Orders of the Day — Child Support, Pensions and Social Security Bill

House of Commons, 3 April 2000.

CONTRIBUTIONS IN RESPECT OF BENEFITS IN KIND: GREAT BRITAIN

David Willetts (Conservative, Havant)

I beg to move amendment No. 62, in page 68, line 37, at end insert— '( ) Nothing in this section shall apply to any childcare provision by the employer, which shall be exempt from Class IA National Insurance contributions.'.

Betty Boothroyd (Speaker, West Bromwich West)

With this it will be convenient to discuss amendment No. 63, in page 68, line 37, at end insert— '( ) Nothing in this section shall apply to any healthcare provision by the employer, which shall be exempt from Class IA National Insurance contributions.'.

David Willetts (Conservative, Havant)

Clause 69 is the stealth tax clause. It is the clause that imposes employers national insurance contributions on a range of benefits in kind, from Christmas parties to rape alarms. Its purpose is to raise £225 million of extra revenue without the Government being caught out by anybody spotting what they are up to. The clause is where the damage is done. We thought from the exchanges that we have already had with Ministers that the Government were arguing that everything that bore income tax as a benefit in kind should also bear employers national insurance contributions. That was very much the tenor of the Minister of State's remarks in Committee. He said: The trigger for the change is the taxation of the benefit in kind, not the other way round. The national insurance does not cause the tax to be paid; the tax causes the national insurance to be paid.— [Official Report, Standing Committee A, 2 March 2000; c. 675.] The Minister of State was formulating what we could flatteringly regard as the Rooker doctrine. In effect, he was saying, "If there is a tax liability, there should be a national insurance liability as well." We could understand that doctrine. We might not agree with it, but at least it was coherent and consistent. The problem for the Minister is that the Chancellor of the Exchequer has knocked that argument away in his Budget statement. The right hon. Gentleman proudly announced that when it comes to child care, although that is taxable as a benefit in kind, it will not be subject to national insurance contributions for the employer. Paragraph 4.47 is entitled "Encouraging employers to provide childcare." It states: To encourage employers to help employees with childcare, all provision in kind will remain exempt from employer class IA national insurance contributions when these are extended to other employee benefits from April 2000. The Chancellor has therefore made it clear that it is possible for a benefit in kind to bear tax and that it does not need automatically to bear employers national insurance contributions as well. That has an unfortunate consequence for the Minister of State. It leaves the ingenious doctrine that he formulated in Committee looking rather threadbare. He cannot say that he must impose national insurance contributions on all these items because they are taxable, because the Chancellor has taken credit for doing exactly the opposite. He has chosen something that will bear tax but does not have to bear national insurance contributions. Amendment No. 62 takes the Chancellor at his word. It would deliver what the right hon. Gentleman was talking about in his Budget statement and would exempt child care from employers national insurance contributions. Perhaps this is the triumph of optimism over experience, but we rather hope that the Government will accept the amendment. It is absolutely in line with what the Chancellor said in the Budget. It would be a challenge even to the Minister of State's ingenuity to work out why he should whip his right hon. and hon. Friends to vote against an amendment that merely implements one of the Chancellor's announcements.

Edward Leigh (Conservative, Gainsborough)

Perhaps I can help my hon. Friend to understand why the Government may not want to accept the amendment. If the provision is on the statute book, it will be in tablets of stone and they will be committed to it, whereas if it is not, the Chancellor can always change his mind in future.

David Willetts (Conservative, Havant)

My hon. Friend makes an ingenious suggestion. I hope that he is not right, but he may be. We shall be interested to see what grounds, if any, the Minister offers for not accepting the amendment.

Steve Webb (Liberal Democrat, Northavon)

I intervene on a point of clarification. We are listening to the debate with genuine interest. The amendment refers to child care. Is that a reference only to employer workplace-provided child care? Does it include vouchers? What comes within the scope of the amendment?

David Willetts (Conservative, Havant)

I would be happy to accept the definition that the Chancellor offered in the Red Book. If the Minister offered a revised text of the amendment so that it exactly followed the lines of the Red Book, I would be happy with that. The Red Book states: This employer NICs exemption will apply to direct provision, childcare vouchers and payments under contracts between employers and third party providers. We would be happy with a provision that exactly matched what the Chancellor said. If any change in the drafting were needed to clarify the amendment, we would welcome that. Amendment No. 62 would merely implement through the Bill what the Chancellor said that he wanted to do in the Budget. We know from the fascinating exchanges between my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles) and the Minister in Committee that changes to national insurance contribution rates may be better implemented in social security legislation than in Finance Bill measures. If the Government do not do so now, it is not clear that they will be able to do so in the Finance Bill, so they may have to wait for some other social security legislation. Given that we want to get on with the policy, I do not see why the Minister would not choose to use the vehicle conveniently before us, so I hope that he will accept amendment No. 62. Amendment No. 63 applies the same philosophy to payments for insurance for medical care. If the Government recognise that employers NICs do not have to be applied to every taxable benefit, and if they proudly make a virtue of exempting child care from employers NICs, our view is that exactly the same arguments apply to health care and medical insurance. If an employer is so public spirited as to want to provide child care facilities for his staff, and will not bear employers national insurance contributions for that, and if he wishes to provide flu jabs for his staff, why is that not at least equally deserving? Why does not that, as well as the entire range of medical insurance payments, merit exemption from employers NICs? We say that if there is an argument for an exemption from employers NICs for child care, there is at least as good an argument for an exemption for private health care. If the argument is good enough for the Chancellor to use with reference to child care, we want to hear from the Minister why he thinks that employers providing medical care in whatever form for their employees should be taxed more heavily—should bear an extra 12 per cent. employers NICs—than for providing child care. We regard the benefits as equally desirable, and we see no basis for exempting one from national insurance contributions, but not the other.

John Bercow (Conservative, Buckingham)

I am grateful to my hon. Friend for giving way. As usual, he is intellectually right, but is not the reason why the Government may have a problem with the argument that although they have no known ideological objection to children, they have a known and inveterate ideological objection to private health insurance?

David Willetts (Conservative, Havant)

When my hon. Friend said that I was winning the argument intellectually, I knew that that was a polite way of saying that he thought I was losing. He may well be right about the reason why the Government may not accept the amendment—because of their hostility to private health care. I end my brief comments by referring the Minister of State yet again—I promise him that it will be the last time today—to what the Labour manifesto states on the subject. I found a couple of copies of the Labour manifesto remaindered in the fiction section of a bookshop, and I have enjoyed citing quotations from it all afternoon. On taxation, it states: Taxation is not neutral in the way it raises revenue. How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged, and the values they wish to entrench in society. That is why my hon. Friend the Member for Buckingham (Mr. Bercow) was absolutely right. If the Government oppose amendment No. 63, it is because they do not like private health care and private medical insurance. That is wrong and irresponsible, especially in view of the pressures on the health service. We therefore urge the Government to accept the amendments.

Laurence Robertson (Conservative, Tewkesbury)

Unless the amendments are accepted, the Bill will discourage people from becoming good employers. After all the Government have said about encouraging people to be good employers, they should accept such amendments, which will enable people to become good employers by encouraging them to look after their staff. My hon. Friend the Member for Havant (Mr. Willetts) gave some good examples of charging income tax but not national insurance. He could have gone on to say that tax but not national insurance is charged on salaries that are above a specific amount. There are many different ways of viewing the matter. It is wrong of the Government to suggest that there are precedents and that, if something is subject to tax, it automatically has to be subject to national insurance. That is wrong and inconsistent. I believed that the Government intended to encourage employers to provide child care facilities. We have sat here time and again and listened to such proposals. I would therefore be surprised if the Government did not accept amendment No. 62. Our national health service is struggling and we have to find not only more private provision, but more money for the health service. We should therefore try to do that. If we are to build the sort of health service that everybody wants and that people rightly demand nowadays, we have to find new ways of putting money into the health service or any health care provision. It would therefore be rather perverse to discourage employers from providing money that would relieve the strain on the health service. With those few remarks, I support amendments Nos. 62 and 63.

Desmond Swayne (Conservative, New Forest West)

The Minister must explain why amendment No. 62 is not a Government amendment. If the Government do not take this opportunity to implement the Chancellor's proposals, what opportunity will they take? I look forward with interest to finding out why the Minister has not introduced such a proposal, never mind his reasons for not accepting the amendment. In addition to the comments of my hon. Friend the Member for Havant (Mr. Willetts) on amendment No. 63, it strikes me that it is an employment-creating measure. Many small businesses provide insurance through the sort of cover with which the amendment deals because they cannot afford to lose key individuals through medical problems for a prolonged period. That would have detrimental consequences for the employment opportunities of other personnel in the small firm. They therefore provide for private health care insurance so that there is no delay when medical treatment is required for conditions such as hernias. We should encourage such activity by accepting amendment No. 63. That is desirable and will create greater efficiency in the workplace. With respect to what my hon. Friend the Member for Tewkesbury (Mr. Robertson) said, the Prime Minister has attached a target to the percentage of gross national product that we should spend on health care. He cited the European average, but comparable economies such as Germany and France spend a great deal more on health care than Britain—approaching 10 per cent. At the current rate of growth in health expenditure, it will take us 19 and 25 years to achieve their respective levels of provision. Those countries achieve those levels by relying on private sector funding, which is precisely what amendment No. 63 would promote. It may be the answer to the problem for which the Prime Minister has been seeking a solution, and I urge the Minister to give it full consideration.

Quentin Davies (Conservative, Grantham and Stamford)

My hon. Friend the Member for New Forest, West (Mr. Swayne) pertinently asked why the Government have not tabled such amendments, but we shall not receive a frank answer to that question from Labour Members, and the reason for that must be exposed in the debate. The Government have a double agenda, which they do not want to reveal explicitly to the electorate, but which my hon. Friend the Member for Havant (Mr. Willetts) has exposed, and usefully so, by tabling the amendments. The first part of the double agenda is the extension of employer's national insurance contributions to such benefits. That is one of a range of stealth taxes that have been imposed on the British people since they misguidedly voted for a Labour Government in 1997. They were not least misguided by the Prime Minister's explicit promise, "We have no plans to increase taxes at all." That was a thoroughly dishonest promise: the pensions tax was introduced within a few weeks, there have been enormous increases in petrol duty, and married couples allowance and mortgage interest relief have been removed—an endless series of stealth taxes. The proposal is simply another in the series and it cannot be understood except against the background of the covert Government policy of increasing the tax burden while pretending to the British public that it is not increasing at all. The amendments have exposed that particular purpose and it is no surprise that the Government are not only not adopting them, but, I am convinced, will oppose them if my hon. Friends decide to put them to the vote. The second part of the agenda is also covert, but it has already been revealed as it has surfaced in a number of contexts and we ought to be alive to it: the Government intend to run down private sector medicine, private sector provision and private health insurance for the most destructive of ideological reasons. That cannot be in the interests of the country's health, and I shall explain why in a moment. The Government's agenda has already manifested itself in the removal of the tax break provided by the previous Conservative Government to people of retirement age for paying private medical insurance premiums. That compensating tax break was provided because people beyond a certain age, and certainly those in retirement, have to pay much higher premiums, but it has been taken away. That was also a stealth tax, though it has never been admitted as such, and an attack on the private medical insurance system. The Government want to reduce the flow of premium income to the private health sector and the proposal is part and parcel of that agenda. The Government is penalising employers by taxing them for providing such benefits to their employees and people out there who elected us to the House will think that particularly cruel as the national health service is breaking down. This winter, the NHS has been in an unprecedented crisis. Waiting lists are increasing, and the nasty new phenomenon of a waiting list to get on a waiting list has entered the system in our country—and our country alone among EU countries, as my hon. Friend the Member for New Forest, West said. 4.45 pm Against that background, the Government wants to penalise employers who try to help their employees because the national health service is falling down and may not be there when they need it. That is bad not only for the employers who are being penalised, but for the health of the country as a whole. The effect of the Government's proposals will be to reduce the total flow of funds through private health insurance premiums and the private health insurance system into the provision of health care. That is bound to happen. That flow will be reduced unless amendment No. 63 is adopted so as to restore the position. As night follows day, if the price of something is increased, the demand for it is reduced. The net price to employers of providing such protection will be increased by the Bill unless it is amended. We should clear our minds of any ideological prejudice on this matter, and consider the practical consequences of voting through the Bill without this amendment. If the amendment is not accepted, it will be very bad for the health of the nation for two reasons. If people have their own provision and can purchase private sector care, they no longer claim on the national health service. People can be taken off NHS waiting lists if their employer is providing private sector cover for them, and others who are not lucky enough to have an employer who can afford to provide such cover can be brought forward on the waiting list, all other things remaining equal. Under the Labour Government, no doubt the waiting lists will get worse, but all other things being equal, if the amendment is accepted, the position will be alleviated not just for the beneficiaries of private sector insurance, but for those who do not enjoy such private sector cover. Another aspect may not have occurred to the Minister of State. More resources coming into the health service means that more people are employed, and that those who work in the private sector and the NHS are provided with a higher total income than they would otherwise receive. It is well known that many consultants practise in the health service under NHS contracts for four days a week, and are at liberty on the fifth and sixth day—they often work on Saturdays—to provide care for their private patients. Those private patients do not therefore have to wait in line, and the consultants, junior doctors and nurses get more income than they would get if we did not have that system. If doctors and nurses were deprived of that income, the gap between medical earnings in this country and those in other EU countries or in the rest of the civilised world would increase even further. People would be dissatisfied with that, and fewer people would take up a medical career. Many people who practise medicine—especially the best people—would go abroad. They would obviously be allowed to work in EU countries, but they could also work in much of the world, even in countries where work permits are required. It is easy for a qualified doctor or nurse to acquire a work permit. There would be a real loss. It would be a double whammy attack on the provision of health care if the Government were allowed to proceed in that direction. These two amendments are an attempt to save the country from a further manifestation—one more instalment—of the Government's two agendas: stealth taxes and the desire to penalise and ultimately to undermine private sector health provision. Those are two important issues. They are no less important because the Government continually try to bamboozle the British public so that people do not realise what agenda they are pursuing. On those two bases, we should support the amendments tabled by my right hon. and hon. Friends.

Edward Leigh (Conservative, Gainsborough)

This has the makings of an interesting debate, and we can be justified in looking forward to the Minister's reply. It will enable the Government to clarify their attitude to the way in which employers should provide for their employees. What sort of tax and national insurance system do we want to create? To be fair to the Government, some argue that the tax system should provide no allowances. They argue that it should be entirely neutral, and that the Government should have no role in trying to persuade people to adopt particular modes of behaviour. That, they say, is why the married persons allowance and the mortgage allowance should be swept away. That is a point of view, although it is not one with which I agree, and it is relevant to our debate about national insurance contributions. The Government could say, "We are not interested in what provision employers make for their employees. It is not our business whether the provision involved relates to small matters such as Christmas parties or big matters such as health care or pensions." An employer may wish to provide not just a perk—something enabling him to avoid paying tax—but something that he considers to be essential to himself and his employee. The Government could say, "Whatever extra provision the employer makes for his employee, we are justified in taxing it." Again, that is not a point of view with which I agree, but the issue is now so confused that the Government should explain their position. Doing the right thing for society means saving for the future, for pensions, for health care that the NHS may not be able to deliver and for many other purposes. We can persuade people to do that only if we envisage a partnership between employee and employer. We are talking about good employers, not about fly-by-nights who try to do everything through sub-contractors, and do not care about their employees. When employers make provision for employees, we should welcome that, rather than saying, "This is another opportunity for us to raise £220 million in tax. The public will not notice, because it is buried deep in the Red Book. No employees will be affected. It will be a tax on employers, and they will not complain too much." I understand where the Government are coming from, in terms of trying to raise money. What I cannot understand is the mixed message that they are sending to employers and employees about how good employment practices can be created. My hon. Friends are making the powerful point that we cannot possibly catch up with countries such as Germany and France in terms of health care provision for all employees—all people—simply by raising more taxes to pay for the national health service. If we are to improve health care for everyone, we must encourage private sector involvement. At present, people—many on marginal incomes—are given no encouragement to provide for their own private health care: indeed, they are given positive disincentives. What harm can it do to tell good employers that it is a good idea for them to help their employees with private health insurance, if they have reason for doing so?

John Bercow (Conservative, Buckingham)

Although many large companies already provide such assistance in the form of corporate medical insurance schemes, should we not do more to encourage small businesses to provide the same level of support, given that they constitute 99.6 per cent. of firms in Britain? They employ about 50 per cent. of the private sector work force, and generate two fifths of our national output. Should not Ministers be far more sensitive to their needs?

Edward Leigh (Conservative, Gainsborough)

Of course Ministers should be sensitive to the needs of small employers. At present, arrangements involving private health insurance are very much the prerogative of larger, wealthier companies. As my hon. Friend said, if we are to make any progress on the matter, we must try to find ways of encouraging smaller employers to make such provision. There is, of course, nothing wrong with employers providing child care. However, I cannot understand why the Government are putting all their efforts and resources into child care. For Ministers, child care is a totem of their political correctness. Child care is the one thing that they are going to achieve—and I have no argument with that. If a good employer wants to help his employees with child care, I would welcome it. However, I cannot understand why the Government are promoting that type of social insurance—which in itself is an excellent thing to do—while ignoring all other concepts of social insurance. Child care is important, but making provision for one's old age, health and even travel are equally important. I therefore hope that Ministers will not simply dismiss this group of amendments, but deal with the arguments. Surely the House is entitled at the very least to a clear manifestation of the philosophy behind the Government's objectives. Are they simply trying to raise money, or are they trying to send clear moral messages to employees and employers about how they should try to create a better society? We look forward to hearing the Minister's speech.

Howard Flight (Conservative, Arundel and South Downs)

All that I wish to add to the points that have already been made in the debate is that Governments of any party never consider the knock-on effects of this type of action. The old sectors of our economy are hard pressed—they are suffering from major competition and examining ways of saving money. What will be the consequence of the Government's proposed new stealth tax? The consequence of the Government's proposal to subject provision of child care, health care and other services to national insurance is that the old companies will cease to provide those benefits to their staff. I say to the people of Britain, "Just remember: when you lose your health care, you have this Government to thank for it." What about the new economy? Cisco says, "You just try assessing national insurance contributions on our share schemes. If you do, we'll move our research and development business overseas." The new economy is much rougher and tougher, and it probably will not even begin providing health care or other benefits. Nevertheless, the new economy will not simply lie down and accept this type of stealth tax. Therefore—both on the specific issues of health care and child care, and on the wider issue of this wretched, bamboozling national insurance stealth tax—the Government are failing to take account of the impact of their actions on ordinary British citizens and on the quality of the total package that they receive from their employers.

Jeff Rooker (Labour, Birmingham, Perry Barr)

I shall do my best to respond as briefly as possible to this group of amendments. I should like, first, to deal with the stealth tax bit of Opposition Members' speeches. Those hon. Members are simply playing around—and destroying the English language on an unparalleled scale—with such nonsense. I am holding the regulatory impact assessment of the Child Support, Pensions and Social Security Bill, which was published last year, when the Bill was published, and is available free of charge. It contains 10 pages explaining the regulatory impact of the Bill on national insurance contributions. Some stealth tax! I also have the Inland Revenue's document on "Class IA National Insurance Contributions on Benefits in Kind", which, in draft, was sent to more than 1 million companies and employers. Some stealth tax! It is absolute nonsense to say that we are making proposals that people do not know about.

Quentin Davies (Conservative, Grantham and Stamford)

Will the Minister give way?

Jeff Rooker (Labour, Birmingham, Perry Barr)

I will not give way now. Conservative Members should be ashamed of themselves for some of their comments—such as saying that we are taxing Christmas parties. Conservative Members have just ambled into the debate from their City jobs. We should let those who are viewing the debate know that—this is the reality—employers do not pay tax on a Christmas party that they provide for employees unless they provide at least £75 a head worth of benefit. That is not the type of Christmas party that any of my constituents would recognise. I wanted to get those points out of the way and on the record before we dealt with the main issues. 5 pm We ask the House to disagree with both amendments. The national insurance provisions in the Bill are a step towards the alignment of tax and national insurance benefits. They are part of a package for implementing the recommendations in Martin Taylor's report "The Modernisation of Britain's Tax and Benefit System". The extension of class 1A was announced by my right hon. Friend the Chancellor in his 1999 Budget. From April 2000, it will cover benefits in kind such as private health insurance, beneficial loans or the use of the company yacht. I am grateful to hon. Members for pointing out that employers will pay national insurance only on benefits in kind that are already subject to income tax. The employer will pay the same amount into the national insurance fund, however they reward their employees. It seems to have escaped the attention of those on the Conservative Front Bench that national insurance has not been the bailiwick of the Department of Social Security since the Contributions Agency went to the Inland Revenue. It is not possible to deal with national insurance in a Finance Bill. Those who have served on Finance Bill Committees understand that. That is why we have included these clauses. The only reason why we do not have a Treasury Minister present is that it is only a couple of weeks since the Budget and it is an incredibly busy time for Treasury Ministers, with the Finance Bill about to be published. I am speaking on behalf of the Government, but in particular on behalf of the Treasury. We are putting a Treasury area of responsibility in our Bill.

