New Clause 3

Pensions Bill – in a Public Bill Committee at 6:30 pm on 19th February 2008.

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Restoring link with earnings

‘Before the coming into force of this Act, the Secretary of State shall announce to Parliament his intention as to the timing of the implementation of Section 5 of the Pensions Act 2007.’.—[Mr. Waterson.]

Brought up, and read the First time.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 6:45 pm, 19th February 2008

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

This is an important issue, but I hope that I can take it briefly on the basis that we are all, apparently, on the same side. It is about restoring the earnings link. I go up and down the country addressing audiences of pensioners, and the one issue that I can be sure will come up sooner or later is the earnings link and the fact that it was broken in 1980. So, I shall delve into its history. It is important, however, to recognise that it is the Government’s policy to restore the earnings link, that it was our policy in our previous election manifesto—it obviously made all the difference—to do so, and that for all I know, although there is no representative present from the Liberal Democrats, they would like to do much the same. In fact, they probably would have liked to do have done it last week.

All that innocent little new clause 3 would do is make the Secretary of State announce to Parliament his intention about the timing of that important decision and the implementation of section 5 of the Pensions Act 2007 when the legislation before us comes into force. This is the ultimate probing amendment, because it tries to get out of the Minister where the Government are on that promise.

It is worth delving into the history of the issue, as I said. There is a myth that the earnings link existed for years, decades, perhaps even centuries before 1980, and then the wicked Conservative Government under Maggie Thatcher got rid of it. However, it was implemented only in 1974, following the general election in February of that year, so it lasted barely six years. The incoming Conservative Government in 1979 inherited an economy in complete meltdown, with roaring inflation, the public finances in a very bad state—

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

Nationalisation of course, which stalks the land again and is very much the flavour of the month, and massively powerful trade union barons.

Photo of David Borrow David Borrow Labour, South Ribble

Will the hon. Gentleman pay tribute to Lord Rooker and my former MP, Audrey Wise, for having the foresight to move the amendment that introduced the link in the first place?

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

Absolutely. The Rooker-Wise axis has its place, quite rightly, in the history books, and the hon. Gentleman was right to remind us of it.

The incoming Conservative Government were faced with an almighty mess, and they decided to break the earnings link in 1980. Before Government Members start winding up their ersatz outrage, it is worth remembering that the current Prime Minister, previously the Chancellor, built his now somewhat shaky reputation for financial prudence partly on the fact that in opposition, he told the Labour party that they could not restore the link with earnings. So, when Labour came into office, they had no such promise to make, and they have done absolutely nothing about it in the years since.

Interestingly, if we fast-forward to the Turner pensions commission, in its second and final report, it recommended that the link between the BSP and average earnings be restored, starting ideally in 2010 or 2011. If we return to a point that we have debated in a different context in this Committee, the commission considered the measure to be part of a package: to fund the restoration of the link, the state pension age would be increased to 66 over two years, to 67 and ultimately to 68, starting in 2044.

We have already legislated, in section 5 of the 2007 Act, to restore the link, so all we need is a decision from, presumably, the Chancellor, if he can be torn away from his other, pressing considerations. As I understand it, the Government intend to restore the link either in 2012, subject to affordability and the fiscal position, or, at the very latest, by the end of the next Parliament in 2015. That is lifted directly from “Security in retirement: towards a new pensions system”, published in May 2006. Of course, the problem with that is that there is no certainty. As the National Pensioners Convention pointed out, by then some 3 million pensioners sadly will have passed away.

We tabled amendments to the Pensions Act 2007—this demonstrates how consistent we are on this issue, as on others—proposing that the Government announce their decision. At that stage, Ministers were not prepared to accept such an amendment, but I think that the time is fast approaching when we should be told what the current plan is. I am not normally one for quoting the Trades Union Congress extensively, but it said, in its briefing on this new clause, that it

“has long campaigned for a more generous basic State Pension”,

which is true, and that it welcomes the commitment in the 2007 Act to restore the link. It continues:

“Restoring the link with earnings is the fairest way to ensure that all pensioners share in national prosperity. This should take place as soon as possible and we continue to urge the Government to do this by 2010 at the latest in order to provide vital assistance to current pensioners.”

