Orders of the Day — State Pension Credit Bill [Lords]

House of Commons, 23 May 2002.

New Clause 1 — Imputation of years of home responsibility

Steve Webb (Liberal Democrat, Northavon)

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

In pensions, women have been second-class citizens for generations. Of today's elderly pensioners, women are the poorest, and make up the bulk of the group of people approaching pension age with poor pension entitlements. With increasing reliance on private sector pensions, there is a danger that in future women will be less likely to have private sector pensions or take out stakeholder pensions; once again, they will be the poor relations in pension provision.

New clause 1 tries to correct a feature of the Bill which is prejudicial to the interests of a particular group of women. We touched on that issue in Committee, which was constructive and non-partisan; I hope that we can carry that over to today's deliberations, and it is certainly the spirit in which the new clause has been moved. We are seeking to deal with the danger that the values of the 1940s, when bringing up children was seen as women's work, will be carried over into the 21st century in the Bill. We cannot rewrite the system of the 1940s, but we can try to make sure that those values are not enshrined in new legislation and advanced for decades to come.

There has been confusion about the categories of women affected. There has been discussion—I have raised the matter myself—about the position of women who pay the married women's stamp, but that is not my primary focus now. I wish to focus on women whose state pension entitlement has been substantially reduced because of years spent out of the labour market bringing up children. Leaving aside the millions of women who have already retired, I wish to talk about women who are coming up to state pension age with poor pension entitlements. Recently, I received a written answer that suggested that typically women reaching 60 have a basic state pension entitlement of £58 a week, excluding the state earnings-related pension scheme and so on, compared with the full basic pension of £75 a week. That is roughly 75 per cent. of the average figure.

Despite the growth in women's work and the introduction of home responsibilities protection in the late 1970s, women are still reaching pension age with poor basic state pension entitlements. We are not proposing to rewrite the history of the basic state pension entitlement, and are leaving alone the fact that women will typically retire with £58 a week. However, in new clause 1, we query the carry-through of that poor basic state pension entitlement into state pension credit entitlement. Society was right in the late 1970s to value the work of bringing up children, which was predominantly undertaken by women, in home responsibilities protection and similar measures that protected women's pension entitlements during the years when they were raising their family.

The problem is that women now reaching 60 brought up their children, by and large, in the years before home responsibilities protection was introduced. To take a simple example, if a woman who is 60 this year—in other words, who was born in 1942—had her children in her 20s, which is common, or early 30s, most of the time that she spent bringing up those children was in the 1960s and early 1970s, before home responsibilities protection came in. That woman suffers the consequences in the form of a poor basic pension, and the state pension credit system doubles the penalty. It says to the woman who has managed to do some saving—which, let us face it, was doubly difficult because of all the years that she spent bringing up the children—"You don't get a reward for that saving until you have built up from the pension that you are getting to the full basic pension, and we reward private pensions or other saving only beyond that point." Of two women, one with a full basic pension and a little saving, and one with a partial basic pension and a little saving, one gets a reward for her saving and the other does not—the infamous double whammy. A poor basic pension is the penalty for having brought up children, and a reduced savings credit is the second penalty.

The question is how we can best respond to that. We have considered various ways in which that might be done. In Committee we proposed that home responsibilities protection on the post-1977 model might be imputed for years before 1977. The Minister responding said that one of the problems with that is that the benefits that trigger entitlement to home responsibilities protection—child benefit, invalid care and so on—did not exist at all or did not exist in the same form before 1977, so there was no simple read-over from the post-1977 to the pre-1977 system. One could not apply the new rules to the old period.

In the new clause we propose a different way of imputing a value to the caring that those women did, for the purposes of calculating their entitlement to the state pension credit, with particular reference to the savings credit. Nothing that we propose would affect their basic pension entitlement, but it would help them with their savings credit.

We are proposing that when a woman fills in her state pension credit form, she is asked about the children that she has ever cared for. The new clause refers to natural children and others for whom she had caring responsibilities. We have left to regulations a specific decision about the definition of caring responsibilities. We are aiming at women who spent time out of the labour market because they were looking after their own children. We would like to include adopted children, foster children and so on, but those cases are on the margins of the issue that we are raising. The key point is that women should not be penalised for caring.

When the issue has been raised in the House in the past, the Government have conflated the position—not wilfully, I am sure—of women who paid the married women's stamp and therefore saved some money and therefore had a poor pension, with women who simply brought up their own children. I shall give one instance of that.

On Second Reading, the hon. Member for Stafford (Mr. Kidney) intervened on the Secretary of State and pointed out that

"the savings credit will cut in only once the full basic state pension has been reached, and that those with a lesser entitlement—often women—will lose the first bit of their savings in reaching that level."

That is the point that I have been making. The Secretary of State said in response:

"We believe that it is right that people should first use their money to pay contributions to the basic state pension."

Now, the women in question did not have any money. They were at home bringing up the children, so they were not making pension contributions in their own right—not by choice, not because they had the money but were not putting it into a pension, but because they had no money coming in to put into a pension. The Secretary of State went on to say:

"It would be curious if somebody who had chosen not to pay all such contributions then asked us to apply those they had paid to a pension credit, rather than in the first instance to the basic state pension."—[Official Report, 25 March 2002; Vol. 382, c. 602.]

But those women had not chosen not to pay contributions. The women under discussion are not the women on the married women's stamp—or rather, they may also be, but that is not the reason why, for the periods of home responsibility, they were messing up their pension record. It is because they were caring—bringing up a child. We recognise that we cannot rewrite their basic pension entitlement, but in a brand new Bill at the start of the 21st century the system should not penalise women a second time round for the fact that in the 1960s and 1970s society did not put a financial value on bringing up children.

I shall be happy to hear the Minister's comments on the logistics of our specific recommendation. Clearly, there are issues to do with providing evidence about children who were born 20 or 30 years ago and whether or not the woman was their full-time carer. Inevitably, there will have to be some broad-brush response to those issues. Unless there are extraordinarily detailed regulations defining primary caring responsibility, there might be one or two women who would not be entitled to credits, but in general, if a mother could show that she was the natural mother of a child and if she stated on the form that she was responsible for that child—in the sense that the present child benefit system works, which is the trigger for home responsibilities protection—that should be enough. There might be the odd case where the husband challenged that, but the House would probably accept that the claim by a mother that she had cared for the children listed should be enough to trigger entitlement to the credits.

Speaking specifically about home responsibilities protection and about caring makes a distinction between women who did something that society now values, but did not value financially in the past—bringing up children—and women who had some financial benefit from paying the married women's stamp. That is not the issue that we are raising here. We are dealing not with women who saved some money by opting out, but with women who did not have money and whose work was not recognised then. It is time that the House valued such work.

For too long women have been the poor relations in state pension provision. There is a danger that we carry over that relative poverty into the Bill. New clause 1 provides the House with the opportunity to make sure that we do not redouble that injustice.

Tim Boswell (Conservative, Daventry)

The hon. Member for Northavon (Mr. Webb) introduced his new clause with precision and moderation. He rightly said that the Committee stage had been conducted in that spirit. We even found ourselves in agreement on a number of issues, to which I may have occasion to refer this afternoon. I support the hon. Gentleman's attempt to probe the Government's intentions. There is no need to rehearse his arguments at length.

On the technical side, it had occurred to me, and I am sure that Ministers will also say—anyone who has ever had ministerial responsibility is conscious of these things—that evidence is important. Even if Ministers wished to make a concession—we may hypothesise about that—I see the dilemma that they might face in deciding what the evidence should be. A proxy benefit that could be read back and then enhanced or treated as a credit for the present purpose would be much easier, but that is not the case.

The hon. Member for Northavon emphasised that his new clause essentially related to the position of women, but he did not cover himself as fully as he might have done. The drafting is unisex. Indeed, at one point the legal term "he" is used, to include both men and women, but realistically, the majority of people who have an incomplete entitlement to a full state pension and therefore, by extension, under the new arrangements in the Bill, an incomplete entitlement to the state pension credit, because they have to fill up their pension first, are likely to be women. That in no sense detracts from the validity of the hon. Gentleman's argument. We share that view.

I draw the attention of the House to the Select Committee report on the pension credit. Paragraph 29 points out that

"17 per cent. of female pensioners (over one million women) will potentially have any private or occupational income unrewarded, compared to only 8 per cent. of male pensioners."

There is a much greater shortfall among women. In Committee we analysed figures suggested by the Select Committee relating to

"around 50,000 pensioner 'benefit units' who have private income for which they will see no benefit."

The Select Committee report goes on:

"Another 2-300,000 will be 'rewarded' for only some of their private savings."

Those figures give the lie to the Government's assumption, which they have frequently asserted, that it always pays to save, and that the arrangements set out in the Bill are uniquely favourable to women. There is still something of a black hole for a number of women. The category was rightly identified by the hon. Member for Northavon. Attempts to deal with the matter will be neither free of cost nor without difficulty. Of course, women who had home responsibility before the new arrangements were introduced in the late 1970s are not the only category of people for whom there is a shortfall.

The Select Committee report indicated that there will always be some who have fallen short as some of their earnings were below the contribution level, while others may go abroad or break their service because of illness or whatever else. A number of people will miss out. The hon. Gentleman is not seeking to remedy all the ills of the pension system, but he is trying to tackle the problems and it is important that the Government make a substantive response.

The position of guardians was also discussed in Committee. I am especially sorry in that respect—but not only in that respect—that the hon. Member for Stalybridge and Hyde (James Purnell) cannot be present.

Ian McCartney (Labour, Makerfield)

My hon. Friend wrote me a letter to apologise for his non-attendance, which is due to a commitment that he cannot get out of.

Tim Boswell (Conservative, Daventry)

I entirely accept that; my remarks were genuine and not meant to be sarcastic. The hon. Member for Stalybridge and Hyde made some serious points in Committee and it would be nice if he could be present. As he is not here, no doubt he will read what we have said. Indeed, he may want to return to some of the issues that we are discussing. It is a tribute to the respect that I have for him and his contributions in Committee that I wanted to say that he made a perfectly fair point about people who were caring for children as foster carers and so on, but were not in receipt of child benefit and could not be in receipt of home responsibility protection. Even if such people were looking after children full time and were unable to work, they would be racking up a potential shortfall in their future pension credit because they could not contribute.

The Minister spoke entirely in accordance with the general flavour of the Committee proceedings by responding sympathetically to that issue and saying that he would think about it. The two categories that arise are older cases involving people who had children in their care before home responsibility protection cut in or those whose contribution had been severely impaired by it, and those who currently have children in their care but are not in receipt of child benefit and therefore cannot get home responsibility protection to add to their eventual pension. Of course, the Minister may wish also to refer to other categories.

I do not want to make any mistake on the position of the Select Committee, but I am aware that it was concerned about some wider issues relating to shortfall on the pension credit. It summed up the passage from which I have already quoted by stating:

"We recommend that the Government should inquire into the immediate and long-term costs, benefits and affordability of extending the Pension Credit in this way and make public the results."

I think that that is a reasonable request. Equally, I would understand if the Government were to say that those issues were not cost-free and that we cannot simply do everything that we want to do and must set priorities. For example, those who are currently caring for children may be a higher priority than those in some of the other categories that have been mentioned.

It would be useful if the Minister could tell us how much the various difficulties exposed by the new clause would cost to remedy and explain the policy read-across, possibly including other benefits, and the administrability of any concessions. He would help the House by taking some of those matters forward. We understand that there are difficulties and that it is not always possible to rewrite the past, but as the hon. Member for Northavon said, as we move into the new century, we would like to secure a basis for the assessment of entitlement to pensions that is as principled, constructive and modern as possible.

Andrew Selous (Conservative, South West Bedfordshire)

I express my wholehearted support for the new clause of the hon. Member for Northavon (Mr. Webb) and I am pleased that it has been supported by my hon. Friend the Member for Daventry (Mr. Boswell) from the Opposition Front Bench.

Women who choose to look after their children at home do not currently have a genuine choice in terms of the income that they forgo and the benefits to which they are entitled. Some of the Scandinavian countries such as Finland and Norway have excellent schemes in that regard. It would be easy for the Government to draw a line in the sand and say that the new clause seeks to rectify problems that arose a long time ago, that we should move on and that if we do anything it should be to rectify problems affecting women who currently have children. It would be enormously to their credit, however, if they were seriously to consider the new clause. That would send a powerful signal to the country that the value that the House and the Government place on women—and, indeed, on any parent who chooses to stay at home and look after their children—is the same as that which they place on parents who choose to go out to work.

I commend the hon. Member for Northavon for tabling the new clause, I am delighted to see that it has the support of Her Majesty's official Opposition and I hope that the Minister's response will be favourable.

Ian McCartney (Labour, Makerfield)

I thank the hon. Member for Northavon (Mr. Webb) for the way in which he spoke to his new clause and the hon. Members for Daventry (Mr. Boswell) and for South-West Bedfordshire (Andrew Selous) for their contributions.

The hon. Member for Northavon said from the outset that he wanted our approach to be non-partisan, and the Committee proceedings were non-partisan in the sense that everyone put their view in a very fair and effective way. On occasions, the debate became very passionate, as there are significant differences, not least between the official Opposition and the hon. Member for Northavon, some of which may emerge in this debate. I shall be non-partisan to that extent, but it is important to be aware of all the issues. For example, the hon. Gentleman could have referred to his article in the Sunday Mirror, which we shall come to. That is what he was talking about; his remarks contained little reference to the new clause and related more to his legitimate campaigning on other issues.

The overriding issue for hon. Members in speaking to the new clause was fairness to women. We are attempting in the Bill to do a number of things. Some of them involve trying to right past wrongs and to do so effectively. The truth of the matter is that when the basic state pension was established, wonderful as it was, it had a number of flaws. Every pension system is a compromise, and one of the flaws was that the system undermined in a range of ways the position of a variety of different women in different circumstances, as the hon. Member for Northavon said.

We are, therefore, dealing with a legacy as well as trying to establish the pension credit, the state second pension and the other changes that we are making to ensure that the mistakes of the past are not visited on women in future. There must be a balance and we must have regard to what is feasible and can practically be done in establishing arrangements for the future and designing a system that should be non-discriminatory in dealing with gender and access on retirement to income from the state.

The hon. Member for Daventry—I am paraphrasing, so I apologise if I get anything wrong—suggested that the Bill did not extensively help women, but that is not the case.

Tim Boswell (Conservative, Daventry)

We do not need to get into a silly semantic argument about it. I was merely implying, first, that some Ministers' claims that the measure helps all women went somewhat beyond what they were entitled to say and, secondly, that in a number of cases, which we sought to identify in explaining the new clause, women will not benefit at all.

Ian McCartney (Labour, Makerfield)

I thank the hon. Gentleman for his volte face—I was not expecting a total U-turn. I have never said that every single woman who reaches retirement age will benefit from pension credit. We said from the outset that 5.1 million pensioners will benefit. Of those, 53 per cent. of single women and 31 per cent. of couples will benefit from pension credit, so 84 per cent. of women will experience a positive impact on their retirement income. It is nonsense to suggest that this is not a significant step forward for women—of course it is. It is not only about righting the wrongs of the past, but about being able to put in place for the future a system that is non-discriminatory towards women.

I want to refer to the Sunday Mirror article that quoted the hon. Member for Northavon, which is entitled "The Unfairer Sex: Poverty trap for women pensioners". It is unfortunate that in a debate about the unfairer sex, as the article terms them, the only Members who have participated so far are grizzly middle-aged men. I think that we all agree, on a non-partisan basis, that we are sympathetic to the unfair way in which women have been treated in the past, but it is important to correct some of what was said in the Sunday Mirror article so that people are not misled either about a lack of entitlement to minimum income guarantee or the current level of the basic state pension.

The hon. Member for Northavon may say that he was misquoted or that the article was edited to give average figures. I shall be kind and say that it must be the latter, because the Sunday Mirror never misquotes anyone of substance. [Interruption.] I heard an hon. Member say, "That leaves the hon. Gentleman out." I was not intending to feed Labour Back Benchers; I shall not give them any red meat just yet. I want to clear this up. The last time the basic state pension was £58 was in 1984. The current basic state pension is £75.50 for single people and £120.70 for couples. More importantly, for the women to whom the hon. Member for Northavon referred the minimum income guarantee is £98.15. For couples it is £149.80. That is a significant improvement on the figures cited in last Sunday's article, and that should be acknowledged by all concerned.

I turn to the debate in Standing Committee on 18 April this year. I want to give two short quotes that set the tone for what I am going to say next. The quotes come from columns 121 and 122 of the Official Report. That is not so much a reference for Hansard as for the Gallery writer from The Times, who unfortunately seems not to understand Glaswegian. [Hon. Members: "Shame."] He wrote an article in which he did not spell anything right. He thought that I was asking for a pint of heavy, but I was talking about the pension credit. Just for the record, I shall say that it was the pension credit, not a pint of heavy—although at this moment I would prefer a pint of heavy.

I said in Committee, in response to my hon. Friend the Member for Stalybridge and Hyde (James Purnell):

"We appreciate the work that foster carers do and sympathise with those who, having chosen to be full-time carers, receive poorer pensions as a result."

I went on to say:

"I do not wish to over-egg the pudding and suggest with nods and winks that a solution is just around the corner; I am telling him openly and honestly that this is another issue that I looked at when I first became a Minister, and I decided that something must be done. We are reviewing the matter. I cannot say any more, but I hope that hon. Members will understand that I recognise the problem and that it must be resolved in an effective way".—[Official Report, Standing Committee A, 18 April 2002; c. 121–122.]

I repeat that now to re-emphasise that that is my position as Minister. It was not said to create discussion in Committee—it is a genuinely held position. I am not surprised that the hon. Member for Northavon has returned to the matter—he has been trying to champion this lost cause, as he would call it, for some time—but I hope that he recognises the truth of what I said to my hon. Friend in Committee.