Edward Leigh (Conservative, Gainsborough)

On a point of order, Mr. Deputy Speaker. I wonder whether we are elevating a new principle for our proceedings. We have just heard from the Minister that the issue that we are discussing is a matter for the Treasury, because that is the only Department that can make decisions on it, but Treasury Ministers cannot be bothered to come to the House because they have other things to do. Is not the House more important—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. That is not a point of order for the Chair. It is for the Government to choose who represents them on their policy.

Jeff Rooker (Labour, Birmingham, Perry Barr)

And it is not what I said, either. There is another aspect of the Bill that is essentially a matter for another Department, but it is wholly in order and 1 shall answer on that later in the debate, just as I did when we debated the Welfare Reform and Pensions Bill last year.

Eric Pickles (Conservative, Brentwood and Ongar)

What about child care?

Jeff Rooker (Labour, Birmingham, Perry Barr)

The decision on child care will be made by my right hon. Friend the Chancellor of the Exchequer, who made the original decisions—and announced them in his 1999 Budget—on the extension of national insurance to benefits in kind. Since then, he has decided to introduce a child care exemption. I do not know the exact figure, because we do not have the necessary wording in the regulations, but it is about £1 million. The changes that we are considering will raise £225 million, so the child care element is peripheral. We can deal with amendment No. 62 very quickly. It is unnecessary, because of my right hon. Friend the Chancellor's Budget announcement. The Bill provides powers for the issue to be dealt with by regulation in due course. We shall carry that through for issues that are exempted. Section 10(9), to be inserted in the Social Security Contributions and Benefits Act 1992 by clause 69, provides for class 1A contributions not to be payable or to be reduced in prescribed circumstances. The issue is fully covered and will be dealt with in regulations in due course. There is no secrecy. Provision will be made, but not in the Bill. I also cannot support amendment No. 63. Excluding private health care provision from class IA contributions would undermine the main purpose of the measure, which is to align the tax and national insurance treatment of benefits in kind and to make the national insurance system fairer by bringing closer together the treatment of cash and non-cash earnings. The extension of class lA will reduce the distortion in the national insurance system, which provides the incentive for employers to remunerate their employees with benefits rather than cash. Bearing in mind what hon. Members have said about the national health service, of the £225 million that will be raised—roughly half of which will involve health care—£17 million will go to the NHS.

Eric Pickles (Conservative, Brentwood and Ongar)

Extra?

Jeff Rooker (Labour, Birmingham, Perry Barr)

Of course it is extra. It is £17 million new income. The measure's prime purpose is to make the scheme fairer and to reflect modern pay practices. Rather than subsidising large firms, which can afford to offer their employees large packages of benefits in kind, at the expense of small firms and their employees, we prefer to level the playing field—and put more money into the national health service. The amendments would deprive the NHS of £17 million.

David Willetts (Conservative, Havant)

We have had a useful short debate. I congratulate my hon. Friends the Members for Tewkesbury (Mr. Robertson), for New Forest, West (Mr. Swayne), for Grantham and Stamford (Mr. Davies) and for Gainsborough (Mr. Leigh) on making some telling points, but I am afraid that the Minister's contribution was extremely depressing. It leaves us with no option other than to press the amendment to a vote, for two reasons: because we believe in encouraging child care and responsible employers rather than in imposing an extra 12 per cent. employers' contribution, which is a tax on child care; and because it will make the Government look absolutely ridiculous. We are trying to implement a Budget measure, and the Minister will have to explain why he has decided to put his troops through the Lobby to vote against something that was in the Budget. We know that the Budget has had a rocky couple of weeks, but it seems a bit much when, the first time that a Budget measure is presented to the House, the Government Whips decide to vote against it. That is getting rather carried away. The Minister's ultimate defence was, "Don't worry. We don't want to vote with you on the amendment tonight, but we will introduce a regulation that will have exactly the same effect." Why will he not simply vote with us to make the amendment? I look forward to seeing his correspondence with the Chancellor, explaining why he was not able to support an amendment that simply implements what was in the Budget.

PRESERVATION OF RIGHTS IN RESPECT OF ADDITIONAL PENSIONS

Jeff Rooker (Labour, Birmingham, Perry Barr)

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

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss new clause 7—Widows'/widowers' SERPS entitlements— 'In section 52 of the Welfare Reform and Pensions Act, subsections (1) and (2) shall be left out, and there shall be inserted— (1) The Secretary of State may by regulations make such provision as is authorised by subsection (2) and one or more of subsections (3) to (4), (2) The regulations may provide for any prescribed provision of Part II of the Contributions and Benefits Act (contributory benefits) which relates to additional pension for widows or widowers to have effect, in relation to persons of any prescribed description (which shall include at least all those who had reached pensionable age on or before 5th April 2000), with such modifications as may be prescribed for securing— (a) that any such additional pension, or (b) in the case of any provision of Schedule 5 to that Act (increase of pension where entitlement is deferred), that any constituent element of an increase provided for by that Schedule, is increased by such percentage as may be prescribed (which may be 100 per cent, and which shall be 100 per cent for any person who had reached pensionable age on or before 5th April 2000).".'.

Jeff Rooker (Labour, Birmingham, Perry Barr)

During the final stages of the Welfare Reform and Pensions Bill last autumn, we introduced legislative cover that would allow us to address, through regulations, the inherited state earnings-related pension scheme problem. At that time, we had not reached a final decision on what to do. On 15 March this year, my right hon. Friend the Secretary of State announced to the House that we had decided to postpone the change that would halve the amount of SERPS that a widow or widower could inherit until 6 October 2002—a 30-month delay—and to set up the inherited SERPS scheme to provide redress for those who had been misinformed. We are particularly keen to ensure that all who were misinformed and who might have acted differently had they had the correct information need not lose out. During further consideration of our more detailed proposals and, indeed, with the benefit of the reports of the ombudsman and the National Audit Office, it now seems to us that the powers in the Welfare Reform and Pensions Act 1999 need amending slightly. This Bill, which is already in the parliamentary system, is the ideal place to do it. New clause 38, therefore, provides for the 50 per cent. reduction in inherited SERPS to come into effect in respect of deaths occurring on or after 6 October 2002. We also want to clarify the eligibility criteria for the inherited SERPS scheme. Currently, section 52 of the 1999 Act provides that the scheme may deal with claims made by people who, having received incorrect or incomplete information about the SERPS reduction, either failed to take any steps they would have taken or took any steps they would not have taken had they received correct information. Yet the ombudsman has pointed out that, 15 years down the road, it will be difficult for many people to demonstrate that they would have taken a particular course of action, or not, had they been correctly advised. The new clause will ensure that the scheme can provide redress for people who, because they relied on the wrong information, were denied the opportunity of considering taking relevant steps to protect their spouse's pension. I will roughly translate what I have just said as, by and large, replacing "would have" with "might have". In other words, we are loosening up the criteria—we are saying that people might have taken action, rather than that they would have taken action, which is what the Act provides for. Another point that the ombudsman made was that people should not be unfairly excluded from the scheme because, after so long, they were unable to provide documentary evidence. We want to address that concern, and the new clause allows for the regulations to make further specific provision relating to the manner in which decisions under the scheme may be taken. New clause 7, in the name of Liberal Democrat Members, would effectively put off the policy change indefinitely for all who are pensioners at 6 April 2000. It is not clear what is intended for people who are still contributors and who might in the future be bereaved. That is not a criticism, but I must put it on the record. If the intention is to provide a lesser amount for them, there will be some contributors, perhaps nearing pension age, and on a low income, who have been misled and would therefore benefit from the scheme proposed. Yet the cost of the proposal, although less than the cost of overturning the policy completely, would still be enormous—probably more than £10 billion over the next 50 years. So under that proposal, we would spend considerably more money without helping some of the people who should be helped.

Steve Webb (Liberal Democrat, Northavon)

I refer the Minister to his written answer to me of 21 March. Asked the cost of our proposal in lieu of what he has proposed, he replied: The estimated cost is £7,100 million.—[Official Report, 21 March 2000; Vol. 346, c. 479W.]

Jeff Rooker (Labour, Birmingham, Perry Barr)

I am sure that both figures are correct, but probably do not relate to exactly the same point. In pension discussions—this point arose in Committee—it must be remembered that a change to the national insurance system must be translated over people's working lives. I shall have the figures checked and shall write to the hon. Gentleman if there has been an error. However, I am sure that both figures are correct and deal with slightly different aspects. Our first principle must be that if the Government gives people the wrong information, they must provide redress. That is what we are doing. All who have been misled are being provided with an opportunity to have their rights restored. The alternative—deferral of the change for 10 or 14 years to reflect the gap between the 1986 legislation and our proposed changes—would merely postpone the problem. The widow of a man who died after that time would still lose out. Unlike new clause 7, our proposals on the future of inherited SERPS provide the fairest balance between the interests of pensioners and contributors. Full details—I said this at Question Time, but it is important to put it on the record again—of the inherited SERPS scheme will be put before the House. There will be a proper debate, and the details will not be slipped out in the way we have sometimes been accused of. The National Audit Office and the ombudsman will be fully involved in developing the information that we shall ask for and the procedures that will be followed in decision making. We must be certain that we have the powers necessary to cover those points in regulations, and that is why we propose the new clause.

David Willetts (Conservative, Havant)

I want to say how grateful we are to the Minister for making it clear that there will be a proper debate. The Chairman of the Public Accounts Committee asked for that after the original statement, and it is right that something of this magnitude should be properly debated in the House.

Jeff Rooker (Labour, Birmingham, Perry Barr)

I am grateful for those remarks. We have gone beyond blame and must think about the future. Obviously, we inherited the current position, but I shall not labour the point. We need consensus across the House on the way forward on an issue that will affect constituents of all Members over a long period. We want the widest possible support, and that is why we shall ask the NAO and the Parliamentary Commissioner for Administration—the ombudsman—to comment on our proposals and the way in which we intend to operate the scheme. I hope that the House will reject new clause 7, but approve new clause 38.

Steve Webb (Liberal Democrat, Northavon)

New clause 7 was tabled by the Liberal Democrats, and we see it as consistent with Government new clause 38, but as a measure that goes further. We welcome and support new clause 38, but believe that our additional new clause deserves further consideration. We welcome the broadening of scope proposed by new clause 38, and the change of phraseology from "could" have to "might" have. However, I find new clause 38 rather bewildering. Can the Minister explain proposed new section 4A of the 1999 Act? It refers to a person who…did not give any consideration to… (b) refraining from taking a step which is a step he did take but might have refrained from taking had he considered the matter on that basis to be treated as a case in which his failure to take the step, or his taking of the step he did take, was in reliance on the incorrect or incomplete information. And so it goes on, completely impenetrably. It is hard to see how the Government will convert those words into language that people will understand. There is evidence that the scheme brought forward so far by the Government is already defective. For example, after the Secretary of State's announcement on the matter, newspaper advertisements in the national press said that people would be entitled to claim compensation on inherited SERPS if they "can" show that they were misled. We have heard a lot of promises from the Secretary of State that it will all be different and better this time, but the first thing he did—almost on the day of his announcement—was to send out 3,000 letters including the wrong telephone number, which did not fill us with confidence. Then he placed newspaper advertisements about the compensation scheme in new clause 38, which said that it would be available for those who can show that they were misled. I think that the Minister will agree that that is not an accurate description of the way the scheme will work. There is no need to be able to show that one was misled; it is necessary only to be able to claim that one was misled in a manner that the Government cannot disprove. The two are very different. 5.30 pm My hon. Friends tell me that their constituents have telephoned them and said, "It looks as though I won't be covered by the scheme." The people whom the scheme is aimed at have read the advertisements and been misled. They have been confused because the advertisement was wrongly worded. I wonder whether the Minister, when he responds to the debate, will comment on its wording. I do not know whether his officials have briefed him on that.

Jeff Rooker (Labour, Birmingham, Perry Barr)

No, I shall not comment on the advertisement. When the House has approved a scheme, having held debates on the regulations, there will be a full and fairly massive propaganda campaign, using television, a helpline and advertisements—written and otherwise—and we shall then reflect the scheme that the House has approved. The initial notification of such a scheme, in the recent advertisements, was made, following the statement to the House, because we thought it right and proper to give an initial view that there would be a scheme; I shall not be pedantic about the words. Once we have a scheme to market, it will be thoroughly and properly marketed.

Steve Webb (Liberal Democrat, Northavon)

The Minister cannot have it both ways. He is spending public money on placing advertisements that are designed to illuminate but which confuse. They were not accurate about the scheme as described by the Secretary of State a few days earlier. I find that very worrying, and I hope that the Minister will ask some questions in his Department about why that form of words was used and whether he should issue some clarification. We are dealing with people who have already been misled by the Department. Years have gone by, and they have now found out that they were misled. They have now read an advertisement that is also misleading, and they are starting to give up. That is not what we want. In new clause 7 we propose simply that those who have already reached state pension age by the time the original cut was due to come in should be protected from the cut, for two principal reasons. First, it is unreasonable to expect those who have only just found out about what happened, and who have already reached pension age, to save for their pension. It is too late for that. A charity dealing with older people says that every year new people come to it for help, having only just heard for the first time about the change as a result of the advertisements and the discussion of the subject in the press. Many people still do not even know about the change, although there has been a great deal of coverage, particularly in the specialist press. It is unreasonable to expect them to make alternative arrangements now. That is why we want to protect them. The second issue, which has not been addressed much in the debate, is the validity of the original policy. Was it right of the House, in 1986, to decide to halve widows' pension entitlements? New clause 7 gives us an opportunity to reverse that decision for those who have already reached state pension age for whom there is no other alternative. We know that widows make up one of the poorest groups of pensioners. Later we shall discuss the position of older pensioners, most of whom are women, many of whom are widows, who already have relatively dire pension positions. This afternoon at Social Security questions, the Government—I believe that it was the Minister—attacked what the Conservatives did to the state earnings-related pension scheme; one of their biggest cuts, if he does not accept new clause 7, he is about to implement. How can he have it both ways? He wants to attack the Conservatives for the cuts that they made in SERPS but to implement those cuts, and not reverse any of them, even when he has the chance to do so. The Minister raised the question of the cost of what we are proposing. The Government have introduced a bizarre new doctrine: they add up all the costs of the compensation over 50 years. They have got into enough trouble by adding up the figures for national health service spending and education spending over three years and double and triple counting, but trying to make out that the compensation package is generous by working out what it would cost over 50 years is incredible. If the Government make an increase in the winter fuel payment which is to be paid for each of the next 50 years, they do not claim 50 years' worth of expenditure. If they put 75p on the basic state pension, they do not multiply the figure by 50 to say how much it has cost. I asked for a breakdown of the extraordinarily large figures being claimed for the cost of the scheme. The cost of deferral—which relates to new clause 38—never rises above £270 million a year, yet it has been costed at £2.5 billion: nearly 10 times as much. The compensation scheme has been costed at £5.7 billion if there is a take-up of 30 per cent., yet its cost never rises above £600 million in any of the next 20 years. Although the Minister says that our scheme is extraordinarily expensive, it is only by adding together the figures for 50 years that he can come up with his figure. As I said in an intervention, our estimate of the cost of our scheme in lieu of the Government's scheme is £7.1 billion. The Government's central costing is £2.5 billion for deferral and just over £5 billion for people who claim compensation, so the total is about £8 billion. We are not inventing enormous items of Government spending. We have come up with a scheme which, on the Government's figures, does not cost as much as the one they have themselves proposed. The Minister said that there would probably need to be some form of tapered provision for those aged 63 or 64, so I suspect that our scheme would cost something similar to the Government's proposal. The big advantage of our proposal is that it is clear and simple. Under the Government's proposal, pensioners will try to claim that they were misled and the Government will have to investigate those claims and attempt to disprove them. We have no idea how they will disprove the claims because they have no records with which to do so. That scheme will, as ever, miss out the inarticulate and the ill-informed, but will reward the corrupt because, if anyone says that he was misled, that claim cannot be disproved. Their system is costly, bureaucratic and complex and it creates a further worry for all the people who have been affected by the reduction in SERPS. They will not know until next year whether they will be protected.

David Heath (Liberal Democrat, Somerton and Frome)

My hon. Friend will recall that I asked the Secretary of State about receiving information at second hand and not directly from the Department. However, I did not receive a satisfactory answer. New clause 38 refers to receiving incorrect or incomplete information, but does not qualify that statement by mentioning the source of the information. Does that not suggest to my hon. Friend that someone who was misled by a professional adviser or another person, but who acted under the belief that he was taking the right steps, would be covered?

Steve Webb (Liberal Democrat, Northavon)

My hon. Friend raises an important point, and I hope that the Minister will clarify the position. Clearly an adviser will act on the basis of the leaflets and the guidance given him by the Department. If that information is misleading and is passed on to a member of the public, that member of the public will have been misled in just the same way as if he had received the information at first hand. People misled in that way should be covered and that is how I read the new clause. I hope the Minister will confirm that my reading of it is correct. Our constituents have been asking us for months and years what will happen. They want to know so that they have can have peace of mind in their old age about the provisions for widows or widowers. We still do not know what will happen and the scheme is so vague that it will be another year before we find out. We want certainty; older people deserve that if nothing else. That is why exempting those who have already reached state pension age is a neat, clean way of approaching the issue. People who did not follow the small print of the Social Security Act 1986—can we blame them?—and who have reached pension age have probably found out only now about the cut in their entitlements. They deserve to be looked after with a clean and simple solution. We accept new clause 38, because deferral is welcome. However, additional measures, as reflected in new clause 7, would also be welcome. Given the opportunity, we shall seek to test the opinion of the House on the additional measures.

Jacqui Lait (Conservative, Beckenham)

I shall be brief, because most points have already been made. However, it is important to clarify even further the degree of evidence and proof that the Government will seek to build into the regulations and their compensation scheme. Although we have accepted responsibility for the part that we have played in the problem, we stick by the policy—as do the Government—of the reduction in the rebates. We shall not, therefore, support the new clause tabled by the Liberal Democrats. The key to the matter is what degree of evidence of whether people have been misled the Government can accept. For example, one could argue that people who have done nothing to find out about the cut have been misled. Will that be acceptable to the DSS, and will it be covered in regulations? Any sensible person planning for their retirement would, if they had known about the cut, have taken action, and the mere fact that they have not done so indicates that they have been misled. I welcome the change in the wording of new clause 38 from "would have" to "might have". However, even if the Government are prepared, in regulations, to alter the burden of proof, we need more clarification about what exactly they will do. It is clear that since the first announcements, the debate about recompense has moved on, and I suspect that that is why confusion is developing and the Government's statements are getting softer and softer and are increasingly trying to be helpful to people who feel that they are affected. The Minister indicated that there will be a proper debate on regulations, and my hon. Friend the Member for Havant (Mr. Willetts) picked him up on that point. This may be nit-picking, but I wonder whether the debate will be in the Chamber or upstairs in Committee. What defines proper debate? This subject is of great interest to everybody, and it might be sensible of the Government to have the debate on the Floor of the House. I was also slightly concerned to hear that the National Audit Office and Public Accounts Committee will consider the regulations. When does the Minister expect the regulations to be laid before the House? What delay will there be? Is this to be another example of the DSS's use of the word "shortly"? The right hon. Gentleman has castigated others for their use of grammar, but over the past few months "shortly" has stretched into infinity. It would be nice to have an indication of when the Department expects to introduce the regulations.

Jeff Rooker (Labour, Birmingham, Perry Barr)

I must make it absolutely clear that I cannot answer most of the questions that I have been asked. We do not have the scheme yet. It is in the first stages of being designed. We have only just chosen one of the options that we considered. It is not possible to answer the detailed questions that I have been asked. I shall certainly not use the term "shortly" about any regulations, because I can tell the House that they are not expected shortly. As I said at Question Time, I am not even certain whether they will be introduced before the summer recess or in the autumn—the time scale is as wide as that. They might not be the ideal legislation for the House to consider in, for example, the third week of July, so we might hold them over.

Jacqui Lait (Conservative, Beckenham)

Can I tempt the right hon. Gentleman to say that they will be introduced before October 2002?

Jeff Rooker (Labour, Birmingham, Perry Barr)

Yes, I can definitely say that. If the hon. Lady reads new clause 38 in great detail, she will see that every conceivable contingency—or at least every one that we can think of—has been built into that new clause. However, I cannot answer all the questions. The hon. Member for Northavon (Mr. Webb) asked me about the figure of £7 billion referred to at Question Time. That is the cost of paying the surviving spouses of all current pensioners 100 per cent. with no policy deferral. The new clause includes the scope to defer for those currently under pension age. All the figures that I am using are global—they have to be—and the only figures that I am prepared to rely on are those on page 39 of the National Audit Office report, because the NAO used our figures to make assumptions. I shall not go into detail about those assumptions now. The figure of about £10 billion that I quoted earlier assumes that the hon. Gentleman would intend to use those measures and reflects the cost of a 10-year policy deferral. Both figures are right, but the question differs depending on whether one takes account of the policy deferral that we have already announced. The cost of that policy deferral is £2.5 billion—that cost is there before we even start, and we have no idea what the take-up rate will be. 5.45 pm I have honestly admitted that I cannot answer the questions asked, for reasons that I have explained. None the less, I hope that the House will accept new clause 38.

