Review of Earnings Rule Operation

New Clause B – in the House of Commons at 12:00 am on 24th March 1977.

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Lords amendment: No. 2, in page 6, line 19, at end insert new Clause B— B. The Secretary of State shall review the operation of the earnings rule for retirement pensioners and the wives of retirement and invalidity pensioners and the cost of its abolition, including the extent to which it acts as a disincentive to work and shall lay a report of his review before Parliament by 31st October 1978.

Photo of Mr Eric Deakins Mr Eric Deakins , Waltham Forest Walthamstow

I beg to move, That this House doth agree with the Lords in the said amendment.

We welcomed to our last debate the hon. Member for Liverpoool, Wavertree (Mr. Steen), who was acting as a Teller. I was glad to see him awake and active—though he appears not to be present now.

The purpose of the new clause is to put a formal duty on the Secretary of State to report to Parliament on the operation of the earnings rule and the cost of its abolition. This report would have to be made by the end of October 1978, and would presumably be published.

The clause is similar to that introduced by the right hon. Member far Wanstead and Woodford (Mr. Jenkin) on Report, on 14th February, save that it does not require a review of the operation of the therapeutic earnings rule for invalidity pensioners. The Government opposed these clauses in the Commons and in the Lords on the grounds that the review would cause additional work for the Department of Health and Social Security; that it would not make funds available for abolishing the earnings rule, and would not bring forward the date on which abolition could be afforded. The new clause was negatived in the Commons but carried on a Division in the Lords.

5.15 p.m.

It remains the Government's view that such a review is not necessary on its merits. However, in the Commons, I undertook to consider the suggestions of the right hon. Member for Wanstead and Woodford for obtaining more detailed information about the effect of the earnings rule and I assured the House that the Government would always seek to have available for the House accurate and up-to-date costings. Points were also made in the Lords about the need for a working document giving the current situation in 18 months' time and taking account of the changes in relevant factors that might well have taken place by then. In view of this, and the fact that the proposed review no longer encompasses the therapeutic earnings rule, the Government propose to accept this Lords' amendment.

We envisage that the report will set out the cost of abolishing the earnings rule in the same amount of detail as in the note produced for hon. Members at the Committee stage of the Bill. I note, incidentally, that despite the doubts that the Opposition tried to raise about the figures in that note, the right hon. Member for Wanstead and Woodford, during the debate on public expenditure on 17th March, accepted that those figures were convincing.

The Lords amendment also requires the Secretary of State to assess to what extent, if any, the earnings rule acts as a disincentive to work. In covering this issue in the report we shall make the maximum use of the results of the full-scale survey into the reasons for retirement that is currently being carried out by the Office of Population Censuses and Surveys for the Department of Health and Social Security and the Department of Employment. This should enable us to assess, among other matters affecting the older working population, the impact of the earnings rule.

We shall also consider what other sources of information are available, so that the fullest possible information is available to Parliament in October next year. However, I feel bound to say that I do not expect that the review will enable us to depart from our conclusion that abolition of the earnings rule would be an expensive proposition and, if that is so, that the prospects of finding the resources to dispense with it in the near future are extremely slim.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

We are pleased that the Government have allowed wiser counsels to prevail and have decided to accept the obligation to review and to report on the earnings rule. I am at a loss to understand why the Government resisted this so fiercely when the matter was debated earlier in the Commons.

The right hon. Gentleman says from a sedentary position that it is unnecessary. That is perhaps a little inconsistent with what his hon. Friend has just said—that because of the change of policy in the operation of the therapeutic earnings rule and a number of other steps the Government were now prepared to accept this.

Of course the Government will conduct this review. They will be under constant pressure from all parts of the House to ensure that we are provided with up-to-date figures, but the clause will concentrate their mind on the need for a fresh look at this in time to report to Parliament by the autumn of next year, when we shall have another opportunity to examine it.

For two years the House was fed with figures about the effect of raising the earnings limit or abolishing the earnings rule that the Government have admitted were wrong. The word used in Committee by the Under-Secretary to describe some of the earlier figures that he and his colleagues had given us was "hilarious", in the light of the later studies that they had made.