New clause 1 would have the effect of deeming a notional amount of basic retirement pension, so that a group of pensioners—in this case, those caring for children before 1978—could make the most of the savings credit. It would increase the amount of basic state pension they have in the calculation of the savings credit, so that they have to use less of, or none of, their own savings to get their income up to the savings credit threshold of £77. It might help if I give an example. A single pensioner has a reduced basic state pension of, say, £50 because they have a deficient national insurance record. They have a second pension of £25 and no other income. Their total income of £75 would immediately be topped up to the guarantee credit of £100, but they would receive no reward for their saving because their income was below the savings threshold of £77. In other words, they would not receive any savings credit because their income was below the level of the full state pension. If they could take advantage of home responsibility protection, they might qualify for the savings credit.

The new clause as drafted would have two peculiar outcomes. First, it would require people to list any natural children they have ever had, regardless of whether they have ever had any caring responsibilities for them. I am not sure that the Department for Work and Pensions needs that information, nor that people would want to share it with us—nor, in some cases, with their current partners. That matters, because at this stage of parliamentary scrutiny there is no further opportunity to correct drafting.

Steve Webb (Liberal Democrat, Northavon)

I do not quite understand what the Minister is saying. New clause 1 states that claimants would be

"asked to list the date of birth of any natural children and any other children for whom they had primary caring responsibilities".

The Minister said that they would have to list children irrespective of whether they had cared for them, but the new clause explicitly covers the matter.

Ian McCartney (Labour, Makerfield)

My interpretation of the new clause is based on the advice on its wording that I have received from parliamentary counsel and our officers. It would be a legal minefield to go back for such a long period in relation to natural children who were cared for initially, but later not cared for after those looking after them had given up their caring responsibilities. It is also a potential minefield in terms of relationships with current partners.

Secondly, the new clause would allow a person the option of replacing their actual rate of basic pension with a higher amount in the calculation of the guarantee credit. I am unclear whether this was intentional, but if a person did exercise that option, their income would decrease, not increase. That said, I think that what the new clause tries to achieve is an increase in basic state pension so that more people come nearer to the £77 threshold. It would do that in a notional way by imagining that this group of pensioners was entitled to the home responsibility protection in a time before it was invented. One cannot make law on that basis. One cannot dream up or invent a situation, then develop proposals on that basis which go back, not for two or three years or for one or two decades, but beyond even that.

Home responsibility protection has been available since 1978. It covers two distinct groups of people. Those in the first group have been awarded child benefit for children under 16; those in the second have been regularly engaged for at least 35 hours a week in caring for someone who receives attendance allowance or the highest middle rates of disability living allowance for a minimum of 48 weeks a year. Entitlement to home responsibility protection depends on people undertaking the caring activities for complete tax years.

The protection offers a reduction in the number of qualifying years for a full basic pension. For example, a woman needs 39 qualifying years of contributions or credits for a full pension. Every year of the protection reduces that number, and there is a maximum number of years that can count towards home responsibility protection: 19 for women and 24 for men. The different periods reflect the current arrangements whereby men need five more qualifying years to earn a full basic state pension.

The new clause tries to provide home responsibility protection as if it existed before 1978 to those who would have been entitled to child benefit if it had existed before then. The new clause would achieve that by asking all new claimants for the pension credit to list the dates of birth of their children if they cared for them before the introduction of home responsibility protection. The hon. Member for Northavon wisely does not try to apply the new clause to carers of the sick and disabled. The provision is confined to parents; he does not propose its extension because he knows that that would be unworkable. Trying to prove a caring relationship that fulfilled the criteria for home responsibility protection would be impossible after so many years. He nods, so I am right about his intentions.

The new clause would be impossible to put into effect. We could be stretching back as far as the 1920s. That is at the heart of the problem, and why in practice and in principle, Governments cannot generally go back that far. We cannot replicate current provisions with ease or certainty. If we try to do that, we create a form of injustice for someone else. For those reasons, we must reject the new clause. However, I do not want hon. Members to be left with the impression that refusal to accept it means a significant gap in provision. It does not.

Those who are disadvantaged because they do not have access to home responsibility protection are likely to be few. Many of them and the larger group of carers who are already covered by the protection will be married women. Most will have the benefit of a full married woman's pension. Any pension in excess of that, private or state, will be rewarded. Many of the women will now be widows. On widowhood, the combination of their national insurance contributions and those of their late husbands will have brought the income of most of them up to the basic state pension.

Andrew Selous (Conservative, South West Bedfordshire)

Are not the Government correctly righting a wrong through considering the underpayment of women who worked in colliery canteens in the 1950s? I know from one of my constituents that that is happening. That is absolutely just, but does not that mean that the Government have already established the principle of righting past wrongs?

Ian McCartney (Labour, Makerfield)

The hon. Gentleman is not technically correct. The issue not only involves the former National Coal Board, but applies to employers in the public and private sectors who took contributions for women but treated them in a discriminatory way within the rules of their pension funds. A European ruling has been made, and the tribunal system is now considering its implementation so that it can make good that discrimination. It is an entirely different proposition from new clause 1.

I understand the hon. Gentleman's point, but we are acknowledging that discrimination occurred by introducing the minimum income guarantee and modernising the pension credit through the Bill. We are already ensuring that women against whom the state system discriminated benefit significantly. We are therefore able to go back in an effective, honest and transparent way to establish incomes for those women. Without those arrangements, they would fall foul of their backgrounds and languish below the basic state pension line. The Bill will bring their incomes up to it, and in many cases, above it.

Those who are not in that position will continue to be entitled to the guaranteed credit. Our investment in MIG and other measures such as winter fuel payments mean that all MIG households are at least £20 a week or £1,000 a year better off than in 1997. That is a real terms increase in living standards of 23 per cent. Pensioners who have, until now, been the most disadvantaged can depend on a decent income in retirement.

We do not know about the whereabouts of the hon. Member for Northavon since 1984. The Sunday Mirror article finishes by stating:

"The Liberal Democrat plan is to raise pensions by targeting the money at those who need it most."

I accept the hon. Gentleman's flattery; he is obviously trying to imitate what the Government are already doing in the Bill, which reflects our achievements with MIG. Since coming to power in 1997, we have gone out of our way to right the wrongs of the past and to ensure that those pensioners in poverty are taken out of it, not only now but in the future through the pension credit. I therefore ask the hon. Gentleman to withdraw the new clause.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the hon. Members for Daventry (Mr. Boswell) and for South-West Bedfordshire (Andrew Selous) for their support for the principle of the new clause and disappointed with the Government's response. It was argued that there are drafting problems, and although I do not understand them, I would happily withdraw the new clause if the Government accepted its substance. We can argue about the drafting and if there is a problem, I am happy not to pursue the new clause as long as the Government accept the principle.

The Minister rightly said that we have not tried to recreate the rules for people who care for the long-term sick and disabled. Trying to do that for 20 or 30 years ago would probably be unworkable. However, trying to establish whether someone had a child and would, under current rules, be entitled to something akin to child benefit is straightforward.

I am sure that the Minister was not implying that those who apply for pension credit would wilfully mislead. There would be no penalty in those few cases in which people did not want to reveal that they had had a child. It is not like missing something off a benefit form, for which people are penalised; it is an option. If it is embarrassing for a woman to reveal that she has had a child because, for example, the husband does not know about it, there is no obligation to do that. However, most mothers would like the opportunity that the new clause would provide.

The Minister said that we could be considering events in the 1920s. He also said that when husbands die, many women move on to the full basic pension through widows' pensions rules. However, most of the women whom we are considering have yet to retire or have recently retired. In most cases, their husbands have not reached 65 or died. Although I do not regard myself as gnarled or middle aged, the period that we are discussing—the 1960s and 1970s—is in living memory. It is not therefore implausible to ask people whether they were looking after children in the 1960s and 1970s. I believe that we could take their word for it. That is not an unreasonable basis on which to proceed.

In the benefits system, we impute all sorts of things that are not so. If people blow all their money to reduce their income to get more benefit, the benefits system treats them as though they still had the money. If people defer a pension and do not draw it when they are 65, the system means-tests them as if they had drawn it because they should not be rewarded for not drawing it. The benefits system uses the "as if" principle all the time. All we want is for people to be treated as if current values attached to bringing up children applied before 1977.

The Minister kindly drew attention to the press coverage for our campaign for justice in women's pensions. Every time I open my mail, more women throughout the country are joining the campaign because of their sense of injustice about issues such as the subject of our debate. Nothing that the Minister said this afternoon implies that the Government will respond to that. He said that not many people were affected, but the £58 figure is a Government figure. It is the average for newly retired women. We are not considering 90-year-old women who lived and worked in a previous generation, but those who are approaching pension age. If they only have private savings on top of the £58, they do not get rewarded up to £75. We can argue about the number of people who are affected, but we support the principle that they should not be penalised a second time.

We are not simply considering rules that will apply next year. When the system is up and running, it will apply to a 60-year-old woman for the rest of her life. In other words, we are talking about the rate that she will get not only next year but in 2020, and perhaps 2030. Would it not be extraordinary if, in 2030, we were still paying a lower rate to someone because of caring that they did in the 1960s? It seems extraordinary to perpetuate this discrimination against women.

I have one more response to the points that the Minister made. If we were to use the imputation system for the guaranteed credit, there would be an issue about reducing entitlement, because we would be imputing a higher basic pension. A better version of new clause 1 might remove references to the guaranteed credit altogether. I take that point, because we are primarily concerned about the savings credit.

For the avoidance of doubt on the drafting, and because new clause 1 is primarily concerned with the savings credit, as the Minister understood, while observing that I do not feel that the principle of this matter has been addressed by the Government, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 5 — Report on incentives etc.

James Clappison (Conservative, Hertsmere)

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 the following amendments: No. 6, in clause 1, page 1, line 5, after "credit", insert—

'calculated in accordance with section 2'.

No. 7, in page 1, line 9, leave out from "2" to end of line 10.

No. 8, in page 1, line 11, leave out subsection (3).

No. 9, in page 1, line 18, leave out "and (3) are" and insert "is".

No. 10, in clause 2, page 2, line 10, leave out "a guarantee" and insert "state pension".

No. 11, in page 2, line 11, leave out "guarantee" and insert "state pension".

No. 12, in page 2, line 13, leave out "guarantee" and insert "state pension".

No. 4, in page 2, line 36, at end insert—

'(8A) For the purposes of this section, where the client has attained the age of 65 or is a member of a married or unmarried couple the other member of which has attained that age, there shall be disregarded in the calculation of the claimant's income a prescribed percentage of the amount, if any, by which his qualifying income (after deducting such part of his income, if any, as lies between the standard minimum guarantee and the appropriate minimum guarantee) exceeds a prescribed amount (the savings disregard threshold).

(8B) Regulations may make provision as to income which is, and income which is not, to be treated as qualifying income for the purposes of this section.'.

No. 5, in page 2, line 40, leave out Clause 3.

No. 1, in clause 3, page 2, line 42, leave out "age of 65" and insert "qualifying age".

No. 2, in page 3, line 26, at end insert—

'(6A) In the case of men aged under 65, such regulations shall provide that the calculation of qualifying income shall include an amount equal to the amount of retirement pension that the claimant is forecast by the Secretary of State to be entitled to at the age of 65. This forecast shall be revised on each anniversary of the initial claim until the claimant reaches the age of 65.'.

James Clappison (Conservative, Hertsmere)

New clause 5 would require the Secretary of State to prepare a report on the effect of the savings credit on savings behaviour, and to invite the Social Security Advisory Committee to comment on that report and to consider recommending change. We have been over this ground before, but I make no apologies for coming back to it, because the effect of the pension credit on the incentive to save, and the amounts actually saved, are matters of real concern, and have been identified as such by many experts and organisations that have looked at the Bill, including those who looked at it when it was being considered by the Select Committee. Their concerns about the effects of the Bill on incentives to save are reflected in their many submissions to the Committee.

We are holding this debate on new clause 5 against the background of the salutary fact that, as a nation, we are simply not saving enough. The savings ratio is now at its lowest for 40 years, and we hear tell in the media and elsewhere of estimates of a £27 billion savings gap. Against that background, it is important that people should save more, particularly those on modest incomes, and we need to consider the effect of the pension credit on this problem.

Will the credit make matters better or worse? The new clause would go some way towards enabling us to find out, because it would require the Secretary of State to prepare a report. We need to remember, when considering this question, that the pension credit follows in the wake of the minimum income guarantee. One of the obvious features of the MIG that was much commented on is that it leaves pensioners on modest incomes with savings in no better position than those without. For those who could see 100 per cent. of the value of their savings coming from the benefits that they received, there would therefore be no incentive to save.

We acknowledge that the Bill seeks to change matters through the introduction of the savings credit. That much is obvious, but what effect will that, and the way in which it is being introduced, have on incentives? Will there be an incentive to save, when what is saved now will, in effect, be subject to a 40p in the pound tax on retirement? That is what this measure will mean for those involved.

The views of the expert authorities submitted to the Select Committee were decidedly mixed. Andrew Dilnot of the Institute for Fiscal Studies, when questioned by the Select Committee on incentives to save, said that the Government were on "a difficult wicket". Difficult wickets invite spin—I am sure that you know that as well as anyone, Mr. Deputy Speaker—and no doubt we shall be told in due course that the savings credit is an innovative and imaginative way of rewarding saving, as the Secretary of State suggested on Second Reading, when he said:

"The important point is that the pension credit removes for the first time—this has been widely recognised—the disincentive in the present system whereby someone with moderate savings can find that they are no better off than somebody who has made no effort whatsoever."—[Official Report, 25 March 2002; Vol. 382, c. 600.]

That raises the question of who introduced the minimum income guarantee and linked it to earnings in such a way that it would be likely to bring more and more people into its ambit, but there we are.

What will be the effect of these measures? Under the Bill, pensioners will, in one sense, derive benefit from having saved, and no doubt the Minister will take us back to that point. By the time people become pensioners, they will be better off through having saved, compared with those who have not, because they will have the benefit of 60p in the pound for every pound of their savings.

That, however, is not the question. The question that Ministers must address, and have so far failed to address, is: will it be worth while for workers to save earlier in their lives, when their savings will be subject to an effective 40 per cent. rate of tax later on? What will be the effect on their incentive to save, and on their savings behaviour, at that point in their lives?

Maria Eagle (Labour, Liverpool, Garston)

Does the hon. Gentleman accept that the reasoned amendment that he tabled on Second Reading would have left the minimum income guarantee as it is, with a cliff edge, a 100 per cent. marginal withdrawal rate?

James Clappison (Conservative, Hertsmere)

We set out what we proposed to do. I do not accept the hon. Lady's analysis, but she cannot get away from the question of the incentive to save, which is rather a different matter.

Ian McCartney (Labour, Makerfield)

Middle stump!

James Clappison (Conservative, Hertsmere)

I think that I am dealing with the spin rather well.

Ian McCartney (Labour, Makerfield)

Out!

James Clappison (Conservative, Hertsmere)

The right hon. Gentleman says, "Out". I might say that his judgment is as good as some other recent umpiring decisions—but we shall not go into that, Mr. Deputy Speaker. He is absolutely wrong. Neither he nor the hon. Lady will face up to the question of what the effect of this measure will be on the incentive to save. That is the question that I put to them. When one is referred back to other subjects by Ministers, one knows that one is getting somewhere with one's bowling, so let us take this a bit further.

Bob Spink (Conservative, Castle Point)

I am grateful to my hon. Friend for allowing me to intervene. May I give him a bit of fast bowling from Age Concern on that wicket? A briefing dated today, on just this subject, says:

"we believe that the pension credit will fail to provide sufficient incentive for younger people to save for their retirement."

James Clappison (Conservative, Hertsmere)

That is very much to the point and very accurate, as fast bowling often is.

Ian McCartney (Labour, Makerfield)

It's wide!

James Clappison (Conservative, Hertsmere)

I hear the Minister saying that the ball was a wide. Perhaps he will try this—

Ian McCartney (Labour, Makerfield)

No ball!

James Clappison (Conservative, Hertsmere)

Before the Minister says "No ball", I must point out that I have not even got as far as the crease. That says much about the quality of his umpiring. Perhaps he will do me the courtesy of allowing me to get that far before he proclaims a no ball.

Perhaps the right hon. Gentleman will umpire the views of the Association of British Insurers, which has sought to measure the economic benefit of saving. It has found that under these proposals, someone saving £50 a month would have to save for 10 years before they would see any economic benefit from having saved. The association believes that for 10 years, there would be a negative implied rate of return from saving £50 a month. Less value will be received in increased retirement income than will be paid in through contributions. Perhaps we will get an honest stroke from Ministers in response to that.

What is Ministers' reaction to the views of the Institute for Public Policy Research—on which the Government look favourably in other circumstances—on this matter? Further to the opinion of Age Concern cited by my hon. Friend the Member for Castle Point (Bob Spink), the IPPR, of all things, says:

"It would be very hard to argue that the Pension Credit has been designed to generate incentives for current workers to save."

What do Ministers say to the National Pensioners Convention, which states:

"People of working age, deciding how much to save for their retirement will need to take into account the very real possibility—for some a strong probability—of any additional retirement income being taxed at 40 per cent."?

Ministers may argue—as some of their colleagues have argued in other forums—that people simply will not understand what may happen with the pension credit. They may argue that there will be no disincentive to save, because people will not look into the future and make those calculations, and even that if they do, they will not understand the pension credit. That is one view, but it was disposed of by, among others, Andrew Dilnot, of the Institute for Fiscal Studies, in his comments to the Select Committee. Ministers may not agree with him, but if so they would do well to heed the following warning from the National Pensioners Convention:

"It is tempting to assume that only a small minority of financially well-informed people will be aware of these facts and that the disincentive effect on saving will therefore be small. It seems to us, however, that financial advisers and providers of pension schemes will have a duty to inform people about such a major factor affecting the outcome of their investment decisions. Even if that were not so, it would be difficult to justify a policy which rested on the assumption that most of those affected by it would be deliberately kept in ignorance of its implication for their future well-being."

We do not want people to be in ignorance of what these important decisions mean for their future well-being. Ministers need to come clean, and to answer now the question of whether the provision amounts to a disincentive to save. The new clause simply asks that Ministers provide information for a report in due course. If they maintain that there is no disincentive to save, perhaps they could be brave and allow the report to state as much.