CALCULATION OF CATEGORY B RETIREMENT PENSION

Angela Eagle (Labour, Wallasey)

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

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss Government amendments Nos. 34, 35, 28 to 32 and 85.

Angela Eagle (Labour, Wallasey)

The House will be aware that we tabled a number of amendments in Committee relating to the calculation of state second pension and to SERPS. We tabled those amendments in Committee to ensure that time was allowed for adequate scrutiny of the clauses, but the result was that, in some cases, the provisions were not quite right when they were introduced. I explained in Committee that it would be necessary to table some minor amendments to correct or clarify the provisions. The group of amendments makes the necessary changes. I assure the House that the amendments do not represent major changes to the policy and that they are all beneficial to future recipients. Amendments Nos. 28 and 29 are drafting amendments that clarify the legislation in relation to the calculation of national insurance rebates. They make it clear that the rebates must be calculated by reference to the state second pension given up, either wholly or in part. We come to the technical subject of earnings factors in SERPS and to amendments Nos. 30 to 32 to clause 36. In Committee, we pointed out that clause 36 was, in effect, a consequential amendment to the Pensions Act 1995, which had been missed at the time it was passed. Among other things, that Act changed the calculation of SERPS from 6 April 2000. However, the regulations that dealt with part years—that is, years in which people have a mix of both contracted-out and contracted-in earnings—were not changed to reflect the new Act. The amendment agreed in Committee allowed us to introduce new regulations to put the situation right. However, since the current Bill will not be in force by 6 April 2000, it is necessary to ensure that the new regulations can deal with pension calculations that fall to be made between 6 April 2000 and the coming into force of the new regulations. That is the purpose of the latest amendments. The intention, as we discussed in Committee, remains to bring the regulations up to date and to maintain the status quo with regard to SERPS calculations. Amendments Nos. 34 and 35 are technical; they correct the method of calculating the amount of state second pension that persons who, in the past, have received widowed parents allowance or bereavement allowance can inherit from their deceased spouse when they reach state pension age. Similarly, new clause 33 and amendment No. 85 correct existing legislation for the purposes of calculating the amount of SERPS that can be inherited in those circumstances. The new clause and the amendments would restore the policy intention that no one will receive less additional pension with their category B pension, which is based on their late spouse's contributions, than they would have done before the introduction of the new bereavement benefits. No one has been affected to date, because the new bereavement benefits are not due to come into effect until April 2001. With those assurances, I urge the House to accept the new clause and the amendments.

WIDOWS'/WIDOWERS' SERPS ENTITLEMENTS

AGE ADDITIONS

Paul Burstow (Liberal Democrat, Sutton and Cheam)

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

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss new clause 36—Annual increase in basic retirement pension— '.—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.'.

Paul Burstow (Liberal Democrat, Sutton and Cheam)

We believe that the quickest and most cost-effective way of getting help to many of our poorest pensioners is via the basic state pension. We hope, though, that the campaign that was finally launched by the Government last week, amid much publicity, to promote the take-up of the minimum income guarantee is a success. Who would not want to see between 530,000 and 870,000 of our fellow citizens who are entitled to the minimum income guarantee getting it? The sad fact is that those pensioners and many others are living below the poverty line. We must make sure that we get help to them in the most effective way. We know from the Government's research that the success of the campaign that they have just launched is finely balanced. It will be tough for the Government to deliver a substantial increase in the uptake. A report published by the Government last year, entitled "Helping Pensioners—A Contextual Survey of Income Support Pilots", found that four out of 10 pensioners said that they would definitely claim as a result of the campaign. That is great. We welcome the fact that four out of 10 pensioners would claim the minimum income guarantee. Another 18 per cent. said that they would probably claim. Most important and disturbing, however, was the fact that a further 36 per cent. said that they would not claim. They cited a number of reasons why they would not claim. The research reports a feeling of stigma, uncertainty and unwillingness to deal with benefits offices. The report details in considerable depth pensioners' concerns and the reasons why they were not keen on going down the means-testing route. We know from parliamentary questions and statements from Ministers that the Government accept that the largest group of pensioners missing out on the minimum income guarantee are older women. Given that the evidence about income distribution on the basis of age suggests that the oldest pensioners are our poorest pensioners, why do we not consider ways of ensuring that they do not have to fill in any forms to get additional income into their purses? We believe that a cost-effective and stigma-free way of doing that would be to lift the basic state pension through further age additions. A precedent already exists. There is an age addition to the basic state pension when the pensioner reaches the age of 80. It was set at 25p in 1971, and has been frozen at 25p ever since. Hon. Members in all parts of the House know from meetings with pensioner groups in their constituencies that that 25p is a source of anger and frustration. Why on earth has it not been increased in all this time? There is no good answer to that. It is simply wrong that there has been no increase. If the sum had been indexed to earnings, it would now stand at £3.70 per week. More should have been done to uprate that figure, year on year. In our view, the age addition at the age of 80 should be set at £5. We believe that a new age addition should be introduced into the basic state pension at the age of 75. That would mirror the Government's recognition of the need for age additions. The only problem is that the Government have decided to attach age additions to the minimum income guarantee. Attaching an age addition to the basic state pension would provide a cast-iron guarantee that the money would find its way into pensioners' pockets. That is why our new clause proposes age additions to the basic state pension.

John Bercow (Conservative, Buckingham)

I am grateful to the hon. Gentleman for giving way. Given his specific recommendations, why do he and his hon. Friends propose—rather feebly, if I may say so—in new clause 8 that in future the detail should be dealt with via regulation?

Paul Burstow (Liberal Democrat, Sutton and Cheam)

Unless the hon. Gentleman wants us to have to move amendments to primary legislation every year to uprate the figures, it would be nonsense for Parliament to deal with the matter in that way. Our proposal signals the need for a proper mechanism for annual upratings. Given the hon. Gentleman's interest, I am sure that he will support the new clause now that I have explained that important feature. New clause 36, tabled by other hon. Members, gives us an opportunity to debate the future of the basic state pension. Our view is that age additions which targeted guaranteed additional income on older pensioners would ensure that the basic state pension had a future purpose, which it otherwise will not have because successive Governments have allowed its value to be eroded against earnings. Whereas in 1980 the basic state pension was worth 22.6 per cent. of average earnings, by 2050 its value will be about 6 per cent. of average earnings. Age additions are undoubtedly the way forward, but we should take the opportunity of today's debate to signal the importance that the House attaches to the basic state pension. A rally was organised a few weeks ago in London by the Greater London Forum for the Elderly to express its concern. People carried coffins to symbolise the demise of the basic state pension. That is a measure of what pensioners feel has happened to the basic state pension. The earnings link was broken by the previous Government, and has not been restored by the present Government. Many, many pensioners think that the earnings link should have been re-established. We know that at the general election, the Government included in their manifesto a commitment to establish a different sort of link, based on growth in the economy. Since the general election, that has not happened. This year there was an indexation on the basis of prices, which has given pensioners only an additional 75p in their basic state pension in the coming year.

Chris Leslie (Labour, Shipley)

Did the Liberal Democrat manifesto commit the party to re-establishing the link with earnings?

Paul Burstow (Liberal Democrat, Sutton and Cheam)

The hon. Gentleman is not asking an awkward question; he is asking one that I am happy to answer. We did not commit ourselves to re-establishing the link. [Interruption.] If the hon. Gentleman will allow me to continue, I can explain that we continually review the matter, as do the Government. However, the Government have departed from their manifesto commitment and left our poorest pensioners with even less than they would receive if the Government had honoured the commitment to link the basic state pension to growth in the economy. No one can claim that 75p is a proper reflection of the growth in the economy.

David Winnick (Labour, Walsall North)

The hon. Gentleman is courteous in allowing hon. Members to intervene in his speech. He made it clear that the Labour manifesto stated that the state pension should be uprated only in relation to prices. Does he accept that our manifesto did not mention winter heating additions or free television licences, which we have provided? Some of us have campaigned for that for years. It is a tremendous benefit to pensioners. Does the hon. Gentleman accept that?

Paul Burstow (Liberal Democrat, Sutton and Cheam)

I congratulate the hon. Gentleman on his campaigning and on the success that he believes that he has secured. However, we believe that age additions constitute the most cost-effective way of helping our poorest pensioners. We have said that time and again, and our view was reflected in the amendment that I tabled initially. It is the most effective way of using the basic state pension. We have lately been worried about some of the comments that several Ministers have made from the Dispatch Box about channelling additional resources through the basic pension. They suggest that, because the benefit is taxable, it is somehow inappropriate to use it to target our poorest pensioners. Again, that is nonsense. Taxing the basic pension allows the richest of our pensioners, who are in the minority, to perceive that redistribution is taking place. What is wrong with that? Targeting money through the basic state pension is sensible. The incomes of the richest fifth of pensioners rose by £87 a week between 1979 and 1997, while those of our poorest pensioners increased by only £10 in the same period: 18 years of Conservative rule and only £10 in the pockets of the poorest pensioners to show for it. New clause 36 provides a useful opportunity to send a clear signal that the House believes that the basic state pension has a role as a key foundation stone of support for our poorest pensioners. That role should continue well into this century and beyond. The basic state pension should not leave pensioners in poverty, but should provide a reasonable standard of living.

Lynne Jones (Labour, Birmingham, Selly Oak)

I support new clause 8, which the hon. Member for Sutton and Cheam (Mr. Burstow) moved, and new clause 36, which would uprate the basic state pension. I am a little shocked to be called, because I anticipated that my hon. Friend the Member for Hayes and Harlington (Mr. McDonnell) would be called first, to speak to new clause 36. Our manifesto commitment gives the reason for the importance of uprating the basic state pension: the state retirement pension should remain the foundation of pensions provision. As I said at Question Time, in 1980 the basic state pension was approximately 23 per cent. of average earnings; the figure is now much lower. It is anticipated that by the time the Government's reforms are in place, the state pension will be worth about only 14 per cent. of average earnings. How can we have a foundation that is being washed away year after year? The Government's recent publication "The Changing Welfare State" provides a graph, which shows that in 2051 the basic state pension will be worth the equivalent of £25 a week at the rate of average earnings in 1999. How can the state pension thus be a foundation? 6.15 pm The Government propose to introduce a state second pension, which will supplement the basic state pension. It is being promoted as a replacement for the state earnings-related pension scheme which will redistribute money to those on lower earnings and is therefore more generous than SERPS. That is true, but the combination of the state second pension and the erosion of the basic state pension will result in the pension constituting approximately 21 per cent. of average earnings in 2051, compared with a bigger proportion—23 per cent.—in 1980. The state second pension is a substitute not for SERPS but for uprating the basic state pension properly. The Government are trying to tackle means-tested benefits; they are introducing the state second pension to try to ensure that people retire on incomes that are above means-tested benefits, but it will not work. The Government's figures in "Opportunity for All" show that after a lifetime of working, those who earn £300 a week will get only £16 a week more than they would receive if they relied on income support. A woman with caring responsibilities would receive £9 a week more than she would get if she relied on income support. We are creating disincentives to saving for retirement and taking out additional pensions. Parliamentary questions have shown that in 12 years and nine years respectively, the two individuals I cited would be back on means-tested benefit after a lifetime of work. We must tackle the nonsensical position whereby a means-tested benefit is far higher than the basic state pension. The proposal to uprate the retirement pension in line with earnings will ensure that the difference will not become even greater and that the disincentive will not increase. The Government say that additional increases to the minimum income guarantee target resources at the poorest. However, that is not the case. The poorest do not apply for the minimum income guarantee. I am pleased that the Government have a campaign to increase take-up, and I hope that it is successful. However, there is a marked reluctance among pensioners to apply for what they perceive to be a handout. People understand that they contribute to the basic state pension through a lifetime's work, or caring responsibilities such as bringing up children or looking after disabled people. They should be entitled to a reasonable state retirement pension at the end of that period. We should not forget that although the money will go to those who are better off, the pension also targets those who are only slightly above the level of income support. Those people feel most aggrieved that, after accumulating modest savings, and perhaps having an occupational or private pension, they are only a few pounds a week better off than they would be through relying on income support. They feel that they would have been better off spending the money when they were younger. The Government have made welcome moves to increase the savings that can be built up before benefit starts to be lost and I know that they are considering tax credits, but whatever they do there will still be a cut-off point at which people will feel that they might as well not have bothered to put money aside for their retirement. Having such a disincentive in the system affects people's behaviour, and many of those on modest incomes would be better advised not to save for their retirement and not to build up pensions, but to make sure that they spend their money on a well-built, well-insulated home and other possessions that they will not have to buy in their retirement. If people's behaviour is affected in that way, more will rely on means-tested benefits. Although the Government say that they want to reduce such reliance, they already predict that the number of people on them will increase. That was the conclusion of the pension provision group—an independent body set up by them to advise on their pensions policy—and its submission to the Green Paper predicted that although the reforms would reduce the number on means-tested benefit to a lower level than if there were no change, more pensioners would need means-tested benefit than at present. It is predicted that one in four will rely on income support, as compared with one in five today, and that number could increase if there is a further disincentive to save and to opt for additional pension provision. During their years in government, the Tories learned that the more they tried to target benefit on the poorest, the more the social security budget grew. Our new clause aims to restore the incentive to top up the basic state provision with private provision and, in the long run, that will be the most effective and efficient way to spend public money. I beg to move new clause 36.

John McDonnell (Labour, Hayes and Harlington)

With some surprise, I, too, beg to move new clause 36, which stands in my name and in the names of many others, some of whom are on Council of Europe duty and send their apologies.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. To assist the hon. Gentleman and the hon. Member for Birmingham, Selly Oak (Dr. Jones), the lead new clause has been moved and he will be able to move his new clause formally when we reach the appropriate stage.

John McDonnell (Labour, Hayes and Harlington)

I am grateful for your advice, Mr. Deputy Speaker. I ask for a separate vote on our new clause, with your permission, because this is a matter of considerable concern in the House and in our communities. My hon. Friend the Member for Islington, North (Mr. Corbyn) has sought to legislate on it on 12 occasions and, more recently, my hon. Friend the Member for Blaenau Gwent (Mr. Smith) initiated an Adjournment debate on it. Our new clause is simple and straightforward: it would restore the link between increases in pensions and increases in earnings that was established by a Labour Government in 1975. There had been years in which there was no increase in pensions at all, but we secured not only increases that protected pensioners against the erosion of their pension by inflation, but the earnings link. We wanted to ensure that pensioners shared in the wealth of our community as it developed and thought that the best indicator was average earnings. We decided that, if everyone's income increased, so should that of pensioners. I would rather establish a link between pensions and the biggest bonus in the City, but that is too moderate. The link was broken in 1980 by the then Prime Minister, Mrs. Thatcher, and there was an angry response from the community and especially from Labour Members of Parliament. We gave a commitment to address the issue. As a result of the link being broken so many years ago, Age Concern and others calculate that pensioners have lost £30 a week and, as my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) said, the pension represents only between about 21 and 25 per cent. of average earnings, which is significantly less than the pensions paid by many of our European partners. Pensioners feel that they were robbed by the break of the link because for nearly 20 years Labour Members told them that they had been robbed. There was a £2 increase in pensions before the 1992 general election and a Labour spokesperson stood up in the House to call it miserly… not even enough for a pound of sausages and a couple of loaves, while workers on average pay are receiving increases of more than £20 a week and some executives increases of more than £2,000 a week. I do not want to embarrass hon. Members—that is not my purpose—but another hon. Member said that we cannot get a decent link for pensioners …—[Official Report, 21 October 1991; Vol. 196, c. 645–651.] He wanted it to be restored and to be based on the pay of Members of Parliament. I do not want to embarrass the Minister of State, Department of Social Security, my right hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker).

Llew Smith (Labour, Blaenau Gwent)

Some days back, Lord Falconer said that he could live on current pension levels. I have to admit that I could not. Could my hon. Friend?

John McDonnell (Labour, Hayes and Harlington)

Not only could I not live on the current pension, but I find it difficult to understand how many of my constituents do so and stave off poverty. I see that week by week in my constituency. The poorest groups in our society are those with young children and people with disabilities. We are trying to tackle the problems; this is a life-and-limb issue not only for the poor, but for the elderly. How many pensioners will die of hypothermia this year because they cannot afford decent heating for their homes?

Diane Abbott (Labour, Hackney North and Stoke Newington)

Is the right hon. Member for Birmingham, Perry Barr, to whom my hon. Friend referred, the same Member who sits on the Front Bench and speaks for the Government on pensions policy?

John McDonnell (Labour, Hayes and Harlington)

As I said, it is not my duty to embarrass Members. The inflation link this year will produce a 75p a week increase, but for most of my constituents that will be wiped out by council tax increases of 7 per cent. and above. As a result, they will be steeped in poverty and will sink further into it. The Government's record on pensions in all other respects is superb and I pay tribute to Ministers for what they have done. The fuel allowance has been increased from £100 to £150, which is excellent. We promised to reduce value added tax on fuel and we have completed that. We have restored eye tests, given free television licences to over-75s and increased capital sums for those who have saved. We are introducing concessionary fare schemes across the country and have offered free entry to museums and other facilities. That represents a superb record and I cannot understand why the Government are so resolute in refusing to budge on the basic pension demand. There is anger among pensioners at the 75p increase and, unfortunately, it is not assuaged by those other benefits.

Paul Tyler (Liberal Democrat, North Cornwall)

Does the hon. Gentleman accept that the poorest pensioners are particularly angry because income tax cuts are helping the better off, most of whom pay no income tax at all? Combined with council tax increases and a small increase in the basic pension, that is particularly frustrating.

John McDonnell (Labour, Hayes and Harlington)

A number of factors increase anger among pensioners, particularly poor pensioners. They feel that there is unfairness in society that goes against all that we stand for in the House and in the country. I draw on the Prime Minister's speech about British values of fairness and tackling hardship together. The Government's stance runs against all that we are saying about those values. We have had this debate time and again, and Ministers have reiterated their argument that the Government is targeting resources to help the poorest pensioners through the minimum pensions guarantee. The Government are trying to direct resources at the poorest pensioners, but as my hon. Friend the Member for Selly Oak said, many pensioners continue to face the prospect of having to rely on a means test to gain access to the basic minimal level of financial support. 6.30 pm Forty per cent. of pensioners rely on means-tested benefits. As my hon. Friend the Member for Blaenau Gwent (Mr. Smith) said in an earlier debate, it is estimated that more than 750,000 people do not claim those benefits. Why? Because it is difficult to claim, although I welcome and support the Government's initiative on take-up. Such campaigns will be run in my constituency and elsewhere to ensure that people get what they need. People do not claim their entitlement partly because of the stigma attached to means-tested benefits. Anyone who has experienced a means test, or has a family folk memory of the means test from days gone by, realises the implications. People suffer a loss of dignity—the indignity of having to go through a means test. We should recognise the distinction between pension and benefit. A pension is paid in return for either a financial contribution or a service contribution, as with a war pension. A benefit retains the link with beneficence and paternalistic donations. People do not receive it as of right, but are subject to a test. I thought that my party stood for universal benefits as a right. We should consider an across-the-board increase in benefits. It is argued that they would also go to the richest pensioners, but there is a simple solution to that—tax them. The question is simple: do we target or do we tax? I believe that universal benefits are more efficient for the reasons that have been identified.

Alan Simpson (Labour, Nottingham South)

It is not just a choice between tax or benefits. It would be perfectly compatible with Labour manifesto commitments to alter the thresholds so that the better-off would not be the beneficiaries, but the poorest off would not lose out. That is what many members of the Labour party and the general public believed we were saying in our pledges that referred to increasing pensioners' share of the nation's wealth.

John McDonnell (Labour, Hayes and Harlington)

Exactly. The mechanism that we have identified is relatively simple. If we distribute the benefit, we maximise take-up. If we feel that that is expensive, we take it back through redistribution. Targeting puts the poorest pensioners at risk, because they may not receive the benefit that they desperately need. Taxation makes certain that resources reach those who need it, and those who can pay back do so. It is curious that the Government have accepted universality on the fuel allowance and free television licences, and they have even linked the minimum income guarantee to increases in earnings.

Llew Smith (Labour, Blaenau Gwent)

And the NHS.

John McDonnell (Labour, Hayes and Harlington)

As my hon. Friend says, the NHS is a universal benefit for us all. As we have identified in previous debates, the cost of administering a universal benefit is much cheaper than the heavy burden of means-tested benefits.

