The Economy and Welfare Reform
Malcolm Rifkind (Shadow Secretary of State for Work & Pensions & Welfare Reform, Work & Pensions & Welfare Reform; Kensington and Chelsea, Conservative)
Listening to John Robertson and his call for a national consensus on pensions should prove to anyone who had any residual doubts that the Government have already created a pensions crisis and are looking for allies to get themselves out of it.
In replying to the debate, I begin by congratulating Mr. Blunkett on his appointment as Secretary of State for Work and Pensions. He and I have returned to the Front Benches after something of an enforced absence—slightly longer in my case than in his. I noticed that almost his first statement after he was appointed was to emphasise that he had received an assurance from the Prime Minister that there were no no-go areas, and that he could explore any options for pension reform that he wished. I advise the right hon. Gentleman in the friendliest possible way not to take such assurances from the Prime Minister too literally. The Prime Minister has form on these matters. The House will recall that the first Minister with responsibility for welfare reform, Mr. Field, was told by the Prime Minister to think the unthinkable. The right hon. Gentleman thought the unthinkable, and the unthinkable happened—he was sacked and was never returned to the Front Bench.
I am delighted to return to the House of Commons, representing an inner-city London constituency. I am well aware that some people think that Kensington and Chelsea is a very grand place. That was not always so. Well over 100 years ago, Queen Victoria insisted that the Albert hall and the Albert memorial could not be in the borough of Kensington and had to be in the borough of Westminster, where they have remained ever since. Her reasons were simple. She said it was unacceptable for Albert's memorial to be in the suburbs—so the constituency was seen at that time, if not more recently.
I have the pleasure of succeeding Michael Portillo, who not only was a distinguished representative of the constituency, but over a good number of years made an important contribution to the political life of the country. The country will be the poorer because of his decision to withdraw from political life, but I have no doubt that he will continue to contribute in a substantial way to the wider public affairs of the country.
Today we heard a superb Front-Bench speech from my hon. Friend Mr. Osborne and some marvellous maiden speeches. It is somewhat impertinent of me in my current circumstances to congratulate maiden speakers. Those on the Government Benches face a difficult challenge over the weeks and months to come. Do they make their mark by supporting the Government, even when the Government are making a mess of things, or do they represent their constituents by showing their independence? Perhaps they ought to follow the wise advice of a former Member of the House, Kenneth Baker, who always advised Government Back Benchers to tread that narrow path between rebellion and sycophancy. It is a difficult path to pursue, but it is one that usually produces rewards.
I pay tribute to my hon. Friends who made their maiden speeches earlier today. My hon. Friend Mrs. Dorries made a moving speech about the children in her constituency with special needs. I have no doubt that she will be a doughty champion for such interests over the years to come. I pay tribute to my hon. Friend Mr. Binley, who will clearly be a champion of his local community. He already speaks with great authority on all matters affecting Northampton. My hon. Friend Mr. Crabb reminded not just his hon. Friends but hon. Members on the Government Benches that a social revolution was achieved by the right to buy for council tenants. When the Chancellor of the Exchequer tries to posture, as he did earlier today, as the champion of homeowners, he might like to remember that he and all his right hon. and hon. Friends passionately opposed tenants having the right to buy, and did so with all the power at their disposal. We always welcome a sinner that repenteth, but we are at liberty to remind him of his previous misdeeds.
The issue before the House today is welfare reform, and I am happy to concentrate my remarks on that theme. The Government raised in the Gracious Speech the issue of incapacity benefit, a benefit that was first introduced by the Conservative Government. When this Government came to office, no less a person than the Prime Minister accused his predecessors of allowing a situation whereby more people claimed incapacity benefit than jobseeker's allowance. It is well worth considering this Government's achievements in that regard in the past eight years. What we find from the pre-Budget report published only last December is that today the number of incapacity benefit claimants is three times greater—a multiple of three—than the number claiming jobseeker's allowance. So, far from the Government having reversed—[Interruption.] No, I knew that the Government would respond in that way. They seem to be conveniently overlooking the fact that the Prime Minister's boast was that a million people on incapacity benefit were seeking work. We know that. The fact is that eight years later there are still a million people on incapacity benefit seeking work. Despite what the Gracious Speech says, the Government have not even offered a Bill; they have offered a Green Paper that will at some time lead to a Bill, which will not come into effect until 2008, three years from now, and will affect only new claimants. So nothing is offered to the million people currently on incapacity benefit, whom the Government themselves say wish to work and are entitled to find work.
If incapacity benefit has been a matter of some deep disappointment, on pensions there really is a crisis. When my hon. Friend the shadow Chancellor correctly reminded the House of the words of Mr. Field, he did so not just to make a point. The right hon. Gentleman said that this Labour Government inherited a country with one of the strongest pension systems in Europe, and now eight years later we have one of the weakest. The fact that that came from no less a person than the right hon. Gentleman shows that that is not a partisan point. He is a loyal member of his party. He actually tried to do something on this matter for the Government, and his judgment and that of the outside world is that the Government have manifestly failed in this area.
