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Lord Haskel: My Lords, I cannot but admire my noble friend Lady Castle. All of us have been treated to many speeches from her over the years and everybody admires the way in which she fights for pensioners. Of course, one can admire her but perhaps not agree. Frankly, I am not sure whether I do agree.

I have an interest to declare. Since Report and Third Reading, I have become a pensioner. As such, my interest is that there should be stability in prices and wages. That is what will benefit society as a whole. The question of pensions has to be looked at within the economy as a whole. If we are to vote for my noble friend's amendment, we are, in a way, voting against the management of the economy. The Government are doing a very good job in managing the economy. The interest of pensioners is the same as the interest of everybody else; that is, that there should be stable prices and wages. That is what the Government are managing to do. I support the Government on this.

Lord Goodhart: My Lords, I do not intend any discourtesy to the admirable speech of the noble Baroness, Lady Turner of Camden, if I say that the speech from the noble Baroness, Lady Castle, was one of the most powerful and persuasive speeches I have ever listened to in this Chamber. On these Benches, we are able to give her some support, although I fear it will not be as much as she would like.

As we know, Amendment No. 2 proposes restoration of the link of basic pensions to earnings. Amendment No. 3 proposes a one-off increase in the basic pension. Both would increase the social security budget substantially. We are in favour of an increase in public spending on pensions. However, we realise that that is potentially very expensive and therefore needs to be carefully targeted.

One problem with restoring the earnings link--a problem that perhaps, in a sense, we should welcome--is that of the increased life expectation of pensioners. If the basic pension is linked to earnings, total pension costs will increase faster than earnings because pensioners are living longer. Therefore, pensions will require an increasing share of GDP to fund them. That problem will be reduced but not eliminated when the pension age for women is raised to 65. Be that as it may, it can be argued strongly that the cost of the basic pension is now so low that we can afford to restore an earnings link even if, over time, it will significantly increase funding costs as a proportion of GDP.

A forecast given in a Written Answer in the other place within the past two days was that by 2050, if no changes are made to the present system, 30 per cent of pensioners will be below income support or minimum income guarantee levels.

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The cost of pensions in the United Kingdom is very low in comparison with the cost of pensions in other countries. A recent IFS report contained a table of 10 of the leading developed countries. The forecast for state spending on pensions in the United Kingdom as a percentage of GDP in 2000 was 4.5 per cent. Only two countries in that list, the USA and Australia, spent a smaller share of their GDP on pensions. Further, the projection of trends for 2040 shows that United Kingdom spending will have dropped to 4 per cent of GDP while in all other countries in the list spending on pensions will have increased as a percentage of GDP; and by 2040, on the basis of those trends, the United Kingdom will be spending less than any other country on the list. I accept of course that some countries, notably Italy and Germany, have landed themselves with an unsustainable burden of pension costs, but they already spend nearly three times as much as the United Kingdom.

The problem with Amendment No.2 is that this is not yet the right time to discuss it. I believe that the future of the basic state pension cannot be considered without also looking at the second state pension.

The Government are likely to propose that the second state pension should be earnings linked, but it is not clear how firm that undertaking is. We know need to know the plan for the second state pension. What are the long-term projections of its cost; and will there be a firm undertaking to index-link it? It is only when we have detailed information about the second state pension, which will be a very important element in pension provision, that we shall be able to form a judgment on the need for the restoration of either full or partial linking of earnings to the basic state pension.

I am not very hopeful about the effect of the second state pension. Another Written Answer given on Monday to my honourable friend Professor Steven Webb in another place suggests that by 2025 the second state pension will have increased the income of most single pensioners by less than £2 a week and of most married pensioners by £5 a week, which does not seem to be adequate. However, the time for that battle is when we are considering the second state pension next year.

Amendment No.3 proposes a substantial one-off increase in the basic state pension. That would be the new baseline for future increases, whether price or earnings linked. It would not restore the full amount of the loss over the past 20 years as a result of the loss of the earnings link. If the earnings link had been retained, single pensioners would now be getting £93.25 a week. An increase even to £75 would be very expensive: it would cost approximately £3.6 billion a year if a corresponding increase was made in the basic state pension for married pensioners.