Jeremy Corbyn (Labour, Islington North)

Is my hon. Friend aware that the cost of administering the state pension is about 1.5 per cent. of its value, whereas the cost of administrating most means-tested benefits is between 20 and 25 per cent. of their value? Can it not be argued that universal benefits save a great deal of money?

John McDonnell (Labour, Hayes and Harlington)

I think that the expression is QED. There has been a debate in the House about the political implications of the Government's actions for voters who put us in power with such a large majority. In an earlier debate, some people said that pensioners could not vote for anyone else. No, they cannot. They would not vote for the Tories, and I am not sure who else they could vote for, but they could stay at home. They may not deliver our leaflets for us, and they may not vote. They feel a sense of betrayal—I do not like using that phrase, but it has been used enough times in the debates that we have had with pensioners groups in our community. Pensioners always looked to the Labour party as the champion of their cause. There are 11 million pensioners in this country. They consider that they created the welfare state from which my generation benefited, and which gave us life chances that we have used to provide for our families and to give them a good quality of life. We are now denying many of those pensioners that quality of life in their retirement. We should refer to the Prime Minister's sense of fairness. He talked about fairness in tackling poverty and reward for hard work. We should honour the undertakings that we gave to successive generations of people who voted Labour because they thought that we were their champions. I gave an undertaking to the pensioners in my community that I would do all I could to lift the basic pension at every opportunity. I want to fulfil that commitment today, so I shall press new clause 36 to a Division, and I shall vote for it.

Paul Burstow (Liberal Democrat, Sutton and Cheam)

The hon. Gentleman has told the House that he will abstain on both new clauses because they have open-ended commitments. However, his hon. Friend the Member for Buckingham (Mr. Bercow) pointed out that no specific figures are given. I answered him by making the simple point that that will be dealt with through regulation, so the House will be able to decide on the levels year on year. Surely the hon. Member for Tewkesbury (Mr. Robertson) could support such a motion to put down a marker.

Tony Benn (Labour, Chesterfield)

I rise to support my hon. Friend the Member for Hayes and Harlington (Mr. McDonnell), and to look back a bit at the history of the issue. This is the centenary of the foundation of the Labour party. When Keir Hardie arrived, he demanded unemployment pay, and they laughed at him. "Work or maintenance," he said. "Wholly unrealistic: open-ended commitment," he might have heard in response. I campaigned in 1945, when Labour won the election. The first thing that the Government did was raise the widow's pension from 10 shillings to 26 shillings a week, when we were absolutely bankrupt. They did not have the money, but they had the will. What is lacking now is not the money, but the will. Later, the Cabinet—I am proud to have been a member of that Cabinet, in the days of what is now dismissed and rubbished as old Labour—linked pensions with earnings. That constituted a recognition of the point made by my hon. Friend the Member for Hayes and Harlington that those who contribute to the increased wealth that we now enjoy are entitled to some part of that wealth. After all, pensioners looked after their children when they were young; it is not abnormal to expect the new generation to help the old. People forget that we are talking about a national insurance scheme. Let us take an example: there must be such cases. A man starts work at the age of 16, works for 50 years, never marries, is never unemployed, is never ill, and dies the day after his 65th birthday. He has poured money into the national insurance scheme, and has received nothing from it. What frightens me about the Government's argument is the use of the word "target". It is an aggressive word, which is normally used in wartime: people say that they will target this and target that. Moreover, once people introduce the idea of targeting, they are really saying that the whole principle of the welfare state must be rewritten. Why should the wealthy be able to call on the police when they can afford to pay for their own policing? Why should the wealthy be allowed to use the national health service, when they can afford to pay for their own health care? Why should the wealthy be allowed to call in the fire brigade, rather than returning to the old system of insurance? Under that system, those who were insured had a plate put on their houses and, if a house was on fire, the insurance company would put the fire out. It is the principles underlying the Government's argument that I find difficult. It would not take long for the Government to say that they were targeting the poorest patients. That would mean saying, "If you need health care, we will help you, but you will be means-tested before you are given your operation." People would be means-tested before they went to school. They are already means-tested before they go to college. It is a question of will and philosophy. We are told every day that the Government's values are the same as the historic Labour values, but I am afraid that they are not. I have been a pensioner for 10 years today. The pensioners who come to my surgery are really angry. Let us make no mistake about this: people who have voted Labour all their lives say, "No one takes any notice of us. We cannot withdraw our labour, because we have already retired." They welcome the free television licences, the extra heating allowances and all the other little things, but some older pensioners remember the means test in the 1930s, when a man would be given some money only if he sold the piano. Not many people will remember that, but we hear stories about it. 6.45 pm The whole idea of targeting is wrong. The pension is a benefit as of right: people pay for it while they are working. Moreover, as my hon. Friend the Member for Islington, North (Mr. Corbyn) said, the administrative costs are almost nothing, because everyone receives the pension—which also means that people do not experience the humiliation of having to expose their finances to some probing officer. Income support, or what used to be called national assistance, is a safety net, which is entirely different from a benefit as of right. We do not want old people to feel that they are on probation. Pensioners have said to me, "I feel as if I have committed an offence. I must open my books before I can have enough to live on." I urge the Government to think again. I know that there is a shortage of money, but I think that a shortage of will is the real problem. The health service was set up when we were bankrupt, and there were no charges for that. I am the last Member who sat in this place when Aneurin Bevan was Minister for Health and I heard his resignation speech when prescription charges were introduced. If we are not careful, in the name of modernisation, we shall erode what we are all about—the idea of a national insurance scheme with universal benefits. A progressive income tax is about asking richer people to pay more to keep that scheme going. I am in favour of asking such people to pay more. I do not see why we should ring-fence the rich, and say that, whatever the Labour Government do, they will never ask the rich to pay more, because they will not increase income tax—but, of course, poorer people will be targeted and supervised and watched. I merely want to convey some of the disappointment, disillusionment, anger and frustration that is felt about the way in which this has been handled. The Government would be ill-advised to disregard my argument, because it is one that will also have to be tackled on polling day.

Frank Field (Labour, Birkenhead)

I want to echo what hon. Members on both sides of the House have said about the view of many pensioners on our record so far. Labour Members have rightly congratulated the Government on much of what they have done, which has significantly increased the income of some pensioners. The winter fuel allowance has been increased to £150 a week: that is a significant increase. [HON. MEMBERS: "£150 a year."] I mean £150 a year, but I hope that, after a few more Parliaments, what I said will come about. We also welcome the free television licences. However, it would be wrong for Ministers to assume that those two significant moves have reduced the genuine sense of grievance felt by many pensioners, a number of whom are extremely poor. Although the minimum income guarantee may help many pensioners, it will not help all of them, and it has led to a number of grievances—as my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) pointed out—on the part of people who have saved, and have managed to save only small amounts or could acquire only small additions to their company pension schemes. Those people are disqualified from the minimum income guarantee, although their income is less than that of others who qualify for income support and receive the guarantee. I received two letters recently—neither from a constituent. One came from a pensioner, who, as a widow, went back to work and acquired a small pension. She is £7 a week worse off than her neighbour, who did not acquire a smaller pension but who qualifies for the minimum income guarantee. She does not begrudge her neighbour that—her neighbour might well have saved a little, as the letter suggests, but did not do so—but she does not feel that she should be penalised. The second letter was from a pensioner in the east end. As she, too, receives a small work pension, she is not eligible for the minimum income guarantee. She is paying full rent and full council tax. After paying those two bills, she is left with £14.50 a week to pay for everything else. We would be foolish to think that there is not—to put it most gently—real concern about the issue not only among voters generally, but among some pensioners. As Dr. Johnson—like my right hon. Friend the Member for Chesterfield (Mr. Benn), although in different words—said: when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully. The Dissolution of Parliament is the hanging process in which we have to go back and face our voters. At this point in the Parliament, there is much in their pension's record for which we can give the Government credit, but I hope that we will not be fighting the next general election only on that record. The two new clauses in this group have been tabled to expand on that record. The Government always have to think about how £1 billion should be spent. As my hon. Friend the Member for Selly Oak said, generally speaking, and for obvious reasons, the older the pensioner, the poorer he or she will be. If they have savings, they will have had to eat into them to ensure their own survival. Older pensioners have had less opportunity to make higher wages and to save greater sums, and they have had less chance of joining a company pension scheme. Therefore, although some older pensioners are—thank goodness—well placed, generally speaking, older pensioners are the poorest. When the debate ends, I hope that many hon. Members will vote for new clause 8. I say that not because I disagree with the sentiments that have been expressed— or that we shall hear expressed later—on the general need for an increase in the state pension, but because I believe that the Government could most effectively use any given sum by significantly increasing the state pension for the oldest pensioners. However, as Labour Members have already said, it will not be adequate for us to go into a general election with only one single such action. We require a medley of actions to improve significantly the position of those pensioners who have not been able to include themselves in the bracket of those who are "well placed". For 20 years, when Labour was in opposition, I did not agree that we should increase the state pension in line with earnings. I am not likely now, when Labour is in government, to have a Pauline conversion on the matter—although I appreciate the strength of feeling on the issue of those who have always believed that the pension should be increased in line with earnings. However, I hope that Ministers, especially those who are arguing that we should do even more for pensioners, will use this debate to strengthen their hand—so that when we are "hanged in a fortnight" at the hands of the electorate, our pensions record is even better than it is now. The standard of living of some of our constituents is disgraceful, and any human being in our community should not have to survive in that way. The issue is urgent, and it will be pressed in the Lobby. However, when we press it, we shall do so to strengthen the hand of Ministers who are arguing not that all is fine on the western front, but that much more needs to be done.

Jeremy Corbyn (Labour, Islington North)

A few weeks ago, at Congress house, in Great Russell street, the hon. Member for Sutton and Cheam (Mr. Burstow) and I addressed a conference of the Greater London Forum for the Elderly. It was a marvellous occasion, which was attended by more than 300 delegates from every single one of the London boroughs, who were unanimously agreed on three matters. The first was that, this week, far from a celebration, there will be deep anger at the size of the increase in the state pension. This week, as pensioners go into post offices to collect their pension and discover a 75p increase in it, they will be angry. Secondly, they were all angry because they realised that, from this month, across the country, many local authorities will be increasing council tax and charges for day centre use, home helps and home carers, meals on wheels, adult education and many other services. Those increased charges will wipe out the 75p increase many times over. Therefore, even with the increase, many pensioners will be worse off. Thirdly, the delegates were angry that—as many hon. Members have said today—many older pensioners are significantly worse off than other pensioners. The Minister will recall that, earlier in this Parliament, he gave various detailed parliamentary answers to the hon. Member for Northavon (Mr. Webb) which outlined the poverty levels among older pensioners, particularly older women pensioners—who have not had the opportunity to build up occupational pensions; who, in many cases, were too old to become involved in the state earnings-related pension scheme; and who are desperately poor. Age additions are insufficient to meet those pensioners' needs. Although the free television licence and winter heating allowance are welcome, they are simply insufficient. The poverty in which older pensioners have to live is absolutely disgraceful. Women tend to live longer than men, and they tend to be poorer, colder and hungrier for it. It is simply immoral in our society to ignore the plight of many older pensioners. Older pensioners, unfortunately, are not the ones who are able to go along to pensioner forum meetings and demonstrations. I do not denigrate those who attend those events, but simply recognise that problems of age, infirmity and mobility make it impossible for many older pensioners to come along to express their point of view. It is good that the House is debating this issue this week. Nevertheless, we should also recall the history of the issue. First, I pay tribute to the speech made by my right hon. Friend the Member for Chesterfield (Mr. Benn). I also wish him a very happy birthday; I hope that there are dozens more of them. I regret only that he will not have dozens more birthdays as a Member of Parliament. However, I am sure that his voice will be heard from outside the House, and that it will be like a breath of fresh air coming through an open widow. In 1980, the then incoming Conservative Government destroyed what had been achieved by the 1974 to 1979 Labour Government—who had taken the bold step of saying that, henceforth, pensioners should be able to share in the growing wealth of the rest of the community by linking pensions to earnings or prices, whichever was the higher rising in a given year. Those are precisely the terms of new clause 36, which was so ably spoken to by my hon. Friend the Member for Hayes and Harlington (Mr. McDonnell). The Conservative Government's breach of the link has caused the state pension to decrease from 23 per cent.-plus of average earnings to about 14 per cent. of average earnings. It is continuing to decrease. Unless something is done to arrest that decline, the state pension will simply disappear as something that is worth claiming. Something similar happened with the dog licence. Although I am not particularly bothered about the dog licence, after a while, people stopped paying for it because it was so cheap. In 50 years, unless something is done to arrest the decline of the state pension, it, too, will be an insignificant detail.

John Cryer (Labour, Hornchurch)

Like my hon. Friend, I shall be supporting new clause 36 in the Lobby. Is he aware that, if the state pension had been linked purely to prices since 1948, it would now be worth only £27 a week?

Jeremy Corbyn (Labour, Islington North)

My hon. Friend is absolutely correct. At current trends, in 2050, the state pension will be worth a similarly insignificant sum. We have to make the case to arrest the decline. I was first elected to the House in 1983, and I happily fought that general election on a pledge to restore the state pension's link with earnings. I fought the next general election on a pledge that we would increase the state pension by £5 and £8. In the subsequent election, we made a broadly similar pledge. In the following election, we said that we would increase the state pension at least in line with prices. We are only now increasing it exactly in line with prices. As any pensioner could tell us, however, those who buy in small quantities, in corner shops and in declining high streets pay more than those who can drive their Volvo out of town to a hypermarket, where they buy in large quantities. Pensioners pay more to get less in many cases. We must recognise their outrage and anger. 7 pm Worse was to come under the Conservatives, with the legislation introduced in 1985–86 by the right hon. Member for Sutton Coldfield (Sir N. Fowler), and by the right hon. Member for Huntingdon (Mr. Major), who was then a junior Social Security Minister. They used bogus arguments against the state earnings-related pensions scheme, and misread the Government Actuary's report and used it to devalue SERPS, which was the secondary pension that everyone would be involved with. Over time, SERPS and the link with earnings would have guaranteed the lifting of all pensioners out of poverty. The Conservatives devalued SERPS to create a market for private pensions. I should like to know the final bill for the cruel mis-selling of private pensions during the latter years of the Tory Government. The incoming Labour Government were faced with serious problems. I pay tribute to the Government for introducing the free television licence and the winter heating allowance and for their recognition of the plight of the poorest pensioners. However, I have a serious question for the Minister. Some 1.5 million pensioners are entitled to income support, but do not claim it. There are various complex reasons for that, including pride, lack of information, lack of support or simply being unaware of their entitlement. Is there any certainty that the Government's proposed campaign will result in a significantly higher take-up of the minimum income guarantee? Are we going to spend a great deal money on a publicity campaign to promote the take-up of the minimum income guarantee, which will itself be expensive to administer? As I said in an intervention on my hon. Friend the Member for Hayes and Harlington, the state pension costs 1.5 per cent. of its value to administer. The normal administration cost for a means-tested benefit is between 20 and 25 per cent. of its value, but the figure for the social fund moves up to the dizzy heights of 46 per cent. That means that we spend half the social fund telling people that they cannot have any of it. That does not seem a terribly sensible way of doing things.

Jeff Rooker (Labour, Birmingham, Perry Barr)

We spend £100 billion on benefits. The Department has a running cost of £3.5 billion. I know that the figures are different for different benefits, but the figures for 1997–98 show that the administration costs of income support were 6 per cent. of benefit expenditure. The figure for retirement pensions is 0.9 per cent. A means-tested benefit will inevitably cost more because of the calculations involved, but the figure is nothing like the 20 per cent. that my hon. Friend is quoting.

Jeremy Corbyn (Labour, Islington North)

I thank the Minister for that intervention. He has confirmed my argument that it costs six times as much to administer a means-tested benefit as it does to administer a direct benefit. I should be interested to see the figures for the administration costs of the minimum income guarantee when it gets going. Would it not be better if that money went into the pockets of pensioners? I shall move on, because I do not want to take up too much time. The cost of administration is a serious issue, but the underlying principle is also important. The proposal will cost a lot of money without helping many of the poorest pensioners. It will also increase the market for private pensions. I belong to the school in the Labour party that believes that the welfare state should be universal. We should provide for all and we should tax for all on a fair basis. I have no problem with the state pension going to every retired person, because if pensioners have a great deal of other income, it will be recouped through taxation. However, many pensioners feel keenly the problems of poverty traps. With a small occupational pension, they can lose out on housing benefit and other passported benefits. We have to address that issue. We should aim to eliminate pensioner poverty. As the state pension is the building block of the pensions system, it must rise in line with earnings. If rising in line with earnings is good enough for the minimum income guarantee, the same rule should apply to the state pension. Let us put the issue the other way round. If the political will was not there in 1980 to maintain the link with earnings and it is apparently not here in 2000, who is to say that some future Chancellor in five or 10 years, when life is not so easy and there is not so much money about, will not decide to break the minimum income guarantee link with earnings? That would leave pensioners with a declining income once again. The Minister should think seriously about the anger of pensioners across the country. Younger people who think that pensioners deserve to be treated better are also demanding the relinking with earnings. I should also like the Minister to explain the issue at the heart of the debate. He mentioned the growth in the number of pensioner households that is expected over the next 40 or 50 years. That is clearly an issue that we can, must, should and will face. If there are more pensioners, providing for them will cost more. That is the price of a civilised society. We should pay for people to live in decency in retirement. I am alarmed to read the proposal in the Government's Green Paper on pensions to reduce from 60 to 40 per cent. the proportion of the cost that the Government pay in support for pensioners. That is a pointer towards the idea that people should make their own private pension provision during their working life. Private pensions cost more to administer, are less secure and generally provide less at the end than the security of a state communal system. That is where the socialist and social democratic parties of Europe came in, demanding a welfare state that was inclusive of all. I do not expect that we shall be successful in the vote tonight, but I hope that those in government who are arguing for a relink with earnings and who recognise the justice of the pensioners' case that they are hearing on the doorstep and in the high streets will at least have more power to their elbow to argue for justice for the elderly of this country. During the previous three Parliaments, I introduced private Members' Bills to try to give effect to that principle. I have not done so during this Parliament, because I believed that we would achieve justice for pensioners. I am sorry to tell the Minister that 1 am not happy with the Government's policies on this. We should restore the link with earnings and, over time, revalue the pension to its original level. That would be justice for the pensioners of this country. It is said that a civilisation can be judged on how well it treats its elderly. We are not doing enough for our elderly and the very elderly are doing very badly. It is time that we addressed that issue.

Steve Webb (Liberal Democrat, Northavon)

I shall make a brief contribution, reflecting on some of what has been said so far. I thank the hon. Members for Birmingham, Selly Oak (Dr. Jones) and for Islington, North (Mr. Corbyn) and the right hon. Member for Birkenhead (Mr. Field) for their support for the principle of higher pensions for older pensioners. The right hon. Member for Birkenhead has been such a powerful advocate of the cause that I find myself receiving letters from pensioners asking why I do not follow his lead on that. I should like to comment on the Conservative approach to the new clauses. The contribution of the hon. Member for Tewkesbury (Mr. Robertson) was thoughtful as far as it went. He said that he was concerned about today's pensioners, but did not support a means-tested response, a universal response or a targeted response by age. It was not clear where that rejection of all three options—the two advocated in the new clauses and the third in the minimum income guarantee—left the Conservatives. I am not sure whether we are going to hear from those on the Conservative Front Bench.

Eric Pickles (Conservative, Brentwood and Ongar)

We are.

Steve Webb (Liberal Democrat, Northavon)

That is reassuring. The hon. Member for Havant (Mr. Willetts) has said that the Conservatives would simply have put 75p on the state pension and that any further response would have to wait for a manifesto. We have reached a sad state when the supposed principal Opposition party has no policy on the basic state pension. The Government has accepted the principle of a higher pension for the over-75s by introducing the free television licence for those pensioners only. When the Chancellor announced that in the Budget, he said that he had been asked to put money on the pension but was going to use television licences, presumably because of the political attractiveness of the issue rather than any reason of substance. When asked why the extra money was not put on the basic state pension, Treasury Ministers say that it is because the benefit is taxable. As we have heard, many of us support taxable universal benefits, with the better-off paying something back, freeing up extra money for the basic pension, so the fact that the benefit is taxable is no defence at all. The other defence is that the money would not go to the poorest pensioners, but, as the hon. Member for Selly Oak said, the poorest pensioners are those who do not take up their entitlements. The proposals in the new clauses are well targeted and would benefit the poorest pensioners, so I do not know why the Government do not support them. Two new clauses are on offer. New clause 8 is our party policy. New clause 36, on the earnings link, is not but we will support it because we now have a Government who do not believe in the basic state pension. They had hundreds of millions of pounds to give to pensioners, and the money has gone on the means test, the capital limits, the television licence, the prescriptions, the winter fuel payments—everything but the basic state pension. We support the idea that the basic state pension should have not a funeral march but a future. Our preferred mechanism is new clause 8, but if that does not succeed we will support new clause 36 as a statement of our continuing belief in the basic state pension.