On Report, the hon. Gentleman said: I am prepared to accept that the figures may be wrong. The important question is by how much they are wrong. Here we come to an absolute gem: I am confident that they cannot and will not be as wrong as previous estimates have been in the past. I suppose it is something to claim that Government statistics will not be as wrong as earlier figures, but it is not saying much. The House will recollect that the cost of abolishing the earnings rule turns primarily on the change in the number of people who defer retirements, and the Government figure for deferments in March 1976 was 120,000. They subsequently corrected that to 180,000. This error made a difference of £70 million or £75 million in the cost of abolishing the rule, and represents more than all the savings hoped for as a result of the Bill—and that was only one of a number of errors.

We need the review for other reasons. The Under-Secretary also said, on Report: I am prepared to accept from him —that is, from me— that if they are wrong they are more likely to be wrong in the direction which he suggested than in the other".—[Official Report, 14th February 1976; Vol. 926, c. 107–108.] The Minister was right. I suggested that the forecast of retirements, even now that the Government figures are clearly more reliable than those that we were given before, could still be substantially in error because the Government failed to take account of the extent to which people would earn more money and they also overestimated the number of people who would defer retirement. I expect the number who have deferred retirement to be substantially more than the Government have estimated. The savings achieved by not raising the earnings limit from £35 to £50 a week will be a good deal less than the £45 million net that the Government hope to save as a result of the Bill. Perhaps the Minister can give us some more information on that point.

In another place, my noble Friends raised doubts about the figures in the Government's paper relating to the cost of invalidity pensions. I concede that they may have overstated the argument. In the light of comparisons that we have made since then between the DHSS paper and the survey carried out by the OPCS, it is clear that they accord more closely than was allowed in another place. However, that does not alter the fact that the Government do not know, to use the words in their paper, the number of: invalidity pensioners not receiving an allowance for an adult dependant because their wives' earnings exceed the limit under the earnings rule. The Government are guessing about the number of wives living away from their husbands and hence unaffected by the rule, and they do not know whether all the 52,000 are actually in work in the first place.

There are still many uncertainties. I am glad to see the Under-Secretary nodding his assent to that proposition. The hon. Gentleman has conceded that the figure is likely to be less than the figures on which the Government had based their thoughts. In these circumstances, it is surprising that they resisted for so long the review and report for which we pressed earlier.

Reference has been made to my intervention in the public expenditure debate. In a sense, I was intervening in someone else's debate. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and my hon. Friend the Member for Guildford (Mr. Howell) were speaking for the Opposition, but the Chief Secretary allowed himself some unpardonable liberties in his references to the proceedings on this Bill.

The Opposition have taken a highly responsible attitude on the earnings rule. We have forced increases from £13 to £15 to £20 to £35 to £50, with the support of a number of hon. Members opposite, including the hon. Member for Islington, South and Finsbury (Mr. Cunningham), in successive debates. However, we are prepared to swallow part of our achievements and accept the overriding need of the Government to reduce the borrowing requirement and curb public expenditure. We therefore accept the postponement of the increase in the earnings limit from £35, dynamised to £50, and that is a measure of our responsibility. I was more than a little piqued to get no credit for that from the Chief Secretary who, on the contrary, tried to suggest that we had acted with gross irresponsibility on the Bill. We have done nothing of the sort.

We said some time ago that we would not swallow the clause that introduced means-testing for a contributory national insurance benefit—unemployment benefit for pensioners. Apart from Ministers, no hon. Member has supported that clause. I make no excuse for the fact that we took it out in Committee and I congratulated the Government for not trying to put it back on Report.

I received a letter from the Under-Secretary of State on 22nd March in which he referred to three suggestions that I had made on 14th February for obtaining more detailed information. I am grateful for what the hon. Gentleman said and I think that I should read the letter in order to get it into the record, so that everyone knows what has been agreed.

5.30 p.m.

The Under-Secretary said: More recently the proposal which you were then advocating that a requirement should be placed on the Secretary of State to report to Parliament on the operation of the rule has been taken up by the House of Lords and carried in the form of an amendment to the Bill. The Government's view, in the Lords as in the Commons, is that such a review is not necessary on its merits and will not be particularly helpful in bringing forward the date when the rule can be done away with. Nevertheless, as you may know from Lord Wells-Pestell's letter of 16 March to Baroness Young, we do not wish to re-open the argument on this issue, and work will be put in hand to enable the Secretary of State to carry out this duty. We shall make the maximum use of survey information which is already available or which can be expected to come to hand in the course of the next year: this will include the full scale survey of the Reasons for Retirement which is now being carried out by the Office of Population Census and Surveys. The first results of this are expected to be available by the end of 1977, with further analyses in the first half of 1978. I hope that the Government will feel it right to approach the bodies outside, particularly Age Concern and Help the Aged, who might have information that will be helpful.

