My Lords, to some extent I shall concentrate on work and pensions issues and, therefore, I begin by declaring an interest as chairman of an occupational pension scheme and an interest in Equitable Life.
However, before I turn to those issues, I want to pick out one part of the gracious Speech which I do not believe has attracted enormous interest. It states:
"Parliament will be invited to scrutinise legislation in draft on a number of measures, reflecting the importance that my Government places on pre-legislative scrutiny by Parliament".
I am most enthusiastic about pre-legislative scrutiny. In fact, it is 30 years since I was the first Minister to introduce in full a draft Bill which abolished purchase tax and SET and introduced value added tax. As a result of that pre-legislative scrutiny, I believe that the legislation has lasted the test of time, except for the fact that successive Chancellors have increased the rate from 10 per cent, which was nice and simple, to 17 per cent.
I am profoundly worried about the way that we now scrutinise legislation. From our experience in the previous Session on the Tax Credits Bill, which arrived in this House in an unworkable state due to the fact that the Minister in another place clearly did not give it sufficient scrutiny, and from the way that the Home Secretary's proposals on asylum were not discussed at all in the other place, other than when we happened to defeat the Government on a particular amendment, we know that the system is not working. The process of programming and modernisation in another place is placing a bigger and bigger burden on your Lordships' House. One cannot help but feel that somehow the proposal for more pre-legislative scrutiny is intended to make up for the fact that this House does not carry out legislative scrutiny in the way that it should.
In the course of the debate, many noble Lords have spoken on both health and pensions issues. With regard to the health issues, I have a strong impression that noble Lords are mostly warning of dangers. The noble Lord, Lord Faulkner of Worcester, warned about the danger of smoking. I strongly agree with that. My noble friend Lord Fowler dealt with the problems of the AIDS epidemic, and my noble friend Lord McColl spoke about falling morale in the health service. Going more widely, my noble friend Lady Carnegy of Lour warned about the problems of dysfunctional families and the breakdown of family structures. Therefore, we heard a whole series of warnings on which, no doubt, the Minister will wish to comment when responding to issues raised in the health service field.
However, I want to turn primarily to the issue of pensions. We are promised a Green Paper in the near future. Whether this is a question of the calm before the storm from a legislative point of view, given the welter of legislation with which the noble Baroness and I have dealt over the past five years, or whether it is simply the calm before a damp squib, we shall have to wait to see. But, at all events, I believe that it is worth referring to the previous Green Paper, Partnership in Pensions, published in December 1998. A crucial part of that paper set out the Government's expectation that total spending on pensions would change from 60 per cent from the state and 40 per cent from private sources to the reverse—that is, 40 per cent from the state and 60 per cent from private sources.
From statements made by the noble Baroness the Minister on the Front Bench and outside, it would seem that she has been saying that the department is thinking about the matter again. She did not mention the issue in her opening remarks. But it is crucial because almost everything that the Government have done since the publication of that Green Paper has pushed the balance in the opposite direction. Crucially, it undermines provision in the private sector and, very largely, has failed so far as concerns provision in the public sector.
The noble Lord, Lord Oakeshott of Seagrove Bay, and my noble friends Lord Hodgson and Lord Blackwell all referred to the stealth tax on ACT. The total take now with regard to pension funds is around £25 billion and rising. That has meant that more and more companies have felt obliged to change final salary schemes to defined contribution schemes, transferring the risk from the company to the individual. A recent survey indicated that around half—rather more, in fact—the final salary schemes that existed at the time of the previous Green Paper have been closed to new entrants or future accruals. That is a fundamental change of the greatest importance.