Alice Mahon (Labour, Halifax)

I support new clause 36. I welcome the help given to pensioners in the Budget. I am a practical person, and I have the figures. In Halifax, 18,000 pensioners were helped by the increase in the winter fuel allowance and by the free eye tests. Those measures are worth £3 a week to a household, so they should not be ignored. Because people seem to live a long time in West Yorkshire, I also welcome the free television licences from which thousands in my constituency will benefit, but I give notice that I would like the qualifying age to come down to 65 in the next Budget. I also welcome the abolition of VAT on fuel, the help with transport and the increase in the savings threshold. Furthermore, I am aware that the allocation of £8 million to Calderdale and Kirklees health authority will help pensioners more than any other group—and quite rightly, as they introduced the national health service and fully deserve that help. However, I am firmly convinced, and always have been, of the arguments for restoring the earnings link. That is why I shall vote for new clause 36. What is more, I believe that I speak for the majority of pensioners, especially in Halifax, when I say that they need a substantial rise in the basic pension now, and the restoration of the earnings link as soon as possible. I listen to pensioners. Before tonight's debate, I looked through all the submissions to the Green Paper "A new contract for welfare: partnership in pensions". One response was a booklet, "The Unwanted Generation", published by the National Pensioners Convention. In the foreword, Jack Jones, who has been a stalwart fighter for pensioners, says: We published our written submissions (Pensions, not Poor Relief) in March 1998. They amounted to a comprehensive and sustainable programme of reform, taking account of the needs of both today's and tomorrow's pensioners. We stressed the need to make good the loss of the value of the basic pension resulting from the breaking of the link with average earnings, and to restore the link for the future. I could have brought along a dozen publications giving such advice in response to the Green Paper, and I really wish that the Government had taken that advice. I have listened to Ministers' arguments about targeting and affordability, and I simply disagree with them. Elderly people think that they have a right to a non-means-tested pension. The arguments about the stigma and shame that some elderly people feel when they have to fill in forms and claim what they see as handouts have been well put. I really hope that the publicity that we are about to mount to ensure that the 1.5 million poorest pensioners take up their entitlements is successful, but I suspect that many of them will still slip through the net. 7.15 pm If we are genuinely committed to helping pensioners—the Budget proves to some extent that we are—and want to convince a quarter of the people in our society that we will give them the security in old age that they deserve, we must restore the link with average earnings. I have listened for years to the argument that wealthy pensioners will benefit if we restore the link. So what? They have contributed, too. I want to keep them in the system, contributing to the NHS and to everything else that makes society worth while. We have a tax system and we could use it, paying out at one end and taking at the other. There is nothing wrong with redistribution. I was brought up on it in my many, many years in the Labour party. I give the last word to Baroness Castle and Professor Peter Townsend, two eminent fighters for social justice if ever there were two. In line with what everyone else with a real interest in pensioners said in response to the Green Paper, their excellent pamphlet, "We CAN afford the Welfare State"—I believe that, as one of the richest countries in the world, we can—said: We must resurrect the basic pension as the foundation of security in old age for everyone. This means the restoration of the earnings link for future annual upratings. I believe that, and I hope that many hon. Members will join us in the Lobby tonight.

Norman Godman (Labour, Greenock and Inverclyde)

I support new clause 36. It was, however, right and proper that my right hon. Friend the Member for Birkenhead (Mr. Field) and others paid tribute to the Government's achievements. I sincerely believe that my right hon. Friend the Prime Minister and the Government are genuinely committed to creating a more tolerable society, as reflected in matters as diverse as constitutional reform, the peace process in Northern Ireland and tackling racism and other evils that bedevil our society. That more tolerable society is a wholly admirable objective, but our society is intolerable because of the demeaning position and the humiliation that our elderly people suffer. In the past few days, several of my elderly constituents have said that they warmly welcome the increase in the winter fuel allowance and the concession on television licences. Down the years, I have supported those measures, admirably campaigned for by my hon. Friends the Members for Walsall, North (Mr. Winnick) and for Islington, North (Mr. Corbyn) and others who have worked to make life more tolerable for our elderly citizens. We have to do more, and one of our objectives, as a party in government, with the history to which my right hon. Friend the Member for Chesterfield (Mr. Benn) referred, is to ensure that life becomes more tolerable for our elderly people. The other day, an old fellow, when talking about his bitter disappointment with the Government, reminded me—I confess that I needed reminding—that it was Charles de Gaulle who said that old age is a shipwreck. He told me that what makes old age so hazardous for him and for many of his neighbours is the rottenness of the treatment that they suffered under Tory Governments and the present Government's failure to do more for them, so I make that plea to the Government: they must seriously address the plight of elderly people. I guess that I am not alone in having an elderly forum in my constituency; I think that just about every constituency in the UK now has such a forum. My local one is led by a formidable female by the name of Mrs. Nell McFadden. As people say in the west of Scotland, if she is angry with someone, she does not miss them and hit the wall. At some heated meetings that I have attended in recent times, she and her colleagues have said to me that they are bitterly disappointed although they greatly appreciate what has been done by the Government, which is in dramatic contrast with how they were treated by the odd job lot opposite when they were in power for so long. I tell my hon. Friend the Member for Hayes and Harlington (Mr. McDonnell) that, in Scotland, disaffected elderly constituents do have a choice. Very few of them vote Conservative, rightly, but they can choose to vote for the infant Scottish Socialist party or the Scottish National party, both of which play to the gallery on the issue. [Interruption.] I remember Ayr well, and so should the Conservative party because it was the first election that it had won in many years. There are no Conservative Members representing Scotland in this place. I suspect that that will last for some years, but that is another story. If we are to honour our obligations to elderly citizens, we must lift them out of poverty. Up to now, we have failed them because we have not done that. With regret, I shall vote against the Government. I will vote for new clause 36 because it has long been my aim to restore the link, which was cruelly taken away from elderly people by the Conservatives when they were in power. Many of the people whom I represent are in their 70s, 80s or 90s. Because of the occupation that they followed—many experienced long periods of unemployment—they never had the opportunity to save money for their elderly and declining years. We must restore dignity and respect to their lives. The Government are doing that with some of their measures. In that regard, their achievements are admirable, but more must be done. If it means taxing those with the money, so be it. I have always argued for a progressive tax system. If we must have such a system to make life better for elderly people, that is what we should have. They deserve better from us and, at the moment, we are failing them.

Diane Abbott (Labour, Hackney North and Stoke Newington)

I support new clause 36. I pay tribute to my hon. Friend the Member for Islington, North (Mr. Corbyn). For many more years than he cares to remember, he has been an advocate for the elderly and taken up this issue, in season and out of season, on the Floor of the House. As many Members have said, if there is one group of people that feels let down by the Government, it is pensioners because, for 20 long years, we promised them the restoration of the link with earnings. Many of us are speaking to the two new clauses, but I am surprised that many more are not doing so because each and every Labour Member must hear what I hear from pensioners in my constituency about their disappointment in respect of the failure to restore the link. I suspect, perhaps unfairly, that those Labour Members who troop through the Lobby against the new clause will not publicise the fact in their constituencies. If I were not aware of the real feeling among pensioners about the issue, members of my local Hackney pensioners forum would have ensured that I was. I pay tribute to Hackney pensioners, who are some of the most vigorous and forthright in the land, although some Members might contest that claim. Pensioners are not easily fooled. They cannot be deluded with spin, announcements and re-announcements. They know that they were promised one thing for many years while we were in opposition and that, now we are in government, suddenly those promises are out of the window. They have observed that. All the spin in the world and all the articles drafted by Alastair Campbell will not distract pensioners' attention from that. Ministers have said, and will say again tonight, that many pensioners are better off. That is true. Those with occupational pensions and so on are better off, but, like my hon. Friend the Member for Greenock and Inverclyde (Dr. Godman), most of the pensioners whom I represent did not have jobs which made it possible for them to have a big occupational pension and other benefits. The pensioners whom I see are among the poorest. In 2000, poor pensioners are seeing their income shrink alongside the erosion of social service provision, which pensioners in particular rely on. It is bad enough that the value of the pension is being eroded, but if, as is certainly happening in my part of London, pensioners are seeing cuts in the home help service, charges for that service, cuts in day-care services and cuts in adult education, that makes the decline in the state pension ever more acute. The safety net of social security provision, which they have come to rely on, is being eroded by overall cuts in public expenditure, not to mention—I hope to address the House on the matter on another occasion—the chaos in housing benefit in many local authorities throughout the country, which is hurting the elderly in particular. Members have spelled out the case against means-testing. It is a disincentive to save. It is six times more expensive to administer means-tested benefits, as the Minister has admitted, than to pay a universal pension. The thing that weighs with me most about means-tested benefits and pensioners is that more than any other single group in the land—more than the disabled or lone mothers—it is pensioners who feel the stigma of such benefits. If there is one group that should be excluded from having to claim means-tested benefits, it is pensioners. As I know from personal experience in my family, many pensioners, through sheer pride alone, will not claim means-tested benefits. Ministers talk about the minimum income guarantee and urge reliance by pensioners on means-tested benefits. They know that, however effective the take-up campaign, a considerable number of pensioners will not claim because of the stigma and the association.

Kali Mountford (Labour, Colne Valley)

Can my hon. Friend explain why people do not feel the same stigma when applying for housing benefit and council tax benefit?

Diane Abbott (Labour, Hackney North and Stoke Newington)

My hon. Friend has not been here for the entire debate, but let me explain. When she has been a Member of Parliament for a considerable time—[Interruption.] When she has done that, she will know that pensioners believe that they are entitled to a pension as of right. What pensioners want is a basic income as of right. They do not want to ask for what they perceive as handouts in the form of means-tested benefits. If she does not believe me, I suggest that she discusses that with pensioners in her constituency. Furthermore, the ultimate problem for pensioners who do not claim housing benefit is that they will be evicted, but—I am surprised that she makes that point—I cannot overstate the extent to which pensioners believe that they are entitled to a basic income as of right and should not have to claim for means-tested benefits.

Kali Mountford (Labour, Colne Valley)

Will my hon. Friend give way on that point?

Diane Abbott (Labour, Hackney North and Stoke Newington)

No, I have to make some progress. I am sorry that my hon. Friend is not aware of the strength of feeling among pensioners. If she has any doubt about pensioners' fear of the stigma attached to claiming means-tested benefits, she should come to the next meeting of the Hackney pensioners forum. That will remove her confusion. As has been said, pensioners appreciate the free television licences being granted to those over 75, and the fuel provision. However, they want the long-promised rise in the basic pension to be implemented and the link restored. Members of the Labour party across the country also want that link restored. By any test of opinion—a postal ballot, say, or an electoral college—that is what most party members want. I served for a few years on the party's national executive committee. I well remember the 1996 party conference, at which a composite resolution, heavily supported by the constituencies and trade unions, called for the restoration of the link. Behind the scenes, there was a momentous battle to prevent that resolution from going to a vote. The hapless delegate who was to move the resolution was told by the then shadow Chancellor that, if he went ahead and moved it, he would be responsible for losing Labour the next general election. The same shadow Chancellor telephoned that delegate's constituency party chairman with the same message. Delegates buckled under the incredible pressure exerted by officials and the shadow Cabinet. The composite was moved by Baroness Castle, in a brilliant speech—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. I am well aware of the background activities at that Labour party conference. However, the hon. Lady has made her point, and should keep to the amendment.

Diane Abbott (Labour, Hackney North and Stoke Newington)

I am grateful to you, Mr. Deputy Speaker, for acting as a witness to internal Labour party matters, but I will not dwell on those sadnesses. However, my point is that Labour party members—from the left, right and centre of the party—feel just as disappointed as pensioners. Even at this late stage, Ministers should consider their position on the matter. The Government are willing to give out money for fuel relief and free television licences, so why will they not do anything about the basic pension? There may be several reasons. Labour Members and pensioners forums around the country may not have put their case compellingly enough. Perhaps the Government want to keep overall public expenditure within the limits set by the Maastricht treaty—but I will not delay the House with such speculation. For 10 long years as a Member of Parliament, I have attended meetings of the Hackney pensioners forum. I would tell them of the party's commitment on the matter, and the pensioners would talk about what would happen when the Labour party got into power. The Labour party is in power now, and 20 years of commitment to restoring the link has gone out of the window. Many pensioners will be left in poverty, despite the take-up campaign for the minimum income guarantee. The sadness is that, after waiting so long for a Labour Government, pensioners are being failed by that Government. What hope have they now? I urge Ministers to re-examine this matter, which is at the heart of the concerns felt by many Labour party members across the country.

John Austin (Labour, Erith and Thamesmead)

Some of the relevant figures may explain why there is so much anger among pensioners. The basic pension is £67.50 a week, or £107.90 for a couple. If the previous Conservative Government had not broken the link, those amounts would have been £97.45 and £155.80—£30 and almost £50 a week higher, respectively. How can people live on the basic pension? Many do not live on it, but merely survive. Sadly, some do not even do that, as the figures for hypothermia show. I accept everything said by my hon. Friends the Members for Hayes and Harlington (Mr. McDonnell) and for Islington, North (Mr. Corbyn) about all the material benefits that the Government have given to pensioners. There is no doubt that pensioners are immeasurably better off than they would have been under Conservative spending plans and policies. We must remind ourselves that when the Leader of the Opposition talks about reducing taxation, he does so in the context of reducing spending on welfare. We know from the record of Conservative Governments in the past that tax cuts come from breaking the link between pensions and earnings. We must bear in mind the feelings of pensioners, despite the benefits that have come from the Labour Government. As my hon. Friend the Member for Bolton, South-East (Dr. Iddon) said to me, the increase for a single pensioner on the basic pension this year was less than the price of half a pint of beer. As my hon. Friend the Member for Islington, North pointed out so clearly, the rate of inflation for pensioners is much higher than for other members of the community, as they cannot make savings through cheap shopping, bulk buying, and so on. The Government may argue that the cost of restoring pensions to what would have obtained had the link not been broken is too high and cannot be afforded. However, raising the pension level to that of the minimum income guarantee would cost about half as much, and I urge the Government to take that option. I have talked to Ministers, including my right hon. Friend the Prime Minister, about this matter. I have been told about the cost, and that money put on the basic pension would not reach those most in need. However, the fuel allowance represents an inconsistency on the Government's part. It is universal and goes to everyone but, unlike pensions, it is not taxable. That benefit therefore goes to everyone, irrespective of income, and the Government cannot claw it back from the better off. My hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) spoke about means testing. She pointed out the problems associated with it: she said that it was a disincentive to saving, and that, wherever the threshold or limit was set, some pensioners would be placed in a poverty trap. From our surgeries, all hon. Members will be familiar with people whose few pounds a week from occupational pensions remove them from eligibility for means-tested benefits. The Minister intervened earlier and admitted that it cost six times as much to administer means-tested benefits as it did to administer universal benefits.

Jeff Rooker (Labour, Birmingham, Perry Barr)

I intervened to give the facts. It is six times more expensive to administer means-tested benefits, but not 25 times more expensive, as had been claimed.

John Austin (Labour, Erith and Thamesmead)

I am using the figure that the Minister gave—that it cost six times as much to administer means-tested benefits. However, that does not include the cost of a take-up campaign. Half my constituency is in the borough of Greenwich, which has one of the best welfare rights units in the country. The Conservatives have criticised the council for spending council tax money on a job that should have been done by the Department of Social Security. I think the job is better done by people outside the Benefits Agency, and the take-up campaigns have put hundreds of thousands of pounds into the pockets of the poorest people in the borough. However—perhaps because of the associated stigma, or for some other reason—hundreds of thousands of people do not claim their entitlement. A million people who are entitled to the minimum income guarantee are probably not claiming it. If we continue to uprate the basic pension in line with inflation, it will be worth half its current value by 2040. The argument for linking pensions with earnings is so that elderly people can share in the increased wealth of the country. Those who argue for a link with prices say that at least that maintains the purchasing power of pensioners. Hon. Members have shown that it does not. I wonder how many hon. Members read the report this morning about the rising cost of funerals. Someone from the National Association of Funeral Directors said that funerals may have increased above the rate of inflation, but they have fallen in relation to average earnings. So not only do pensioners suffer in life: they are penalised in death.

Frank Cook (Labour, Stockton North)

I have just returned today from a week in which I was leading a delegation from the NATO parliamentary assembly which was looking into nuclear matters in the Czech Republic. We also visited the comprehensive test ban treaty preparatory commission and the International Atomic Energy Agency, both in Vienna. What has that to do with the debate? It is this—I was told this evening that a debate had taken place on this topic in the parliamentary Labour party meeting on Wednesday, that it had been a good debate and that everyone was satisfied. I was asked why I was going to vote against the Government, because as soon as I knew that this was to be debated on the Floor of the House, I sent a note saying that I have always promoted the concept of a link between earnings and pensions, so I would support new clause 36. I was told, "We have already had the debate." I said that I had not been there. When asked where I had been, I explained. I was told, "We did not know you were absent." What does that say about how much I count for in the House? I am noticed only if I threaten to vote against the Government. I offer this explanation for people who have not been here as long as I have. I confess that I have a vested interest in the debate. I am 65 this year, and I do not know what will happen to me. The outcome of the debate may matter to me next year. However, that is a facetious remark.

Michael Jabez Foster (Labour, Hastings and Rye)

The hon. Gentleman is an extremely good example of a person with a substantial pension to come as well as his retirement pension from the state. He has no need for an increase above inflation in any event, because he is one of those with a second pension.

Frank Cook (Labour, Stockton North)

I remind my honourable colleague—I am not sure whether he is a Friend yet—that, come the day, I shall enjoy paying my income tax. That is a distinction that many people miss. We are talking about people whose income is so paltry that they will be unable to pay income tax on their benefits. 7.45 pm I have the greatest respect, in a fraternal sense, for some of my colleagues. I watched the performance of my hon. Friend the Member for Colne Valley (Kali Mountford) in Committee, and I admire her ability. Yet from a sedentary position, she said that she had spent 25 years in public service. I am sure that she spent 25 very praiseworthy years in the service. If that is the case, she should remember a time when pensioners were provided for better than they are today, or will be tomorrow.

Kali Mountford (Labour, Colne Valley)

Not according to the report.

Frank Cook (Labour, Stockton North)

If my hon. Friend has the good fortune to catch your eye, Mr. Deputy Speaker, I am sure she will be able to make her case. Another colleague for whom I have great respect and admiration said that the Tories are loving this. They might well be—

Frank Field (Labour, Birkenhead)

If they were here.

Frank Cook (Labour, Stockton North)

Yes. It would be one of the few times the Tories have enjoyed something that is true. The truth is coming out of the debate tonight. The people who do not enjoy differences among Labour Members will be the pensioners—the people to whom we have given these promises year after year, election after election. I have been an associate member of the Teesside pensioners' association since 1971. I qualify for full compliance next year, and I will be proud to do so. I appeal to Ministers to listen to the arguments—arguments that they themselves have made repeatedly in the past. I appeal to colleagues who perhaps have more of an eye on career development than on the retention of principle—[Interruption.] I invite my colleagues who think that that is a dirty remark to stand up and be dirty in return.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. I have listened to the debate throughout. As we do not want to lower its tone, perhaps the hon. Gentleman should not use such language.

Frank Cook (Labour, Stockton North)

I accept your reprimand, Mr. Deputy Speaker. If I withdraw that comment—which I do unreservedly—I am at a loss to establish the motive for the stance that has been adopted or espoused by some of my hon. Friends. I appeal to Ministers to listen to the arguments. I appeal to those who support the Government on this matter to listen to the arguments. I hope that we will have the opportunity to change course, even at this late stage.

Kali Mountford (Labour, Colne Valley)

I had not intended to speak in the debate. I sat through the debate all day last Wednesday, I have been sitting here expectantly from 3.30 this afternoon listening to the debate on a range of issues relating to the Bill, and I served in Committee. However, I rise to speak because I feel that I have been patronised more thoroughly today than I have been in a long time. I have worked in public service since I was 20 and have been, for a substantial amount of that time, involved in the voluntary sector. I have come across many people in many circumstances, particularly those who felt stigmatised when income support was related not just to pensions but to all parts of the benefits system. Having thoroughly supported the Minister of State when he supported a link with earnings, I do so no longer, and for very good reason. State benefits, and pensions in particular, have changed since then. If I felt that a continued policy of a retained link with earnings gave a particular benefit to all pensioners, I would support it. I even went so far as to write to the Chancellor when the link with prices showed that the sum would be derisory. I was concerned about that, but to be frank, it was because it looked bad, not because it was bad in principle or because I felt that there were people who were more deserving. I mean, 70p just does not sound good. Hand on heart—it was not because I thought that that was the right thing to do. When I listened to the Budget statement, things changed radically for me, and I looked more closely at our own reports, what we were really saying and what we were trying to achieve.

Steve Pound (Labour, Ealing North)

I appreciate that it may not look good, but is my hon. Friend aware that, over the past 15 years, the annual monetary increase in pensions has swung from 40p one year to £5.17 another year? We cannot make an argument about whether it looks good. It is linked with inflation—that is the reason for those figures.