Graham Brady (Conservative, Altrincham and Sale West)

I am concerned by the nature of the defence that Ministers appear to be deploying. Is it not true that the perception that the whole savings environment is very complex, off-putting and difficult to engage with already acts as a major disincentive to younger people making proper provision for their retirement? We need a simple approach to promoting saving, not added complexity.

James Clappison (Conservative, Hertsmere)

With the best will in the world, it is not entirely self-evident that the provisions of the pension credit will simplify future pension provision.

Amendments Nos. 4 to 12 attempt to achieve the simplicity to which my hon. Friend refers. [Interruption.] Ministers may laugh, but that is no easy task. They are drafting amendments designed to make the Bill more straightforward, and to achieve the Bill's original effect, rather than to alter it. You will be pleased to hear, Mr. Deputy Speaker, that I shall not take the House through their precise nature, although the Minister may well choose to do so. If they do not find favour, I do not intend to press them to a vote, given that the simplicity of this issue is not entirely self-evident.

New clause 5 could not be more straightforward. Let us have an open debate about incentives to save, and access to all the relevant information. I hope that Ministers will respond positively, because I cannot imagine that there is anything they want to keep covered up. Let us be transparent, and bring everything out into the open.

Steve Webb (Liberal Democrat, Northavon)

I have a lot of sympathy with where the hon. Member for Hertsmere (Mr. Clappison) is coming from on this issue. I have been advised not to remark on his reputation for googlies, so I shall not do so at this juncture.

The hon. Gentleman's point about the effect of the provision is critical. Beneath the rhetoric, the state pension credit is actually the minimum income guarantee, plus a boost for those who have saved. If we did not have the additional savings credit the Bill would not be necessary, because the MIG already exists. In essence, the Bill merely adds the new savings credit and tidies up the link between it and the MIG.

Under new clause 5, I would want any report to consider the effect on people's propensity to save not of the savings credit, but of the whole of Government policy on income in old age. The savings credit might arguably be regarded as the cavalry: it comes along when the Government have completely messed up the incentive to save, and restores it. The Government and the Minister for Pensions are fond of saying that they are the first Government to reward people for saving, but in fact they are the first to have completely trashed the incentive to save. In a sense, they are penitent sinners on this point, but only partially.

When the Government came to power in 1997, the gap between the basic pension and the MIG—or income support, as it was then known—was about £7 a week. For anyone who could save more than £7 a week, it therefore paid to save. Those who saved £8 a week got the first £7 at the 100 per cent. marginal rate, so they were better off by the extra £1. [Interruption.] Ministers may disagree, but those are the facts. The eighth, ninth or tenth extra pounds all constituted a complete benefit, beyond the scope of the means-tested benefit system. In other words, it paid to save anything more than seven quid.

When the MIG and the other provisions are introduced next year, the pension will be £77 and the MIG £100, so taking the MIG into account, it will not pay to save £23. When the Government took office, someone who saved £23 a week was £16 a week better off for having done so, but under the proposed rates, such a person will be no better off. The Government merely say, "Whoops"—

Maria Eagle (Labour, Liverpool, Garston)

The hon. Gentleman seems to be arguing that alleviating pensioner poverty today is providing such a disincentive to save for the pensioners of tomorrow that it should not be done.

Steve Webb (Liberal Democrat, Northavon)

As the hon. Lady knows, there are two ways to target pensioner poverty. One is using complicated means-tested mechanisms such as that in the Bill and—dare I say it—in amendments Nos. 4 to 12. The other is using age as a proxy for poverty, because the basic state pension is a guaranteed way of getting money to poor pensioners. Given that the majority of poor pensioners—particularly the poorest in the land, who are entitled to means-tested benefits but do not get them—are older pensioners, pensioner poverty can be targeted by raising their pension, rather than by using complex means-tested benefits. The right hon. Member for Birkenhead (Mr. Field), the former Minister with responsibility for welfare reform, the hon. Member for Hertsmere and I all agree with that view.

David Cairns (Labour, Greenock and Inverclyde)

The hon. Gentleman says that there are two separate approaches to alleviating pensioner poverty: complex means testing, with which he disagrees, and targeting by means of age, which he advocates. He will accept that even if we focus on age, in certain circumstances pensioners aged between 65 and 70 will not benefit, even though their incomes are low. For such people a means-tested element would still be necessary, even under his proposal to target by age. The difference is that he is proposing means-testing for the poor only, which increases its stigma.

Steve Webb (Liberal Democrat, Northavon)

I was with the hon. Gentleman until his final sentence, which I am not sure that I understood.

Our view is that—to echo a new Labour phrase—means-testing should be for the few, not the many. That is the distinction. Under our proposal, "the few" would be those under the age of 75 who are residually poor. On average, the majority of those under that age tend to be better off, whereas the majority over that age tend to be poorer. One helps the poor in a universal way by helping the old. It is true that some better-off people would benefit, but it is predominantly poorer people who would benefit. If such people are sufficiently well-off to pay tax on the benefit, they would do so. The Government use the language of guarantees, but the MIG is guaranteed to no one unless they claim it. Some 500,000 pensioners—predominantly older pensioners—do not claim it, but they all claim the basic state pension.

David Cairns (Labour, Greenock and Inverclyde)

The hon. Gentleman will deliver eloquent diatribes against means-testing in debates on the amendments and on Third Reading. However, for the pensioners who are interested in this debate, will he clarify the fact that under his policy, means-testing will still exist, primarily for pensioners between 65 and 70 who are poor, which increases the stigma of means-testing?

Steve Webb (Liberal Democrat, Northavon)

For the avoidance of doubt, the answer to the first part of the hon. Gentleman's question is yes. The question is whether we means-test half or two thirds of the pensioner population, which is the Government's strategy, or whether we have a residual safety net—

David Cairns (Labour, Greenock and Inverclyde)

For the poor.

Steve Webb (Liberal Democrat, Northavon)

Absolutely. We want the vast majority of people in old age to have a guaranteed income that lifts them clear of the need for top-ups. What the hon. Gentleman and I will want in our old age is a decent pension—whether from this place, the state or anywhere else—so that we do not have to claim a top-up every year. Our strategy would reduce the number of pensioners who need to claim top-ups at all to a relatively low level.

Tim Boswell (Conservative, Daventry)

As the hon. Gentleman will know from our earlier debates, I am very much on his side on such matters. Is not the logic of the position of the hon. Member for Greenock and Inverclyde that the only way to make means-testing acceptable is to put so many people into it that somehow the effect is diluted? The hon. Member for Northavon is arguing for a safety net for the few that is not spread across the whole pensioner population.

Steve Webb (Liberal Democrat, Northavon)

That is right. In all such arrangements, we are dealing with a continuum and a trade-off. There is no perfect solution. The Government's mass means- testing solution leaves hundreds of thousands—on the Government's own figures—not getting a penny of what they are entitled to and living below the poverty line. The hon. Member for Greenock and Inverclyde may frown, but the Government estimate that roughly 500,000 pensioners do not claim the minimum income guarantee to which they are entitled. Therefore they are below the poverty line. That is a simple statement of fact, based on the Government's own figures. Paying the money through the pension would mean that everyone in the age category was guaranteed to get it.

Ian McCartney (Labour, Makerfield)

The determinant for older people is not age but income; that is the case whether they are 60, 85 or 90. Significantly, the hon. Gentleman is saying that the Liberal Democrats' proposals for pensions—far from helping the very women for whom he says he is campaigning—will result in the vast majority of those now coming up to pension age getting no benefit whatever. Indeed, they would have to stay on the old-fashioned minimum income guarantee with no commitment that they would be made up to the basic state pension. That is not a small group of women, or of pensioners. It is almost equivalent to the current number of pensioners whom we have taken out of poverty in the first four years of the Labour Government—and kept out of poverty.

Under the hon. Gentleman's proposals, nearly 2 million people would be left on an old-fashioned minimum income guarantee, an old-fashioned means test. He argues that his proposals are about getting rid of poverty, but he would be making sure that poverty remained not just for this generation, but for every generation thereafter. He is talking economic nonsense.

Steve Webb (Liberal Democrat, Northavon)

The Minister is talking complete nonsense himself. The group coming up to pension age have many historic problems in their accumulated pension rights, including the married woman's stamp. We have a range of proposals in our campaign for justice in women's pensions that will address those points to ensure that as few of them as possible have to depend on a means-tested top-up when they reach old age.

To come back to the perfectly reasonable point made by the hon. Member for Greenock and Inverclyde, there will be some residual role for means-testing. There are aspects of the pension credit that make the minimum income guarantee more humane, and I am entirely in favour of those. For example, sending people a claim form when they apply for a pension is eminently sensible. It is not a case of throwing the baby out with the bathwater; there are administrative aspects of the Bill that I heartily endorse. But the strategy of mass means-testing is not one of them.

Maria Eagle (Labour, Liverpool, Garston)

The hon. Gentleman just said that his schemes would leave a residual role for means-testing. How many people would remain on the means test under his proposals?

Steve Webb (Liberal Democrat, Northavon)

That would depend on exactly how much we could increase the basic state pension by. I do not have an exact figure. The Minister will know that before the means-tested benefits system kicks in, the majority of poor pensioners are women and older pensioners. By loading the increases for older people on to pensioners, we will do the most to get people off the means test altogether.

The majority of the newly retired are couples, and couples tend on average—partly because one of them is a man—to have higher incomes, so the incidence of means-testing among that age group is much smaller. We are focusing the money where the means-testing is most intense and on the group that is, on average, substantially poorer, and we are guaranteeing take-up with no savings disincentive. That is a powerful combination.

Annabelle Ewing (Scottish National Party, Perth)

On the extension of mass means-testing, can I remind the hon. Gentleman that in new Labour's 1997 election manifesto, there was a pledge to reduce means-testing for pensioners? Perhaps the comments made by Labour Members should be viewed in the context of that pledge.

Steve Webb (Liberal Democrat, Northavon)

I do not recall the exact wording of the manifesto, but we all recall the Chancellor talking about an end to means-testing for our pensioners. The semantic hoops through which Labour Members jump to try to get out of that, result in their saying that what is proposed is not means-testing—but I suspect that to the recipients, it will feel very much like it.

James Clappison (Conservative, Hertsmere)

With the benefit of some extra spin, we now know that what the Chancellor really meant was an end to "old-fashioned" means-testing.

Steve Webb (Liberal Democrat, Northavon)

I am sure that that is right.

To return to the amendments, we are interested in the effect of the Government's strategy on the incentive to save, and a report such as that proposed in new clause 5 would have the potential to add something. I have suggested that the scope of the report should be broader than just the effects of the savings credit; it ought to look at the whole strategy. The savings credit is applied to a system in which the 100 per cent. tax rate has been vastly extended in scope and gives a bit back.

Even the Financial Services Authority produced a report—only last week—which said on page 24, paragraph 4.33:

"the implied 40 per cent. deduction rate will inevitably be a disincentive to save for some now at work."

That is the FSA, not some extreme organisation opposed to Government policy. The FSA is, almost certainly, run by the Government.

Everybody seems to agree that the overall strategy is undermining the incentive to save. That is the beauty of targeting by age; we give people more money in their old age for being old and their savings are theirs to keep on top of that, because they are clear of the means test. The more people we can get clear of the means test, the less we will need complicated savings credits, because they will get to keep the money anyway.

The gist of what we are saying is that the Government are trying to claim credit for solving a problem that they have made themselves. That is why an assessment of the effect on the incentive to save, as proposed in new clause 5, would be welcome.

The hon. Member for Hertsmere said that amendments Nos. 4 to 12 were so complicated he would not take us through them in detail, but that they were not complicated compared with the Government's complicated scheme. I wrestled with the amendments for several minutes and they are indicative of the problem of trying to write any such schemes down; they are inherently complex. A simple system with a good basic pension—particularly for older pensioners—and a savings incentive so that they get to keep their own money, is the simplest and neatest of the lot.

Amendments Nos. 1 and 2 seek to remove yet another respect in which the Bill discriminates against a group of women. The House may feel that I am warming to a theme this afternoon, but there are various ways in which the Bill penalises particular groups of women. There will be women up and down the land who hang on to every word that the Secretary of State says. They will have heard him say, "It will pay to save" and that "pensioners"—the term is unqualified—"will for the first time be rewarded for their savings."

What the Secretary of State has not said is that women aged 60 to 64 do not count; they do not qualify. He did not qualify any of his statements to that effect. I challenge Ministers to give me any instance of an occasion when the Secretary of State, having made those sweeping statements, has qualified them by saying explicitly that women aged 60 to 64 will be excluded. I would be happy to take an intervention to hear about a time when he has done that. The Secretary of State has failed to point that out. Obviously, those who read Bills and follow the small print will know it, but women aged 60 to 64 are missing out.

Those women may feel that they are pensioners who have saved. Why can they not be rewarded? The Government's answer concerns equalisation; they have to equalise somewhere because of equal opportunities requirements. However, they have equalised at 60 for the guaranteed credit element of the pension credit. Within the Bill, we have equalisation at 60. When the Government have been forced to equalise, whether on winter fuel payments or concessionary travel for older people, they have equalised at 60, not 65, even though that brings in men aged 60 to 64, who are not state retirement pensioners. Therefore, the precedents exist. There is even a precedent in the Bill for equalising at 60.

When we raised the issue in Committee and came up with a proposal for achieving our aims, the Minister said that it would not work because men of, say, 63 had not had the opportunity of living to 65 to receive a full pension and being assessed on that basis. It was, the Minister argued, discriminatory to assess men at 63 on the basis of the pension that they had accrued up to that point.

Amendment No. 2 therefore proposes an alternative strategy. Instead of assessing those people on the basis of the pension accrued to that point, they would be assessed on the pension that the Department forecast that they would receive at 65. Each year, as men approached 65, the calculation would be done afresh. Such calculations are done all the time by the Government, and we have all seen pension forecast statements. It would not be complicated to provide such forecasts for men aged 60 to 64.

Amendment No. 2 would be non-discriminatory, because the message for women over 60 would be, "You have had your full working life to build up a pension, and we will assess on the basis of that pension." The message to men would be, "We will assess you on the basis of the pension that we expect you to get at the end of your full working life." That deals with the point about discrimination, which was the Minister's principal objection, and it would bring into the scheme women aged 60 to 64, who are another group of second-class citizens under the Bill.

The issue of incentives to save is important. I welcome the spirit of new clause 5, if not the detailed string of amendments that go with it. In our view, a related aspect is that women aged 60 to 64 who have saved should not be excluded. If they were included, the Government would have to agree that the new clause would provide an additional incentive for women to save. Therefore, the Government should welcome our amendments.

Bob Spink (Conservative, Castle Point)

The encouragement of saving is a key area in which the Bill falls seriously short. The pension credit might even depress the savings ratio, which is already dangerously low. New clause 5 is an important addition because it would focus attention on the Bill's impact on the encouragement of young people to save for their retirement. The Bill should not discourage people from saving for their retirement, but it may have that impact.

The Bill should provide an incentive for younger people to change their behaviour. It should encourage them to save more for their retirement and to consider more carefully their post-retirement income and lifestyles. In short, it should encourage them to be prudent. New clause 5 would facilitate the measurement of the Bill's success in achieving that increase in prudence, although we believe that the Bill may discourage prudence. New clause 5 is, therefore, an essential part of the necessary control mechanism for the Bill, without which it would be less effective.

The Government should have no problem accepting new clause 5 as a simple, common-sense feedback mechanism that would illuminate the performance of the savings credit measure and enable the legislators to make any necessary changes in that light. The only reason for the Government to resist this common-sense addition to the Bill is if they lack confidence in the potential effectiveness of their savings credit measure and would be embarrassed to have light thrown on its performance.

David Cairns (Labour, Greenock and Inverclyde)

I appreciate that the hon. Gentleman is making a narrow argument about new clause 5 merely adding the requirement to submit a report. However, he has made several comments about the need to encourage prudence. Can he outline exactly what his party's policy is on encouraging prudence and getting people to save for their old age?

Bob Spink (Conservative, Castle Point)

I should be delighted to do as the hon. Gentleman suggests, but I am sure that if I did so, you would immediately call me to order, Madam Deputy Speaker, because we are debating new clause 5. What do the Government have to be afraid of if more light is shed on the matter, which is all that new clause 5 seeks to do?

We should all be concerned about today's pensioners, because they have had a raw deal from the Government—[Hon. Members: "Oh!"] They certainly have. The proportion of national income taken by pensioners today is lower than it was under John Major's Government in 1997, and that is disgraceful. We should also be concerned for the well-being of tomorrow's pensioners. Only around half of people below state retirement age are currently saving for their retirement. That is a chilling and frightening statistic that we should do something to correct. We should increase the number of people who save for their pensions, but the Bill will not do that. The new clause would illuminate that point and I therefore commend my Opposition colleagues for tabling it. I urge the House to accept it because it would enable us to monitor what is happening to savings and to change the operation of benefits to encourage greater prudence.

Paul Goodman (Conservative, Wycombe)

I, too, wish to speak in support of new clause 5. It is important to lay out clearly exactly what the new clause says. It falls into two parts. The first would invite the Secretary of State to lay before Parliament annually

"an assessment of the effect of the savings credit on the propensity of individuals of working age to save for their retirement".

The second would allow the Secretary of State to invite the Social Security Advisory Committee—a neutral and fair-minded body—to comment on the report and

"make recommendations for any change to structures or benefits which seem to them to be appropriate."

I serve with my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) on the Work and Pensions Committee, and in the course of our inquiry into the pension credit we heard much evidence about what expert individuals and bodies believed would be its effect on future saving. The Norwich Union, for example, declared that the incentive to save is "insufficient". The Institute of Actuaries said that it would become

"impossible to provide savings advice to those on low to medium incomes".

The IPPR—a body associated not with the Conservative party, but with the Labour party—[Interruption.] My hon. Friend the Member for Daventry (Mr. Boswell) says, "Not yet." We shall see. The IPPR said that the credit was

"a highly opaque means of generating the right incentives: it is extremely difficult for individuals to know what to expect from it".

