Power to Abolish Earnings Rules

Orders of the Day — Social Security Bill – in the House of Commons at 12:00 am on 23rd January 1979.

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"(1) The Secretary of State may by order determine that the deductions from pensions prescribed by sections 30(1), 45(3) and 66(4) of the principal Act, as amended, shall cease to apply from such date as the order may lay down.

(2) No order shall be made under this section unless a draft of it has been laid before and approved by a resolution of each House of Parliament.".—[Mr. Patrick Jenkin.]

Brought up, and read the First time.

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

As one who did not take part in the Committee proceedings, I find that I have a little hesitation in moving, That the clause be read a Second time. I hope that if I trespass on to matters that were well and truly thrashed out in Committee I shall be forgiven.

A new clause was moved in Committee right at the end—one might almost say that it was moved in extra time, because it was after one o'clock on the last day—by my hon. Friend the Member for Ealing, Acton (Sir G. Young). The new clause before the House is in identical terms. Because of the time available, there was only a brief debate in Committee. There was a tied vote, and as a result we return to the matter tonight. Since the Committee stage the Under-Secretary of State has written a letter to my hon. Friend, and some of us have been able to see copies.

The purpose of the new clause is, first, to allow a debate on the earnings rule and to consider the Government's recent report, published in October, in which they analyse the effect of the earnings rule. The second purpose is to give the Government power, if the House so decides, to phase out the earnings rule by order, so that when the moment comes to do that, as surely it must in the next year or two, they do not need to go through the whole process of legislation.

It is no secret that the earnings rule has been increasingly criticised in recent years, mainly on two grounds. It is increasingly felt to be unfair. Pensioners say that they have paid their contributions and should be entitled to their pensions as of right. We in the House know, and many of us must have sought on many occasions to argue with our constituents, that the earnings rule exists to, reinforce, so it is said, the retirement rule, and that the contributions are paid to secure the benefit of a pension subject to the retirement rule and the earnings rule. But, equally, I think that all hon. Members know that it has proved almost impossible to convince people of the correctness of that argument.

In addition to the argument of fairness, there is the social argument. The earnings rule is increasingly regarded as undesirable socially. It is undesirable to put barriers in the way of the younger retired working longer or earning more. As life expectancies steadly increase, people can look forward to 20 or even 25 and sometimes 30 years of retirement after the normal retirement age. Many would like to feel free to go on earning after that normal retirement age without feeling that they are fettered in any way by financial disincentives.

One of the interesting findings of the OPCS survey, which is referred to in the Government's report, is that the psychological effect of the earnings rule may be as important as the financial disincentive. Far more people feel that they are being hindered by the earnings rule than its actual impact on their personal finances would justify.

The fact is that all parties in the House are now committed to end the rule when resources allow. Therefore, the central question is what the cost of doing that will be. I shall not tonight argue for more cost, for reasons that we all understand. But when one considers the cost one sees that some important facts need to be considered.

The rule now bites at a substantially higher level of income than it used to. That is due, as the House knows, to pressure from both sides over recent years—pressure, let it be said, that was resisted all the way each time by the Government. It had to be voted through time after time and the record shows that very clearly. The earnings limits have been raised substantially in the last five years, from £13 a week in July 1974, equal to about 28 per cent. of average earnings, to £45 a week, as from last November, which is probably, although we do not know the figure yet, around 50 per cent. of average earnings. But the rule is still there, and the earnings limit is still there, and the arguments for abolition are no less strong.

8.45 p.m.

In our debates we have had a variety of estimates for the cost of abolishing the rule, and a little over a year ago the Government were saying quite firmly that the cost was well in excess of £100 million—perhaps £140 million or £150 million. On this side of the House, ever since my hon. Friend the Member for Rushcliffe (Mr. Clarke) and Mr. Christopher Mockler published the CPC pamphlet "An End to the Earnings Rule?", we have argued that the Government have always grossly over-estimated the cost of abolishing the rule. What has happened is that by stages we have been proved right and the Government have had to concede that they were over-estimating and were wrong.