Kali Mountford (Labour, Colne Valley)

Obviously, if it is linked with inflation, that is the reason for the figures. However, we must look at the total amount of pensioner income. I do not believe that re-linking pensions with earnings would necessarily benefit all pensioners in all circumstances. The new clause would create a catch-all safety valve enabling us to offer the biggest pension increase possible at any time. I am not sure that that would be the wisest use of public money. Why give large one-off increases to pensioners? The increase of £100 to £150, for example, seems huge. Why provide that rather than increasing the amount of money that we can give pensioners in line with earnings? The answer is simple, and it has nothing to do with taxation. Doing that helps pensioners who need it most, and it does so most swiftly, most effectively and most efficiently. It deals with the poverty gap. I advise my hon. Friends to read page 25 of "The Changing Welfare State", volume 2, which shows the growing gap between the poorest and richest pensioners since 1979. Clearly, there has been a vast change in pensioner incomes. If we wish to affect the lives of those about whom I care most—the poorest pensioners—there are several things that we must do.

Lynne Jones (Labour, Birmingham, Selly Oak)

My hon. Friend points to the growing gap. Has not that gap grown while the basic state pension has been linked to prices, not earnings?

Kali Mountford (Labour, Colne Valley)

If my hon. Friend reads the report closely, she will find that there has been a huge increase in occupational and private pensions, which have changed what we should do for pensioners. We must target resources on people who have never had access to occupational or private pensions, which is why I support the second state pension, which will give money to carers, people with disabilities and those on low incomes who have not had access to second pensions. The minimum income guarantee, which includes the safeguard of a link with earnings, will lift people in poverty out of it. We must do something to close the poverty gap. I have heard nothing in the debate that would help to close the gap. We want to lift people out of poverty and make a real difference to their lives, and the Government's pensions policies do that. I have heard nothing to make me think that a return to a link with earnings would make an instant difference to people's lives.

Frank Field (Labour, Birkenhead)

My hon. Friend says that she has heard nothing said that would lessen the gap between richer and poorer pensioners. In fact, we are having two debates, and one of them is about ensuring a much more substantial state retirement pension for the oldest pensioners. Does anything in the volume to which she has referred disprove the point that one of the most effective moves we could make to combat poverty among the oldest pensioners would be an increase of, say, £15 in the state pension for people aged over 80?

Kali Mountford (Labour, Colne Valley)

Obviously, a sudden huge increase would put money in people's pockets. How could I dispute that? We all know that the oldest pensioners receive the least and are the most likely to be in poverty. That is why I support the £150, which, rather than going through hoops, goes straight into people's pockets without a means test, and which is not discounted against means-tested benefits. I support it as a quick, efficient and effective means of getting money to people. We have taken great strides towards helping those in the greatest need, including policies such as free television licences for those aged over 75. Some people in my constituency have said that that is patronising, but several have stopped me in the street to say that they are pleased with what I am doing and that it has changed their lives— and that does not happen often. An elderly constituent told me that she had received a £100 cheque in the same week as a £130 fuel bill. That makes a significant difference to people's lives; and that elderly person told me that she will be 75 this year, so she will receive a free television licence. She did not feel patronised; she felt a real difference to her life.

David Winnick (Labour, Walsall North)

Is my hon. Friend aware that I have received not a single complaint about pensioners feeling patronised about the television licence or winter heating payments? The opposite is the case. Time and again, pensioners asked why Conservative Governments refused to help, and they feel no more patronised about television licences and winter fuel than they do about bus passes. Indeed, they would be deeply offended if the bus pass were taken away.

Kali Mountford (Labour, Colne Valley)

My hon. Friend is right. Nor do pensioners feel patronised when they make claims for housing or council tax benefit. We must tackle the stigmatisation of particular benefits, and not just for pensioners. Across the board, people feel stigmatised if they think that benefits are not theirs of right. The Government must tell people that they have worked all their lives—in the home, as carers for elderly parents or someone who was disabled, on low pay, as part-time earners or as a disabled person who was unable to work—and that we all value them. We must tell them that extra income will go into their pockets not as a stigmatised, means-tested benefit but because it is theirs of right. The minimum income guarantee is theirs of right, and we should launch a take-up campaign beyond anything ever done before.

Kelvin Hopkins (Labour, Luton North)

I am sorry to say that I cannot follow all my hon. Friend's arguments very well. Does she agree that even if pensioners claimed all their means-tested income support and did not feel that there was a stigma, that would not alter the fact that means testing is not right? We want a higher, non-means-tested state pension.

Kali Mountford (Labour, Colne Valley)

I do not hold the same view as my hon. Friend. In all my time dealing with benefits, it troubled me that people stigmatised that sort of benefit. By doing so, we make it difficult to get benefits to people even when it is their right to have them. We should make it clear that people have a right to the benefits that the country has decided belong to them. As long as we talk in the way my hon. Friend does, we shall demean what we seek to do as a state and a Government. It is right to put money in people's pockets. I am very disturbed by some of what I have heard today. I do not think it right to demean people. We should put money into the pockets of those who need it, and that is what we are doing.

Jacqui Lait (Conservative, Beckenham)

I shall not speak for long because I do not want to intrude on family grief. I have been interested to see that we face two parties—one below the Gangway and one above it, although even that distinction is beginning to splinter. I hope that the hon. Member for Colne Valley (Kali Mountford) will not think me patronising if I say that she made a brave speech. That was a difficult thing to do in face of the emotional appeals made on behalf of elderly pensioners. I hope that the right hon. Member for Chesterfield (Mr. Benn) will accept congratulations from everyone in the Opposition on his birthday—[HON. MEMBERS: "Everyone?"] I am sure that everyone would wish a happy birthday to such a pillar of the House of Commons. The right hon. Gentleman, as so often, put his finger on a good point. He mentioned the compact between the generations on which the whole national insurance system is built. The compact implies that those who pay should be prepared to do so. One reason for the break in 1980 between earnings and prices was a fear felt by the Conservative Government that the pay-as-you-go system would put an intolerable weight on the current generation. It was feared that the compact that produced national insurance benefits would be broken in the long run. We need only consider the structure of the population to realise that generations behind us—it will not be long before I can claim my pension, although I am not planning to retire—will ask whether it can afford me. That is the real problem.

Ronnie Campbell (Labour, Blyth Valley)

Cheap.

Jacqui Lait (Conservative, Beckenham)

They probably do feel that they cannot afford me, because I am not cheap. However, I would just point out that I am just one of very many people.

Lynne Jones (Labour, Birmingham, Selly Oak)

Surely the existence of a basic state pension to which everyone contributes reinforces solidarity between the generations rather than the reverse. People have to make provision, whether by pay-as-you-go into a state system or by paying into a private system.

Jacqui Lait (Conservative, Beckenham)

The hon. Lady has rather missed the point, which is that if there is no money left in someone's pocket to pay for private provision, they will resent paying too much for the older generation. That is the point that needs to be addressed.

Tony Benn (Labour, Chesterfield)

Pensioners have been productive during their lives. If the hon. Lady really wants an example of a completely non-productive unit, she should visit a hospital where babies are delivered. Not a single baby has ever produced a profit for anybody. A visit to such a hospital exposes the outrageousness of the argument that we cannot afford to look after old people. I visited the hospital in Chesterfield; I was shown round by an accountant. When we came to the premature baby unit, she said, "This is the most expensive part of the business." If premature babies are uneconomic units, why should we pay for them? The hon. Lady has misunderstood the whole purpose of the welfare state.

Jacqui Lait (Conservative, Beckenham)

I think the point is that the premature baby who, luckily, because of the national health service, can survive, is the future payer of our pensions. That is the crucial thing, and that is why we need to ensure that all those pensioners who can are able to pick up all the benefits that are available. That is why the Conservative Government ran campaigns to encourage people to take up all the benefits; and we wish the Government well with their campaign on the minimum income guarantee. I hope that the Government can crack the stigma and turn the issue into a matter of rights. As the hon. Member for Colne Valley said—and I am sure that my hon. Friends do not disagree—it is people's right; they have paid in, and they should accept their benefits without feeling any stigma. I sincerely hope that the Government's campaign works. I understand that the Government believe that about 600,000 people are eligible for the minimum income guarantee, not 1.5 million—doubtless the Minister will make that clear. In any case, we need to ensure that those people who need more benefits get them. We should also bear in mind the fact that one of the reasons why so many pensioners are so angry at the 75p increase is that they have been on the receiving end of the hidden stealth taxes that the Government and the Lib-Lab pacts that run so many local councils are piling on to council tax and all the other services that people receive through local authorities. Pensioners would not feel nearly so aggrieved if those stealth taxes had not been dumped on local authorities to enable the Government to sustain the hope of keeping their promise on income tax so that they do not offend the heartlands or middle England.

Jeff Rooker (Labour, Birmingham, Perry Barr)

I shall do my best to respond to the debate, which I applaud. As I mentioned at Social Security questions today, a couple of weeks ago the Government arranged for a three-hour debate in Westminster Hall on pensions reform, and one Back Bencher turned up, who happened to be a Labour MP. I notice the dearth of any attempt at a debate by Conservative MPs on this important issue. I am in no way, in anything that I have to say, criticising the fact that new clause 36 has been tabled for debate, because that is what this place is for; the day we forget that, we might as well all pack it in. Nevertheless, I cannot accept all the arguments, even though, as I happily admit, I have made many of them myself in the past—indeed, more than most. [Laughter.] Well, I have. I suspect that I have attended more meetings of pensioners at factory gates and in pensioner groups, in trade unions and at particular companies, and more meetings of the National Pensioners Convention, than most hon. Members, simply because I have been in this place for 26 years. I argued the toss up and down the country in 1983, 1987 and 1992, on the Labour manifesto of restoring the link, using the figures that my hon. Friend the Member for Islington, North (Mr. Corbyn) mentioned—£5 and £8. At the end of each election I went back to my constituents—I never really left them—and told them, "I am sorry; I did all the speeches but we lost. We have not even got a crumb off the table." We lost every single election at which we made those commitments. My hon. Friends should start to think about why we lost all those elections. We made absolutely firm, positive commitments: no one was in any doubt about their clarity, because the manifesto promise even included the figures in pounds—£5 and £8. That was absolutely clear and unequivocal. No one could have doubted what we would do, but we did not get the chance to do it. I am not saying that we lost for that reason. We lost because people did not believe, by and large, that we could deliver the overall package that we were proposing: they thought, "Economically, it don't make sense". At the last general election we made a different, more modest, commitment—more modest in the sense that we made the commitment of using the basic state pension as the building block. We said that it would not be means-tested, that it would rise at least in line with prices—which 1 accept is what has happened in the first three years of this Government—and that pensioners would also share, in ways that were not specified, in the wider economic gains of the country. I must tell my hon. Friends that this debate really should not be an argument for or against the means tests; it is much narrower than that. However, if my hon. Friends want to have the argument about whether pensioners should or should not be means-tested, they cannot ignore the past. The last Labour Government introduced the link between the pension and earnings or prices—whichever was the higher. I was here, and I was proud of what that Government did. We even raised pensions twice in one year. I might add that the reason why that we did it was that there was no annual pension increase before the Labour Government of 1974. There were some years—four or five since 1948, and always under a Tory Government—in which there was no increase whatever. We also maintained that link in a period of extremely high inflation. Both prices and earnings inflation were into the teens or the early twenties. The figures were astronomical—no doubt about it. But we introduced that pledge, and we carried it out. I know that it is a nit-picking point to say that, in the four years in which we did so, we got it wrong three times out of four because a system of forecasting was used rather than the historical system that we use now. In April, the Minister used to stand at the Dispatch Box and say, "I think that, in November, earnings will be a certain figure and prices will be a certain figure. This is the higher of the two, so we are fixing the pension"—it had to be fixed 20 weeks in advance. When we reached November, in three years out of four, the figure was not quite right; and in one year, our forecast of which would be the greater of earnings and prices was wrong. We really got it in the neck for being wrong, even though there were often substantial monetary increases—although not real-terms increases. In 1979, when we got the boot, we had what looked like a good track record, because there had been a real increase in the pension package over those four years. And when we got to 1979, anyone would have thought that we had done so well that we had got the pensioners off the means test. I regret the fact that there are pensioners on the means test. I wish that we had a policy that would enable us to declare, "We guarantee that, in a year's time, no pensioner will be subject to the means test." As I said at Social Security questions today, even with our current package of so many measures, we cannot say that. We can get the number of means-tested pensioners down to one in five from one in three, but one in five is still a large number of people. Even today, some 28 per cent. of new pensioners go on to the means test. Today, 40 per cent. of all pensioners are on means-tested benefits.

Lynne Jones (Labour, Birmingham, Selly Oak)

Will my right hon. Friend give way?

Jeff Rooker (Labour, Birmingham, Perry Barr)

No; not at the moment—not until I have made the point that I wanted to make about 1979. In 1979, when we left office, after those halcyon days of the link, 57 per cent. of pensioners were still on means-tested benefits—millions, more than half of all pensioners. So we have to ask ourselves, what has happened between then and now? The answer, in a nutshell, has been mentioned by my hon. Friend the Member for Colne Valley (Kali Mountford) and it appears on page 25 of the document that we published last week. An enormous difference has grown up between high and low-income pensioners—a massive change between the top 20 per cent. and the bottom 20 per cent. Therefore, fewer pensioners are on the means test than in 1979, but they are poorer by far. There is no doubt about that, and they have no hope of digging themselves out of the position that they are already in.

Lynne Jones (Labour, Birmingham, Selly Oak)

My right hon. Friend said that his aim was to get the proportion of pensioners reliant on the means test down to one in five. Is that not the current figure?

Jeff Rooker (Labour, Birmingham, Perry Barr)

As I have said, if we do nothing, one in three pensioners will end up on the means test. This overall package will get the figure down to one in five, and I regret that the number will not be less than that. However, I have described the effect of all the pension changes that we are making.

David Willetts (Conservative, Havant)

When will that be?

Jeff Rooker (Labour, Birmingham, Perry Barr)

In the middle of this century—2047. I have never hidden that fact. I have always said that a pension is a pension. It is not something that one buys off the shelf and that is available today. One has to build it up. The halcyon days—the link lasted for only four years—left us with 57 per cent. of pensioners on the means test in 1979. There are still many on the means test today, but an enormous gap has grown up. Nobody who seriously wants to attempt to tackle that gap can do so by lifting everyone's income up. That does not make sense in anyone's calculation; there are no good grounds for doing that, either with public money or with private funds. Therefore, it is our moral responsibility to target resources on closing that gap by lifting the incomes of the lowest 20 per cent. up while not holding down those of the top 20 per cent. We must lift the bottom 20 per cent. up at a faster rate than the highest 20 per cent. That is the only way that we can tackle the gap, and we must do that as quickly as we can. One of the measures to deal with the gap is the introduction of the minimum income guarantee.

Alan Simpson (Labour, Nottingham South)

I am grateful that my right hon. Friend has drawn the House's attention to the graphs on page 25 of the document. We are faced with the burgeoning gap between the richest and the poorest pensioners, so will he explain how free television licences and the winter fuel payments, which are tax exempt, will help to narrow the gap? Raising the state pension would bring more people into tax bands and would enable us to recoup income. That would be a redistributive measure and would be more effective in directing resources towards those on the basic state pension.

Jeff Rooker (Labour, Birmingham, Perry Barr)

My hon. Friend—like other hon. Members—has made the case better than I can for a mixture of measures. It is not possible to say that benefits should be either all universal or all means-tested. There must be a mixture of benefits for the foreseeable future. We must ask ourselves why the gap came about. First, it is the result of the changes that took place in the 1960s to occupational pensions when millions more people had the opportunity to take part in an occupational scheme. In addition, it is a consequence of SERPS. Very few people recognise the fact—I regret that many of my hon. Friends have not raised the issue—that a male pensioner who was on an average income and who retires today, just over 20 years after SERPS started, will retire with a SERPS pension of near enough £60 a week on top of the basic state pension. Before we introduced the link with earnings or prices—whichever was the higher—there was no state second pension or SERPS. SERPS was the only hope for people who did not have the good fortune to be in an occupational pension. However, we had to say that they would have to wait 20 years before the scheme came to fruition. 8.15 pm At that time, we tried to ensure that pensioners did not lose out in periods of high inflation, which is what we Shad at the time, and that, when earnings and prices were yo-yoing with each other, we tried to mix the best of both. I was not in the Government at that time and I doubt whether the matter was discussed, but I cannot prove that when the forecasts were made for what SERPS would deliver in 20 years, the policy assumed that the basic state pension's link with prices or earnings—whichever was the higher—would be retained. The scenario was different, because it was a different world. By law, the majority of the pensioner population is now forced into two pensions. They are either contracted in or contacted out, so they are virtually forced into two pensions. Obviously some people have missed out, and that is why have introduced the state second pension for the low paid and for carers.

John Austin (Labour, Erith and Thamesmead)

After all my right hon. Friend's fine words, will he tell the House whether he could live on the present state pension?

Jeff Rooker (Labour, Birmingham, Perry Barr)

The answer is no. I would not dream of trying to do so. I do not think that any Member of Parliament should try that even though a Conservative Member once tried to do so. In one week, one does not face the problems of buying an iron or a kettle and there are not many clothes to buy, so that is not the issue. Nobody should be required to live on the basic state pension of £66.75 a week. That is not enough, and that is why the minimum income guarantee exists.

Tony Clarke (Labour, Northampton South)

rose—

Archy Kirkwood (Liberal Democrat, Roxburgh and Berwickshire)

rose—

Jeff Rooker (Labour, Birmingham, Perry Barr)

I give way to the Chairman of the Select Committee on Social Security.

Archy Kirkwood (Liberal Democrat, Roxburgh and Berwickshire)

The Minister is putting a brave face on the matter and concentrating on means testing and the relative incomes of pensioners. However, the national insurance fund is a contributory system and contributions are, subject to the upper earnings limit, earnings related. I am certain that the right hon. Gentleman will acknowledge that the national insurance fund—certainly in my experience, and probably even in his—has never been in a better condition. The Government actuarial quinquennial review, which was published last July, made it quite clear that the Government Actuary believed that relinking pensions with earnings was affordable. Does the right hon. Gentleman accept that? If that is true, and given what was said in the review that was published last July, the money is available to re-establish the link as of this year.

Jeff Rooker (Labour, Birmingham, Perry Barr)

I have great respect for the hon. Gentleman, and his argument is seductive. However, the Government Actuary's report that I want to see is the one that will be produced now that we have made a policy announcement on inherited SERPS. All the Government Actuary reports published to date, including the specific one on the Bill, assume that inherited SERPS was not an issue and that, from March this year, pensions would drop from 100 to 50 per cent. The scenarios of the possible costs to the Government of inherited SERPS are for figures of between £8 billion and more than £20 billion, and I must tell the House that that money must come out of the national insurance fund because it is a national insurance fund benefit. We simply cannot operate on that basis. Under the minimum income guarantee no one is expected to live on £66.75, the basic state pension. That is not enough. We know that the average single pensioner's total income—net of any tax—is £132 a week and, for a couple, the figure is £248. I know that people might argue that we do not come across many pensioners like that, but they exist and those are the average figures. I am the first to admit that averages can be misleading. However, we cannot ignore the fact that average pensioner income is virtually double the basic state pension. That has happened because of SERPS and occupational pensions and—despite the fact that some were mis-sold—because of some personal pensions. That explains how the extra income is made up. Although we shall not accept new clause 8, we recognise that the chances are that the older people get, the poorer they are likely to be. That is inevitable. By and large, they will be female. That is why, on the basis of next week's increase, MIG for pensioners aged 60 to 74 will provide an income of £78.45, which is well above the basic state pension. For those aged 75, the figure goes up to £80.85 and, for those aged 80, the figure is £86. The MIG figure for an 80-year-old is almost £19 a week higher than the basic state pension. We recognise that pensioner poverty is connected to age. There is no doubt about that, and, when we roll out the publicity machine for the MIG take-up campaign that we have announced, we shall target that group. We shall write to 2 million people. We estimate that between 500,000 and 700,000 people are currently missing out. Why should that be the case? I am not sure whether or not it is due to stigma. I meet constituents and receive letters from them, but I have not met anyone for a long time who has said that they do not claim because of the stigma of the means test. They might say, "I'm not going down the social. I'm not going to Soho road along with that lot." They do not consider themselves to be beneficiaries, and there is something in that because Governments have in the past treated pensioners as a block and mixed them up with everyone else who claims from the Benefits Agency. Of our benefits payments of £100 billion a year, £47 billion, or 47 per cent., goes to pensioners, but only about 10,000 of the Benefits Agency's 80,000 staff work on pensions and pensioners, which is wholly disproportionate. That is why, three or four weeks ago, we announced that we will centralise pensions and move all aspects of pension planning and provision out of the Benefits Agency into a separate, free-standing agency responsible to the Department. We have started planning that only in the past couple of weeks, so I cannot say when it will start. That agency will deal with a big chunk of the Department's money. It has been said that many pensioners who are entitled to MIG do not claim it even though they readily claim housing and council tax benefits. Why do they claim one and not another? Housing and council tax benefits are central Government money but they are delivered via local authorities, and pensioners can pop into what is, in my constituency, their friendly neighbourhood office. It is different from the social. There is therefore a paradox, in that pensioners will claim one means-tested benefit but not another because the delivery of the first is perceived to be more pensioner-friendly. That is why we are, as I have said, separating pensions from the Benefits Agency. Many of my hon. Friends have read out the Government's record, including measures such as the free television licence for those over 75. The measure is worth £2 a week to those pensioners: that cannot be gainsaid. The winter fuel allowance this year is worth £3 a week to an individual or a household. For those over 75, that adds up to £5 a week that they would otherwise have spent out of their income. It is real money; it is not a token. That is on top of all the other measures that we have included in the pensioner package, including the first-time concessionary fares for areas of the country that hitherto did not know what the words meant. Of course my city invented concessionary fares in 1956. That is not a benefit that I would boast about to my constituents, and I might add that it has been under threat when we have had the odd Tory controlled-council. I say to my hon. Friends that it is unacceptable to use words such as "betrayal", "rottenness" and "failure". Those are unacceptable descriptions of the Government's package of policies for pensioners, rich or poor, since May 1997. Frankly, they feed the lie that those who are opposed to our party, from the left and the right, will permeate through society come the general election, and it is no good lending credence to that lie.

