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Lord Davies of Coity: My Lords, without any risk whatever, I venture to suggest that there is not a Member of the House who does not admire the passion, the conviction and the sincerity with which

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my noble friend Lady Castle prosecutes her case in respect of restoring the earnings link. About that I make two points.

First, the arguments have been fully canvassed in this House time and time and time again. The chance of anything new being introduced is very unlikely. Secondly, if an independent observer came here and listened to the way in which the arguments ebb and flow, he would probably get a distinct impression that those who were supporting the restoration of the earnings link were for pensioners; and that the Government, who were defending their proposals, were against pensioners. That is not the case. It is far from the truth. The Government are concerned about pensioners, but their strategy and approach is somewhat different to the one advanced by my noble friend.

As my noble friend Lady Castle knows, governments are required to take some very difficult decisions on occasions. As a Minister of the Crown herself, she will know that she had to face some very difficult decisions during her period of stewardship--which, of course, was a very admirable one.

Here we have a situation where, on the one hand, we have heard arguments in favour of restoring the earnings link for pensioners, an earnings link that was abandoned a long time ago. On the other hand, we can approach this by raising the minimum level of pension income so that it is equal to that of the minimum income guarantee.

Where do the Government stand? As I see it, initially, immediately and for the foreseeable future, the Government wish to devote resources to those greatest in need. That seems to respond to an age-old socialist principle: from those according to their means to those according to their needs. In the long term, the Government want to tackle the real problems of our pension system to ensure that pensioners living through this new century will receive pensions that will be part public and part private. Above all, however, they will be adequate pensions and will be of realistic benefit. It may be thought courageous or even revolutionary to implement such massive changes, but in the long term, I believe that pensioners will benefit from the proposals that the Government have put forward.

I give noble Lords advance notice of what will be announced in the newspapers on Saturday of this week. I shall reach the age when I will attract an old age pension. I know that my old age pension will embrace an element of graduated pension and, perhaps more importantly, a larger element of SERPS. However, if I thought that I was going to receive additional payments to that pension which, at the same time, would mean that worse-off pensioners in either relative or absolute terms would not receive an extra amount that they would otherwise receive, I am afraid that I would feel a measure of guilt.

On balance, I think that the Government are going in the right direction. I certainly hope that, at the end of our debate, the House will give the Government the support they require.

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Lord Warner: My Lords, it is with some reluctance and trepidation that I rise to question the wisdom of Amendment No. 72. In the mid-1970s I worked closely with my noble friend Lady Castle, when she was the then Secretary of State for Social Services. I have a huge admiration for her abilities. In those days we both believed strongly in linking upratings of the basic retirement pension to increases in the level of earnings. However, I hope that she will accept that, in the spirit of friendship, I suggest that the world has moved on since that time.

I am not sure that we can now move "back to the future". Pinning pensions upratings to prices has been carried out for around two decades, as a result of the actions of the previous government. This Government have had to tackle the problem of pensioner poverty from the situation as it is, not as they would have liked it to be; namely, as if an earnings link had been in place over the past two decades. Through special measures, they have targeted help--in my view, rightly--on those pensioners in the greatest need. Some of those measures are tax free, which would not be the case if we increased the basic pension. The Government have tried to implement measures to help those in the greatest need. I believe that that is totally consistent with the principles of the Labour movement.

I recognise that this has not been popular with many pensioners. However, to correct my noble friend Lady Turner, we should bear in mind that we are not operating funded state pension schemes.

Baroness Turner of Camden: My Lords, I did not say that.

Lord Warner: My Lords, with all due respect, my noble friend implied that an analogy could be drawn between the state pension and funded private insurance schemes. The reality, however, is that the people who comprise the present working population are in fact paying for today's pensions. Before we commit future generations to certain levels of pension obligation, we must be confident that those can be sustained.

I believe that the present Government have acted in the best interests of the poorest pensioners. The measures they have taken have increased the benefits going to the poorest pensioners to the tune of something in excess of £2 billion more than if they had increased the basic state pension in line with earnings since 1997.

In those circumstances, I am inclined to keep the present flexibility of more for the poorest pensioners rather than tie ourselves to the rigid formula in Amendment No. 72.

Lord Higgins: My Lords, I join noble Lords who have suggested that the noble Baronesses, Lady Castle and Lady Turner, put forward the case with which we are familiar with the greatest eloquence. It is remarkable that they have immediately picked up the report of the Select Committee of another place, The

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Contributory Principle, published only on 7th June. It raises important arguments in relation to the points put forward.

My party's position is clear and at this hour of the night I do not propose to bore the House by repeating it. Unfortunately, I am not at this moment in a position to announce a sudden change of policy. None the less, perhaps I may comment on our recently announced change with regard to combining the Government's various gimmicks on winter fuel payments, television licences and so forth. Because it saves some £40 million a year in administrative charges, it enables a modest increase to be made. Perhaps I may say to the noble Earl that it was not presented as a massive increase; it was a consequence of the action we took. Although it is, as the noble Baroness, Lady Castle, pointed out, a once and for all increase, it raises the basic level on which future increases are made. Therefore, to that extent it is not a once and for all increase.

Not one of the criticisms made of the proposal put forward by Mr Hague a few weeks ago was valid. There was a great deal of immediate reaction from the Government. Every single point they made was based on a misunderstanding of what we were proposing. I speak as one who for 30 years represented one of the "oldest constituencies" in the country. It is said, "They came to Worthing to die and they forgot what they came for." I have to tell the House that the proposals for incorporating into the basic pension the various government measures--

Earl Russell: My Lords, I apologise to the noble Lord, Lord Higgins, for intervening, but before he leaves the subject of his party's policies, is he in a position to answer my question about how it proposes to find a £90 million saving in the Social Fund?

Lord Higgins: My Lords, no, not at this stage. However, if the noble Earl looks at the detailed press release issued at the time, he will find a satisfactory answer.

Perhaps I may repeat what I said a moment ago with regard to the speech of the noble Baroness, Lady Castle. She referred to the Select Committee report but did not quote the relevant paragraph. Paragraph J of the recommendations states:

    "We concluded that unless there is a significant change of policy there is likely to be a growing surplus in the National Insurance Fund as a result of benefits being linked to prices and contribution income based on earnings rising at a faster rate".

We agree with the Secretary of State that any use of the surplus must be sustainable in the long run, but it goes on to state:

    "The Government Actuary's figures show that in order to pay for an earnings up-rated benefit the combined contribution rate from employers and employees would have to rise by 3.2 percentage points"--

the figure mentioned by the noble Baroness--

    "by 2021 and by 7.6 percentage points by 2060".

The Select Committee goes on to recommend that the Government should consider that as one option of funding improvements in benefits. Since this is an

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important and, in many ways, authoritative report, based as it is on the figures of the Government Actuary, I hope that in reply to the noble Baroness, Lady Castle, the Minister will comment on that particular aspect of the matter.

11 p.m.

Baroness Hollis of Heigham: My Lords, it is late. Having spent 50 minutes on this matter--this debate is a repeat of one held at Second Reading and at Committee stage--I am sure that noble Lords want me to be as brief as possible.

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