The House will remember that in 1977 the Government made some major concessions on costs. They published a paper headed "Note on estimated savings", in which they conceded that previous assumptions were wrong and that the figures had been wrongly interpreted. In that year we forced through the House, and the Government finally accepted, when it came back from another place, a clause to oblige them to review the operation of the rule properly and to report back to the House, and this they have now done. The reason why we did that is perfectly clear. It was admirably stated by the Government spokesman in another place, the noble Lord, Lord Wells-Pestell, when he said: I imagine that the expectation in putting down the new clause is to assess the cost of bringing the earnings rule to an end. If the Secretary of State undertook this kind of investigation, the hope would be that he would find that less public expenditure was required than he had so far supposed and, consequently, would be more willing to announce a timetable for the ending of the rule." [Official Report, House of Lords, 14 March 1977; Vol. 380, c. 1291.] Exactly so, and of course that is exactly what has happened, because this is what the report has done, as I shall show in a moment.

I may say that when the Bill came back to the Commons on that occasion it did not prevent the hon. Gentleman the Under-Secretary of State from saying: It remains the Government's view that such a review is not necessary on its merits."—[Official Report, 24 March 1977; Vol. 928, c. 1501.] I hope that we shall have a clear statement from the Government this evening that they are glad that they had to undertake this review, because it has disclosed a lot of new and interesting figures. The merits of the report will be clear as I go on.

The study, although it leaves out two important factors which we have always argued should be taken into account, shows once again that even the revised estimates of the cost given to the House in 1977 were based on wrong figures, that the assumptions on which cost estimates were based were themselves wrong, and that important factors which the Government had previously discounted are relevant and should be brought into the balance.

I should like to demonstrate to the House that, on the basis of the figures in this report, and taking account of the two factors which the report does not mention and which we argue should be counted, the earnings rule for pensioners might well be abolished now at no cost to public funds. But I stress the word "might" because I concede that there are still some uncertainties and there may well, therefore, be some cost.

The biggest single factor has always been how many of the 137,000 people who are currently deferring retirement, postponing claiming their pensions and earnings increments would, if the earnings rule were abolished, take an immediate pension and forgo the increment. The Government have always argued that they would. They have said that it would be 100 per cent. No doubt the Minister will remember the statement made in paragraph 18 of the estimate paper of 1978. That stated: In all estimates of the extra cost to the national insurance fund if there were no earnings rule or retirement condition, it has been assumed that 100 per cent. of those aged 65 (men) or 60 (women) with entitlement to retirement pension would receive it". The report shows—it is an important finding based on a retirement survey carried out by the Office of Population Censuses and Surveys—that the paragraph in the estimate paper was wrong. About 40 per cent. would continue to defer taking their pension.

That is stated not as succinctly but perfectly clearly in paragraph 4.8 in the report on the earnings rule, which states: the results of the Retirement Survey suggest that about two-fifths of those who, under the existing provisions, cannot be treated as retired, would choose to earn increments rather than receive an immediate pension in the event of the earnings rule and retirement condition being abolished. That is an interesting finding. It radically affects the cost of abolishing the rule.

As long ago as 1976 my hon. Friend the Member for Rushcliffe and Mr. Mockler estimated in their paper a very similar percentage of the then rather larger number of deferrers. It may be said that the OPCS survey wholly vindicates my hon. Friend's judgment. The effect is to reduce the gross cost to the national insurance fund from the Government's starting figure of £199 million, assuming 100 per cent. would take the pension, by about £80 million to £119 in the first stage.

There has been argument about the figures, but the Government have always conceded that if we had people earning and taking the pension a good deal more tax would be paid. It is accepted that that, too, has to be brought into the account. That is put at £43 million—I accept that figure—and that reduces the cost of abolition from £119 million to £76 million.

We now have to break new ground. Hitherto the Government have refused to accept the argument that the effect of the earnings rule is to limit what pensioners earn. We have always argued that if we have a marginal tax rate of, in effect, 100 per cent., that is bound to have a bearing on people's willingness to earn above that limit. For the most part, people will not go on working if they lose £1 for every £1 they earn. It was contrary to common sense to argue, as the Government did in the past, that no account should be taken of that factor. The OPCS survey, as appears from the Government report, shows that we were right. The language is somewhat convoluted but the purpose is clear.