Andrew Dilnot of the Institute for Fiscal Studies said that in connection with the incentive to save, the Government were

"on a much more difficult wicket."

That has given rise to the various cricket metaphors that have been thrown around the Chamber.

Kali Mountford (Labour, Colne Valley)

I applaud the hon. Gentleman for returning the attention of the House to the work of the Work and Pensions Committee, but is he not ably demonstrating that the Committee had no trouble at all in taking evidence from the Social Security Advisory Committee? From his work on the Work and Pensions Committee, is he not aware of the annual report of the Department to the House that already exists? Would not the new clause simply duplicate matters?

Paul Goodman (Conservative, Wycombe)

In a sense the hon. Lady is making my case for me, although I am sure that she will not agree. I see no reason why the Committee would not be able to supplement its work with a report of the kind envisaged by my Front-Bench colleagues. I shall cap the evidence to the Committee that I have quoted with what Age Concern has said about the pension credit, which has already been mentioned this afternoon. It said, baldly and clearly, that it believes

"that the pension credit will fail to provide sufficient incentive to younger people to save for their retirement."

David Cairns (Labour, Greenock and Inverclyde)

The hon. Gentleman cites many esteemed experts to support his case, but of course he omits the comments made by Lord Fowler in the other place. Lord Fowler, while welcoming the measure, said that his only regret was that his Government had not introduced it when they had the chance.

Paul Goodman (Conservative, Wycombe)

I am glad that the hon. Gentleman mentioned the comments of Lord Fowler, because if there was an annual report of the type to which my hon. Friends have referred, we should be able to see whether all those who gave evidence to the Select Committee—and indeed Lord Fowler—were right or wrong. The hon. Gentleman, too, is helping my case.

Finally, I quote from the conclusion of the Select Committee itself. The Committee is made up of many more Labour than Conservative Members, but it is a fair-minded Committee. On incentives to save, the Committee stated:

"We have concluded that, whilst the Pension Credit will enable today's pensioners to see a reward for saving"—

I include that phrase because I want to be sure that I quote from the Committee's report in a way that is fair to the Government—

"there is no clear evidence that it will actually increase younger individuals' savings."

I return to my starting point. In essence, the new clause seeks only to test the claims that have been made by the Labour Members who intervened during my contribution: it would make an independent assessment of whether the Government are right or wrong to say that the pension credit will increase incentives to save.

All the expert advice of which I am aware is that the pension credit will decrease the incentive to save. The Government believe the opposite. If they believe that my hon. Friends on the Front Bench and I are wrong, they need only produce a report, as the new clause proposes, and let a fair-minded and independent body comment and arbitrate on it. I urge the House to accept the new clause.

Annabelle Ewing (Scottish National Party, Perth)

I rise to support the basic premise of new clause 5. I do not understand why the Government are afraid of having to produce a report. They maintain that, inter alia, the Bill will act as an incentive to save. If that is their objective and if they are keen to ensure that the Bill is indeed an incentive to save, they should be willing to do everything that they can to achieve that objective. The preparation of a report—supplementary to other reports produced by the Department for Work and Pensions—would be a reasonable way of assisting the Government in securing their stated objective.

As we have already heard, various third-party bodies have expressed concern as to whether the measure will really act as an incentive to save. I do not want to go over the same ground by repeating those concerns. The key question is: how will the Bill act as an incentive to save when individuals do not have sufficient financial information early in their life to assess, or predict, the likely value of their savings many decades down the line? That is an important issue that could be discussed in a report. It should certainly be given further consideration.

Maria Eagle (Labour, Liverpool, Garston)

The hon. Lady has made a good point. One of the best ways to ensure that people save more for their retirement is to give them information about what their retirement income would look like in the light of their current provision. In that respect, the Government are promoting joint pension forecasts, so that individuals receive a document annually that shows what they would be likely to receive from their private and state pensions. Does the hon. Lady not agree that such information would be much more useful than a general report to Parliament?

Annabelle Ewing (Scottish National Party, Perth)

The two are not mutually exclusive. It is helpful to learn that there will be some Government-assisted prediction of the likely pension.

James Clappison (Conservative, Hertsmere)

May I interject a bipartisan, consensual note? Does the hon. Lady agree that it would be useful if those pension forecasts included details of how much the Government will take from people's pensions through the pensions tax that the Chancellor introduced in 1997?

Annabelle Ewing (Scottish National Party, Perth)

The hon. Gentleman has made his point and I do not want to go down that road today; to do so might be to detain the House much longer than anticipated.

Let me return to the Minister's point. The prediction would be very general because the financial information would not be accurate enough; for example, we would not know the value of the guaranteed income 20 years down the line. It would thus be difficult to make a meaningful prediction of the value of someone's savings. In any event, the two elements are not mutually exclusive and I do not understand what it is the Government are so afraid of.

The hon. Member for Northavon (Mr. Webb) felt that the amendment was too restrictive and that we should consider the overall effect of the Government's policy on savings. I agree with him. I share many of his concerns about the situation faced by pensioners at present. I wonder whether the Bill will really make much difference as regards lifting pensioners out of poverty.

In Scotland, we face a disgraceful situation: one in four pensioners live in poverty. That is unacceptable and I am not convinced that the Bill would do much more than tinker at the edges. If it helped even one pensioner, I would certainly support it, but it represents a missed opportunity to deal with pensioner poverty.

I turn briefly to the amendments. I confess that I was a bit puzzled about amendments Nos. 6 to 12, especially Nos. 4 and 5. Could we have some further elucidation of them?

I support the position of the hon. Member for Northavon on amendments Nos. 1 and 2. As he said earlier, there is discrimination against women and the Government are doing nothing to end it. The amendments are a reasonable way of tackling that unacceptable discrimination. The point that there is a contradiction in the Bill was well made: although the Government accept that the problem can be dealt with vis-à-vis the income guarantee element, they seem to take a different view on the savings credit element. Perhaps that will be clarified. I look forward to the Minister's comments.

Andrew Selous (Conservative, South West Bedfordshire)

I, too, speak as a member of the Select Committee on Work and Pensions. Sadly, I note that only Conservative members of the Committee are in the Chamber for the debate.

The Committee's excellent Chairman, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), frequently reminds us that, as Committee members, we are simple seekers after truth. That splendid phrase encapsulates the intention of new clause 5, which would cost the Government nothing; the expense for the Department for Work and Pensions would be negligible.

It is excellent that the Under-Secretary of State for Work and Pensions, the hon. Member for Liverpool, Garston (Maria Eagle), has confirmed that there will be annual statements for pensioners of future provision from both their private and public pensions. I very much welcome that; the information will be extremely useful for individual pensioners. However, when, as a nation, we are looking at a £27 billion savings gap, we need aggregate information, covering the whole country, to guide experts in the field and to advise the Government as to what should be done.

The hon. Member for Colne Valley (Kali Mountford) asked why the Select Committee could not examine the matter annually and provide the information. I must point out to the hon. Lady that the scope of the Committee's inquiries is extremely wide. Only yesterday, we considered the Child Support Agency. We also look into the whole field of work. It is not always possible or practical to expect a Select Committee annually to provide information, as she suggests, given the range of the Department's activities—the Department spends £110 billion a year.

I commend the new clause to the House. It will cost the Government nothing and it could shed some useful light on this extremely pressing matter.

Graham Brady (Conservative, Altrincham and Sale West)

I shall be brief. I have listened with interest to the comments of my hon. Friends and hon. Members from other parties.

On amendments Nos. 1 and 2, about which the hon. Member for Northavon (Mr. Webb) spoke, I was interested to hear that the Government's response has entirely concerned the discrimination that they believe would result in favour of women aged 60 to 64. Will the hon. Gentleman or the Minister comment on the viability of such an argument, given that the transitional arrangement is in itself clearly discriminatory? Ministers have accepted that that arrangement is appropriate. I cannot therefore see why they should not also accept some other measures that try to incorporate greater fairness.

On new clause 5, we must take into account the context in which we are trying to deal with the problem. My hon. Friend the Member for Hertsmere (Mr. Clappison) described the massive damage that the Government have already done to the savings ratio. Hon. Members on both sides of the House are acutely aware of the difficulties that so many pension schemes are facing—whether those are the problems of Equitable Life or of the increasing number of people who will no longer be covered by final salary pension schemes. We are very much aware of the damage that has been done to pension funds by the Chancellor's £5 billion tax on those funds.

Against that backdrop and given that young people are not saving sufficiently, the new clause is a modest but important attempt to improve the situation. Young people are deterred from saving because they feel that the system is too complicated, is not worth it, does not apply to them and is not relevant and, tragically, by the knowledge that they will not benefit fully if they take responsible action and try to provide for themselves.

The Minister must reflect on one crucial question. We would not be here today dealing with this new clause and the amendments, or indeed with the Bill that will introduce the pension credit and the savings credit, had the Government got it right in the first place and had they not created a problem with the introduction of the minimum income guarantee. Had that guarantee been accompanied by such a requirement to produce an annual report on the savings behaviour of the nation, the Government would have understood the crisis sooner and the seriousness—

Maria Eagle (Labour, Liverpool, Garston)

Did I hear the hon. Gentleman say that the minimum income guarantee is a problem? It is a poverty alleviation measure of which the Government are proud.

Graham Brady (Conservative, Altrincham and Sale West)

I think that the Minister can do better than that. We all accept that there are problems—even the Government clearly accept it—with people's willingness to save and to make proper pension provision for themselves. Frankly, the hon. Lady's point was rather facile given that hon. Members on both sides of the House accept that something needs to be done.

Paul Goodman (Conservative, Wycombe)

Did the Minister for Pensions not refer earlier in the debate to some of the problems caused by what he called the "old-fashioned MIG", making it clear that he thought that the pension credit was needed to alleviate some of those problems, which is what my hon. Friend was referring to?

Ian McCartney (Labour, Makerfield)

rose—

Graham Brady (Conservative, Altrincham and Sale West)

I think that the Minister wishes to intervene immediately.

Ian McCartney (Labour, Makerfield)

We are talking about old-fashioned income support. Perhaps the hon. Gentleman would like to offer an apology for encouraging young people to come out of their pension schemes and go for personal pensions, which led to millions of such pensions being mis-sold. The Labour Government have had to clear up that mess.

Graham Brady (Conservative, Altrincham and Sale West)

Ministers are now competing with each other to make silly and irrelevant points, which they are doing rather well. I am sure that I heard the Minister refer to the "old-fashioned MIG". In some of his more red flag-waving moments I think he thought of something else as being an old-fashioned MIG not so long ago. He was referring to the minimum income guarantee and not income support. Perhaps the record will now be hastily corrected, but that was indeed what he said. He referred to the minimum income guarantee as the "old-fashioned MIG". Perhaps it was a Freudian slip, but it was a clear acceptance that the Government have created problems.

If the Government had been prepared to incorporate a proper review procedure such as the one that we seek today, they might have arrived sooner at the conclusion that they now appear to have reached that something needs to be done to "fine-tune", the Minister may say, but certainly to ameliorate the situation.

If the Minister is going to be open minded and try to do the best job he can with the legislation before us, he should accept new clause 5 without any reservation.

Maria Eagle (Labour, Liverpool, Garston)

The debate on this group has been very lively. I hope to be able to answer as many questions as I can get through without testing the patience of the House too much. The hon. Member for Altrincham and Sale, West (Mr. Brady) has just been talking about the minimum income guarantee. We know that the Conservative party dislikes it and thinks that it is a problem. Indeed, the Leader of the Opposition said in March 1999, when we were discussing the MIG in the House:

"That is a huge rise in spending . . . I can think of nothing to recommend it."—[Official Report, 15 March 1999; Vol. 327, c. 740.]

The Conservatives have never liked the minimum income guarantee because they do not like alleviating the poverty that they caused pensioners.

Graham Brady (Conservative, Altrincham and Sale West)

If the Minister likes the MIG so much, why is she legislating to remove it?

Maria Eagle (Labour, Liverpool, Garston)

That is a wide long hop, to return to the cricket analogies that we were using earlier. The minimum income guarantee is based on income support rules. The fastest way we could introduce the scheme to alleviate poverty was to use the existing rules. We are now changing those rules to make them much simpler and to make the scheme better, so I have no problem in dispatching that comment to the boundary. The hon. Gentleman will have to try harder, although I probably should not have reintroduced cricket. I get the feeling that I may regret it at some point this afternoon.

Annabelle Ewing (Scottish National Party, Perth)

Retaining the nice humour that we seem to be enjoying in this interlude in hostilities, could the Minister give me a glossary of terms, as I am getting a little lost with all these cricket analogies?

Maria Eagle (Labour, Liverpool, Garston)

I am sorry to hear that the hon. Lady is not as familiar as some hon. Members with cricketing terminology, because Scotland has rather a good cricket team. I would have expected her to have watched their games occasionally. I cannot promise to give her a glossary at this moment as I am sure that Madam Deputy Speaker would bring me to order straight away, but I can point her to the section in the Library that contains "Wisden". She will no doubt find a good glossary of cricketing terms there. However, I must get on if I am to have any chance of dealing with the meat of the debate on this group, which has been very interesting.

New clause 5 was moved by the hon. Member for Hertsmere (Mr. Clappison) at some length and supported by most if not all Conservative Members present and also by some hon. Members from other parties here present. The purpose of the new clause is to ensure that an annual parliamentary reporting mechanism is in place on the effect of the pension credit on an individual's incentive to save for retirement. I do not think that anyone would object to the House and the Government, or anyone who is considering these matters, having as much information as possible about the effect of policies on people's behaviour. Information is a good thing. The Government try to base their policies on evidence, and I am sure that most hon. Members would agree that that was a good thing.

The new clause would, however, require the Secretary of State to lay an annual report before Parliament setting out the effect of the pension credit on the individual's incentive to save, and would give the Secretary of State the authority to invite the Social Security Advisory Committee to comment on that report and make recommendations for changes to the structure of benefits that seemed to it to be important.

The new clause is not necessary because the Secretary of State already has the power to ask the Social Security Advisory Committee for advice on any social security matter. In fact, if Opposition Members look at paragraph 20 of schedule 2, they will see that it will amend section 170(5) of the Social Security Administration Act 1992, so that the Bill, when enacted, will become a relevant enactment, which will bring pension credit into the existing SSAC framework. The SSAC may give advice and assistance to the Secretary of State in connection with the discharge of his functions under those enactments, which will include the Bill. Of course, under section 170(3) of the 1992 Act, he may refer to the committee for consideration and advice such questions relating to the operation of any relevant enactment as he thinks fit. In that sense, the power already exists in the Bill for the Secretary of State to make references to the SSAC if he wishes to do so. So the new clause is not necessary; nor would it add anything to the existing powers.

Of course Ministers are accountable to the House for the introduction and monitoring of any new policy. That is how things should be done. I am sure that Opposition Members will continue to seek Adjournment debates and ask parliamentary questions to discover how the Bill is working if it is enacted. That is the right way to deal with things, and new clause 5 would add nothing.

It is technically very difficult to produce a report that specifically separates the effects of pension credit from other impacts and policies designed to promote incentives to save for retirement. It would be particularly difficult to produce a report that isolated whatever the incentive, or disincentive, effect of the Bill may be on the propensity to save, as the new clause puts it, so there could be rather more confusion.

I hope that I shall not be unfair to the hon. Member for Hertsmere if I say that he probably tabled the new clause to promote a debate about incentives to save. It would probably be fair to say, having listened to the debate, that he certainly managed to have such a debate. [Interruption.] He is chuntering away, and I hope that I can hear what he is saying. I am talking about new clause 5 and trying to deal with the points that he made.

James Clappison (Conservative, Hertsmere)

There is no mystery about new clause 5, because it refers to

"the effect of the savings credit on the propensity of individuals of working age to save for their retirement".

That is precisely what the phrase "incentives to save" means.

Maria Eagle (Labour, Liverpool, Garston)

The point that I am trying to make, although obviously not clearly enough for the hon. Gentleman, is that it is quite difficult to disentangle the incentive of one policy from all the other incentives or disincentives that are flying around. That is the problem with the new clause.

The hon. Gentleman was trying to promote a debate about incentives to save, and in that respect I want to answer some of the points that he made. He rightly said that many people of working age are not saving enough for their retirement. No one would disagree with that. Ministers have said at the Dispatch Box that people are not saving enough. He also referred to the alleged £27 billion savings gap, as did some of his colleagues. He made the point that, if the Bill were implemented in that way, it would act as a disincentive to save for people of working age, rather than rewarding savings, which is what we think it would do.

A tension inevitably exists between the need to ensure that there is a floor below which pensioner incomes do not fall and the need to ensure that today's workers have a clear incentive to save. The Bill provides a mechanism for doing both, by ensuring that we can tackle poverty among today's pensioners. May I say gently to Conservative Members that, after their 18 years in power, our priority when we came to power in 1997 had to be to do something, as part of a decent pensions policy, to alleviate the pensioner poverty with which they left us?

Things have not got worse. The claims made by the hon. Member for Castle Point (Bob Spink) were complete nonsense, and I do not recognise any of the points that he made as being based on any kind of fact whatever. If he could point out his source for the claims that he made, I should be very interested to see it.

Paul Goodman (Conservative, Wycombe)

Will the Minister not acknowledge that even the pension credit's supporters recognise that the difficulty with the Government's approach is the extensive reliance on means-testing, that up to roughly a fifth of those entitled to the MIG do not take it up, and that there is no evidence at all to show that take-up will increase under the pension credit?

Maria Eagle (Labour, Liverpool, Garston)

I shall come to some of the points that the hon. Gentleman makes later. Take-up is obviously important. We want to promote take-up to ensure that those who are entitled to benefits take them up. One of the ways in which pension credit represents an improvement in that regard is that the so-called means test—the information that people will have to provide us with—is much simpler and much more straightforward. The weekly means test that currently exists for income support and the MIG will disappear, and people will normally only have to make a claim once every five years. That will lead to a considerable improvement in take-up, which is what we aim to achieve.

