New clause 9 - Annual update linked to earnings

Pensions Bill – in a Public Bill Committee at 11:00 am on 18th March 2004.

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'The Secretary of State shall each year increase the basic retirement pension by not less than an amount equivalent to—

(a) the percentage increase in the general level of earnings during the preceding year; or

(b) the percentage increase in the retail prices index during the preceding year,

whichever is the greater.'.—[Adam Price.]

Brought up, and read the First time.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry) 11:15 am, 18th March 2004

I beg to move, That the clause be read a Second time.

The hon. Member for Tatton was kind enough to call this the Plaid Cymru new clause—although I cannot claim ultimate authorship of the idea of the index link. [Interruption.] Yes indeed, it was the late great Barbara Castle who first set the index link between the basic retirement pension and average earnings. That was in 1974. The incoming Labour Government saw that the real value of the basic retirement pension as a proportion of average earnings had been substantially eroded, and sought to rectify that by immediately increasing the state pension by 26 per cent., and by creating the earnings link. As we all know, the incoming Conservative Government broke that link in 1980, and the basic retirement pension was allowed to wither on the vine, as the then Conservative Social Security Minister put it retrospectively.

We have all seen the basic retirement pension decline as a proportion of average earnings from 23 per cent. in 1979 to around 15 per cent. now. The Government Actuary forecasts that by 2040, the proportion will reach about 8 per cent. The latest Library note shows that if the link had been

maintained, the pension for single persons in April 2003 would be £114.50—£36.70 higher than it is—and that married couples' pensions would be £58.80 higher.

The idea of restoring the link was rejected yet again by the Chancellor yesterday. I am sure that the Government will argue for targeting, which in essence is an argument for means-testing. The Government's policy seems to be to means-test the many, not the few. The proportion of pensioners subject to means-testing rose, I believe, from 39 per cent. in 1997 to 57 per cent. 2003—a substantial increase. Means-testing gives rise to a philosophical question. I do not believe that part of the problem with means-tested benefits lies in popular consciousness and the memory of the first major extension of means-testing in the 1930s, although some of today's generation of pensioners will remember means-testing from those days. It is goes much deeper than that, and is to do with basic human psychology.

As the socialists and social democrats on the Government Benches will understand, there is an important distinction between claiming a benefit and claiming a pension as a right. That is part of the problem behind the low take-up, but it is not the only explanation. The complexity of the process and the resulting confusion are also part of the problem. There is also a psychological barrier between the idea of a pension that people believe is theirs by right, and a means-tested benefit for which they must claim almost apologetically, cap in hand, because they have not made provision for themselves. I am not trying to make a partisan point: these are difficult issues, and I know that there is debate about them in the Labour party.

Let us consider the take-up of the pension credit guarantee. The Government's own figures—the latest that I have seen, which were released in a reply to a parliamentary question asked by the hon. Member for Northavon—show that of the 4.9 million currently eligible, 2.5 million or 2.6 million are currently claiming. That is an appallingly low take-up. Even the Government, with reference to their target for 2006, predict that at least 1.4 million of those eligible will not be claiming by that date.

There is a widely recognised problem with the Government's approach based on means-tested benefits. That is the reason for the growing consensus that now includes even the Conservative party, which broke the link in 1980. We are now in an Alice in Wonderland political world where Tory policies have been embraced by the Labour party and Labour policies are now embraced by the Tories, which leaves me confused, let alone the voters.

Proposals from think-tanks show an emerging consensus. The Pensions Policy Institute recently argued for scrapping means-testing. It favours replacing the stakeholder pension and the credit guarantee with a minimum income, without means-testing, index-linked to earnings. They call that a citizens' income, based on the New Zealand policy.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West

Does the hon. Gentleman agree with the other element of that report? To make the arrangement possible, should we raise the state pension retirement age to 67?

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

That needs to be considered in a wider debate. I was about to mention the Adam Smith Institute, to go back to what I was saying about the topsy-turvy world that we now live in. It has come up with proposals that are fairly similar to those of the Pensions Policy Institute, although it argues for a retirement age of 68.

I believe that Alan Pickering wrote the report—and the Government have used him in the past, so he must be right. It comes up with a proposal to double the state pension to 40 per cent. of average earnings. We on the left should grab this historic opportunity: the most right-wing institute—I am sure that it is to the right of the Institute of Economic Affairs—advocates doubling the state pension. The Institute for Public Policy Research, too, has come up with basically the same policy of a universal index-linked pension.

There is a wide consensus. I am not sure where the Liberal Democrats stand on the issue. What I have described is Labour party policy, too, of course, because it was passed at conference in 2000. All the political parties are in consensus, bar possibly the neo-Liberal Democrats, which is perhaps what we should call them now, since the regime change that made the hon. Member for Richmond their economic spokesman. [Hon. Members: ''Twickenham.''] I apologise; I meant the hon. Member for Twickenham (Dr. Cable). The Liberal Democrats supported the policy in 2000, I believe, when it was last voted on in the House.

The latest figures—[Interruption.] Do I have to wind up now, Mr. Griffiths, or will I be allowed to continue after lunch?

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

The hon. Gentleman must finish his speech and allow the Question to be proposed, or his new clause will fall when the knife comes down at 11.25.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

In that case I shall finish now, by saying that there is £26 billion in the national insurance fund, and I think that we should use it.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

This has been a useful introduction to a well known topic. I hope that I shall have the opportunity to respond at some length, Mr. Griffiths.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

An aspect of the new clause relates to the debate we just had about women's pensions. Many people forget that in calling for an earnings link to the basic pension they are following more a men's than a women's agenda, for reasons that we have discussed. Indeed, only 50 per cent. of women receive full-rate state pensions—two thirds of them on the basis of their husband's contributions—whereas 83 per cent. of men receive full-rate state pensions. That means that, on average, the state retirement pension for women is £69.70, whereas for men it is—

It being twenty-five minutes past Eleven o'clock, The Chairman proceeded, pursuant to Sessional Order D [6 November 2003] and the Order of the Committee

[9 and 16 March] to put forthwith the Question already proposed from the Chair.

Question put, That the clause be read a Second time:—

The Committee divided: Ayes 3, Noes 11.

Division number 3 Adults Abused in Childhood — New clause 9 - Annual update linked to earnings

Aye: 3 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Adjourned at twenty-six minutes past Eleven o'clock till this day at Two o'clock.