In paragraphs 4.10 and 4.11 it is stated that it is right to assume extra earnings and right to assume that some people will work longer hours, and that therefore there will be extra revenue to the Exchequer. That is put at £28 million. That reduces the cost from £76 million to £48 million. At this stage we begin to wonder why the Under-Secretary of State was so reluctant to concede such a report. Why did he say that it had no merit? Clearly it has merit. It is bringing us nearer the day when we shall be able to abolish the earnings rule.

I do not stop there, because there are three further matters that have to be taken into account. First, the Government persist—as far as I can see, on no evidence—in the error of believing that the effect of ending the earnings rule will lead to many people reducing their incomes and so paying less tax. There are two other matters that the Government ignore altogether.

Let me take these in turn. It is the Government's apparent belief that people will reduce their incomes. I find it strange that the Government take the view that if we remove a disincentive to work there will be some who work less. The Government do not put it in those terms, but that is what they mean. They argue that if someone gets his pension as well as his earnings, he will be able to work fewer hours without loss of income. I have to concede that there may be some, especially those who are disabled or are nearing the moment when they feel that they want to give up work altogether, who may do exactly that. The Government's argument is that there will be a reduction of about 10 per cent. in the earnings of pensioners across the board. That is a wildly excessive figure.

In a letter from the Under-Secretary of State to my hon. Friend the Member for Ealing, Acton it was stated: The idea that people who unexpectedly qualify for a pension which they did not previously receive might feel able to reduce their hours of work is in accordance with an acceptable economic theory. I suspect that this is what it is based on. We are given a reference: A formal statement of the theory as applied to an earnings-tested social security benefit may be found in 'The Labour Supply Curves under Income Maintenance Programs' by G. Hanoch and M. Honig, Journal of Public Economics, Volume 9, 1978". There may be a theory, but there is really no evidence at all. Hon. Members on both sides of the House know perfectly well that the vast majority of people need every penny of income they can get. After all, are we not being reminded of that every day this week? The figure based on a 10 per cent. cut, which I suggest is wildly excessive, increases the cost of abolishing the rule by some £17 million. I should be prepared to concede that there may be a few at the margin, and I suggest that the increase is more of the order of £2 million to, say, £3 million, but I do not believe that it would be more than that. My previous figure of a cost of £48 million then becomes £51 million, but that is without taking account of two factors of which the Government take no account at all.

I start with a quotation: If the earnings rule were abolished a number of people who in present circumstances might well retire would not then retire."—[Official Report, 29 January 1975; Vol. 885, c. 469.] I agree, because it seems only common sense. It was said by the late Brian O'Malley, who, as we all know, had a deep knowledge and understanding of these matters which we all greatly respected.

That is the first point. There will be some people who are coming up to retirement and who are planning to retire but who, if they find that they do not lose their whole pension when they go on working, will go on working. There is nothing at all in this report on that. There is no figure given. It is all the odder because in 1976 an OPCS survey found that 40 per cent. of non-working women between the ages of 60 and 64, and men between 65 and 69, wanted to work beyond retirement age, and yet no account was taken of that. I believe that there ought to be something in for that because extra tax revenue would be paid as a result of some of these people continuing at work.

On my second point, I referred earlier to the psychological effect of the earnings rule to which increasingly people are giving credence. It is clear that the earnings rule is thought by many working pensioners to limit their earnings by more than is in fact the case. This point was made in paragraph 2.8 of the report, which said: Relatively few, about 80,000, seemed to be limiting their earnings because of the earnings rule and of these only 40,000 were influenced by the correct earnings limit rather than a misconception of it. These answers say more about the general state of confusion surrounding the rule than about the extent to which it really acts as a disincentive". Poor knowledge may be as much of a problem as the rule itself, but, considering that the rule has operated for 30 years, we must recognise that if people do not understand it now, they never will. The fact is that it deters people from working.

There must be many pensioners who do not work and who would like to work but who never get round to working because they have been put off by their impression of how the earnings rule would affect them. Therefore, rather than that they should start some new part-time job, they accept retirement. If they had the chance to keep on full-time, they would do so. There are 2 million non-working pensioners in the earnings rule bracket, of whom about 1 million are, or would be, affected by the present rule. Is it reasonable to assume that not one of them will return to work if the earnings rule is abolished?

