, reaching £10 billion in 2010 and continuing to grow thereafter.

My noble friend suggested, as she has on previous occasions, that her proposals could be paid for with the surplus in the National Insurance Fund. However, there are three reasons why we have to look beyond a simple comparison of the first year cost of this increase and the current surplus in the National Insurance Fund. First, that surplus cannot be drawn on indefinitely whereas the cost of these amendments continues over time. The surplus would be eliminated in two years flat. Secondly, the expected success of our new stakeholder pensions will mean payment of more rebates out of the National Insurance Fund, bringing expenditure and income more closely into line. Thirdly, it would not be prudent for any government to make a long-term expenditure commitment based on projections of surpluses in future years. Those projections are subject to quite wide swings. For example, at the end of December 1991 the Government Actuary Report forecast an end of year balance of 17 per cent of benefit expenditure, but 11 months later that had been revised to 10 per cent. That gap was worth £3 billion in today's terms. Variations of that degree from the 17 per cent prophesied to the out-turn only 11 months later of only 10 per cent mean that the current surplus can, and has in the past, often quite quickly disappear. We could not, therefore, use this as a building block with which to fund permanent annual increases, as my noble friend suggests.

I understand the arguments behind these amendments. However, we are talking about large sums of money which would not be well targeted. We have already done much for pensioners and we shall do more. In this Government we have introduced the winter fuel payments and the like. Those are simply the first steps. However, in my view we should not build on them with the untargeted spending proposed here.

At the end of the day, the amendment tabled by my noble friends would, in the words of Professor Walker, ensure that rich pensioners became richer while the poorest pensioners would see no improvement in their lot at all. That is not a position that I can recommend to the House. I urge my noble friends to withdraw their amendment.

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