The hon. Member for Hertsmere suggested that the Bill will involve a disincentive to save, but the pension credit is about fairness; it will reward thrift instead of penalising it. For the first time, those who have saved a modest amount for their retirement will be rewarded for doing so by receiving the savings credit. That has not been the case in the past. So the Bill will remove a disincentive to save for people who were likely to qualify for the MIG. Instead of losing benefit pound for pound, as happens under the old income support and the MIG systems, they will receive a 60p a week reward for every pound saved in the target income band. That is not a disincentive to save; it is a reward for saving.

No hon. Member has so far mentioned that the capital rule changes that we are making in pension credit are very beneficial. We shall treat capital five times more generously than it is treated under the old income support and MIG-type rules. We have designed pension credit to promote saving in respect of the capital rules. We will abolish the current rule that excludes pensioners with £12,000 or more in savings from any help at all.

Income from savings below £6,000 will be ignored. For savings above £6,000, a notional rate of income, set at half the current MIG rate, will be assumed. Those improvements ought to encourage people and those who have been excluded in the past because of their capital to benefit from the savings reward. All those things are an incentive to save, rather than a disincentive, because they will explicitly provide a reward for savings. That is one of the Bill's main aims, and I contend that that is exactly what the Bill will do.

Of course Opposition Members needed to support their assertions. In doing so, they read out comments made to the Select Committee during the evidence that it took, as well as other sources—briefings and so on—that have been circulated while we have been considering the Bill. However, they did not read out all the quotes from all the organisations—not that I am shocked about that—and there are some other quotes from respectable organisations in the pensions world that agree with the Government that the pension credit will provide an incentive save.

For example, the Association of British Insurers said:

"The ABI welcomes the Government's proposals for a Pension Credit as an important step in addressing the issues which may currently discourage those on moderate incomes from saving for their retirement."

The National Association of Pension Funds said:

"The NAPF welcomes the concept of the Pension Credit and believes that it will go some way to rewarding low income pensioners for their thrift during their working lifetime. It will also assist in creating the right environment for today's workers on low or modest incomes to be able to justify making a commitment to a long term pension saving vehicle."

Legal and General said:

"Legal and General is confident that the pension credit has the potential to be a powerful encouragement to save for low or middle income groups."

I could read out many more. Obviously, Opposition Members read out the quotes that supported them and they will not be surprised that I have read out some of the quotes that support the Government's position, but Opposition Members ought at least to accept the fact that the professional view is not all one way. Many professionals in the industry believe, as do the Government, that pension credit will provide an incentive to save. I would not therefore accept the Conservative party's claim that our proposals are disincentives to save.

Paul Goodman (Conservative, Wycombe)

The hon. Lady is being very fair. Rightly, she says that Conservative Members have a propensity to quote those organisations that believe that the pension credit does not provide an incentive to save. She has just read out quotes from bodies that say that it is an incentive to save. Why will she not therefore support the new clause, which would allow a neutral body to make the judgment?

Maria Eagle (Labour, Liverpool, Garston)

If the hon. Gentleman were to be fair, he would accept that I have said that the powers already exist to enable the Government to do as the new clause suggests. Therefore—

Graham Brady (Conservative, Altrincham and Sale West)

Will the Minister give way?

Maria Eagle (Labour, Liverpool, Garston)

If the hon. Gentleman gives me a chance to finish, I might consider giving way to him, as long as he does not throw a cricketing analogy at me.

The Government already have the power and authority to do as the new clause suggests. I have made it clear that we believe in evidence-based policy making and that the House has the power and the duty to hold the Government to account, as I am sure it will.

Graham Brady (Conservative, Altrincham and Sale West)

I promise no cricketing analogies. The Minister says that the new clause is not necessary because the Government already have the power that it would provide. I know that my hon. Friend the Member for Daventry (Mr. Boswell) is eminently reasonable, and if she were to give an undertaking that the Government would use those powers and commission a report on an annual basis, we might be persuaded to consider withdrawing the new clause.

Tim Boswell (Conservative, Daventry)

Tempting.

Maria Eagle (Labour, Liverpool, Garston)

It might be tempting to give such short answers, as the hon. Member for Daventry (Mr. Boswell) suggests, but it is usually foolish for Ministers to give in to that temptation. We are committed to evidence-based policy and we have the power to find out and do all the research that we need to do to evaluate our policies, and we shall do so. There are some technical problems in respect of isolating propensity to save in relation to one policy, as opposed to everything else that is going on. The point that I am trying to get across is that I am not hostile to the idea of evaluating policy—we are in favour of that but the new clause is a flawed way of doing it.

David Cairns (Labour, Greenock and Inverclyde)

Would my hon. Friend not agree that the reason why we are having so much debate and so many speeches by Conservatives Members on the issue of reporting is that, when it comes to substantial policies for making the lives of Britain's pensioners better, they have absolutely no alternatives?

Andrew Selous (Conservative, South West Bedfordshire)

At the moment.

Maria Eagle (Labour, Liverpool, Garston)

The hon. Member for South-West Bedfordshire (Andrew Selous) is a very honest man. My hon. Friend has received his reply.

I do not want to try the patience of the House. I hope that I have dealt with the issues in relation to new clause 5 in detail and that Conservative Members, although they may not like what I have said, will accept that I have at least attempted to answer their points.

Interestingly, when the hon. Member for Hertsmere referred to amendments Nos. 4 to 12—he did not technically move them, of course—he mumbled something about them reducing complexity. He went on to say that they were so complex that he could not and would not deal with explaining to the House what they meant. I was hoping that he would do so, because, on giving them a close look after they had been tabled, I hoped that I would receive a little guidance in his opening remarks.

James Clappison (Conservative, Hertsmere)

I am tempted.

Maria Eagle (Labour, Liverpool, Garston)

Oh, the hon. Gentleman is feeling tempted now. I shall not tempt him too much. Given that he did not set out clearly precisely what the amendments were about and what he was about—one wonders how they got written, given that nobody is quite sure what they are about—I must crave the indulgence of the House and deal with them in relation to my interpretation of them rather than the interpretation of the Members who tabled them.

Tim Boswell (Conservative, Daventry)

Perhaps I can assist the Minister, as my name is also attached to these amendments, although, for technical reasons, I did not move them. Indeed, it would take a long time to explain them. They are, as it were, derivatives of amendments moved in another place by the late and sincerely lamented Baroness Castle. They are intended to be entirely neutral in effect. The reason they are more complex than the amendments moved by her and Baroness Turner in the other place is that they have been upgraded to take account of at least two of the objections made by the Minister's colleague Baroness Hollis, and we felt that her third objection could have been dealt with in another way. They therefore have a degree of commonality of pedigree, even if the Minister is not prepared to accept them.

Graham Brady (Conservative, Altrincham and Sale West)

Middle stump.

Maria Eagle (Labour, Liverpool, Garston)

We are back to cricket again. I agree that, given that explanation, the amendments have a degree of pedigree behind them. On reading them, it was apparent that there was a great deal of ingenuity behind them—I have even written "ingenuity" on my notes. Even though I thought that they were tabled by the Conservative party, I was about to concede that they were ingenious, which they are. If we accept the new clause and amendments at face value as an attempt to improve the Bill, I have some points to make about their faults.

Clearly, clause 3 is a complex piece of work, and it was recognised in Committee that it was not the clearest drafting that we have ever seen. When one tries to set out a mathematical calculation in words, one is already at a disadvantage—that is why we have mathematics—but that is what the parliamentary draftsman who produced clause 3 had to do. The calculation of the pension credit in the Bill has two parts. First, a single pensioner who has an income below £100 will receive 60p a week for every £1 of savings that they have over £77, building to a maximum of £3.80 a week for someone whose weekly income from pensions and savings is £100. Secondly, if a single pensioner's income is above £100, the weekly maximum savings credit of £13.80 starts to reduce by 40p for every £1 of original income. That is the basic calculation.

To achieve the same end, the new clause and amendments introduce an income disregard. The way they work is quite clever, because it seems that the calculation that they introduce works across the entire income range to produce the same figures as the calculation in the Bill. That is why I use the word "ingenious"; they are ingenious. I am not absolutely sure, however, that the calculation is any more transparent than the one in the Bill. In addition, there is a flaw. The current Bill distinguishes between the two components of the pension credit—the guarantee credit and the savings credit—whereas, effectively, the new clause and amendments do the calculation in a different way, which brings everybody's income below the guarantee level using disregards. That was put forward as more simple because, I presume, there is one element instead of two. I hope that I am getting it right.

Tim Boswell (Conservative, Daventry)

You are.

Maria Eagle (Labour, Liverpool, Garston)

Good. The problem with that is that the guarantee credit is a poverty alleviation measure and a passport to other benefits, receipt of which is dependent on receipt of guarantee credit. Without guarantee credit, below which everybody's income is reduced before being topped up, there is a difficulty in how to identify those who might be eligible, by passporting to other elements of income support—for example, severe disability premium and carers premium. That is one set of problems with the proposals.

Another defect is that the new clause would exclude pensioners with a downrated guarantee credit, because they were in hospital for more than 13 weeks, from benefiting from the savings credit. As the House knows, or at least, as Members on the Committee know, savings credit should not be downrated. Were we to adopt the proposed formulation and calculation, we would be prevented from being able to differentiate those who had guarantee credit and savings credit, and which one should be downrated.

Tim Boswell (Conservative, Daventry)

I had, in a sense, already trailed the Minister's objection to one point about the passporting of benefits. If we had gone on at length about the approach that we would have taken, we would have said that only people with incomes not exceeding the appropriate minimum guarantee would be passported. Although I have not considered the point in detail, I think that it would equally have been possible to have maintained the savings credit about which she has also expressed concerns.

Maria Eagle (Labour, Liverpool, Garston)

That is interesting, but it still prompts the question: why bother doing the calculation in a different way if it means taking a different route to exactly the same place? What is the benefit of doing that? We need two elements of the pension credit, because they are essential to enable us both to support the income of pensioners by way of the guaranteed credit and to make transparent—this is a main policy aim of the Bill—the fact that there will be a reward for saving. The hon. Gentleman's approach would remove that clarity, because it would not be clear that a specific element of the pension credit would be a reward for savings. That would have an impact on incentives. I know that Opposition Members do not always accept our point of view, but we believe that their approach would be bad in that regard.

I hope that I have dealt with the amendments tabled by Conservative Members, so I shall move on to some of the points made by the hon. Member for Northavon (Mr. Webb). I intervened in his speech when he appeared to complain about our proposals for the alleviation of poverty. He suggested that, by increasing the amount of the minimum income guarantee—soon to be guaranteed credit—we would create a problem. However, I believe that we are helping to alleviate poverty. I would have thought that Liberal Democrats were in favour of that—they used to be.

Perhaps the hon. Gentleman is moving a bit closer to the main Opposition party in saying that he is not really in favour of alleviating poverty even though we inherited from the Conservative party, when it left office after 18 years, a far wider income disparity than existed when they came to office. We were very keen to do something about that.

Steve Webb (Liberal Democrat, Northavon)

I am never entirely sure whether the Minister is wilfully misrepresenting my position. I made it absolutely clear that we believe that there are two strategies for tackling pensioner poverty: the mass means-testing route or targeting by age. Each has strengths and weaknesses and each involves trade-offs. I made it perfectly clear that we did not oppose attacking poverty but that we thought that the Government's approach had damaged savings, and missed the people who do not claim under the complicated schemes. We think that there are better ways of alleviating poverty, and that is clearly what I said. We do not disagree about the fact that there should be a strategy for dealing with poverty.

Maria Eagle (Labour, Liverpool, Garston)

The approach that the Liberal Democrats have chosen would not achieve that aim, whereas our policies will.

I assure the hon. Gentleman that I am not in the business of wilfully misrepresenting him. Perhaps he is in the business of not being quite as clear as he might be. I listened to him carefully and he basically said that targeting could be achieved without any form of means-testing—[Interruption]—without a form of mass means-testing is the phrase I think he used. He referred to using age as a proxy for poverty and signed up to the reasoned amendment on Second Reading that made that point. That is why I see a lessening gap between the policy of the official Opposition and the Liberal Democrats.

Both parties have referred to age additions as targeting without means-testing. The hon. Gentleman said that the biggest income gaps could be proxied by age, and therefore that age additions were a way of dealing with the problem without resorting to mass mean-testing, as he put it. However, the family resources survey shows that the biggest income gaps are between people in the same age groups, not between people in different age groups. So his point is simply not true.

The hon. Gentleman proposes to give extra money to people such as Baroness Thatcher. Whatever one thinks of her, she is a wealthy woman and has been rewarded for her work. He would give extra money to Baroness Thatcher because she is over 75 but not to a poor pensioner who is 60. If he really is suggesting that that is a way of targeting poverty, he has got it very wrong.

The hon. Member for Northavon suggests that we should pay the £2 billion that the pension credit will cost to the over-75s, but that would still leave three quarters of that group short of the current MIG level. When I asked him for his calculations for those who would be still on the MIG under his scheme, he was not able to provide them and he did not give his figures for what he might raise the pension to. However, if we were to raise the basic state pension to the current MIG level, which is probably higher than he would suggest, that would cost £9.7 billion net and it would not target the poorest pensioners. In fact, the poorest pensioners would have their benefit reduced pound for pound because of the income support rules and the 100 per cent. marginal rate of deduction. That would still leave 1.6 million pensioners entitled to the MIG. His policy would not even achieve his aims or deal with the problems with which the pension credit deals.

On amendments Nos. 1 and 2, points were made about those aged between 60 and 64. As we discovered in Committee, it is a difficult issue. The hon. Member for Northavon has also been fairly ingenious in coming up with a different way of achieving what the amendments he tabled in Committee tried to achieve. Amendments Nos. 1 and 2 seek to rectify the anomaly, as he sees it, of restricting the savings credit for men and women over 65 by making it available to both men and women from the same age as for the guaranteed credit, which is currently 60.

The amendments would set the minimum age for the savings credit at the qualifying age rather than the age of 65. The hon. Gentleman has used that device, and the qualifying age would apply to the guaranteed credit and to the savings credit. Under the Bill, the qualifying age is different for the guaranteed credit and the savings credit.

The problem with the hon. Gentleman's approach is that we still do not have equality in pension provision. I tried to make the point to him in Committee that his proposal would not work because we will not have equality in the basic state pension and pension provision by the state until 2020. The House will recall that the Pensions Act 1995 tackled the issue of gender inequality in pensions, but it recognised that the problems could not be dealt with overnight because pension saving does not operate in that way. Therefore, a provision was made that, between 2010 and 2020, the basic state pension age for women would rise over that time until it is equal to that for men. Until that happens, we will not be able to apply the Bill's provisions in a way that can avoid anomalies. That is the basic problem.

The amendments are slightly different from the ones that the hon. Gentleman tabled in Committee, but they still create the same problems. That is why I ask the House to reject them. They would still leave inequalities between men and women at different ages even though they are in identical circumstances. Despite his ingenuity, the effects are the same. The Government cannot accept them because they would produce anomalous results such as the one that I referred to in Committee. Under his amendments, men between 60 and 64 might receive the pension credit but, once they hit 65, they would have it taken off them. We do not want our policy to create such anomalies.

I give the hon. Gentleman every credit for his ingenuity, but the basic problem is the current inequality in state pension provision. We cannot overcome the problem until we have the equality that will take time to achieve. Try as he might and try as we did, we cannot do any better than to have the savings credit come into effect at age 65. It is regrettable that some people will lose out because of that, but there is nothing that we can do to put matters right unless we bring forward the age of equality between the genders. And we cannot do that.

I realise that I have been speaking for some time. I do not want to try the patience of the House too much, and I hope that I have dealt with the points raised. I also hope that the hon. Member for Hertsmere is not falling asleep as a result of my droning on, and that having heard my argument, he will withdraw the motion.

James Clappison (Conservative, Hertsmere)

I would not be so ungallant as to accuse the hon. Lady of droning on. Indeed, I listened to her carefully considered arguments with great interest. However, I am not as convinced as I should like to be to withdraw the motion.

I am grateful for the support given to the new clause by my hon. Friends and from other quarters, reflecting the widespread concern about the crisis in saving and the lack of saving for the future. I remind the hon. Lady, as my hon. Friends did, that this modest amendment only requires the Government to prepare a report. The case for the new clause, which was already strong, now looks even stronger.

The hon. Lady was brave enough to argue that the new clause is unnecessary because the Secretary of State already has the power to require a report. However, when pressed on that, she gave no hint that the Secretary of State has contemplated such a step. That is unsatisfactory. The subject is important and we want the fullest possible information on it.

Clause 9 — Duration of assessed income period

Tim Boswell (Conservative, Daventry)

I beg to move amendment No. 13, in page 6, line 28, at end insert—

'(1A) The Secretary of State may provide by regulation for the assessed income period to be continued for a period not exceeding five years notwithstanding that the payment of benefit during that period has been terminated under regulations made under section 1(5) or section 2(6) of this Act, and may make provision for the restoration of benefit on the same basis of assessment as has previously applied when the conditions giving rise to the termination of that benefit no longer apply.'.

Even those of us who do not habitually indulge in immoderate language or high political grandstanding are entitled to do so from time to time. I seem to remember on one occasion during consideration of the Bill that became the Learning and Skills Act 2000 becoming extremely excited with the Secretary of State and threatening at about midnight to divide the House. Although I make no such threat at this point, which might be a comfort to some hon. Members, who knows what will happen? As ever, it depends on the Minister's response. There is a serious and important point that needs to be dealt with. We discussed it at some length in Committee, but I do not feel that it has been satisfactorily answered yet, although I realise that it might be resolved at a later stage through appropriate regulations.

The whole business arises from the Government's shift to an assessed income period of a maximum of five years, compared with what might be regarded as a traditional measure of weekly income for means-tested benefits, or annual income for tax. My argument is not that that shift should not have happened. We all know that for practical reasons the purity of the doctrine of the weekly basis for the payment of means-tested benefits has become somewhat attenuated in recent years—for example, in the qualifications for jobseeker's allowance and the linking rules that apply to people who are returning to work—but the House would not forgive us were we to dilate on those issues today. However, we face an extraordinary and unprecedented position in which, at up to five years, the assessment period for a means-tested benefit—the savings credit—is to extend for considerably longer than the annual period of assessment for tax or the period used in respect of any other benefit.