The letter continued: It will certainly be the Government's intention to see that the fullest possible information is available to Parliament as a result of the report which we have to make in the Autumn of next year, although I do not myself expect that it will enable us to depart from the conclusion that to phase out the earnings rule, although desirable, is and remains an expensive proposition. I do not know how the Minister can say that with certainty, because the survey may show that the cost is substantially less than the Government believe it to be now.

My hon. Friend the Member for Wirral (Mr. Hunt) asked the Minister to specify the nature and purpose of the 20 surveys and statistical returns referred by his Department to the Survey Control Unit of the Central Statistical Office. The Minister said: Earning capacity of invalidity pensioners: a survey by the Department to examine the effects of the earnings rule on invalidity pensioners and to investigate the availability and conditions of such employment".—[Official Report, 16th December 1976; Vol. 922, c. 822.] Can the Minister tell us anything more about that? It is now more than three months since that question was answered. When will the survey be completed? Can the Minister confirm that the results will form part of the review and report that will be made to the House under the new clause?

The review is not only desirable but necessary. All parts of the House are committed to ending the earnings rule as soon as conditions permit. If we are to do that and to do our duty properly it is essential that Parliament has accurate up-to-date information, so that any Government that are in power—our Government will be in power by the autumn of next year—will be held to that commitment by Parliament in order that we may abolish the earnings rule as soon as we can afford to do so.

Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury

I regard the proposition in the new clause as a well-intentioned blunder that we shall live to regret. It is suggested by the right hon. Member for Wanstead and Woodford (Mr. Jenkin) that it will be possible for the report to contain figures that will somehow he divinely accurate and that everyone will see as being divinely accurate. Although some figures may be more reliably accurate than figures that we have had in the past—and some of them are the more important figures—some figures are those that one can never be sure of because one cannot know what people would have done if one had not changed the conditions. As Bernard Shaw once said, one does not know what would have happened to the patient if one had not cut off his leg. That is an assessment that one has to make when attempting to abolish the earnings rule.

Although I entirely agree with the content of the Conservative Political Centre pamphlet written by the hon. Member for Rushcliffe (Mr. Clarke), it must be said that the figures are subject to great dispute.

Photo of Mrs Lynda Chalker Mrs Lynda Chalker , Wallasey

The hon. Member will remember that that pamphlet was published in July last year. That was a long time before we had the late-night paper that has served to set us right. If the hon. Member is in full agreement with the direction of that pamphlet we shall have the new figures that will come forward in the survey and we shall find that they come to the same conclusions as he did on that occasion.

Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury

I wonder. What about the last two years? What has helped us to get through the change in the earnings rule? It has been bad, unreliable figures, which can be ridiculed in the House. Now we are to have a Blue Book, or something, that will have a great deal more respectability than the rotten figures that we have had so far.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

Is the hon. Member seriously arguing that responsible hon. Members should make policy decisions on the basis of figures that they know to be inaccurate and at which they can therefore scoff.

Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury

Certainly. If one is intent on securing some reform any weapon may be used for that purpose. Mistakes on the part of opponents are the best weapons that one has. That is how we got it done two years ago. The road to hell is paved with good intentions and those in this House and in the Lords who thought that it might help, might have another think coming towards the end of 1978.

I hope that we are not to spend a lot of money on the report. Let us have a fairly modest operation. The more expensive it is the more we shall feel obliged to pay attention to its policy content. The report is to be brought to us only by 31st October 1978. We all know the chances of getting a change in policy pending the production of a report; there is no chance at all. That rules out any change in April 1978 and November 1978—the two occasions on which a change could possibly be secured.

The next relaxation of the earnings rule is now put off by this draft amendment until the spring of 1979, and it is more likely to be November 1979 at the earliest. I accept that the changes to the threshold in the Bill will come into effect. I am talking about further changes to the rule. The object of the report is to form a basis for further changes to the rule, additional to those in the Bill. There will be no further changes to the rule, additional to what is in the Bill, until at least April 1979 and, more likely, November 1979. That is because any move to change the rule will be met with the story that the report is in preparation and therefore we must wait for it.