It is not just a question of the demographic changes that the Adair Turner report is looking at; what the Government cannot refuse to acknowledge, and what the Chancellor in particular must accept, is that the Government are to a significant extent the authors of the crisis. This is a crisis of their making. The Chancellor's decision in the first months of his tenure to take £5 billion a year from the pension funds was a disgraceful decision, and of course it was not a one-off decision. The figure of £5 billion is used, but it is £5 billion a year, continuing as we speak. Therefore, some £30 billion to £40 billion, which would have been available for those receiving pensions, is no longer available.
During the last few years I have served as a non-executive for a company dealing with fund management and I have seen the consequences of the Government's policy. They cannot deny those consequences. This crisis affects not just those with private occupational pensions, but those with local authority pension funds. All the local authority pension funds have lost out in exactly the same way, and public sector workers are suffering in exactly the same way as those in the private sector.
The Chancellor is also responsible for the collapse of confidence in saving. The proportion of household income that was regularly saved when the Government took office, when the Chancellor took up his responsibilities, was 11 per cent. That has now collapsed to almost half that figure, to 6 per cent., with no sign of it going up again. That is because the Chancellor, more than any other individual, has been responsible for the destruction of the public's confidence in saving, and he must accept responsibility for that.
What are the Government doing to deal with the matter? We are told that there is a common desire to see savings increase. I have no doubt that that is what the Secretary of State for Work and Pensions wants, but there is already evidence of a desire on his part to use compulsion, rather than incentive, to deal with this matter. Indeed, he has said as much, and I can share a couple of the relevant quotations with him if he chooses to challenge the point that I am making.
If the Secretary of State is looking for national consensus on this matter, he will not get it if he chooses the route of compulsion. Compulsion is wrong in principle. Once taxpayers have paid their lawful taxes, it is not for the state to order them as to what their priorities should be with the remainder of their income. The Secretary of State must acknowledge the fact that if he wishes to get broad support for an approach to pensions, he cannot go down this route because it will not work.
This approach is not only wrong in principle; as Sir Digby Jones of the CBI has said, it is another form of taxation. As he also said, to compel people to save is in fact to create another stealth tax, and Government Front Benchers must recognise that fact. Moreover, such an approach is also grossly unfair to those who have saved under the existing incentives. If the Government make saving compulsory, the first thing that the Chancellor will do is to remove the existing incentives. There will be no need for incentives if people have no choice. All those who have planned responsibly for their future retirement, based on an assumption that incentives will continue, will find them swept away.
Finally—[Interruption.] This is not an amusing point; the Chancellor should not smile and I will tell him why. He said that he takes great pride in the pension credit. As a result of introducing means-testing, if those in receipt of pension credit are forced to make further provision through private or occupational pension schemes, they stand to lose between 40 and 100 per cent. of their pension credit. So there are real and serious problems, and the Chancellor and his colleagues must recognise that fact.
The introduction of compulsion will be a matter of great controversy, but we have also seen total confusion among Cabinet Ministers as to the pace of pension reform. Reference has been made to Ed Balls, who said in a press conference—he was no doubt speaking with all the Chancellor's authority—that no pension reform could be implemented for many years to come, and until after the next general election. However, as soon as the new Secretary of State for Work and Pensions was appointed, he said that the hon. Member for Normanton was speaking not as a Government spokesman but merely as a candidate. On this occasion, the Chancellor immediately jumped to the rescue of his old ally. He was quoted in the Financial Times as making it clear that such reform would indeed take many years, and that there would indeed have to be another election before pension reforms were introduced.
If there is this confusion between the Chancellor and the Secretary of State—and doubtless among other Ministers as well—I make an offer to the Secretary of State. [Interruption.] I am very generous and I want to make him an offer. If he wants national consensus on pensions, the first step that he should take to prove it is to achieve consensus within the Cabinet. Once the Cabinet is united, speaks with a single voice and we know exactly what is being proposed, we will be more impressed by pious rhetoric about the need for national consensus.
Let me put another point to the Secretary of State and the Chancellor. The Prime Minister said in February that he was proud of what had been achieved on pensions. Is he really proud of taking £5 billion a year from pension funds, of a collapsed savings ratio, and of those on pension credit having to be means-tested? Is that his idea of something to be proud of? The Chancellor aspires to replace the Prime Minister. I do not know what his prime ministerial qualities are, but he does remind me of a general whom I knew in the Ministry of Defence. It was said of that general that "This man has great leadership qualities. His men will follow him anywhere—even if it is only out of curiosity."
The Labour party and the country as a whole are indeed curious about the Chancellor of the Exchequer. Today, he tried to bludgeon his way through all the various arguments that have demolished the weakening economy that he presides over. He is as anxious as ever to replace his right hon. Friend the Prime Minister. This country will judge the Government's record on pensions and on welfare by the fact that, according to the views of Labour spokesmen themselves, we have seen this country's strong pensions system turn into one of the weakest in Europe. For that reason, I have no hesitation in inviting my hon. Friends not only to see the Queen's Speech as a tired speech from an increasingly tired Government, but to reject the confusion in the Government's own ranks by voting against the Government and for the amendment.