As regards the stakeholder pension, the survey to which I have just referred suggests that fewer than 1 per cent of employees based in firms covered by the survey have joined stakeholder schemes and that 46 per cent of stakeholder schemes have no members at all. Again, the legislation on stakeholder pensions that we ploughed through has largely been a failure. Increasingly, outside experts are calling into doubt the state second pension and moving towards the views of the late Barbara Castle, whose contribution to our debates we miss very much. She was always in favour of raising the basic state pension and not going down the means tested route. The National Association of Pension Funds, the IPPR and the Pensions Policy Institute have all produced proposals that concentrate on the basic state pension rather than move towards the state second pension. Commentators such as Mr Timmins in the Financial Times have expressed similar doubts. The Minister has been cagey about the 40:60 split. However, it would be helpful to know whether that is still the Government's expectation or whether, as a result of their own actions, matters have moved in precisely the opposite direction.
I turn now to the point made by my noble friend Lord Hodgson in particular, but also by the noble Lord, Lord Oakeshott, and others. The reality is that pensions are in a state of crisis. That is what we are faced with at the present time both with regard to those who become pensioners now or those who will become pensioners in 20 or 30 years' time. My noble friend Lord Blackwell pointed out the enormous future liabilities that ought to appear on the Government's balance sheet but which they refuse to make explicit in their accounts.
This is not just a crisis in the pensions industry but a crisis in confidence. It is that which is deterring people from saving at a time when, quite clearly, it is vitally important that they should if they are ever to retire on a reasonable income. That brings me to a point made by the noble Lord, Lord Oakeshott. I agreed with virtually every word of his speech. He referred to Equitable Life. Only last weekend we heard that, as a result of the serious situation at Equitable Life, some people with pensions already in payment—perhaps having retired 20 years ago—will suddenly find that their pensions are cut by about 20 or 30 per cent. I cannot recall that ever happening previously, even when the Policyholders Protection Act 1997 was introduced. I hope that the Minister will tell us whether that is the case.
As regards this matter there has quite clearly been a complete failure on the part of the regulator and the Government. Originally, the matter was the responsibility of the DTI. Then a number of officials moved to the Treasury and the matter was for a considerable time the responsibility of the Treasury. It then became the responsibility of the Financial Services Authority acting as the agent of the Treasury and then, finally, the responsibility of the Financial Services Authority itself. However, the reality is that the failure of Equitable Life is equally a failure of the regulator, and the regulator was the Treasury. There should have been a proper inquiry. The Government set up the Penrose inquiry. No, I am wrong; the Treasury set up the Penrose inquiry and the Treasury determined what its terms of reference should be. The report will be made to the Treasury. We now find that the inquiry has been set up in a such a way that it is not likely to be possible to publish the report in full anyway. It is absurd to have the failures of the Treasury investigated in that way. However independent Lord Penrose may be, he is closely confined by the very organisation that he should be investigating.
As a result, the ombudsman felt that his inquiries should be put on hold. I have a qualification to make in this context. I had an exchange with the noble Lord, Lord McIntosh of Haringey, in the House on 31st October, when I made exactly the point that I have just raised. When he replied that the matter had not been put on hold, I asked him to check his facts. Very courteously and in his usual way, he has done so and he wrote to me. He is right that the inquiry now being carried out by the ombudsman has not been put on hold. However, that is only a tiny period of the overall period that has affected Equitable Life. The overall range of complaints that the ombudsman has been investigating has been put on hold; he is not going to produce an inquiry until such time as the Penrose report has been published, if it is ever published.
The ombudsman's views on this subject are very clear. He said—he has of course just retired and been replaced by a lady—in his annual report that:
"The root cause of the problem, in my view, is the failure of the authorities to establish at the outset a single inquiry with terms of reference covering all aspects of the Equitable Life affair".
That is what should have been done, but it was not done; it should be done now. Lord Penrose must be given unlimited terms of reference to go into all aspects of the affair and he must produce a report that is genuinely independent and not circumscribed in the way that the Treasury, in its own interests, has managed to do so far. That meant that some people found that their pensions, which had been in payment for 20 years, had suddenly reduced. Many people are suffering serious loss and we do not know even now what the future of the company will be. Consequently, there has been widespread concern and a widespread crisis of confidence in financial institutions generally and in relation to the regulators. I believe that that was pointed out on "Panorama", although I did not see it the other night.