David Winnick (Labour, Walsall North)

Is my right hon. Friend aware that although I have absolutely no illusions about the poverty of many pensioners and I am glad about the minimum income guarantee, I will not be supporting the new clause simply because the Government have done more than they promised at the general election? They gave £100 of winter fuel allowance, which has now risen to £150, which many of us campaigned for year after year when the Tory Government refused to take action, and the same applies with the free television licence. Although I certainly want the Government to do more on pensions, I recognise that much has been done, and no one could accuse me of looking for a job.

Jeff Rooker (Labour, Birmingham, Perry Barr)

Nor me. My hon. Friend is right. I want to finish on a point that is not generally appreciated, and when we make it, people do not believe us, but it demonstrates the scale of the problem that we are dealing with among millions of our fellow citizens. The minimum income guarantee is at present targeted at 1.5 million people, who happily apply for it and collect it. We want to encourage the other 500,000 to do so. With the changes to MIG and the winter fuel payments, the pensioner population are receiving £800 million more in the first three years of this Parliament than they would have done if we had restored the link between the basic pension and earnings. I ask my hon. Friends to think about that. We are unable to do everything that we want to do. I want to do more. There is not a single Minister or Back-Bench Labour Member who does not want the Government to do more. However, we have to tell the truth, and so far over this Parliament we have delivered £800 million more to the pensioner population—targeted, it is true, in the case of MIG, but as a balance the other measures are widespread—than we would have spent if we had simply raised the basic pension in line with earnings. That is a record that we should be proud of, and not one that we should attack.

Paul Burstow (Liberal Democrat, Sutton and Cheam)

I want briefly to pick up on one or two of the points that have been made in this full and useful debate, which is about the importance that Members on both sides of the House attach to the basic state pension and the ways in which its role might be developed. The Minister did not entirely address new clause 8. He said that the Government accepted its spirit but were unable to accept its terms. The new clause would give the Government a power, which they could choose whether or not to use, to introduce and uprate age additions to the basic state pension. That would be a useful power that the Government should take, and we urge hon. Members who agree with us to join us in the Lobby in support of the new clause to get extra money to our oldest pensioners, who the Minister and many other hon. Members have rightly acknowledged are almost always the poorest. The debate about new clause 36 has been particularly good, and many powerful speeches have been made by Labour Members. I do not want to add to those; they speak for themselves, and I hope that the House will have the opportunity to divide on that new clause. The debate has been about the future of the basic state pension. Is it a future of continuing erosion, so that we will have a state pension that is withering away, or is it one in which we will be able to be proud of the basic state pension, which people expect the House to protect? I believe that we should protect it.

John McDonnell (Labour, Hayes and Harlington)

On a point of order, Mr. Deputy Speaker. There is some confusion about the voting pattern this evening. Can you clarify that the vote on new clause 36 will come after the debate on new clauses 18 and 19?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

I say to the hon. Gentleman and any other hon. Members who may be confused that the vote on that new clause—if the occupant of the Chair is disposed to accept a vote—will come in the appointed order on the amendment paper from which we are working, and not immediately.

RATE OF INTRODUCTION OF STATE SECOND PENSION

Steve Webb (Liberal Democrat, Northavon)

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

Steve Webb (Liberal Democrat, Northavon)

The purpose behind new clause 10 is to introduce the state second pension more quickly, and amendment No. 6 deals with the level of that pension. The new clause recognises that many people at a late stage in their working life will, potentially, have had many years under SERPS and relatively few years under the state second pension scheme. Under the Government's proposals, those people will see virtually no improvement in their eventual second pension from the state. If the new clause were accepted, for each year that such people were members of the state second pension scheme they could substitute an additional year's membership of that scheme in lieu of a year's membership of SERPS. Given that the Minister has said that the state second pension is more generous for the low paid and for carers, the new clause would in effect say to those people, "We are concerned about your inadequate second pension provision not only in 2047 but for the next few years, and we shall bring in the new scheme more quickly." How quickly can a new pension scheme be introduced? The Minister's response generally is that these schemes take a long time to mature and cannot be hurried. Schemes like SERPS allow 20 years to take effect; the danger is that, by the time 15 or 10 years have elapsed, they will have been hacked by successive Governments. The state second pension scheme will take about 45 years to come in and will probably never see maturity. The graduated pension scheme lasted for about 15 years. SERPS, before it was modified, lasted for about 10 years; the state second pension scheme will never get there if it is not allowed to establish itself quickly in the public's perception. It is much harder to cut something that people are starting to get than something that they might get in some distant decade. We believe that the needs of pensioners in poverty are much more urgent than the leisurely pace at which the state second pension will be introduced. The Minister tells us that it will double the figures for people on certain income levels and quadruple them for those on others, but none of these statements will be true until 2047, when the whole scheme takes effect. That is beyond a realistic time scale. The Government have set out their strategy for doing something this year if there is a problem of pensioner poverty. They have also set out their strategy for doing something in 2047, but there must surely be something between now and then. If the Government believe that second state pensions are a key part of that process, as the Minister has said he does, it will be a mistake to allow decades to pass before any real benefit is felt. In a written answer to me, the Minister indicated that by 2025, which is surely a reasonable time for Government policy to begin to have an impact, the poorest 20 per cent. of pensioners will on average be only £1.30 a week better off. The richest 20 per cent. will be better off by a similar amount. The scheme will not be redistributing effectively in 25 years' time. The thinking behind the new clause is sympathetic to what the Government are trying to do through the state second pension. It is not how we would have done things, but if they are to go ahead with the second pension, we are saying that it should take effect more quickly, and new clause 10 would have that effect. The clause would especially favour women, who could forgo their entitlement under SERPS for a given year and substitute a state second pension year of entitlement. That would favour parents with young children and the lower paid, who predominantly would be women. Given that we know that pensioner poverty of the future, as of the past, is predominantly a female phenomenon, the new clause would target that poverty without means testing.

Paul Burstow (Liberal Democrat, Sutton and Cheam)

I am grateful to my hon. Friend for giving way. Can he confirm that, even when the state second pension reaches maturity in 2047, those who start to draw it will rapidly—within five, 10 or 15 years—fall back on to means-tested benefits?

Steve Webb (Liberal Democrat, Northavon)

My hon. Friend gives me an unscripted but neat link into the second part of my remarks, focusing on the level of the state second pension. Amendment No. 6 would ensure that the combined value of the basic state pension, which is gradually ebbing away, and the state second pension would not be such that when a person reaches state pension age and lives an average life expectancy, he would be back on means-tested benefits before he dies. That is the nub of amendment No. 6. We have used the figure of 15 years in the amendment as the typical life expectancy for a man aged 65. The accrual rate of the state second pension should be such that someone who lives an average life span from the state pension age should not have to claim the means-tested benefit before he dies. Clearly, we can argue about the detail of the amendment, but we are trying to highlight the principle—the adequacy of provision. The hon. Member for Birmingham, Selly Oak (Dr. Jones) pointed out that the combined value of the basic and second state pension as a fraction of average earnings will be below the level of the basic state pension at the end of the 1970s as a fraction of average earnings. A Government who seek to tackle pensioner poverty, but who leave many people who will reach pension age in 40 or 50 years expecting to draw a means-tested benefit before they die, are not being brave enough. We can argue about the adequacy of present provision, but with 50 years to sort the system out, surely the Government could at least ensure that our oldest pensioners do not have to rely on means-tested benefit, especially if they are getting the full basic and the full state second pension. That is the Government's answer to pensioner poverty—the basic pension combined with the state second pension. If that is not enough to keep pensioners out of poverty—not just the year that they retire, but into old age, which is likely to be increasingly old age as the years go by—it is an inadequate response. Two issues are raised in our amendments. New clause 10 deals with the rate at which the state second pension comes in; 50 years is too long. Amendment No. 6 deals with the level; letting people end up on means-tested benefit is not adequate.

Lynne Jones (Labour, Birmingham, Selly Oak)

I shall speak to amendments No. 67 and 69. I had hoped that today I would be in Washington with the Select Committee on Science and Technology to conduct our inquiry into cancer treatments. However, I feel so strongly about the issue of pensions policy that I am here today instead. The Government are not getting it right on pensions. I offer these and other amendments later as suggestions for improving the Bill. I offered to participate in the Standing Committee that considered the Bill, and I thought from the Minister's comments in his winding-up speech on Second Reading that there might be an opportunity for me to contribute, but unfortunately the Whips seemed to think otherwise. It is no secret that I believe that the framework of the Bill is far from perfect. I hope that the Government will use opportunities elsewhere to bring about some improvement. During Question Time, the Minister did not dispute my assertion that the combination of the basic state pension and the state second pension, when they are fully mature in about 50 years, will pay out a lower proportion of average earnings than did the basic state pension in 1980. The Green Paper on welfare reform was subtitled "New ambitions for our country". I hardly think that in the middle of the 21st century, in one of the richest countries in the world, to be paying out to a large proportion of pensioners a level of income that is scarcely above the means-tested benefit is much of an ambition. "Opportunities for All", which the Government published, showed that after a lifetime of working, pensioners would be between £9 and £16 better off on the state second pension and, as Liberal Democrat Members pointed out, that sum would be eroded in a few years and pensioners would be back on means-tested benefit. The state second pension is a substitute for properly uprating the basic state pension, against which the Government have set their face. However, I cling to the Minister's words that the manifesto commitment was to uprate the basic state pension at least in line with prices. I hope that there will be an improvement in future uprating. The state second pension replaces the proper basic state pension. Amendment No. 67 would therefore extend the category of people who will be credited into the state second pension to include those who are unemployed or whose earnings are below the lower earnings threshold, which is currently £67 a week. Even someone on the minimum wage who works for 16 hours a week—for example, many women who cannot work full-time because of family responsibilities—will not be passported into the state second pension. That also applies to the unemployed. At the moment, unemployed people are credited with national insurance contributions for the basic state pension. If the state second pension really replaces the basic state pension, it would be logical to credit unemployed people into the state second pension. The Government may argue that that is a disincentive to work. However, we are considering a deferred benefit from which people derive no immediate gain. When people who have been out of work have a period of employment, the disincentive to save that the prospective loss of means-tested benefit represents will be greater than for other groups. Their basic state pension will be further from the minimum income guarantee than the state pension is now. Crediting the unemployed into the state second pension will not discourage them from working but will encourage them to save for retirement when they are in work. We should not forget that, for the better off, breaking the link between employment and tax relief for the stakeholder pension means that a substantial tax benefit per pension is available to those who do not work. However, making pension contributions is out of the question for most unemployed people. I hope that the Government will consider granting entitlement to the state second pension to those who are unemployed or whose earnings mean that they do not qualify under the proposed arrangements. The Government intend to change the state second pension from an earnings-related pension to a flat-rate scheme. Amendment No. 69 would delete the power to make that change. The first stage of the state second pension will be earnings related. The Government state that, at that stage, people who earn less than £21,600 will receive more than they would have received under SERPS, while those earning £21,600 and more will receive the same amount. However, in time the Government want to encourage everyone earning more than £9,500 to contract out to a non-state-funded scheme. The second stage, which is to be introduced once stakeholder pensions have become established, will change the state second pension into a flat-rate scheme for those with a significant part of their working life ahead of them—for example, those under 45 at the point of change. Once the scheme becomes flat rate, the intention is that everyone will be better off contracted out to a stakeholder pension or another non-state-funded scheme. To encourage the better off to opt out, the Government are prepared to put up a lot of money in generous rebates, which they say are likely to cost about £12 billion to £15 billion. That will be all very well if people contract out to good, defined benefit pension schemes, but it will be another matter if they make money purchase pension arrangements with no guaranteed level of benefits. The Government can do and are doing a lot to provide better value for money from private pension arrangements by driving down charges. Even so, a 1 per cent. charging regime will eat up 25 per cent. of any pension fund and there is no guarantee that stakeholder pensions will give a good return. Are people on modest earnings keen to have their pension on a risk basis? Do we approve of people on low incomes gambling with them? Many may do no more than put the minimum national insurance rebates into their scheme, as many did for personal pensions. The position of those with earnings that vary above and below the £9,500 threshold ought to be considered by the Government. Women in particular are in that category and their incomes often fluctuate when they take time out for their caring responsibilities. Would it make sense for them to switch between the state second pension and stakeholder pensions, as each at times apparently offers better value? Will they stay in the state second pension and lose in their good years what they had gained in their bad? Despite all its shortcomings after Tory cuts, SERPS still enjoys considerable public support, which can be interpreted sensibly only as support for a concept. That concept is a decent, good-value, earnings-related defined benefit scheme that offers a natural home for all those on moderate earnings who are not fortunate enough to be in a good employer scheme. Under the Government's proposals, the state second pension scheme will become a pension for the low paid. Encouraging everyone earning more than £9,500 to opt out means that it will become solely for people with no or very low earnings—a pension for the relatively poor. That could mean that voters will have less interest in maintaining it, particularly if it takes a long time to build up, which seems to be the case. It will also limit choice. I see no reason why those with higher earnings should not have the choice to continue to join the scheme, with benefits reflecting the contributions made. The Government should consider being as generous to those who want to stay in the state second pension as those who want to opt out. In opposing stage 2—making the state second pension flat rate—we could at least argue that we are honouring our manifesto commitment to retain a state earnings-related pension, even if it is not exactly SERPS. It is appropriate to remind my right hon. Friend the Minister of that commitment and I hope that the Government will reconsider their decision to move the state second pension to a flat-rate scheme. It is important to put those arguments on the record, but I shall not press the amendments to a vote. The pensions officer of the Manufacturing, Science and Finance Union helped me with the drafting and 1 hope that the Government will consider these suggestions, which are supported by Age Concern, as a positive contribution to improving the Bill.

Jacqui Lait (Conservative, Beckenham)

I shall speak to new clause 14 and amendments Nos. 64 and 96, but not to amendments Nos. 91 to 94, as we want to move on. May I say how sad I was that the hon. Member for Birmingham, Selly Oak (Dr. Jones) did not join us on the Committee? We noticed the offer that was made to her, and were looking forward to some entertaining debates.

Jeff Rooker (Labour, Birmingham, Perry Barr)

indicated assent.

Jacqui Lait (Conservative, Beckenham)

I see that the Minister agrees. Unfortunately, the iron hand got in the way. It is obvious from what the hon. Members for Northavon (Mr. Webb) and for Selly Oak said, and from new clause 14, that there is serious concern in the House about the state second pension's ability to keep people off means-tested benefits. All of us would agree that that is what we want to achieve. We had endless debates in Committee on this subject, and we received many reassurances that the state second pension would achieve that. Last week, in Westminster Hall, we had an exchange on this subject, when the right hon. Gentleman pointed out that, if a couple were both on at least the state second pension, they would be above the minimum income guarantee level. We acknowledge that, but the problem is that not everyone will be in that situation. Often, only one of a couple is left at retirement age. I regularly argue that, when people are earning a moderate income and the children are at their expensive stage, if it is a question whether to spend money on a pension or on the kids' trainers, the trainers usually win. However flexible we make the state second pension or the stakeholder pension, those people will unfortunately find it difficult to save. The hon. Member for Northavon referred to the attraction of the state second pension or the stakeholder pension in 2025 or 2050. There is much doubt about how much extra pension people will get, and whether, being rational economic beings, they will decide on the balance of probability that they are better off with a pension than relying on a minimum income guarantee related to earnings. There are problems with trying to make the state second pension in particular sufficiently attractive for people to want to save for their retirement under such a scheme. I wish the campaign on the minimum income guarantee well. We shall keep an eye on its success, and will monitor it to see how effective it is, because we can always learn good techniques to encourage people to do the right thing. If we truly believe that people should have a pension and not benefits, we should address the issue of the interaction between the MIG and the state second pension. I believe the Minister of State because he is a most determined and clear-thinking person. I believe that he is seriously committed to the success of the state second pension, but I have a feeling that there is a lack of understanding and that the Government are not prepared to admit that there is a flip-side to this argument, which is that people may opt for income support in retirement. Our suggestion is another version of the variations proposed by the Liberal Democrats and the hon. Member for Selly Oak. We have come up with yet another way of making the state second pension more attractive to people. We suggest that, if someone is deemed to have had four years' credits towards a state second pension and/or four years of working entitling them to credits towards the state second pension, they should get an extra year's accrual. The objective is to lift those people out of the area in which income support is more attractive. A knee-jerk reaction is that this must cost money but, set against the cost of income support, the cost of the extra year's accrual would be modest, and would moreover be worth while in giving people the self-respect that having their own pension would confer. It would also give people an incentive to save for that pension. In Committee, I presented a proposal which, I freely admit, may not have been drafted as well as it might have been. I am equally prepared to admit that amendment No. 64 may not have been drafted as well as it might have been, but, as we are not going to press it to a vote, it may be useful to have an exchange about it. Amendment No. 64 suggests that those who are over the inflexible age of 65 for the purposes of the state pension—for women, 60, moving up to 65—should, if they wish to continue working, be able to contribute further, through national insurance, to enhance their state second pension. Obviously, we want to encourage people to have a better second pension, but we also want the state to recognise, as it does not, that there will almost inevitably be a need for people to retire flexibly as demography changes. Fewer and fewer younger people will enter working-age groups. Meanwhile, those whom we have historically regarded as being of an age to retire will want to work, will be well enough to work, and will present great value to employers because of their knowledge, experience and steadiness. They will also play a key role in charitable and voluntary work, for which more and more people are being paid. It would seem sensible to allow people over the state pension age to contribute if they wish to. As for amendment No. 96, let me pick up some of the points made by the hon. Member for Selly Oak about the success of the stakeholder pension before the target group moves from the state second pension. We have received many assurances from the Minister—I believe him—that, before stage 2 of the state second pension is reached, when everyone goes on to a flat rate, there will be a debate in the House, and the success of the stakeholder pension will be assessed. What we have not heard from the Minister is a description of the target market. No one puts a new product such as this into the market without having a clear idea of what the market is. In simplistic terms, we are talking about people earning between £9,500 and £21,000 a year, but subsequent clauses and amendments suggest that not just that group is involved. Excluded from it are people who could potentially take advantage of a tax break. There are people who may be earning a small amount, but whose husbands or wives are earning a reasonable income. Are they part of the target market? How many people are in the target market? From what circumstances are they meant to be able to benefit in the target market? We are asking the Financial Services Authority—which, because of its wide experience of different financial products, will understand markets—to help the Government to define the target market, and to say whether it represents a good deal. We have a serious concern about whether the stakeholder pension and the state second pension will be a good deal, and about whether, rationally, people should not go on to the minimum income guarantee. Before people make those decisions, they should go through the process illustrated in a decision tree, and the Government have rightly included types of decision trees in some of their consultation documents. However, the purpose of any decision tree is to guide people through a series of yes/no questions, whereas the decision tree in the Government's document regularly states, "Seek help," "Always seek help," "Ask your employers for details," "Should seek help," "Probably will be a better choice for you—seek help." The Government's decision tree regularly admonishes people to seek help, but it does not assist them in making a decision. Unless the Government are careful, they are in grave danger of setting themselves up for another mis-selling scandal. There is a danger not only because the Government are encouraging people to make a decision that would perhaps not be in their best interests, but because they are not encouraging people to make a more fundamental decision. There is a presumption that a pension is best for everyone. Although I would not disagree with that, there are those whose best interests may be served by being on income support. I suggest most humbly that, if the Government wish to encourage people to choose a state second pension or stakeholder pension, people should first be clear in their own minds about whether that is the best choice for them. The decision tree that the Government are encouraging people to use should deal with those basic issues. I hope that the right hon. Gentleman will be able to deal with the points that I have made on those three amendments. I look forward to hearing what he has to say.