I urge the Minister to tell us what the plan is.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I apologise for my brief absence from the Committee. I would like to speak briefly in support of the new clause. The hon. Member for Eastbourne made some important points about the debilitating effect of the current uncertainty over the timing of the restoration of the link with earnings. The provisions in the Bill setting up the personal accounts and so on with a fixed timetable, for introduction in 2012, which we debated earlier, are designed to give a great degree of certainty on that side of the equation. The purpose of the new clause is to give a degree of certainty on the state pension side of the equation.

As a Liberal Democrat, I support very much the view expressed during the passage of the 2007 Act by my hon. Friend the Member for Yeovil (Mr. Laws) that the restoration of the link with earnings should be brought forward to as early a date as possible. At that stage, we proposed 1 April 2008. Time has elapsed, but there seems no reason in principle why the restoration should not take place in 2009. The Government have said that 2012 is the likely date, but it could be as late as 2015, depending on the timing of the general election and the extent of the subsequent Parliament. That provides for a great degree of uncertainty. In the time that elapses between now and 2012 or 2015 the value of the basic state pension, in relation to average earnings, will erode substantially further.

Already, the value of our basic state pension, as a proportion of average earnings—I accept that the latter has increased substantially—is lower now that it was in 1950, I think. We need to set the basic state pension on a different path so that it can keep up with earnings, which is why the restoration of the link is so important. It has been campaigned for widely outside this House. We should get on with it as soon as we can. By agreeing to this new clause, we would at least require a degree of certainty from the Government, which they have not so far been willing to give us. Perhaps the Minister is about to do so.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

It takes a certain amount of brass neck to present the Conservative party in the light of defending pensioners, particularly after what was done in the 1980s. However, we did not come into Government in 1997 with a commitment to restore the link. We took the view that we had to deal with some of the problems in the economy that we had inherited, and we sought to do so. The Government stated in their White Paper, “Security in retirement: towards a new pensions system”:

“During the next Parliament, we will re-link the uprating of the basic State Pension to average earnings. Our objective, subject to affordability and the fiscal position, is to do this in 2012, but in any event by the end of the Parliament at the latest. We will make a statement on the precise date at the beginning of the next Parliament.”

That remains the situation, and I am not going to make any announcement to change that policy. It is the Government’s agreed policy, and on that basis I reject the new clause.

However, with reference to the comments made by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, it is important that we do not mislead people by suggesting that pensions are somehow at the same level as in 1950 or indeed 1918. Most people today who have retired are not reliant on the basic state  pension exclusively. Most have further pension entitlements, and if they do not have a second pension, they are likely to be able to apply for pension credit. The minimum level of income to which pensions would fall would be around £119, which differs somewhat from the very low level of around £69 on which pensioners back in 1997 were expected to exist. As I said in the Chamber yesterday, even then it would probably not have bought a bottle of plonk at the Bullingdon club.

The situation for pensioners has changed, and we want to change it further, but we need to do so at the right time.

Photo of John Greenway John Greenway Conservative, Ryedale

I intervene solely to say that it is entirely correct that we should be having this discussion under your chairmanship, Sir Nicholas. If I remember correctly, when the link was broken, you were the robust Chairman of the then Select Committee on Social Services, which in those days was against the breaking of the link.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

If I remember correctly, Sir Nicholas, you paid a price in due course for your robustness. You deserve our respect for that.

Photo of David Borrow David Borrow Labour, South Ribble

Will my hon. and learned Friend put on the record the fact that although the link has not been restored for the basic state pension, we look forward to that being done as soon as possible, and the Government have made progress in restoring the link for the pension credit?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

We have indeed moved pension credit upwards, and the poorest pensioners, who were our priority when we came to Government, have received the most help. We will continue to do that, and we made announcements before Christmas. We have introduced schemes such as winter fuel payment. There is a broader agenda, which we need not go into in respect of this amendment, save to say that the Government have made helping the poorest pensioners a priority. We hope in due course to be able to restore the link that the Conservatives removed, but we will do so at a time when it is appropriate and proper.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

Naturally, I am disappointed that the Minister is not prepared to go further, as I am sure millions of pensioners will be. It is worth remembering that if the Conservatives had won the last election, we would already have implemented that policy. However, it was not to be, and we must return to the issue.

If I pressed the amendment to a Division, the Government would vote it down, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.