These are very important issues because we must do all that we can to ensure that the pensions industry functions on a viable basis. We must do all that we can to ensure that so far as possible company schemes remain of the "final salary" sort rather than of the "defined contributions" sort. As my noble friend Lord Hodgson clearly spelt out, the pressures on companies are growing. Not all the reasons for that are the fault of the Government; as my noble friend rightly pointed out, there is greater longevity and a number of other factors, including the decline in the stock market, make the situation very difficult. However, that, to a significant extent, is the problem.
Incidentally, I welcome the situation regarding FRS17. I pay tribute to the Minister, who I believe was probably incidental in persuading the Secretary of State—she has done so in relation to many issues—that the FSR17 issue will be delayed until such time as the international standard is agreed. However, to what extent that standard reflects some of the problems associated with FRS17 remains to be seen. That measure has been one of the factors contributing to the breakdown of the traditional pension system in this country, which the Government, when they came into office, asserted was the jewel in the crown of the British pension system.
In her opening remarks the Minister was not as analytical as she normally is. Her speech was little else than a long stream of statistics. She did not anticipate, understandably, the Green Paper, but she did not deal with the fundamental issues of the split between private and public and so on, to which I referred in my opening remarks. That stream of statistics must itself be suspect because the department and the Government generally have recently made a number of rather serious mistakes. The Financial Times reported the other day that the Ministry has agreed to clarify the figures.
We all know that both parties in government have not had an impeccable record in the SERPS saga. Having said that, one would have thought that at least the department would be trying to get its figures right, whereas it appears that its projections did not adequately allow for the problems of contracting out and so on.
It is also the case that, as my honourable friend Mr Willetts in another place has pointed out, the Government made a most appalling error in estimating the amount of money that was being invested each year in pension schemes. They were under the impression that the sum was £86.4 billion. It turned out that those figures were totally wrong. It was £43.7 billion. I leave noble Lords to deduct one figure from the other to see the magnitude of the error. That was reflected by a most extraordinarily complacent attitude by the Government on this whole issue. They were basing their ideas on statistics which were wrong. That is one of the reasons why the noble Baroness has been inclined to say that there is not a crisis as regards pension provision. I believe that that is the situation.
There are other problems regarding complexity that we have been over many times. Prudential recently produced a study stating that £1.2 billion in benefits are unclaimed. If one looks at the documentation which explains to people how to fill in the relevant forms, one can well understand why that is so. The Government said, "Oh, well the form is now much shorter". Yes, the form got shorter and the explanatory memorandum on how to fill it in got longer. This did not really work out as the Government proposed. Curiously enough, it has almost exactly the same number of pages overall.
The other aspect of the matter about which we have expressed grave concern—and on which the Government are continuing to plough in the wrong direction—is means testing. We are told that in 1997, when the Government came into office, 14 million people were in households where there were means-tested benefits. By next year the number is expected to be 25 million. In 1997, 38 per cent of pensioners were on means-tested benefits. By 2003 the figure is expected to be 57 per cent.
I am not generally speaking in favour of debate by statistics, even though the Minister decided that that was an appropriate way to approach this debate. But I am profoundly concerned about—my noble friend Lord Blackwell raised this point—what will happen in the future with minimum income guarantee being uprated in earnings, and with more and more people on means-tested benefits. The prospect for vast masses of people in our country in 20 or 30 years' time is grim indeed. We will see more and more people on means-tested benefits and a smaller and smaller number of people paying for them. At some stage—I probably will not be here in 30 years' time to see it—the people who are responsible for paying for means-tested benefits will not be able to finance them.
The prospect for pensions is desperately uncertain. I shall make one final point about Equitable Life. We must set up a proper inquiry, so that we can restore confidence in the savings industry, in the regulator and the prospects for the future. At the moment, the Government are going in the wrong direction. There ought to have been a system, from 1997 until now, to move the pensions industry in the direction in which it wished to move, which was towards a greater emphasis on private provision and a smaller emphasis on public.