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Lord Higgins: My Lords, I am grateful to the noble Baroness for having made those inquiries, but I am concerned with the general point rather than the specific one. What happens if a scheme is wound up so that there are insufficient resources to pay the GMP? Is the company concerned still liable?

Baroness Hollis of Heigham: My Lords, presumably we are talking about a DB scheme and one where the company has enjoyed the benefit of the contracted-out national insurance rebate. Given that I understand that GMPs might, on a £10,000 pension, represent about 20 per cent of that pension, it would seem to me actuarially a major issue of trustee responsibility and the like if any scheme being wound up could not meet at least the GMP element. I understand that it is ring-fenced and secure.

I accept that this is an important issue, but it is quite technical. If I can give the noble Lord any further information, I shall do my best to let him have it before tomorrow. I understand that it is ring-fenced, secure and comes high on the list of priorities. The scheme would have to be about 80 per cent plus under-funded for there to be any question mark about the ability to pay GMP. That is my understanding, but if I can add to it any way, I am happy to do so.

I am not sure whether the question about GAD concerned the data or the reliability of the GAD forecasts. All that I can say is that in all my years in opposition and in government I have never yet heard of an occasion of up-rating when companies outside

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have not wanted more generous rebates to help to fund their liabilities. I understand that GAD forecasts are based on his or her best assumptions. It is entirely independent of government and the Department for Work and Pensions can in no way influence it. I have no evidence to suggest that GAD's forecasts have been erroneous in the past.

However, if the noble Lord wants to press me on that or ask further questions, it may be more helpful if I write to him with the details.

Lord Higgins: My Lords, I did not propose to raise either this point or my previous one tomorrow, so there is no rush for the answer that the noble Baroness has kindly offered. But in simple terms, why should the Government Actuary—or anyone—suppose that the rate of return on index gilts should rise, as he is apparently assuming? From first principles, why should that be so?

Baroness Hollis of Heigham: My Lords, I cannot say why he has made the assumptions that he has. I understand that the current level of rebates was proposed in the August 2000 consultation document. GAD is of the view that it would not recommend moving away from those rates if a review were being carried out now. That is because recent changes in economic conditions would not have altered the long-term economic assumptions on which the rebates are based.

As I said, that is a source of advice independent of what may be conflicting commercial interests. There may be dispute about GAD forecasts, but I have no evidence that they have been erroneous or wildly off the mark in the past. As I said, based on the consultation document, I have never known a period when companies have not argued for more generous terms, but we would expect them to say that, would we not?

I do not think that I can help the noble Lord much beyond that. If he wants to press further about GAD's assumptions, I can try to dig up a more informed briefing about what GAD takes into account when making calculations, but I suspect that that is in the public domain in the consultation document, which the noble Lord could consult as well as I. That is not a matter specifically for my department. We rely on that independent source of advice.

I turn to the substantive issue, which concerns the interlocking of means-testing, as the noble Lord calls it. Behind it is something very simple. This aspect relates to points that the noble Earl, Lord Russell, made. I suspect that the noble Earl would share our belief on this side of the House that services—what might have been called the social wage in the old days—must be universal at the point of provision if we are to ensure that services for the poor are not poor services. However, without targeted finances in the form of MIG, pension credit, and so on, there is no redistribution of income to ensure equal access in the labour market and equal access in the market to purchase other items.

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Why do we need to target finances? For two basic reasons. The first relates to poverty and the second to inequality. I remind the noble Earl that in 1979 I would have assumed that the answer to pensioner poverty was simply to increase the basic state pension. I no longer believe that. I shall tell the noble Earl why. First, the coverage of the basic state pension is a problem. At present, 51 per cent of female pensioners do not have a complete NI pension in their own right. So, without targeted help, they cannot even reach the state pension level. They must have that help. Therefore, the pension cannot be universal; otherwise money is given to people already over the RP level as well as to those below it.

The second reason for needing to target finances is the inequality that has resulted mainly from, and is the downside of, occupational pensions. I remind the noble Earl that between 1979 and 1997 the real earnings of the working-age population grew on average by 36 per cent. Pensioners' income grew by 64 per cent. Relative to the growing wealth of the country, pensioners, deservedly, improved their position. But the top fifth's income grew by 80 per cent, courtesy of occupational pension savings, and the bottom third's grew by 30 per cent. Sixty-four per cent was merely the average figure. In other words, between 1979–80 and 1996–97, pensioner inequality widened. As a result, some pensions—mainly those of older women without complete national insurance records—fell severely behind the growth in real incomes for the rest of the population. If everyone were given the same help, such pensioners would receive £4 or £5. But if finances were targeted, that category of pensioners could receive £19, thus enabling them to begin to share the living standards of the others.

That is basically why we target finances. I would not have argued in favour of the approach in 1979. But inequality within each household type—whether lone parents, children, disabled people, those of working age or pensioners—has grown dramatically between 1979 and 1996–97. It has grown to the extent that, unless nearly half of the expenditure is targeted, it will go to those who do not need it—the ugly phrase "dead weight" was used—and those who need it, will not get enough. I, for one, have changed my views since the late 1970s as a result of what we experienced during the 1980s and 1990s.