9.0 p.m.

Photo of Mrs Elaine Kellett Mrs Elaine Kellett , Lancaster

Will my right hon. Friend accept that it is not only the money they can earn which has to be considered, but the fact that people who are going into retirement because of this misconception have the skills that are needed to keep our factories moving? Once they have gone out of the system, this could very well lead to higher unemployment.

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

My hon. Friend is right. Studies produced by the Department of Employment show that it is a substantial fallacy, though not a total one, to believe that young men step into old men's jobs. That does not happen. The fact that elderly people go on working seems to have remarkably little effect on the availability of jobs for youngsters at the other end of the age bracket. I do not believe there is any argument for keeping on the earnings rule as a disincentive to people to work in order to provide jobs for younger people. That is a fallacy, and my hon. Friend is right.

My point is that there is nothing in the White Paper to suggest that people would return to work after retirement age once they knew they could keep their pension and earnings, paying only the tax on the income. The question is how much extra tax revenue we should allow in respect of people who are coming up to retirement but who decide to go on working and in respect of those who have retired and who believe that, with the ending of the earnings rule, they could go back to work. I do not know the answer, and it is a difficult question to answer without a further survey.

In the CPC pamphlet of 1976 it was estimated that an extra 25,000 people would remain in work or return to work who would otherwise retire, and it was calculated on the figures in that year that there would be extra tax revenue of £19 million. If we apply the same proportions to today's figures, both as to tax revenue and in respect of the numbers involved, we estimate that this would yield a tax revenue of £46 million which would have to be thrown in on the credit side. If my sums are right, that reduces the total net cost of abolishing the earnings rule to £5 million.

If we were wholly satisfied with £5 million, we would now be debating a new clause to abolish the earnings rule and I suggest that we would carry it because it would have support in all parts of the House. I do not know whether the figure of £46 mililon is right. The Minister's letter to my hon. Friend dismisses the figure as fanciful. Perhaps I may quote from page 3 of that letter: The OPCS Survey attempted to discover whether any pensioner did not work because of the rule but the replies were difficult to interpret. We have to rely on anecdotal evidence in deciding whether the figure is fanciful. I refer to a recent issue of "Choice", the magazine published for retired people. A journalist interviewed an elderly widow whose husband, when he retired, became bored, returned to work and found that the earnings rule substantially limited the value to him. He was losing a pound for a pound. That was the rub.

The report said: the wages paid to him meant that he had to surrender some of his state pension. He was angry at the deduction. His view was that he had paid for the pension and it offended his sense of justice that he should be 'fined' for doing a fair day's work". The article says that it would have been better if the man had approached the matter more philosophically and continued working. But he could not. He gave up the job in mute protest. A few months later he was dead. His widow was convinced that if he had kept on at his job he would still be alive.

That is an extreme case. But there are people who resent the situation. They take the view that they would rather take the pension, retire and have their time to themselves. But there are those who would carry on working or return from retirement if it were not for the earnings rule. Whether or not the figure involved is £46 million, something should have been put in the balance to cover that situation.

I cannot argue on the basis of guesswork. If it were to cost £25 million, or £30 million, to abolish the earnings rule, I do not believe that it would be justified in the present state of the nation's finances. We have always approached such matters with responsibility. I cannot prove that it will not cost that amount.

However, the Government should have the power to make the change by order. We have hammered out the principles. We are agreed about the rule being undesirable and that it should go. When we can afford it, we should phase the rule out. That is what my new clause proposes.

There is another argument involving the wives of pensioners and invalidity pensioners. Theirs is a different case. Even if we could abolish the earnings rule at no cost—and that could be done for such pensioners—it is difficult to justify paying a dependence allowance to somebody who, by definition, is not a dependant. I do not seek to argue that case now because it involves different principles.

We are all agreed about ending the earnings rule for pensioners and that it should be done as soon as resources allow. As a result of the latest work which the Opposition obliged the Government to undertake, we are nearly there. It would be reasonable for the House to decide to remove the procedural obstacle of legislation and to allow the Government to act by order. The facts are clear. When we can afford it we should get rid of this unfair anachronism, once and for all.