Jim Cousins (Labour, Newcastle upon Tyne Central)

I support amendments Nos. 67 and 69, with which I have identified myself. I do not intend to detain the House for very long. I have a slightly different view on the issues that we are debating from some of my hon. Friends who have spoken in the debate, broadly speaking, from below the Gangway. The opinion that I expressed in the debate on Second Reading—I hold it even more strongly now—was that the state second pension proposal is a fundamental and significant innovation for two reasons. The first is that it will extend the network of the state pension to spheres that the current contributory system simply does not reach. The proposal is therefore extremely radical. It will affect those who live in social conditions that are not reached at all by the state pension system. I give great credit to my right hon. Friend the Minister of State for his part in developing the proposal, which is a powerful mechanism for the future. I tell the hon. Member for Northavon (Mr. Webb) that many people will accrue entitlements to the state second pension when they are experiencing particular responsibilities or obligations that they do not have in other times of their lives. Therefore, the state second pension will continue to top up a pension entitlement that, in other times of those people's lives, was generated by quite different mechanisms. It is an extremely important aspect of the proposal. The accrual rate of the benefits generated by the state second pension is the second significant feature of the proposal. For those earning £10,000 or £11,000 annually, the state second pension will be the best pension product ever offered to the British people. The Government should be given considerable credit for that. The point of amendments Nos. 67 and 69, however, is to make it clear that it would be very good indeed if the benefits of the state second pension could be extended even further to those who are not reached by the contributory system. 9.15 pm It is also important that the state second pension is not later switched back to a flat-rate benefit. My right hon. Friend the Minister said during Question Time today that there were 18 million potential beneficiaries of the state second pension. He will correct me if I am wrong. More than half of those have earnings above the target level of £9,500 a year. The bulk of the benefit of the state second pension will go to people who, at some point in the future, may be excluded from it. Part of the purpose of the amendments is to put off and change that exclusion. If people are to be excluded from the non-flat-rate parts of the state second pension, the stakeholder pension—a voluntary, defined contribution scheme in which the pattern of contributions is determined by the contributor—will bear an unreasonable weight of responsibility throughout the income ranges. The stakeholder scheme will be rescued if a non-flat-rate state second pension is able to continue to provide earnings-related benefits on the favourable basis on which the scheme has been designed. I hope that my right hon. Friend will find that my simple points are sympathetic to his scheme. This brief debate has been interesting. When the state second pension scheme was first proposed, there were all manner of doubts about it. Interestingly, many of the Opposition amendments tonight would extend its benefits. The power of the state second pension scheme is now acknowledged by all. It does not seem unreasonable to extend its benefits to wider categories of people and embed it firmly as an essential building block of the pensions system of the future.

Jeff Rooker (Labour, Birmingham, Perry Barr)

The hon. Member for Beckenham (Mrs. Lait) said that there were certain issues that she would not raise, so I junked most of my notes in the interests of brevity. The hon. Member for Northavon (Mr. Webb) was very brief and stuck to the point. If I do not cover something that I should, hon. Members should come back to me on it. I am trying to truncate my speech. It bears repeating that the state second pension is a reform of SERPS that refocuses help on those who need it most. Some 4.5 million low earners will get more than double what they would have got under SERPS. Two million carers and a similar number of long-term disabled people will also build up a second tier pension for the first time. In addition, 9.5 million moderate earners—earning between £10,000 and £20,000 a year—will gain. It is probably better for me to respond to the points that have been made than to whip through my notes. Commentators often suggest that people would be better off on the minimum income guarantee. Some highly paid so-called journalists have given unprofessional advice. It is compulsory for people to pay into a second pension—either SERPS, which will become the new state second pension, or an occupational or personal pension scheme. Employees cannot choose to clear off out of all the provision and go into the MIG, because if they are working they will be paying national insurance, and if they are not contracted out they will be paying it at the full rate. I am grateful to my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) for what he said about the fundamentals of the scheme. It is true that it is our intention that in stage 2 the state second pension should be a flat rate, but we will not do that until we are satisfied that the stakeholder system is established. We have not yet defined what we mean by its being established, but we will certainly have to in due course. It would not mean a short time, and I would generally take the lifetime of a Parliament—certainly not less than three to five years—to be a suitable period. The hon. Member for Beckenham referred to the target group. There is not a moving target, although it might look that way. The target group consists of those with moderate incomes of between £10,000 and £20,000 a year, with no second pension provision, whose jobs may be peripatetic and who may move in and out of different scales. There are 5 million people with earnings between £10,000 and £20,000 a year, 3 million of whom have no second pension provision. I am not denying that, in order to encourage those people and make pensions politically sexy for them, we have made the system user-friendly and flexible, so—it is true—it can be used to purchase a pension for a non-earning spouse or a child. People may call that tax avoidance, but I say that it is still a pension at the end of the day. It is not a tax fiddle, because it is not like putting the money into an individual savings account, which can be cashed in. Money in a pension stays there until it is drawn as a pension. The price that we pay for flexibility and user-friendliness is that many people other than the target group will have a stakeholder pension, and some will no doubt move from personal to stakeholder pensions. That is not how we will measure our success; we will measure it by the results in the target group. My hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) rightly raised the question of those with earnings fluctuating around the limit. I deeply regret the fact that she could not join us in Committee. Of course, I do not organise these matters, but I certainly cast a vote for her. The new arrangements for people who are contracted out were designed specifically to deal with fluctuating earnings. The state second pension top-up payments will be payable for earnings under £9,500. If people's earnings go above that amount, the national insurance rebate will be sufficient to give them an amount of pension broadly equivalent to what they would have received had they remained in the state scheme. The top-up system means that people will not have to face what I recognise would be extremely difficult decisions. My hon. Friend the Member for Selly Oak asked me about another matter at Question Time. I now have some more information and I certainly want to give her the best answer that I can. The state second pension and the basic pension in 2050 for low earners will be about 25 per cent. of average earnings—roughly the same proportion as the basic pension was in 1980—but that level of average earnings will be more than double today's level in real terms. If she is not satisfied with that answer, I will be happy to answer further parliamentary questions. Amendment No. 96 would require the introduction of stage 1 of the state second pension to be postponed until the Financial Services Authority had published guidance setting out for which income groups stakeholder and state second pensions were suitable. We do not think that it is necessary to put everyone through that hoop. Stakeholder pensions are not compulsory—people can remain in the state second pension—and we have no plans for them to become compulsory. A judgment will have to be made in due course as to whether enough of the target group have been persuaded to join the stakeholder pension and, if not, why not. We need to get everyone who is working into a good second pension. If they are not, they will be in real trouble when they retire. The policy has not been ruled out, but there are no plans—let us be realistic about that. We have worked closely with the FSA to develop the policies on the stakeholder pension. I have not seen the latest versions of the decision trees. As I said in Committee, just before Christmas, I went to one presentation of the FSA's work, which is highly sophisticated. There is a good understanding among those involved in the industry, among those in my Department and among the regulators that we must get people into such schemes, without mis-selling, making it simple and easy to do that and to understand the scheme. The decision trees are part of that. They are not the only answer, however.

Jacqui Lait (Conservative, Beckenham)

Does the work on decision trees go back to the basic balance between income support and pensions?

Jeff Rooker (Labour, Birmingham, Perry Barr)

I am coming to income support. I will not dodge that issue, but the hon. Lady is right to raise it. Amendment No. 69 would remove the provision to introduce the second stage of state second pension, making it a flat rate. As I have explained, our proposal to move to the second stage when conditions are right is designed to give the Government flexibility to give a strong incentive to moderate and to higher earners to move to funded schemes. We make no bones about that. We make no apology. It is not a secret policy. It is part of the overall big picture—the plan to shift pension provision from 60 per cent. state and 40 per cent. private to 40 per cent. private and 60 per cent. state. [Interruption.] I shall do it the other way around. It is part of our overall plan to move from 60 per cent. public and 40 per cent. private to the other way around. Everything fits into that. I have said that so many times it is ridiculous to get it wrong. New clauses 10 and 14 would both boost entitlement. The ideas behind them are wholly laudable; I make no criticism of that. They would do it through retrospection and by allowing contributors to accrue more years' entitlement than they actually pay for. It is novel and innovative. It is one extra year for every four. It has some seductiveness. There are two arguments in respect of those new clauses: first, whether we should provide additional help to specific groups; and, secondly, the need to maintain a balance between providing help to those who need it most and managing the overall cost. We do not believe that it is fair to provide additional boosts to certain groups, rather than to all state second pension beneficiaries. It is no secret that retrospection is an issue that we have considered. We discussed it Upstairs in Committee, but to allow retrospection for everyone would be prohibitively expensive and operational difficulties mean that it is not possible—I am sorry; it is those computers again—to allow retrospection in many cases. It is not just computers but lack of records. As a result, it is not a viable proposition. Our proposals for the state second pension strike a balance. The amendments would change that balance. For example, new clause 14 alone would add £8 billion a year to the long-run cost—the cost by 2050. New clause 10 would add £3 billion to the long-run cost. That gives hon. Members some idea of the scale. I shall not repeat the points that we have made: without the changes, many more people would retire on the MIG. Amendment No. 67 seeks to exclude the requirement for low earners to have earnings at or above the annual lower earnings limit to benefit from the low earner's boost. However, the state second pension is a contributory benefit based on earnings factors. There is no doubt about that. It is not a free ride. To have an earnings factor, a person must have had earnings on which national insurance contributions have been paid, or treated as paid. The amendment would give the low earner's boost to anyone who had as little as one week's earnings in a year over the weekly lower earnings limit, which, from this April, will be £67. However, it would not include people with earnings of less than £67 for every week of the year. That would lead to some pretty perverse outcomes. There would be an incentive for the economically inactive to find part-time work for a single week to qualify for the state second pension. We do not think that that is fair. 9.30 pm Finally, I turn to the minimum income guarantee, which is generally quoted in relation to individual citizens. I accept that not everyone is part of a couple, even at retirement, but that is the norm for most of the population. However, the key point is that the MIG is not an individual benefit. The means test is applied to the couple, not the single person. Therefore, although the relevant figures, assessments and advice for single people are necessary, it is right and proper to consider the circumstances as they apply to couples. The minimum income guarantee for a couple is not twice the rate for a single person, but about one and a half times that rate. I shall give one example of that. In 2025, a husband has had a full working life, and his wife has had 20 years of caring for children, 10 of those years being devoted to children under six years of age. The man has earned £180 a week, at today's value, throughout his working life, and his wife, when she has worked, has earned £120, again in today's terms. Under SERPS, the couple's pension would be £121.40 a week, nearly £5 more than the MIG. Under the state second pension, the couple's pension would be £150—15 years before they fall back on the MIG. Such factors must be taken into account. I have recently complained to the financial experts on The Guardian and The Observer, and will do so again to the experts on The Sunday Telegraph, who have all advised that it is better not to be involved and to let the state have a ride on the MIG. That advice can give people the false impression that they do not need to provide for themselves. What is the price of being on the MIG? First, people are limited with regard to the amount of savings that they can have. Those capital limits are being raised, and it is important to ask how many times they will change in the future, because otherwise people might take a risk that is not worth the candle. If a couple can be in SERPS or the second state pension, or a combination of the second state pension and a stakeholder pension, their income, generally speaking, will be way over the MIG. There will be no pressure on their savings, or any of the other factors that go with the MIG. When journalists write on this subject and give examples about MIG, I wish that they would give the relevant figures for couples as well as for individuals. We shall do that when we compile the leaflets for stakeholder pensions, and the picture that is painted as a result will be entirely different simply because the MIG for a couple is nowhere near twice the rate for a single person.

Steve Webb (Liberal Democrat, Northavon)

I thank the Minister for responding seriously to the points raised in this section of the debate. It is extraordinary that the Conservative amendment outspends the Liberal Democrat one—it would cost the Government £8 billion, as opposed to our amendment's £3 billion. That must make the hon. Member for Havant (Mr. Willetts) feel a bit uncomfortable. The Minister ended on an important point. It is true that a couple in which both partners are on full state second pension and basic pension, for example, will be clear of the MIG. In terms of pension planning, however, individuals cannot assume that they will be part of a couple when the time comes. Far too many women's pensions in the past have been built on the assumption that their husbands would provide, only for that relationship to break up. A lot of people are single at pension age, many of them never having thought that that would happen. That has to be taken into account. The Minister said that new clause 10 contains an element of retrospection, and that the computers were not up to the task. When the decision is made about how much someone will get on retirement, the computers will have to know, in each year of SERPS, how much SERPS that person would be entitled to. We suggest that they disregard one of those historic pieces of information and use a current piece of information. A current year's entitlement should be substituted for an old year's entitlement. As, presumably, the data and the computers are better now, and given that the figures will have to be worked out anyway, I do not understand why the computers should be a barrier. In the scheme of 50 years of pension reform, the scale of the improvement to the state second pension that we propose is reasonable and modest. We have sought to divide the House on a number of occasions, but we believe that the state second pension is a key aspect of the Bill. We believe that the state second pension is flawed because it will take so long to come in, and new clause 10 would address that in a measured and reasonable way.

Date of payment of benefit

Steve Webb (Liberal Democrat, Northavon)

I beg to move, That the clause be read a Second time. The House will be relieved to hear that this will be a brief contribution, prompted by two cases of perceived injustice in the way the benefits system treats people who have just reached state pension age. People receive their first state pension on the Monday after they reach state pension age, even though they may have been 65 or 60, as the case may be, for up to six days. That is six sevenths of a week, and it can leave a person reaching state pension age short, to their way of thinking, by as much as £100. I should like to draw attention to the cases of two people. The Minister will be familiar with the case of Mr. Maiden, constituent of my hon. Friend the Member for Edinburgh, West (Mr. Gorrie), who felt aggrieved by the fact that he missed out on several days' worth of pension. He took the Benefits Agency to a tribunal and won. An article in Choice magazine, from April 1999, says: Ron was triumphant…although the Department of Social Security says his success doesn't set a precedent. In other words, the tribunal decided that this man should have been paid his pension from when he was 65, not from the following Monday. However, the Department of Social Security decided that although the tribunal had found against it, it would not apply that rule to other people. That case was brought to my attention by a constituent, Mr. Wells, who was 65 on a Tuesday and therefore lost six days' worth of pension. He says that although it is not a huge sum, it is a matter of principle. He took his case to appeal and lost. I told him that I would bring the matter to the attention of the House with a view to rationalising the slightly odd situation where a person can have reached the qualifying age for the state pension but not be entitled to draw it for nearly a week thereafter. I have written to the Minister on the issue previously, and the responses tend to say that the same is true of other benefits, so if the person was receiving another benefit before reaching state pension age, that would run on for the six days and there would be no loss; but of course that is not true of someone who is in employment immediately prior to reaching state pension age. Thus the purpose of new clause 11 is to try to tidy up the legislation, to make it plain that entitlement starts when one reaches 60 or 65. It does not matter terribly that the payment may not be made until the next Monday; but the entitlement should date from the date of reaching state pension age. That seems only just and fair. I hope that the computers are not a barrier and that the Minister will accept the new clause.

Jeff Rooker (Labour, Birmingham, Perry Barr)

First, I make it clear that the way in which the pension is paid does not cheat pensioners. When I was elected to the House years ago, my constituents asked me similar questions. I received replies from Ministers and asked parliamentary questions, so perhaps this is a generational issue. I wish to put several points on the record, and one is that we must be careful about the language we use. Two principles were set down in 1948 and they have remained the same since. First, retirement pension is paid weekly in advance, so I shall not return to the arguments about ACT and whether it should be paid four weekly in arrears. Secondly, it is paid in whole weeks, not in part weeks. There is no sense in beating about the bush and, earlier today, I answered a question from the right hon. Member for Caernarfon (Mr. Wigley). The consequence of making the pension payable from someone's birth date is that, when the payment is no longer required because the pensioner has died, we would have to try to claim back the extra few days' payment. Frankly, we are not prepared to countenance that. A pension is paid from the Monday following someone's 60th or 65th birthday and continues to be paid until the Monday after it is no longer required. In the sensitive period after someone has died, no attempt is made to claim back from the family any extra days paid. I must disabuse hon. Members of their notions of the effects of ignoring the consequences of the new clause. The oncosts of part weeks would be £20 million a year. Because of the Public Accounts Committee and the requirements of accounting officers, we simply cannot write off £20 million. Nobody loses out under the present system. Pensions are paid from Monday to Monday and they are paid in whole weeks. It has always been like that, and we do not propose to change the current system. I do not deny that, in due course, we want to pay pensioners by ACT, and the period covered by the payments will form part of the discussions in the next couple of years. Obviously we shall not pay four weeks in arrears; that is totally out of the question. I do not want to offer any hope for change, because the consequence of paying pensions in part weeks is that we would have to claim back money after a pensioner was deceased. We are not prepared to countenance that. Frankly, I doubt that, if Members of the House were in my position, they would take a different view.

Steve Webb (Liberal Democrat, Northavon)

That was an interesting response, but not the one that I expected. I fear that I must report back to my constituent that he did not get his £100 when he was 65, but that his estate will receive it the week he dies. That seems to paraphrase the Minister's reply. I am not sure that my constituent will be happy with that, but I shall not try the House's patience any further. Given that I have received a different response from the ones that the Minister has given me in writing, I beg to ask leave to withdraw the motion.

CONCURRENCY OF PENSIONS, REBATES AND EXTRA MONIES

Jacqui Lait (Conservative, Beckenham)

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

Betty Boothroyd (Speaker, West Bromwich West)

With this it will be convenient to discuss new clause 19—Use of rebates and extra monies— '.—( ) Where rebates or extra monies are payable they shall be applied as follows— (a) rebates shall be paid into Contracted Out Money Purchase Schemes; and (b) extra monies shall be applied to Contracted Out Salary Related Schemes.'.

Jacqui Lait (Conservative, Beckenham)

I am afraid that these new clauses are rather technical, but I shall try to be as brief as possible. New clause 18 relates to the principle of stakeholder pensions' concurrency with other pensions. The Government have recently suggested that they did not want concurrency, but that they would consider it for people on lower earnings. Why is it not a good idea for all people to use concurrency if they have the ability to pay and if it falls within the amount that they can use tax free? The objection is that concurrency would mean a tax break for the rich. Many people, whatever their income, do not put enough money into pension schemes to give them a reasonable retirement income, and I suggest that if there is scope in the tax system for them to use up more money on pensions, it is, to say the least, shortsighted not to allow them to use stakeholder pensions to do so. There are a number of other arguments for concurrency which I shall briefly deal with. The first is simplification. Concurrency would reduce the need for individuals to get advice on whether they should stay in or join an occupational scheme. The second argument concerns the complication of additional voluntary contributions. Stakeholder pensions could replace AVCs and freestanding AVCs because they would be better value for money. Concurrency would also simplify regulatory issues, because there would not be the same need for stakeholder scheme providers to police members' employment arrangements. It seems odd to use the word "inertia" about pensions, because the last thing we want is for people to be inert when it comes to providing for themselves. However, there is an argument for making inertia work for, rather than against, pension provision. It would be easier for somebody to continue to pay into their stakeholder scheme when they joined an occupational scheme. Another argument that has reared its head before is that there would be a potential for mis-selling if somebody opted out of a good occupational scheme because there was no concurrency. Concurrency is also useful for a flexible labour market and it would help existing schemes. There is plenty of scope for people to take up concurrent stakeholder pensions, because the average private sector employee in an occupational scheme contributes 4.7 per cent. of earnings to that scheme, so there is plenty of room for a stakeholder pension on top. The arguments against concurrency relate to revenue loss, but there will be future savings to the Government on means-tested benefits. People are not already using up all their legal entitlement to pension contributions, and as we work on the basis of people paying tax as they get money out of their pension scheme, more tax will be paid in the longer term, because we will have better-off pensioners. There are strong arguments for concurrency, and it has been recommended by bodies as disparate as the TUC, the Engineering Employers Federation and the National Association of Pension Funds. I urge the Government to reconsider concurrency on the basic policy principle of ensuring that as many people as possible take up as much of their pension entitlement as they can. The second part of new clause 18 deals with rebates, and it, too, aims to encourage people to make better provision for themselves. There may be rebates in excess of those for SERPS which could be paid into a stakeholder pension. They would be small sums, but a stakeholder pension is designed for such sums. That would be a sensible way to enable people to use their allowances and, with concurrency, would help people to make pension provision. It would also be a useful pensions vehicle for large numbers of employees. New clause 19 deals with where the line is drawn between the use of rebates and the use of top-ups to offset the impact of the state second pension. The proposed dividing line is drawn between occupational and personal pensions. That would sacrifice the level playing field between different sorts of pension—personal, occupational and stakeholder—but during the consultation process, the Government found that maintaining the level playing field would impose excessive administrative burdens and complexity.