Finally, since we have to have this wretched report, the Government should ensure that the report addresses itself not only to the phasing of the rule or its sudden abolition by means of changes in the threshold figure but also to the possibility of a reduction in the age limit. That is a time when people are sensitive on the score of costs, and the easiest, and possibly the best way, in substance, of making a further change in the rule.

As I said in Committee, I do not think that we should exclude the possibility of lowering the upper age for men to 69 or to 68 while not necessarily lowering the upper age for women below the age of 65, where it rests now. A change down to 68 for men would involve a cost, as far as I recollect, of about £15 million to £20 million on the Government's present figuring. That is a change which I should have thought would be bearable at some stage during the coming two years.

I hope that the report will at least address itself to that possibility as well as to the more traditional ways of phasing out the rule.

Photo of Mr Tony Newton Mr Tony Newton , Braintree

I rise to make only a brief contribution. In that, I am not provoked but rather encouraged by the remarks of the hon. Member for Islington, South and Finsbury (Mr. Cunningham), because I think that it ought to be clear that there is some measure of agreement across the Back Benches of the House, at any rate. I should like, therefore, to endorse much of what the hon. Gentleman said. I hope that my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) will not take it amiss if I even say that I have a good deal of sympathy with what the hon. Gentleman has just said about the danger of politicians placing too much emphasis on statistics. I hope that I am not misreading what the hon. Gentle-can said. I acept his point that bad figures are a good argument against Governments anyway and that any argument that comes to hand can be useful in a good cause.

However, I also think that there is here a broader danger into which politicians are all too apt to fall—that an argument that has a value content can be settled conclusively by a set of statistics. Over the last few years one of the greatest problems met by people on both sides of our political system, and not least by those responsible for affairs in the Treasury, has been the belief that if the glorious little statistics show something, that in itself is a conclusive and an effective political argument.

I do not want to press the argument too far. However, if any one of us said to most retired people in our constituencies in the age bracket about which we are talking, men between 65 and 70 who object to the earnings rule, "We shall have a great report and then we shall see what the statistics show, and I shall return and tell you what I think in the light of the statistics", and then if the statistics showed that there would be this and that cost on this and that assumption, most of them would say "That is all very well. Your statistics may be right or wrong, but I simply think that the earnings rule is unfair."

That is the judgment that we are paid to make as politicians—whether something is right or wrong.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

Does my hon. Friend not agree that there are a great many points on which our constituents can and do come to us saying that things are unfair, but that if we were to give in to them all we would only have the bailiffs of the IMF back knocking on the Treasury's door? Surely it is the responsibility of serious politicians to have regard to all competing claims and to do their best to weigh up costs and say that this or that has the higher priority. But we must live within our means. We are talking not just about statistics but about costs. The fact that it is I who have come to the rescue of the hon. Gentleman on this matter should reinforce the case that we must take this unpalatable step because we cannot afford the cost. I think that that is a measure of how responsible the Opposition are being in this respect.

5.45 p.m.

Photo of Mr Tony Newton Mr Tony Newton , Braintree

I entirely accept both my right hon. Friend's implied rebuke and the fact that on this matter I am, perhaps, rather more softhearted—to use one phrase that could be applied—than those on both Front Benches. I accept the responsibilities that the Front Benches must take. I would not want to press my argument too far.

However, I hope that in the search for truth in statistics and on costs we shall not lose sight of what we are discussing—a rule the operation of which is held to be very unfair. It is held so both by many of those to whom it applies and by almost anyone who looks at the situation.

We talk about the earnings rule, but let us consider what it means. In its own way, it is a term of art. We tend to forget what it means. It means a situation in which a man can work until he is 65, paying national insurance contributions which, he is told, entitle him to a pension at the age of 65. When he reaches the age of 65 he decides that he would like to go on working—which, on the face of it, is a splendid thing for the community, considering that the man could retire and live on the contributions that the rest of us are paying but chooses to go on working and putting something into the community—instead of seizing him by the arm and saying "splendid fellow, you are a great asset to the nation", we say "If you do this we shall not only tax you on what you earn but reduce the pension for which you have already paid, and you will be entitled to get the full benefit of the contributions that you have paid only if you cease working".