Photo of Mr Robert Hughes Mr Robert Hughes , Aberdeen North

I agree that the earnings rule is a most unpopular measure, but the campaign to abolish the rule has become a populist cause. Sometimes people are unwilling to face the realities.

The right hon. Member for Wanstead and Woodford (Mr. Jenkin) lost me when he said that if the earnings rule were abolished all the people working at present who were affected by that rule would retire. That seems to defy logic.

The right hon. Member's reasoning seemed to fly in the face of common sense and all the evidence—which is anecdotal—which has been presented to me by pensioners in my constituency. Almost to a man—or a woman—they say that if the earnings rule were abolished they would go back to work. Whether they would go back to work is open to question. But the right hon. Member's reference to the psychology of the matter is not far off the mark.

We should consider the economic and sociological effect of people not retiring at 60 or 65, or going back to another job after retiring from their main job. One thing must be established first. That is that the retirement pension is what it says. It is a retirement pension, a pension for people who are not in employment.

Confusion arises when people are told that they must retire at 65, all the actuarial calculations of contributions having presumably been based on some notional life span of employment. If men are told that they must retire at 65 and women at 60, in normal circumstances, although it is not a legal requirement that they must retire, they feel that having paid for X number of years they are entitled to that pension as of right, because they have paid insurance contributions or taxes for it. It is some time since I looked at the actuarial position but I have a feeling that a big whack of retirement pensions comes out of general taxation and not from a sound actuarial insurance scheme.

There is no absolute principle that as one has paid for one's retirement over the years, one is entitled to it as of right at 65. One is, of course, entitled to it if one retires. Leaving the issue of principle aside, what would be the effect of abolishing the earnings rule in terms of employment? With 1½ million unemployed, we cannot say that people should go on working beyond the normal retirement age of 65.

I know that the right hon. Member for Wanstead and Woodford said that there is little evidence to show that young men step into old men's shoes. I am not sure how firm his evidence is, but if it became normal practice, as it would be considered normal practice if the earnings rule were abolished for people to stay on beyond normal retiring age, this would be bound to have an effect on the number of people in work and those seeking work. How big or how small that effect would be, none can tell, but it would have a significant effect if one takes at face value the number of people who have told me that they did not want to retire but that to go on working would have been a financial disadvantage through loss of part of their pension. I believe that a substantial number would either continue in their jobs or go to other jobs apart from the one in which they have worked for most of their lives.

A twin argument is developing in the country. On the one hand, there is the perfectly principled argument that people should retire earlier than 65 in order to enjoy a leisure life at a time when they are physically and mentally active enough to appreciate leisure that they cannot get during their working period. That is a perfectly reasonable argument. But there is another argument, to which I do not wholly subscribe, that the way to cure the unemployment problem is to reduce the retiring age of men to 60, which would automatically release jobs for younger people.

I am a little worried about that argument, because it would simply mask the unemployment problem. One would be simply juggling with figures, just as we altered the unemployment position by raising the school leaving age. It was the right thing to do in itself. It affected the unemployment figures but did not affect the general problem of providing for full employment. I am not in favour of facile solutions that mask a real problem of providing meaningful employment for people of working age.

These two arguments tend to push us in the direction of reducing the retirement age. Yet we seem to say, on the other hand, that the retirement age will be reduced but people will be allowed to earn more without penalty. These arguments are at odds with and pull against each other. The way to tackle the problem of retired people in meeting their daily costs and paying for their rent, electricity and food is not by juggling with the abolition of the earnings rule. The right way is to provide decent pensions.

9.15 p.m.

Although it is unpopular to argue with pensioners and their organisations that the earnings rule should not be abolished, it is an argument that must be put. It is akin to the argument over the claim that the pension part of a person's income should not be taxed. That is another popular cause, but I am coming increasingly to the view that we are tackling the problems of hardship in our society by creating special cases to which we give privileges instead of looking at how we can provide the wherewithal to give all the special classes a decent standard of living.