There is a surplus in the National Insurance Fund, but that can be spent only once, and, unlike the noble Baroness, Lady Castle, I am not persuaded that there will continue to be a regular surplus of the same amount.

We would be able to support the amendment if the increase was restricted to pensioners aged 75 or over. Those who are now over 75 are, as the noble Baroness,

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Lady Turner, pointed out, are the least likely to have significant income from occupational or personal pension schemes or from SERPS. Old age brings increasing costs, such as the need to spend more on heating. The over-75s are those who find it most difficult and confusing to apply for income support. According to another Written Answer, of the estimated 720,000 pensioners or pensioner couples who are entitled to income support but not drawing it, no fewer than 430,000 are aged 75 or over. That strongly bears out the particular problems of the older pensioners.

We believe, therefore, that there is a very strong case for a substantial increase in the basic state pension for pensioners aged 75 or more, but, reluctantly, we cannot support a blanket increase of this size for all pensioners.

In those circumstances, if the noble Baroness wishes to divide the House, our position is that we are unable to support her because we feel that there is a great deal in principle to be said for the arguments that we are putting forward. We shall also be unable to support the Government.

4.45 p.m.

Lord Shore of Stepney: My Lords, for many of our fellow citizens the state national insurance pension is the only pension that they have. For a very large number of people on low incomes, the lowest 30 per cent, the second supporting pension, from whatever source it comes, is a very small supplement. Therefore, the basic level of the state national insurance pension is very important, and will be so for a considerable time.

Frankly, unless we are simply to accept that a great swathe of our people should have recourse to national assistance or supplementary benefit or income support, we clearly have to try our best to bring up the level of the national insurance pension, and this Bill is perhaps our last opportunity to do so.

I agree with the noble Lord, Lord Goodhart, that on the available information I cannot support the once-for-all large increase, much as I should like to do so. However, I am prepared to keep an open mind on that matter in the light of any further information.

I should have thought that no one, for reasons of fairness and natural justice, could seriously challenge the restoration of the link between pensions and earnings. Why should the pensioner alone be denied the benefit? It is no good my noble friend Lord Haskel saying that their only interest is in stable prices and stable wages, the same as everyone else, because they have a separate interest. The point is that they are not, with the rest of our wage-earners, carried forward by the growth in prosperity of the country as a whole.

Having said that, what can one add? Very little. The only possible answer to the problem is that the new second pension, or the new pension, the stakeholder pension, could conceivably provide a solution. If the stakeholder pension became one of substance and could rescue the lowest 30 per cent of the population from what is otherwise a rather poor prospect in

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retirement, I would go along with that, but the stakeholder pension is wholly untried, as we know. It is almost undefined. A very small stakeholder pension will be available to people on lower incomes who can put money into such a pension. There is no prospect of any significant return for the greater majority of lower-paid people, where there is no employer's contribution and no state contribution.

As the noble Baroness, Lady Castle, reminded us, our manifesto stated that the basic state pension would be retained as the foundation for pension provision. The following sentence in the manifesto is also an important one as it states that the pension will be increased at least in line with prices. I assume that that rather careful caveat was put in because of the general state of panic of my party leadership just before the general election when they were desperately anxious not to give the slightest sign that there would be an increase in public expenditure if the Labour Party won the general election. OK! Responsible stuff. But as it turns out, the economy is really rather good, not in terms of the National Insurance Fund to which reference has been made, but in terms of the national finances as a whole. And this modest amendment is simply asking for an annual uprating which will be linked to earnings rather than prices. One is almost embarrassed to be asking for so little.

I hope therefore that my noble friend, for whom I have the highest regard, will go back to her Secretary of State and say: "Think again. You are not fulfilling what we in the party and the country as a whole have a right to expect on behalf of retired people. Look again at your pledge to at least increase in line with prices. Surely we are entitled to something more than an increase in line with prices, which is all that we are being offered at the present time.

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