We are not arguing in the amendment that that concept should be removed from the legislation—there are immensely important practical reasons why it should stand. However, unlike some pensioners' organisations, the Government do not appear to have fully grasped the dramatic administrative implications of trying to run a means-tested benefit for approximately 5.5 million pensioners—half the total number. It is clearly sensible to make the assessment period as long as reasonably practicable, but the implications of doing so must be addressed.

There are basic inequities that will be difficult to eliminate in applying assessment over a long period. When we asked Ministers about that in Committee, their reply was, in effect, that if something happens to a pensioner's income and it falls, they can apply for reassessment, or they will receive an annual reminder and then apply for reassessment. In short, the matter can be picked up, and they can be reassessed and their credits adjusted appropriately. That appears wholly reasonable. However, there will be other cases in which a pensioner's income will rise for some reason—for example, they might come into some money. That might make them no longer eligible for benefit if they are new claimants; conversely, if they have had an assessment, which lasts for five years, they will not be required to report their windfall or to have their means-tested benefit reduced. There could be inequity between people with the same level of income, or assumed income, according to whether or not they were assessed for five years. That also applies to circumstances in which there may have been a discontinuity in their benefit, and those are addressed in the amendment.

In Committee, when we asked Ministers about such circumstances, they said that if it would be better for pensioners to reapply, they could reapply. However, we pointed out that if continuity for pension credit had been broken and a new assessment was required, pensioners would need to reapply but would receive a lower benefit than someone in exactly the same circumstances who had maintained their benefit for five years.

We need to discuss the circumstances in which that problem might arise. I should make it clear to the House that we are not talking here about what might be termed genuine changes in circumstances arising, largely, from voluntary decisions. If a pensioner chooses to marry or has a child, clearly there is a material change in their circumstances, but those factors have always been recognised in the benefits system. We are concerned here with what I might call contingent changes of circumstance whereby pensioners go through a hoop and then have to reapply on a new basis, as a consequence of which they may lose out, as against pensioners with exactly the same income circumstances who can maintain their vested rights to an assessment for five years.

The circumstances that may arise range, if I may put it this way, in order of diminishing acceptability, from the entirely reasonable to the more questionable. First, a pensioner may spend time abroad. It is envisaged in the explanatory notes to the Bill that, on the analogy of jobseeker's allowance, a pensioner who goes abroad for four weeks will be able to maintain their benefit, and after that it will cease. That period will be extended to eight weeks, as I understand it, in cases where a pensioner has to go abroad to support a child who is receiving medical treatment. No one wishes to cavil at that. If it is necessary to have a distinction, that seems to be an acceptable one.

We need to consider the situation of pensioners who normally go abroad for longer than four weeks. For example, they might want to go abroad to receive medical treatment. It could even be that they had been referred by the NHS to a hospital in another country, paid for by the British taxpayer. If they could not get the operation that they needed in the UK, they might be sent abroad for it, and they might need to be away for more than four weeks, although medicine now tends to achieve quicker turnaround times. In that circumstance, which arises from a deficiency in NHS provision, they might say, " I accept that I must have treatment abroad, and I am going at the public expense, although I don't object to that." However, they might come back to find that their pension credit entitlement had ceased. In that case, they would have to make a new application, and they might get less.

That would be the extreme case, and Ministers understand that not everything can be tailored to the needs of the hard case, but there is a point of much wider application, for example, to anybody who wanted to go away to the Costa Brava for a winter holiday. Unless I have completely misunderstood the Bill, after four weeks, the assessment that they had previously enjoyed would be lost, and on coming back they would have to reapply and be assessed on a new basis, which might be less favourable than the original.

I leave aside, because it will complicate the issue, concerns about the administrative arrangements for reactivating the benefit, although those will clearly be important. I leave aside also concerns about cases in which the pensioner had, in good faith, nipped off for a holiday, perhaps at short notice, and forgotten to inform the Pension Service. By doing so they would have committed a technical offence or perhaps even a substantive one.

Pensioners with an entitlement to benefit which is fixed for five years—it is not reassessed weekly—who take a holiday in another state of the European Union or beyond and are penalised may feel that they are harshly treated as against those who take their holiday in the UK and are not penalised. That may well attract the attention of European jurisprudence in due course. I mentioned that in Committee, and I do so again because there is a barrier to the free movement of persons if some disadvantage arises out of a contingent movement to another EU state. Anyway, in the real world, it is perfectly reasonable for a pensioner to say, "I want to take six weeks' holiday in the Costa Brava this year. I feel that I've earned it. Why am I being messed about on my benefit?"

As the Minister will remember, other cases may arise. I hope that when he replies he will not caricature such cases. One, which we did not talk through enough in Committee, is that of hospital downrating. That issue is separate from whether or not persons are sent abroad for treatment that is paid for by the NHS. It would be appropriate to ask whether, if a person was sent abroad by the NHS, and the period of treatment or hospitalisation exceeded 13 weeks, they would be subject to downrating on their basic pension as well. It would be useful to get that on the record.

There is also the question of the entitlement to savings credit. The Under-Secretary, who responded to the previous debate, confirmed that savings credit will not be lost even if hospital downrating takes place. It would be useful to get that back on the record. I am concerned about the re-entry into benefit when hospitalisation finishes, and I should like ministerial confirmation that the assessed income period that already applies will be maintained—that is, unless and until it is more favourable for the claimant to be assessed on a different period.

The final issues that I wish to raise are the perhaps less worthy ones that we debated and kicked around in Committee. They concern people who enter religious orders, some of whom are represented in the Chamber this afternoon. I do not imagine that people would do so for a short period, so my query is hypothetical, but it also concerns individuals detained at Her Majesty's pleasure. I have said that there is a problem with double provision. Clearly it is wrong to pay someone pension credit while they are inside and being maintained at Her Majesty's expense—and very expensive that is, as we all know. On the other hand, should they lose satisfactory pension credit arrangements?

The intention and effect of the amendment is to suspend the assessment period, then reactivate it later. There should be no question about paying benefit while someone is abroad and perhaps, if we want to complete the provision, in the subsidiary example in which someone is in prison or some other state of disqualification from benefit. Rather than just simply having a mechanism that enables the system to regenerate a claim and get someone back on benefit, it would be more sensible to have a system in which the benefit is deemed to be suspended, then reactivated when those circumstances no longer apply. We have tried to draft the amendment in that way.

I urge the Minister to accept that I tabled the amendment with good will. The issue is difficult. The problem may not be as extensive as I have stated but, if I were him, I would make provision for it—if not now, then perhaps in the regulations that will no doubt flow from the Bill—so that, if necessary, benefit can be reassessed and looked at afresh. In addition, in certain cases it may be administratively easier and fairer for the benefit to be suspended, then reinstated when certain conditions no longer apply. Our amendment is tailored to do that.

Ian McCartney (Labour, Makerfield)

I hope that we can dispose of this item reasonably quickly, as we debated it for a considerable time in Committee. The next group of amendments, dare I say, contain more meat and are of a higher quality. At the risk of upsetting the hon. Member for Daventry (Mr. Boswell), his amendment has no merit, but I shall come to that in a moment.

The hon. Gentleman first raised these issues in Committee, when he said that convicted prisoners should continue to get the benefit of pension credit. We therefore nicknamed his amendment the Ronnie Biggs amendment. Such was the embarrassment of the Conservative party that it quickly dropped that argument and had to find another reason for tabling such an amendment. It has now found one, and has introduced the Costa del Sol amendment, which I shall deal with quickly.

In Committee, the hon. Gentleman gave me an A for the clarity of my explanation of why the amendment was not only unnecessary, but worked against pensioners, but I only got a C for its acceptability. Having listened to his contribution today, I have to give him a triple X for acceptability, as I am even less persuaded by it than I was by his argument in Committee.

The main effect of the amendment would be to allow a person who went abroad for more than four weeks and had his claim for pension credit closed to pick up where he left off. Any remaining assessed income period from his previous claim would be restored upon reclaiming, so changes in his circumstances would be ignored. The amendment would have the same result when someone lost entitlement to pension credit on going to prison or, in certain circumstances, as a consequence of hospital downrating.

The hon. Gentleman perceives an unfairness in our proposals because he believes that pensioners who can travel abroad may be inhibited from doing so. To use one of his examples, a person may receive a windfall, perhaps after the death of an elderly relative, which makes them much richer. They may continue to live in the United Kingdom and benefit from both pension credit and the windfall gain for up to five years. He contrasted that with someone who goes to another country and, upon their return, finds that they are no longer entitled to pension credit.

Opposition Members have tunnel vision, and need to look at the bigger picture. We are not ignoring lottery wins and other windfalls during the assessed income period because we think people in such a position need pension credit. We are doing so because we want to reduce intrusiveness for all recipients of pension credit. We can live with ignoring individuals' good fortune for the sake of simplifying the system for the overwhelming majority of pensioners, but we should not extend that generous treatment to people who reclaim pension credit because their previous claim rightly ended, whether as a result of going abroad or for some other reason. We must ask questions anyway, if only to be sure that the claimant is who they say they are, rather than an imposter taking advantage of someone's absence.

I know what the answer would be if one asked a typical pensioner in the street whether he would like to retain the weekly means test, in order to avoid some perceived hardship to a handful of pensioners who had had a windfall and who could afford to travel abroad for months or even years at a time. The answer from the vast majority of pensioners would be a resounding no.

In any case, it is more likely that a person who has been abroad for some time will have a lower income stream, having used up savings, rather than a higher income from, say, winning the lottery. That is where the hon. Gentleman's case falls down. When people go on holiday, they are using their capital, so it is more than likely that they will come back with less income. Having paid for their holiday and taken their spending money with them, they are eating up their capital all the time that they are away. They have, presumably, not gone to Spain or any other country to work, but to enjoy themselves. It is therefore in the pensioner's interest that a reassessment is carried out.

As I said in Committee, it may be in the claimant's interest for a full assessment to be carried out on his return from a protracted absence, as people are more likely to win than to lose out. People who have been abroad for some time are more likely to have a lower income stream because they have used up part of their savings than they are to have won the lottery in Spain. I do not know what the odds are for winning—

Tim Boswell (Conservative, Daventry)

Fourteen million to one.

Ian McCartney (Labour, Makerfield)

The hon. Gentleman has obviously played the lottery in Spain; I have never been able to, although I understand that one can now play it in the United Kingdom. That is being advertised.

In Committee, the hon. Member for Daventry, referring to me, said:

"He says—he may be right; I do not contest that—that many people who return from protracted absences abroad may have spent themselves out, and might be better off with a new assessment."—[Official Report, Standing Committee A, 23 April 2002; c. 185.]

At that point, I thought that the hon. Gentleman would have sat down and forgotten about the matter, but he is back again.

The hon. Gentleman did not dispute my assertion that people who have been abroad for some time are more likely to gain from a full assessment than to lose out. The only people who stand to gain from the amendment are those who have some unforeseen increase in their finances, such as a lottery win or some other windfall, since their pension credit award and who go abroad for more than four weeks. It is not clear why this group so concerns Conservative Members.

As I explained in Committee, we intend to limit strictly the number of changes in circumstance that will require reassessment of income, but we believe that protracted absence abroad is one such instance. We also think it right that where a pension credit claim closes, it closes. It is entirely consistent to undertake a full assessment on a new, fresh claim.

It must be right that while simplifying the system for the benefit of pensioners, wherever possible we simplify administration too. I do not see how one can reconcile this important factor with holding closed claims in some kind of suspended animation, to be re-awakened at some unspecified future time, which may or may not occur.

The same arguments apply with regard to loss of entitlement to pension credit as a consequence of hospital downrating. I remind the House that it was the present Government who increased from six weeks to 13 weeks the period for which a person may be in hospital before having his benefit downrated. People in receipt of the pension credit will be able to retain entitlement to up to eight weeks on temporary absence abroad, as the hon. Gentleman said, for children's treatment.

People who travel abroad to receive national health service treatment will be considered still to be in Great Britain for the duration of that medical care. Ministers recently agreed that people who receive pension credit, income support and jobseeker's allowance who travel abroad for NHS-funded medical treatment will not be subject to the time restrictions on temporary absence from Great Britain. I hope that that helps the hon. Gentleman and will enable him to withdraw his amendment.

Tim Boswell (Conservative, Daventry)

I am grateful to the Minister for that reassurance at the end, which represents some progress. I was disappointed by some of his earlier remarks. When he started attributing to me the title of the amendment—the "Ronnie Biggs amendment"—which he himself had used to ridicule it, I knew that we were in for trouble and some lack of understanding.

In arguing for the amendment, I was making the point that there is an inherent inequity between a person who travels abroad and receives a windfall and is then reassessed for pension credit or disqualified, and somebody who remains in the UK, receives the same or even a larger windfall and is untroubled. The Minister explained why that is the case, but the inequity remains.

I am even more troubled by the possibility that a person may feel inhibited, or there may be accusations that a person feels inhibited, from travelling round the European Union by the structure of the benefits system and the disqualification from certain benefits. That does not fully honour the spirit of mutuality of benefits that is beginning to be introduced in Europe.

However, these are complex issues and the Minister has tossed me a very small bone in relation to downrating, which is helpful. I do not want to be churlish and I shall not seek to press the amendment to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 15 — Income and capital

Paul Holmes (Liberal Democrat, Chesterfield)

I beg to move amendment No. 3, in page 9, line 7, after "earnings", insert—

', except that that part of a claimant's hourly earnings that is equal to the rate of the National Minimum Wage shall be disregarded'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following amendments: No. 14, in page 9, line 18, at end insert—

'but shall in no circumstances include income derived from or calculated as income implied by any compensation fund (whether or not written in trust) administered for the benefit of any claimant for state pension credit in connection with a settlement of a claim on behalf of that person arising from industrial injuries or medical negligence.'.

No. 15, in page 9, line 22, at end insert—

'but shall exclude any income derived from PEPs, TESSAs or ISAs.'.

No. 16, in page 9, line 24, at end insert—

'but subject to the restriction that the income implied by any capital holding shall not exceed the current Bank of England minimum lending rate plus two percentage points, to be averaged over a twelve month period prescribed in the regulations.'.

Paul Holmes (Liberal Democrat, Chesterfield)

I want to discuss the apparent contradiction in Government policy in relation to encouraging people to continue in some degree of employment after reaching the legal age of retirement—a contradiction that has already been discussed in the Select and Standing Committees.

The Cabinet Office report "Winning the Generation Game" stated that older workers should be encouraged to stay in work and that more flexibility should be available in terms of retirement. The Government have often said that they are keen to maintain and even improve the ratio of workers to pensioners, but their pension credit proposals have been widely criticised as effectively discouraging people from doing part-time work after retirement.

It is widely accepted that encouraging older people to continue in at least part-time work if they wish to do so is a desirable aim. With an increasing proportion of elderly people in the population at large, it makes economic sense for the nation to retain for longer the work contribution, skills and expertise that are based on the years of expertise that older people have. It also makes financial and personal sense for many individuals to continue working for at least part of the week after reaching legal retirement age. Many older people would value the potential benefit of extra financial income on top of an inadequate basic state pension, but they would also value very much the opportunity to maintain a lively and active personal contribution to and involvement in society through the opportunities, experiences and interests that work can offer.

Despite the widespread agreement on those views in all quarters and the Government's stated intention of encouraging more pensioners to continue in work, Government policy on pension credits seems designed to achieve precisely the opposite effect. The Select Committee made that point clearly in its second report of 2001–02, which pointed out that the Government's proposals on pension credits disregard only the first £5 of earnings. After that, the equivalent of 40p in the pound is clawed back, effectively imposing a top rate of income tax on pensioners' part-time earnings. The Committee made this observation:

"Many of those who submitted to evidence to our inquiry were highly critical of this aspect of the Credit's calculation. They argue that it offers little, if any, incentive for pensioners to continue working or to seek new employment opportunities. Part-time work is one of the few, simple, methods for a pensioner to increase their retirement income".

As the National Pensioners Convention stressed in its evidence to the Committee,

"part-time earnings could have a significant impact on pensioner poverty."

The Industrial Society made this comment in its evidence:

"By discouraging part-time work after retirement, the Government seem to be giving us an example of un-joined-up Government at its worst."

David Cairns (Labour, Greenock and Inverclyde)

I have been listening with genuine interest to the case that the hon. Gentleman is making. For those of us who are weighing up the merits of his amendment, will he explain what assessment and research was done into how much more cost would be incurred if, for example, 10 per cent. of pensioners were to carry on working? Can he give us some figures?

Paul Holmes (Liberal Democrat, Chesterfield)

If more pensioners were to continue working, the Government would benefit in the long run in terms of their poverty strategy. I shall deal with cost later in my speech.

The Select Committee also pointed out in its summary of the evidence that the three charities representing pensioners which gave oral evidence to the inquiry agreed that

"a disregard of around £40 of earnings would be a very productive measure."

Sally West of Age Concern suggested that that would allow the equivalent of

"a day's work without it disrupting the administration of the system".

She said that it would encourage people

"to keep active in work if that is what they wish to do."

In the light of that, the Committee reported:

"We agree with this view and were disappointed that the Secretary of State could hold out 'no hope' of a change in the rules."

It went on to say:

"We urge the Government to reconsider its policy on the Credit's treatment of earnings".

In the face of those united views from the Select Committee, Age Concern, the National Pensioners Convention, the Industrial Society and many others, the Government's response was simply to make no change at all through its contradictory and self-defeating pension credit proposals. Various groups suggested alternatives designed to remedy the disincentive to work that is contained in the Bill. For example, the Select Committee and Age Concern suggested a fixed level disregard of around £30 to £40 a week, compared with the very low £5 disregard contained in the Bill.

Our amendment offers a simple and clear method of meeting those aims by disregarding those parts of a claimant's hourly earnings that are equivalent to the rate of the national minimum wage. That would achieve two things. First, it would encourage flexible retirement instead of discouraging it, as does the Bill. Secondly, it would provide a real cash incentive to people who wish to continue working after reaching state pension age. As those are supposed to be the stated aims of Government policy, I hope that the Minister will be able to accept the amendment. Or are the Government telling pensioners that they are not prepared to allow them to earn even at the level of the national minimum wage without seeking to impose on them the equivalent of the higher rate of income tax?