I wish that we would look much more at that end of the argument instead of concentrating on arguments about abolishing the earnings rule There is, however, one aspect of the argument in favour of abolishing the rule with which I have some sympathy. I have no vast body of evidence to substantiate what I have to say, but I am told that many employers take on pensioners because they can tell the pensioner that he will be paid only £40 a week because if he gets £45 or more he will lose his pension.

Many people do not understand precisely how the earnings rule works. I do not claim to understand it myself. Some people believe that they will lose their pension if they work on beyond their retirement at above a certain wage. I do not think that people set out to tell me lies, and there seems to be evidence that unscrupulous employers deliberately take on pensioners at much less than the going rate for the job because the pensioners believe that employers have a hold over them. Again, the best way to tackle that is under the fair wages provisions and by ensuring that investigations into low pay are properly carried out.

The immediate abolition of the earnings rule would be a move against the sort of policies that we want to see of people retiring and having a decent living without having to work. If a man has spent all his days driving a lorry, especially in the sort of foul conditions that we are experiencing now, or down the pits—and thank heaven I have never had to do that—he is entitled to retire at a decent age and not be forced to work on. He is entitled to retire at a time when he can appreciate the value of society and benefit from all it has to offer.

We need to tackle the question of how people can retire and have the wherewithal to enjoy their leisure without financial worries. That would be better than adopting the populist cause of abolishing the earnings rule. The bad effects of that are probably greater than the good effects that some people believe would result.

Photo of Mr George Rodgers Mr George Rodgers , Chorley

I thank my hon. Friend the Member for Aberdeen, North (Mr. Hughes) for ably covering a great deal of the ground that I had wished to cover. That will reduce the length of my speech.

The pension is linked to retirement, and it is almost a contradiction to suggest that people should remain at work when they are receiving the retirement pension. I appreciate that in our constituencies and surgeries the opposite view is often put, and many pensioners point out that they have paid contributions that entitle them to a pension, despite the fact that they continue to work.

I do not entirely accept that argument. If we assess the contributions formula, we see that the younger working population is funding the pensions scheme. The value of the pension, especially under the present Government, has increased in real terms, and that increase is being financed by the population that is still at work.

But there is a wider background to the new clause. We must recognise that the available work force in this country—that is, the number of people between 16 and 65, excluding students—has increased considerably over recent years and will continue to increase at a quite sensational pace during the coming years. The available labour force will increase by about 2 million in the next 15 years. This will be alongside the advance of technology, which will lead to a smaller labour force being required, especially in manufacturing industry.

I advocate earlier retirement. I do not accept the argument that this is perhaps a sly or almost dishonest way of dealing with the unemployment problem. I believe that it is a genuine and worthy way of reducing unemployment. If the requirement for people in the work force is lessened, we should accept the position. We should, if we can, reduce the retirement age and the length of the working week and, by various other methods, seek to reduce the work force, while retaining our capacity to generate prosperity. If there is the opportunity to do this, we should welcome it. It would rather defeat the purpose of that philosophy if I were to support the new clause. I would not press the enforcement of a compulsory retirement age, but I do not think that we should encourage people excessively to remain at work.

Not all those who continue in employment after they have reached retirement age are there for virtuous reasons. Many of them are in employment simply because the opportunity presents itself, and opportunities of that sort are not generally available to people. Some are unable to take advantage of employment in old age because they worked excessively when they were younger. Many are too ill, too exhausted, too worn out to take up employment. Generally speaking, it is those who have had a comfortable working lifetime who are able to take advantage of employment after normal retirement age.

While recognising all the arguments which have been put at some length and in some detail, I cannot accept that we have a priority for abolishing the earnings rule at this stage. I think that it should come very low in our list of priorities. Therefore I cannot support the proposition.

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

We have had an interesting debate, which has gone fairly wide, on the whole subject of retirement in connection with the earnings rule. Perhaps it would help, as the right hon. Member for Wanstead and Woodford (Mr. Jenkin) spent quite a long time in introducing it, if I made some comments about the new clause.

The clause gives power to make an affirmative order to stop deductions from pensions under the earnings rule in respect of retirement pensioners and the dependent wives of retirement and invalidity pensioners and of those receiving industrial injuries unemployability supplement.