The noble Earl asked how large a fund would be required to take the income above the MIG—I assume that he means minimum income guarantee as opposed to the pension credit. The best estimate that I have is that, on the assumption that someone has a full national insurance pension, we are talking about £15,000 for men and £19,000 for women.

The take-up statistics for 2000–01 are due to be published on 27th March. The noble Earl also asked what take-up we were assuming. Our planning assumption has been one in three because of build up. But, one should make a distinction between clients and cash. It may sound perverse, but one of the reasons why the planning assumption, particularly of clients but not cash, is not higher is that we rightly expanded

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considerably the generosity and decency of MIG in 1999. As a result, many more pensioners became eligible, but for quite small amounts. Most did not bother to claim their payment. But the increase in eligibility was the result of augmenting the generosity on the income scale. I will be disappointed if, in cash terms but not necessarily in client terms, we have not reached 75 per cent by the time that pension credit and MIG have been properly bedded in.

The final point was about targeting. The noble Lord keeps talking about means-testing. I hope that he will not do so. The word carries a lot of baggage. It harks back to the 1930s and the household means test, and all the snooping and iniquitous inquiries that went on. There is a real issue about how we get value for money in ways that are decent, without spending a lot of money on giving financial support to people who are already adequately provided for. Given the inequality statistics, the answer must be targeting.

How do we ensure that those who are entitled to the money receive it? That is a take-up issue, which is why, as noble Lords know, we have simplified the forms, increased the information available and are going for a timetable of once every five years. There is analysis of incomes, and we are trying to get support through telephony and the like. That is a long way away from the old weekly means test and from accounting for every penny in a building society account.

All of us—the noble Lord, Lord Higgins, the noble Earl, Lord Russell, and the noble Baroness, Lady Barker, who is in her place—worked on the Pension Credit Bill. The noble Lord knows perfectly well that, with the help of voluntary organisations such as Age Concern and Help the Aged, we have tried to construct a way of targeting resources on those who most need help in ways that make it most likely that they will claim and enjoy the money that they are entitled to receive. Calling something like that "means-testing" discourages those who are most entitled and have greatest need for the money from claiming it. If we move the language on, we can move the agenda on.

I agreed with quite a lot of what the noble Earl, Lord Russell, said. I did not agree that we were asking the New Deal to carry too much. Obviously, there is always an issue about dead weight, but the most reliable statistics that I have seen suggest that 750,000 people have been helped into work by the New Deal. The National Institute of Economic and Social Research has said that, without the New Deal, long-term youth unemployment would be twice the current level.

We must recall that most people—75 to 80 per cent—on jobseeker's allowance get a job within six months. That has improved dramatically over the past four or five years. Ten to 20 per cent—perhaps one in four—of the people on JSA are functionally illiterate. Many of them are members of ethnic minorities—I shall come back to this issue—and may suffer multiple deprivation and disadvantage. Some of them are drug and substance abusers; some of them have come from fractured homes; and some have come from the care system. If they are to get a chance of work, they may

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have to enter the labour market and go through the New Deal not once but twice or three times, before they can hang on in an unfamiliar work situation. With its emphasis on personal advice, the New Deal has been particularly helpful to those who are most disadvantaged. Without that help, they would find it difficult even now not only to get a job but to keep that job for at least four or five months.

The noble Earl, Lord Russell, asked about substitution. There is much debate about that, but I shall refer him to one striking statistic: since 1997, there has been a fall in the claimant count of 500,000 and an increase of over 1,500,000 people in work. The difference between those figures shows that we are bringing into the labour market people who were hitherto economically inactive, including sick and disabled people, lone parents and partners. That suggests that substitution is not going on. If it were, we would see a closer match between the claimant count and the job figures.

The noble Earl made a point about regional disparities. He is right that it is not a North/South issue. There are some striking statistics. The figures for 1992 showed a regional variation in unemployment figures from 6 per cent in the South East to 16 per cent in Northern Ireland. Ten years ago, there was a 10 per cent variation in unemployment figures. Now, the variation is 3 per cent: the figures are 1.7 per cent and 4.7 per cent. Unemployment is down to a third of what it was in 1992 in virtually every region. I think that we have done remarkably well.

However, I absolutely agree with the noble Earl over the area in which we still face major problems, though not so much as regards social housing where obviously there is an issue of how much investment we can continue to press, although it is an important and major priority for the Government. As I have said, whereas in virtually every region unemployment has fallen to one-third of the levels recorded a decade ago, for ethnic minorities in more than half the regions of the country, unemployment has increased over the same period. The disparity between those two statistics is extremely striking.

The noble Lord may not recall this, but when I scratched away at the statistics after the Bradford riots during the summer of 2001, I found that 65 per cent of all people in that community were in work. At the time 40 per cent of ethnic minorities nationally were in work, but only 31 per cent of young Pakistanis and

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Bangladeshis aged between 16 and 24 were in work. The figures provide further evidence of the point made by the noble Earl.

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