James Clappison (Conservative, Hertsmere)

I want to speak to amendments Nos. 14, 15 and 16, which deal with three different issues arising out of the definition of income and capital in clause 15.

The first of those is the treatment of compensation funds in cases of industrial injury or medical negligence. How will the Bill deal with income from such funds as regards the pension credit? It is fair to say that this subject generated considerable interest in Committee, not only from my hon. Friend the Member for Daventry (Mr. Boswell), but from the hon. Member for Bassetlaw (John Mann), who drew our attention to the cases of several of his constituents who would be very interested in these provisions. Those cases are deserving of consideration by the House. It is important to revisit the issue, and we await the Minister's response with interest.

Amendment No. 15 deals with income derived from PEPs, TESSAs or ISAs, which is another matter that we raised in Committee. Hon. Members may have heard sufficient of my views on the generality of savings, but this issue falls within that generality. How will those important savings vehicles be dealt with? We are conscious of their general position within the policies of this and previous Governments.

Amendment No. 16 covers the treatment of income from capital. In respect of savings above £6,000, a notional rate of income will be set at around 10 per cent. after that disregard of £6,000. There has been a development since we considered the matter in Committee. The Government had said that well over 80 per cent. of pensioners have savings that fall below the £6,000 disregard. Indeed, the Secretary of State told the Select Committee:

"What we are doing is we are disregarding the first £6000 worth of savings and that covers 84½ per cent. of pensioners. Now, 84½ per cent. of pensioners today do not have £6000."

Since then, my hon. Friend the Member for Havant (Mr. Willetts) received a written reply from the Minister, saying that 60 per cent. of pensioners have less than £6,000 in savings. Obviously, 40 per cent. therefore have more than £6,000. The matter is more extensive than we were led to believe.

Against that background, we believe that matters now have a different complexion. We need to hear more about it and, as my hon. Friend the Member for Daventry said in Committee, one would be struggling nowadays to find something that produced a 10 per cent. return on capital. Indeed, a substantial number of pensioners have savings of more than £12,000. The Government's proposals for the treatment of savings assume that they earn between 5 per cent. and 10 per cent. on their savings. We want to hear more ministerial comments on that and I am sure that savers want to hear more from the Minister about the treatment of their income from capital under the Bill.

John Mann (Labour, Bassetlaw)

I reiterate briefly comments made in Committee about industrial injuries. I pay tribute to the hon. Member for Daventry (Mr. Boswell) for adding medical negligence to that in Committee.

Industrial injuries are disproportionately important in the coalfields. The recent judgment and the roll-out of compensation in the next year or so mean that many retired miners will receive compensation for bronchitis, emphysema and vibration white finger. In the majority of cases, the compensation will exceed the capital limit of £6,000.

David Cairns (Labour, Greenock and Inverclyde)

I ask my hon. Friend to take account of constituents who are suffering from asbestosis and asbestos-related illnesses. Thanks to the excellent decision in another place, many of my constituents will receive the compensation that my hon. Friend mentioned. That is extremely important for shipbuilding constituencies such as mine and former mining constituencies such as that of my hon. Friend. We want the Minister's reassurance about that.

John Mann (Labour, Bassetlaw)

I endorse my hon. Friend's comments. Indeed, I was about to mention asbestosis and the landmark judgment, which has an impact on my constituency and many others throughout the country. Sadly, compensation for mesothelioma comes too late for many of my constituents. However, the principle is important, and it is vital for the families.

Although there is a disproportionate impact on some communities, the benefit should be perceived as a good thing. The money is owed and is due. It is due to negligence for various reasons, which include bad employer practice and lack of medical understanding of the issues in the past. Whatever the reasons, the money is due to those people and it would be grossly unfair if they lost any pension credit for receiving money that is long overdue.

I know that my hon. Friend the Minister is highly knowledgeable about such issues and I trust that he will give us some good news.

Ian McCartney (Labour, Makerfield)

The amendments would affect clause 15, which deals with the treatment of income and capital through credit income assessment. The details will be set out in regulations, which will be laid before the House in due course.

In Committee I provided much detail about the treatment of income. I do not therefore want to go through that again, but I shall repeat some of it. The debate offers an opportunity to be even more explicit about some of our proposals. As Baroness Hollis said in another place last December, we propose to ignore completely compensation received for personal injury. No income from that, whether actual income or assumed income from the capital sum, will be taken into account.

A pensioner who is attacked and seriously injured need not fear that we will stop her pension credit when she receives compensation, as happens with income support at the moment. Nor will we withdraw pension credit from, say, a miner because he receives compensation for damage done to his health. I will come back to that in a moment. Our proposals go significantly further than the amendment does. That is not a criticism; this gives us an opportunity to open up the debate.

The hon. Member for Hertsmere (Mr. Clappison) mentioned my answer to a parliamentary question. I do not have the question here, but if I remember rightly it was in two parts, and said that 60 per cent. of all pensioners have less than £6,000 capital. Some of them have second pensions and other income. In fact, 85 per cent. of pensioners are entitled to the pension credit because they have less than £6,000. I think that I answered the hon. Gentleman's question on that basis. There is, therefore, not a chink of light between me and my right hon. Friend the Secretary of State; nor am I saying one thing and my right hon. Friend another.

All I can say to the hon. Gentleman is that that was a nice try, but in cricketing terms, it was a bit of a no ball. I promise my hon. Friends not to make any more cricket jokes. I was just trying to make the point that as a Scot, I know just as much about cricket as the English do. It is just a pity about the football team at the moment.

Amendment No. 3 relates to the earnings disregard. No one would disagree with the general sentiments of the hon. Member for Northavon (Mr. Webb). This country depends on older workers, and with demographic changes, that dependency will grow. Fifty per cent. of men and 25 per cent. of women aged 60 to 64 work. A further 800,000 people aged 65 and over are at work. This is not just about ensuring a steady flow of human resources. It is about experience, handing on skills, and promoting intergenerational understanding. For many pensioners, work is a key part of active ageing and social inclusion. We want to promote opportunities for older workers and allow them to be rewarded for earning.

Amendment No. 3 would disregard earnings by linking the disregard to the level of the national minimum wage. The hon. Member for Northavon wants to do this for everybody over the age of 60. A pensioner working one day a week could therefore expect a disregard of about £35, and an older worker or pensioner working a full week could expect a disregard of about £175. This would represent an added cost of £1 billion on the pension credit. Earlier, the hon. Gentleman committed something like £9.7 billion for another proposal. When we asked him how he was going to pay for that, we discovered that far from being a little short on detail, he refused to provide us with any at all. Now he has now clocked up a total of £10.7 billion.

In the Liberal Democrats' alternative Budget proposals they have further targeted arrangements for people over 75, which would cost an extra £1.2 billion. Those provisions, however, would end up giving the poorest pensioners an average increase of only £2 a week. Under their proposals, money is not being targeted or given directly to poor pensioners.

Steve Webb (Liberal Democrat, Northavon)

Will the Minister give way?

Ian McCartney (Labour, Makerfield)

I hope that if I give way to the hon. Gentleman, he will not try to give us the third way of explaining his pension policy. On at least two occasions during the debate, he changed both the policy and the track that he was taking, and never gave us an answer about how any of his proposals were to be funded. Nor did he acknowledge the very important point that his party will not accept the overwhelming evidence that poverty relates to income, not to whether someone is 60, 70, 75, 80 or 85. That is the major flaw in his proposals. I hope that when he talks to women who are approaching pension age, he does not tell them that he is going to do something for them, because they would have to wait until they were 75 to get even an extra penny out of the Liberals.

Steve Webb (Liberal Democrat, Northavon)

Will the Minister confirm that the figures that he has just quoted on the effects of our proposals are based on the assumption that 100 per cent. of those who are entitled to claim means-tested benefits will do so? Will he also confirm that that is a false assumption, and therefore a false assessment?

Ian McCartney (Labour, Makerfield)

The hon. Gentleman's argument is dead and buried. The assumption is not wrong—he merely wants to change it. I have costed his proposals for him. He refuses to do so not because he is incapable, but because he does not want the British people to know what he is up to. He wants to travel around Britain parading his conscience to pensioners, saying to every woman, "I am on your side, I am your saviour." However, the reality is that to get a penny off him, they would have to survive in poverty until the age of 75. It does not matter how we add it up: the people who will qualify under our proposals would get nothing under those of the Liberal Democrats, which would be a bitter pill and a bitter blow.

Having exposed such opportunism, I want to point out something else. In speaking to his amendments, the hon. Gentleman showed how clever he is. He is clever because he has done a lot of reading recently. He is both a campaigner and well and truly in opposition, and he has read the Liberal Democrat document entitled, "How to be an effective opposition: a guide for campaigners". It offers the following advice: to

"act shamelessly, stir endlessly, and embarrass the administration . . . don't be afraid to exaggerate."

[Hon. Members: "Ah!"] It continues:

"why court the unpopularity that goes with the responsibility of power?"

Liberal Democrats have to act shamelessly and exaggerate in all circumstances. If they are talking to a Conservative voter, they are told to be anti-Labour, but if they are talking to a Labour voter, they should be anti-Tory.

There we have it. I have never read a better explanation of Liberal Democrat pension policy. It has been set out in the document, and in the hon. Gentleman's comments, so we shall not take him seriously—for the moment. I make those points because he is trying to con poor pensioners into believing that he is on their side. That is what we are taking seriously.

It is unclear how the hon. Gentleman would fund his proposals, and he is not prepared to tell us. We believe that the working tax credit, the abolition from the pension credit of the rule excluding people from working more than 16 hours a week, the disregards, and the savings credit for those over 65, are the best way to promote active ageing and reward earnings. I shall give the hon. Gentleman just two examples of how that will work in practice, and illustrate the real gains.

Let us consider a single pensioner—"John", aged 67—who works one day a week at a local DIY store, receiving a minimum wage of £35. He has a full basic retirement pension of £77 and no other income. After taking into account the disregard, his relevant earnings are £30. John's combined income of £77 and £30 takes him above the guarantee credit level of £100. However, John is entitled to a savings credit, as his earnings count as qualifying income. His savings credit is £11. Under these proposals, John is therefore better off by £572 a year. That is not pie in the sky and invented figures; it is the reality of this Government's policies for such older people.

Let us consider the second example of a couple aged 68 and 65 respectively. The woman—"Sylvia"—works two days a week as a cleaner at the minimum wage, earning £65. They receive the full rate retirement pension of £123 and have no other income. They are entitled to a £10 disregard on Sylvia's earnings, so the sum of £55 is relevant to the pension credit assessment. Their combined income of £123 basic pension and £55 earnings takes them above the guarantee level of £154. However, they are entitled to a savings credit of £9, as Sylvia's earnings count as qualifying income. That additional £9 shows how we are providing basic benefits for couples, as well as individuals. These are not exaggerated figures; they are the combined effect of the Government's proposals.

Looking at amendment No. 14, I am encouraged that Opposition Members have found a new cause, but it intrigues me that it has come so late in the day. I can think of campaigns in which we have been involved over the years—not just in mining communities, but throughout the country—over the inequities that can occur when people, quite rightly, are compensated for injuries. They have to fight to get compensation in the first place; sometimes courts take it from them or affect their ability to claim compensation. I will not go into the recent House of Lords ruling that at least reversed a terrible decision that was made in the past. All Labour Members have been closely monitoring these issues, but I am pleased that the Opposition recognise that there is potential for doing something about the matter.

On 18 December, on Second Reading in the other place, Baroness Hollis, when asked about such compensation, said:

"any personal injury payments, which are taken into account in various ways at present, will be ignored"—[Official Report, House of Lords, 18 December 2001; Vol. 630, c. 188.]

In social policy terms, the outcome of a person's misfortune is more relevant than the event that caused the misfortune. For instance, let us compare a motorist who is paralysed after an accident while driving to work with someone who happened to be driving while working. Under the amendment, the driver in the second case would gain from the disregard, but the driver in the first case would gain nothing. A person who receives compensation following a terrible medical accident would gain, but an old lady who receives compensation after being the victim of a savage assault would not.

We have consistently put the case that the pension credit is an entitlement; we do not want to dig into people's lives, and we do not want to record every possible circumstance in which people find themselves. We want to get rid of as many of the old exclusions as we can. The proposals that I announced today will mean that, from October 2003, any pensioner who has received financial compensation for personal injures will be told that we will ignore this income. Whether it is actual or assumed, it will not be taken into account. This will be welcome across Britain, and in particular, across many of the communities of the former British coalfields.

I pay tribute to right hon. and hon. Friends individually and collectively, as well as to trade union groups, mining groups and others who have maintained solidarity over the issue for a long time. I was pleased to make the announcement today. I did so with the support of my right hon. Friend the Secretary of State, and I wish to record his tremendous support for the change.

The current arrangements are complex; mainly because of the different ways in which compensation can be paid and invested. I will write to hon. Members to give further information and place the letter in the Library.

As for amendment 15, I am almost astonished at the uncharacteristic bravery involved in making such a significant commitment, in both expenditure and strategy terms. The amendment would cost perhaps £1 billion in the long term. Is this part of the strategy of the hon. Member for Hertsmere to prove that his party looks after the poor? That is a bit rich coming from the hon. Gentleman, given some of the policies he supported in previous Parliaments.

The same amendments were tabled in Committee and on Third Reading in another place. We believed that those earlier versions were probing. Now it seems that the Opposition are serious in their proposals, although I cannot understand why, because of the potential costs. Perhaps the hon. Member for Hertsmere will explain how his party leader will pay for the proposal, particularly when the right hon. Gentleman is totally opposed to the introduction of pension credit.

Bob Spink (Conservative, Castle Point)

Will the Minister give way?

Ian McCartney (Labour, Makerfield)

If I must.

Bob Spink (Conservative, Castle Point)

The Minister is a delightful character and I am delighted that he has given way. He takes a narrow view of the costs. Will he comment on the wider impact that improving savings and the savings ratio will have on our economy? Surely that would not be a net cost, but a net saving to the economy, and would provide a great benefit.

Ian McCartney (Labour, Makerfield)

I do not take a narrow view of pension credit. The hon. Gentleman's party does not just take a narrow view, it is totally opposed to pension credit. But the Conservatives are not prepared to say, either in Committee or today, whether they are prepared to repeal the measure. I do not know whether they will vote against the Bill today. Perhaps they will let us know. Would they repeal it?

I am getting old and I must be getting deaf, because I hear no reply. My hon. Friend the Member for Bolsover (Mr. Skinner) is smiling at me and perhaps he is telling me that the Conservatives have gone silent. I could ask the Liberal Democrats, and they would be just as silent.

James Clappison (Conservative, Hertsmere)

The right hon. Gentleman has been a Member of Parliament for some time and he will remember the long period in opposition that his party experienced. I certainly remember the long period after the 1997 election when Labour Minister after Labour Minister recanted what they had said in opposition. I will give the right hon. Gentleman a long list of specific examples to peruse at his leisure. So we take no lessons from the Labour party, on this or anything else.

Ian McCartney (Labour, Makerfield)

We always get one who will get up when he has no argument to make at all. That was not an argument, it was a whinge. I could give the hon. Gentleman pages of commitments given by shadow spokespersons from the Dispatch Box, including on the minimum wage, tackling pensioner poverty and doing something about Tory mis-selling of pensions.

Paul Goodman (Conservative, Wycombe)

rose—

Ian McCartney (Labour, Makerfield)

We have another one. I shall give way.

Paul Goodman (Conservative, Wycombe)

Does the right hon. Gentleman recall the pledge made by the Chancellor, when he was in opposition, to abolish means-testing for our elderly people?

Ian McCartney (Labour, Makerfield)

I remember that the Labour party and the Chancellor made it clear—as we have continued to do—that tackling pensioner poverty would be our No. 1 priority. Unlike the Tory party, we have not introduced means-testing to stop people having access to income. Our proposals are inclusive. We are providing people with a chance to obtain additional access to income. We are not targeting pensioners, we are targeting poverty that the Conservatives created in the first place.

Conservative Members have tried to distract me from the amendments and the nonsense that they contain, but I shall return to the notes that have kindly been provided for me by the machine. I shall repeat some of the points that the Minister made in the other place, because she was giving a direct response to similar amendments.

Clause 15 will abolish the rules that exclude pensioners with £12,000 or more of savings from any help, so for the first time there will be no automatic cut-off. Instead we will apply a notional rate of return of 10 per cent.—half the present rate—on any capital sum over the first £6,000, which we will disregard. That figure will be £10,000 for people in residential care and nursing homes. That means that 95 per cent. of pensioners entitled to pension credit will have any income they receive from their savings ignored entirely. Ignoring the first £6,000 of savings helps all pensioners, including the better-off. For example, only pensioners with capital above £12,000 will face effective assumed rates of return greater than 5 per cent.

Amendment No. 15 seems to discount the fact that the Government's proposals take no account of actual income from PEPs, TESSAs and ISAs. Instead, we intend to apply the same notional rate of £1 in £500 that will be applied to any other capital holding. If we were not to do that, it would influence people to save more in ISAs—PEPs and TESSAs are no longer available for new savers—than in any other forms of savings, including pensions products. The immediate costs would be £400 million.

The ultimate effect on pension saving could be startling. It could increase the cost of pension credit by £1 billion a year in the long run, but the money would not reach those with little or no savings. The redistribution would go to those higher up the income scale. People who chose to put all their money into, say, an ISA would get full pension credit no matter how much they had saved.

That would skew the savings market towards such methods of saving and, as people moved their savings, eligibility for pension credit would expand further up the income distribution. So the reach of pension credit and the cost to the state would expand while private pension saving would fall. Let us remember that the amendment comes from a party that has spent this afternoon criticising the Government for not giving people incentives to save in the private sector.

A person who has already saved in a PEP, TESSA or ISA has already been advantaged because they have benefited from tax relief. Treating PEPs, TESSAs and ISAs differently would doubly advantage them, for no apparent good reason and at the expense of the taxpayer. I could go on and give a range of examples, but I shall write to the hon. Member for Northavon (Mr. Webb) and put some practical examples of my remarks in the Library, if that would be helpful.