The Government see several disadvantages in proceeding in this way. First, the retirement condition, upon which entitlement to retirement pension rests, can be satisfied either by reference to the amount of time a person expects to spend at work after retirement or the amount of money he expects to earn, which is now up to £45 a week. The earnings rule is inextricably bound up with the retirement condition as the basis upon which entitlement to pension rests, and it has always been recognised that abolition of the earnings rule means that the retirement condition has to go also.

The effect on the retirement condition of ceasing to make deductions under the earnings rule, in consequence of an order made under the new clause, is not clear. The Act would still provide for a retirement condition, although the circumstances in which it could be satisfied are debatable, and it is doubtful whether the ensuing legal tangle would accurately reflect the wishes of Parliament. It is an unsatisfactory solution, therefore, to remove the earnings rule in isolation. The remainder of the provisions in the Act are left in doubt, and we would not think that this is an appropriate way in which to set about the operation.

The second difficulty is that the new clause excludes the most likely way of bringing the earnings rule to an end—that is, by phasing it out. The Government are already committed to phasing out the earnings rule. The cost of overnight abolition is substantial. It involves considerable public expenditure, and phasing out would allow us to meet this cost over a period of years. As suggested in the report on the earnings rule which was published last October, phasing out could be accomplished by progressive reduction of the upper age to which the rule ceases to apply, at present 70 for men and 65 for women.

I shall deal briefly with the points raised by the right hon. Member for Wanstead and Woodford about costs. One of the recurring features of these debates—we have had a number of debates on the earnings rule—is a dispute about costs. Costs are very important, and it is right that we should examine them closely. They can also be very complex. It would do injustice to some of the points involved to make them subject to exchanges, so to speak, off the cuff. The question of cost has been given a good run in the House and in Committee.

Estimates of costs were debated at some length during the passage of the Social Security (Miscellaneous Provisions) Bill in 1977. The Government undertook to prepare a detailed report, which the right hon. Member quoted tonight. The report was prepared in October last year. Various costs were closely examined. The estimates published were the most sophisticated that it had been so far possible to make. These were challenged by the hon. Member for Ealing, Acton (Sir G. Young) in the Committee on this Bill before Christmas.

In the light of the hon. Gentleman's arguments, we re-examined the figures with the help of the Government Actuary, who is independent of my Department, and my own economic advisers. In the result, we see no reason to alter the estimates put forward. Perhaps more to the point, we have not been convinced that the alternative estimates put forward challenging our own are based on evidence sufficiently sound to persuade us to prefer them. It would serve no purpose of ours to put forward figures that were unnecessarily high. We, too, welcome low figures where they are justified. I wrote to the hon. Member for Ealing, Acton on 19 January explaining our reasons. The right hon. Gentleman was good enough to quote several passages from that letter.

In these debates we have gone over a lot of ground. I doubt whether there is much scope left for profitable exploration. The cost of abolishing the earnings rule is still formidably high. It is between £64 million and £124 million after allowing for tax, depending on the number of people who would decide to defer taking their pension so as to earn increments on it. The actual number that would defer their pension may be uncertain. In any event, the cost is a problem that has to be faced by any Government. It would help to be able to take on that cost gradually.

The third point about the new clause is that it ties the abolition of the earnings rule for retirement pensioners to that of dependent wives. In the case of retirement pensions, the function of the earnings rule is to support the retirement condition. But in the case of an increase of benefit for a wife the earnings rule is a test of dependency. As the right hon. Gentleman rightly pointed out, it sets the point at which the wife's earnings have become too high to be consistent with her being regarded as being dependent on her pensioner husband. In tackling the earnings rule, therefore, it is necessary to separate the effect of the rules on the retirement pension from the effect on benefit for the dependent wife. The new clause does not do that.

Having pointed out those aspects of the new clause which make it unacceptable as it stands, I acknowledge the common ground that the Government share with hon. Members opposite in that we agree that when resources are available the earnings rule should go. This is a commitment that we have made previously. That being so, we see advantage as well in taking suitable preparatory steps to achieve that purpose. I have indicated the defects in the new clause which hinder making progress in the desired direction. I accept that it is insufficient for the Government simply to find fault with proposals that other people have put forward while making no positive move. Probably the most promising way forward would be through a progressive reduction in the upper age for the retirement pensioners' earnings rule.