I accept that there are problems about costs, especially at present. However, let no one run away with the idea that this is just a rather academic little argument. Whether the statistics go one way or the other, there is a very important point of principle here, to me at any rate. I want to see this rule go as soon as we can get rid of it.

That brings me to the last point that want to make in supporting what the hon. Member for Islington, South and Finsbury said. We shall have this report. I hope that the figures will be as right as they can be. I hope—indeed, I strongly suspect—that they will give additional support to the case of those of us who would like to see the rule go rather earlier.

However, I should like to urge that the Government should not, in concentrating on the report and trying to get it out, fail to spend a little time thinking about not just arguments for not doing anything, arguments for slowing down or reversing what the House has already done, but about the constructive side of the hon. Gentleman's remarks, which is other ways of getting rid of the rule, in smoother and simpler ways, and perhaps keeping costs down below present costs. The Government should not be providing just further ammunition for opposing the argument for getting rid of the rule. They should appreciate the arguments for positively removing the rule as soon as possible.

I know that everyone says that this is his aim, but I gain an increasing impression that, at least on the official side and in the official machine, the main thought at present is to find reasons for not getting rid of the rule, whereas I want to see us getting rid of it once and for all.

Photo of Mr Eric Deakins Mr Eric Deakins , Waltham Forest Walthamstow

The right hon. Member for Wanstead and Woodford (Mr. Jenkin) raised three major points. As to the first, we have no later information since the Committee stage. Secondly, I regret to say that the right hon. Gentleman's reference to Survey 15, referred to in the answer last December, has nothing to do with the amendment. It is an entirely separate survey. As I understand the position, there will be no information in that one which will be of benefit to us.

However, the right hon. Gentleman has quoted extensively from the letter that I wrote to him. To the extent that the OPCS survey about which we have been talking does not provide the requisite information, particularly about working wives, we shall have to see what other means we have of getting it. The reason for mentioning that is that since Survey 15 does not assist us, we shall have to find some other means of getting the required information.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

How can the survey set out in the reply to the Question, having said "Earning capacity of invalidity pensioners: a survey by the Department to examine the effects of the earnings rule on invalidity pensioners", not be relevant to the question about which we are talking?

Photo of Mr Eric Deakins Mr Eric Deakins , Waltham Forest Walthamstow

To satisfy the right hon. Gentleman I shall get information about Survey 15 and the details and I shall see that the right hon. Gentleman and the hon. Member for Wallasey (Mrs. Chalker) are satisfied about it. It would be quite pointless for the Government to go through another exercise if an existing survey already produces information that would be appropriate.

The right hon. Gentleman's third point was about the uncertainties. I think that all of us agree, after our debates in Committee, that this is an area of great uncertainty. We are trying to narrow it down but, as has been pointed out, we shall never be able to get complete finality on this matter. I welcome the right hon. Gentleman's recognition that it will be this Government that will be presenting the report in October 1978.

Photo of Mr Eric Deakins Mr Eric Deakins , Waltham Forest Walthamstow

Perhaps I misunderstand the right hon. Gentleman.

This was the one amendment on which the Government were defeated in another place on this complex and partly controversial Bill. I must pay tribute to all the parties there, which have assisted the Government in getting the Bill through speedily with only one amendment that the Government did not want. I thank them for their co-operation in returning the Bill to us so quickly. I have in mind the timescale from a public expenditure point of view.

My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) talked about the possible reduction of the top age limit. The figures that will be supplied in the report will enable us to give him the same information that we supplied in Committee. I cannot guarantee that the report will contain a paragraph on this matter but we shall be able immediately to make the updated information available to my hon. Friend and the House on this method of getting rid of the earnings rule.

I take the point made by the hon. Member for Braintree (Mr. Newton), but agree with the right hon. Member for Wanstead and Woodford that at present public expenditure considerations are paramount. The advantage of the report—I am making the best of something that the Government are having to accept—is that if public expenditure considerations are not as paramount in October 1978 as they are today and if the figures are more up to date and enable a much better estimate of the cost, it may be that the difference between the amount of public expenditure that we can afford to allocate to abolish the rule and the amount that is necessary will be so small that it will be easier for the House to see its way forward—I make no promises—to an immediate or eventual abolition along the lines put forward by my hon. Friend the Member for Islington, South and Finsbury.

Question put and agreed to.