If the right hon. Gentleman will at this stage ask leave to withdraw the new clause, the Government will in another place introduce a new clause that will enable the Government, by means of orders subject to the affirmative resolution procedure, to phase out the earnings rule for retirement pensioners by steadily reducing the period over which it applies, with the aim of abolishing it completely. In so doing the Government would simply be taking power to make changes. The question of using that power would need to be considered in the light of the economic situation at the time, in relation to the many other claims on public expenditure and the Government's expenditure priorities.

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

The Government have been most forthcoming on this. I am especially grateful to the Under-Secretary for reiterating the Government's commitment to getting rid of the earnings rule. We have listened to two closely argued speeches by the hon. Members for Aberdeen, North (Mr. Hughes) and for Chorley (Mr. Rodgers). They both made it clear that they did not want to see the end of the earnings rule. They were prepared to argue for it.

It is important that the Government have reiterated that they are committed to ending the earnings rule. I found the arguments of the hon. Member for Chorley unattractive. He seemed to think that it was necessary to have the earnings rule in order to save people from themselves, that they feel that they have to go on working but they were worn out and they should really retire.

9.30 p.m.

Photo of Mr George Rodgers Mr George Rodgers , Chorley

I should make my point clear, because I did not intend to give that impression. I said that some people were unable to take advantage of any relaxation in the earnings rule because of the nature of their working lives, which have been hard. I said that they were worn out and sick, and unable to continue working. That is rather different from what the right hon. Gentleman suggested that I said.

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

Then I fear it is even less admirable than I thought. I was interested to see the hon. Member for Bolsover (Mr. Skinner) nodding in agreement. Of course my hon. Friends will recognise that we have just heard the old Socialist cry "If I cannot have it, you shall not have it either."

Photo of Dennis Skinner Dennis Skinner , Bolsover

I had better clear the decks as well. I come from the pits, and I still represent a constituency that has many thousands of miners and retired miners. The fact is that when we introduced a new scheme recently for early retirement at 60 over a period of years, only about half a dozen miners in the whole of the Derbyshire coalfield stayed on beyond the retirement age, which is down to 62. The point that my hon. Friend is making is absolutely right. In that kind of industry most of the people concerned simply cannot carry on working and they look forward to their retirement. As far as I am concerned, I have done my 20 years underground. I qualify under the scheme, and if they get the age down to 55 it will not be long before I can retire.

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

Many of us on the Conservative Benches would feel a very great sense of loss if the hon. Member for Bolsover retired. Nobody for one moment has denied the right of someone who reaches retirement age to retire if that is what he or she wants to do. The argument is—the Government's latest report emphasises it—that many people feel able to stay on doing the same job, the same job on a reduced basis or, as I suspect is the case with many of the Derbyshire coalminers, other lighter jobs above ground. I bet that they take jobs behind the bars and in all sorts of other useful ways where their experience and personalities help them to help themselves. Nothing that I have said would prevent them from doing so. On this side, we want to see a progressive move to more flexible retirement and greater freedom of choice. Ending the earnings rule is one important step in this direction.

I understand the case that the Under-Secretary has made. One way of doing this is to alter the ages—to reduce the age by a year, or six months, or whatever. I would be grateful if the Under-Secretary would examine the possibility of raising the limit faster than is currently done under the 1977 Act and to include that in the proposed amendment, in addition, as an alternative method so that we can have a combination of raising the earnings limit and reducing the age.

I would be a little unhappy if I thought that the only thing that we could do was to reduce the age by order. I suspect that if one wanted to accelerate the raising of the limit one would then have to have a Bill. Perhaps that can be done by order already. I suspect that all that can be done by order is to move in line with earnings, because that was what was agreed in 1977. If the Under-Secretary would undertake to do that as well—I see that he is nodding assent—we would feel that we had amply achieved our purpose this evening and that when the Bill comes back from another place it will contain an acceptable clause which we shall greatly welcome.

In view of what the Minister has said, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.