I am surprised that amendment No. 16 was tabled. The treatment of capital was discussed throughout the Bill's passage in both Houses. The amendment would restrict the assumed income from capital to a rate that is more or less what people would get from their savings. That would be achieved by applying the base rate plus 2 per cent. to pensioners' capital.

Opposition Members did not listen to our arguments. Our decision was reached only after the most careful consideration of the representations made to us on the issue. In our original consultation document we proposed taking actual income into account. However, Age Concern, among others, told us of its real anxiety that that would make the treatment of capital in pension credit more complicated than in income support.

Examples were cited of the difficulties pensioners would experience in recording information about actual income. We listened to those real concerns. It was clear that the tariff-type regime in income support offered the most straightforward way of calculating income from capital. We actually did what older people asked us to do: we held consultations and we listened. The Opposition have consulted nobody and listened to nobody.

Once we had the method of calculation we turned to the other element in the treatment of capital: how much to factor into the calculation. There are two parts to that: the disregard and the rate of return. Setting the right level of disregard—the lower capital limit—was critical. We had to consider costs. We also had to consider how to reduce the intrusion into pensioners' lives that inquiries into their capital represent. The level of disregard that we have set—£6,000—means that 85 per cent. of pensioners entitled to the credit have no need to tell us about their capital at all.

The second consideration was the rate of return. Looking at the rates of return available in the High street was not appropriate: what investment would return nothing on the first £6,000 and something on top of that? That is why the amendment, with its bogus resonance with the commercial world, is so badly focused.

A further element had also to be considered. We received representations from the Financial Services Authority and the Association of British Insurers. Their concern was that if we failed to get the balance right between the disregard and the rate of return we would alter the balance between saving to build capital and saving to build a pension.

The view of the Financial Services Authority was that a rate of return of 10 per cent., after taking account of the £6,000 disregard, was the right balance to strike in considering the two methods of investing for retirement. Again, we listened to the expert advice and took it. The Opposition proposals completely ignore the fact that there is no rate of return on the first £6,000 of capital. That would cost an additional £350 million.

I hope that I have explained why we cannot accept the amendments. I have also tried to explain the difference between our policies, the policies of the Conservative party and those of the Liberal party—all three of them. I ask the hon. Member for Chesterfield (Paul Holmes) to withdraw the amendment.

Paul Holmes (Liberal Democrat, Chesterfield)

I am sure that other hon. Members, like me, welcome the statement by the Minister for Pensions about disregarding compensation for industrial injuries. Many industrial workers in my constituency come to me with problems such as vibration white finger and asbestosis, so I am especially aware of the importance of that statement.

On amendment No. 3, however, I am disappointed that the right hon. Gentleman is still not prepared to listen to the almost universal advice of those whom he has consulted and from whom he has received comments. In particular, I note that he says that what the Labour-dominated Select Committee told him was completely wrong. I also note that Ministers cite the comments of Age Concern when it suits them—as they did twice today—but ignore its comments when they do not suit them.

All the advice received by the Government is that the measure will act as a disincentive to pensioners seeking work after retirement age. That is a serious issue, and I hope that they will come back to it with new proposals. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 — Other interpretation provisions

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

I beg to move amendment No. 17, in page 12, line 6, leave out from "means" to end of line 8 and insert—

'two people, who are not married, (whether of different sexes or the same sex) living as partners in an enduring family relationship, not including two people one of whom is the other's parent, grandparent, sister, brother, aunt or uncle, and where references to these relationships—

(a) are to relationships of the full blood or half blood or, in the case of an adopted person, such of those relationships as would exist but for the adoption, and

(b) include the relationship of a child with his adoptive, or former adoptive, parents,

but do not include any other adoptive relationships.'.

The Bill does not allow the provision to apply to unmarried couples who are not heterosexual, which creates four problems. First, it is unequal. Secondly, it costs the taxpayer money, which is a concern to the Minister for Pensions. Thirdly, it is not compatible with the Human Rights Act 1998 to discriminate in that way against heterosexual couples, who will lose out on extra money that same-sex couples would get, because they are treated separately. Indeed, the House recently passed legislation that recognised the right to equality—

It being Six o'clock, Mr. Deputy Speaker interrupted the proceedings, pursuant to Order [25 March].

Evan Harris (Liberal Democrat, Oxford West and Abingdon)

On a point of order, Mr. Deputy Speaker. I wish to put amendment No. 17 to the vote.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

Order. If the Question has not been proposed from the Chair, there cannot be a vote.

Order for Third Reading read.

Ian McCartney (Labour, Makerfield)

I beg to move, That the Bill be now read the Third time.

The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Liverpool, Garston (Maria Eagle), will send the hon. Member for Oxford, West and Abingdon (Dr. Harris) a detailed reply on his amendment No. 17, if that will help him.

During the passage of this Bill we have heard much from Opposition Members about it extending means- testing. Obviously, they have not had first-hand, or sometimes even second-hand, experience of reliance on means-tested benefits. If they had, they would know that what we are proposing in the Bill is light years removed from the means-testing applied under the Poor Law and the assistance Acts before the war, and the National Assistance Act 1948 after it.

As my hon. Friend the Member for Hamilton, South (Mr. Tynan) reminded us so clearly on Second Reading when he recalled his childhood, means-testing was used in the 1930s to exclude people from income to ensure that they stayed poor. The purpose of the pension credit claim process is the exact opposite. It is about inclusion, to ensure that people qualify for the income to which they are entitled.

We will ask pensioners only for the information that we need to know to work out their combined income. For example, we will only need to know about their savings if they are over £6,000. Let us compare that to claiming assistance in the 1930s, when every penny had to be disclosed and, as a consequence, many households did not receive the support that they needed for food, household expenses and children and whole areas of the country were in abject poverty.

This is a landmark piece of social security legislation that will end centuries of unfairness, going back to the Poor Laws of 1598 and 1601. It will remove once and for all the disincentive to save for retirement. When it is introduced in October 2003, people with modest savings will see a reward for their efforts.

The Bill also marks another, although less obvious, break with the past. We are abolishing the criminal offence that could mean pensioners being punished for "wilful neglect" to maintain themselves. The origins of that provision go back centuries to the Vagrancy Acts and further. Those Acts enabled the courts to imprison a person who failed by his own neglect to maintain himself, or anyone he was liable to maintain, with a resulting charge to public funds. That offence dates back to 1713.

The 1948 Act repealed the Poor Laws. However, the interdepartmental committee that reported on the break-up of the Poor Laws in 1946 considered it necessary to retain the offence of failure to maintain. Although the Conservative party had two chances to repeal it—with the Social Security Acts 1986 and 1992—it remains to this day, albeit seldom used, in the shape of section 105 of the Social Security Administration Act 1992.

That offence will not be carried forward in the Bill. Along with the ending of the weekly means test, it sends out an important message to pensioners, to this effect: "pension credit is not a benefit of last resort or public charity; it is your income entitlement."

The Bill is an essential part of our pensions reforms—it will ensure that it will pay to have saved. Our ambition is for all pensioners to share in the nation's rising prosperity. We set out our plans for pensions reform in the 1998 Green Paper, which established a new framework for reforming both state and private pensions. The first stage was tackling pensioner poverty by introducing the minimum income guarantee to ensure that pensioners could enjoy a decent income in retirement. There are 1.1 million fewer pensioners below 60 per cent. median income than in 1996–97 and there are encouraging signs that we are reversing the trend of numbers of pensioners with relatively low incomes.

However, too many pensioners have not had the opportunity to build up a second pension, so our second stage concentrated on reform of the basic structure of pensions to make it possible for more people to save. For those who could not save, we introduced the state second pension. The state earnings-related pension scheme did not provide enough support for people on low earnings or for people with broken records. For those who could save, we have improved and extended the options for doing so through stakeholder pensions.

The third stage is to ensure that even those with modest savings will be able to see a reward for their thrift and effort through the pension credit. We are now beginning a fourth stage to deal with the complexity in private pensions, and we shall be consulting on those matters in the autumn. As I said, the third stage will make further inroads towards our objective of tackling pensioner poverty. Through pension credit, we can correct a fundamental flaw in the pension system that leaves people with modest savings no better off than those who have no savings.

The savings credit element of the Bill will ensure that, from the age of 65, pensioners will no longer lose a pound in their income for every pound of pensions or other savings that they have built up. The Bill will give people a guaranteed income from the age of 60, so that they need not live on less than £100 a week at the commencement of pension credit. More than 5 million pensioners will be eligible. On average, they stand to gain about £400 a year.

We know that Opposition Members have other ideas about spending the £2 billion that we have set aside for pension credit. Some have argued that all pensioners really want is an increase in their basic state pension. The basic state pension will remain a key building block of state pension provision. Restoring the link with earnings or diverting the money that we have set aside for the pension credit would not achieve our objective of helping all those pensioners who lost out because of the flaws in the current system, and those flaws would continue.

The simple truth is that the poorest pensioners would lose out if we took any of the routes proposed by Opposition Members, while pensioners with higher incomes would receive the greatest gains. We have decided to redistribute in favour of the poor and those pensioners with modest income or savings. Who said that socialism was dead on the Labour Benches?

Paul Goodman (Conservative, Wycombe)

The Prime Minister.

Ian McCartney (Labour, Makerfield)

Oh, no. I hope that that will appear in Hansard.

My right hon. Friend the Secretary of State for Work and Pensions put this question plainly on Second Reading and I will do so again now: will Opposition Members oppose the Bill? Would they repeal this legislation? Hansard cannot record silences, so if I say the words "total silence" people will get the meaning.

I should like to remind hon. Members of the comments made on Second Reading in another place. Lord Fowler was one of those responsible for the fact that pensioners were left poverty-stricken under the Conservative Government, but he has repented: he has been on the road to Damascus and stopped off in search of victuals at the House of Lords. While he was there he said:

"To be frank, I should have preferred it if my government had introduced the pension credit. I have no intention of jumping overboard just because that proposal comes from . . . the current Government."—[Official Report, House of Lords, 18 December 2001; Vol. 630, c. 165.]

So even those who were responsible for the poverty left to the Labour Government recognise that these proposals are a significant step forward.

The alternative route that we are taking is more difficult, but we believe it is the right one. It will target more help on those who need it, and we are doing that in a fairer, simpler way that does not intrude on pensioners' lives and encourages people to take up what they are entitled to.

Other hon. Members want contribute to the debate, so I shall soon end my speech, but it is important for the benefit of every pensioner in Britain that we put on record the truth about the proposals. Under pension credit, we will not need to ask pensioners reams of intrusive questions and we will not require them to notify us constantly if their income fluctuates. Of course, if their income goes down, they will be entitled to claim an increase.

When was a system ever devised in which people were invited to come along to ask for an increase if they thought that their income had gone down? That is the beauty of this system. It is not intrusive and it will give pensioners the opportunity to approach us for a recalculation if their life circumstances change on the basis that they are entitled to more income, not less.

Means-testing is about stopping people getting access. The hon. Member for Northavon (Mr. Webb) refuses to accept that fundamental difference. We are not proposing an old-fashioned means test, although the Liberal Democrats continue to parrot on about that. The hon. Gentleman is the one who wants to continue the old-fashioned means test because he cannot provide for poor pensioners under 75.

The Pension Service, however, will deliver services to pensioners in a totally new way: dedicated and sensitive to their needs, and putting more dignity into the way in which pensioners are treated. Better than that, our staff will be trained to be advocates on behalf of older people—no longer doorkeepers who prevent them having access to income services but trained to watch over and befriend older people and to be responsible for managing them through the process. That is a radically different way in which civil and public servants work with citizens—on this occasion, pensioners.

Some detail will be in regulations that I hope we will debate in the near future. I promise to share that detail with Members before that debate. Although, in Committee, Members usefully probed the Government's intentions, there have been no significant or even minor changes to a Bill that allows us greatly to improve the situation for pensioners. It will be simpler—for example, 85 per cent. of pensioners will not need to report their level of capital because of the disregard and the lack of an upper limit. Most pensioners over 65 will only have to report changes in their savings and pension income once every five years. We will fully protect those on housing benefit and council tax benefit—another very important innovation—by increasing the guaranteed elements of those benefits by £13.80, or £18.60 for couples. That will ensure that those pensioners maintain their current entitlement as well as benefiting from more generous income and savings rules, as in pension credit.

That is so important. How many pensioners currently get no access to council tax benefit or housing benefit because they are 1p over the limit? We do not intend, through the introduction of pension credit, to give with one hand and take away with the other. These changes are therefore vital. Because we have also changed the income and savings rules, a further 700,000 pensioner households which will not receive pension credit itself will gain from the changes to the treatment of capital and will access housing benefit and council tax benefit for the first time. We are not just protecting those on pension credit—we recognise that there will always be people who are just above the line, whatever it is, and they should not lose out either. A substantial number of people—700,000 households—who do not currently get access to housing benefit and council tax benefit will gain from these measures.

On Second Reading, my right hon. Friend the Secretary of State—I think we know who he was talking about—said:

"When someone claims to have a simple solution to pensions, people should watch their wallet."—[Official Report, 25 March 2002; Vol. 382, c. 607.]

That has been shown in spades today. The problem is that, in truth and in practice—I shall keep repeating this, as people need to know—the Liberals are not interested in poor people from the age of 60 onwards. Their proposals are so flawed that, despite what they are saying, large numbers of people—1.7 million plus—will have to rely on a traditional means test. How can the hon. Member for Northavon say that his proposals compare in any way with the Government's? I expect nothing from the Conservatives, but at least we know where we stand with them, and we know where they are coming from. We know that they are opposed to all these measures. Despite what they are saying about a campaign, we know that they do not mean it, that they cannot sustain it, and that the public do not believe a word they say.

The hon. Member for Northavon is different. He parades himself as the human shield for Britain's pensioners. That shield is not only dented: it does not exist. As I heard it said from the Benches behind me, when it comes to looking after the interests of pensioners, he is as much use as a chocolate fireguard.

A simplification of the income process is vital. We are reducing the complexity inherent in the current system. It will be a straightforward process—a single gateway access to all state retirement income. People approaching retirement will be contacted by the Pension Service to give them information about their basic state pension, based on the contributions that they made during their working lives. At the same time, we will inform pensioners that they may be entitled to extra help through pension credit. The complexity of the current claims process is at the heart of pensioners' uneasiness in dealing with the state. The new service will transform that relationship, and pension credit is the foundation for that change.

In the past, the system has been intrusive and bureaucratic and, crucially, pensioners do not like it. We are tackling that. Our proposals will significantly reduce the intrusion and complexity, marking a radical change from the current system. Quite simply, people with weekly incomes up to about £135 to £200 for pensioner couples—can get extra income through pension credit. Or looking at it another way, if capital was the only source of income over and above the basic state pension, a single person would need at least £35,000 of capital and a couple would need at least £44,500 before they failed to be entitled to pension credit. The figures show just how radical our policy is. Pension credit is a complementary source of income alongside the basic state pension, and it is like the tax allowances that not one of us would refuse.

To conclude, I wish to return to the point made so effectively on Second Reading by my hon. Friend the Member for Hamilton, South. With pension credit, we are finally leaving behind the detested historical images of the means tests that stripped people of their dignity and robbed them of their pride. Yet even though we have moved on from the dole queues of the 1920s and the unemployment assistance boards of the 1930s, our collective memory does not dwindle. It has lived on through the generations, and it continued to live on through the Tories' Social Security Act 1986. It is currently dragged up each time someone talks about pension credit using the language of pre-war social policies.

Pension credit is not about old-fashioned means-testing. Means-testing was about excluding people from income to keep them poor. Pension credit is about inclusion, taking people out of poverty and making sure that they do not slip into poverty in the first place. We will make sure that, for the first time, people who have worked hard and managed to put modest amounts away for their retirement get the income they are entitled to and see a real reward for their efforts.

The passage of this Bill will ensure that the old images of means-testing will not live on in pension credit. As with the National Minimum Wage Act 1998, I am deeply proud not only to have introduced the Bill to the House but to be the Minister who will ensure that it reaches the statute book.

Tim Boswell (Conservative, Daventry)

I wish to express my thanks to my hon. Friend the Member for Hertsmere (Mr. Clappison). His wise advice and acuity immensely impressed me and other members of the Committee that considered the Bill.

We are used to fireworks from the Minister for Pensions. Although we have also had some measured contemplation and a helpful announcement today, I wish to refer to the fireworks. I was fascinated by his distinction between the means-testing of old and what is being introduced now. There are two characteristics of the Minister's proposal for means-testing. It is apparently all right if it is introduced by new Labour and if it is inclusive and means that nearly every pensioner will be involved. That argument will not wash, because there are serious problems with the proposal.

The Minister is impetuous and determined to get decisions out of us, but it is rather unreasonable to ask us to judge the effects of the Bill—they will be apparent not too far off, but in a year or two—before it is even passed. With regard to our decision on Third Reading, we will listen to the rest of the debate before coming to a conclusion. However, the House will not have to wait too long for that.

Our concerns remain those that were set out in the reasoned amendment to Second Reading. I have underlined our five cardinal points and they relate to mass means-testing, the complexity of the system—despite what the Minister said—the fact that many pensioners will miss out on their entitlements, the erosion of incentives and our belief, which the Liberal Democrats have been consistent in supporting, that expenditure would have been better directed towards the basic state pension, in particular for older pensioners. The argument is not about whether we should help pensioners, but about whether any additional money is being spent to best effect.

As the Minister conceded, the Bill is essentially unchanged. However, it would be churlish and inappropriate not to acknowledge the two substantial changes that Ministers made. It is often the case that if there is a consensus of opinion across the House, it acts as a good catalyst for change. In fairness, we managed to make one change in each House. First, the Government made a significant concession on hospital downrating, and we should remain grateful for that. Secondly, the Minister made a statement today on compensation payments, which will be thoroughly welcomed by hon. Members on both sides of the House. He also repeated his concerns about foster carers for children, so we can anticipate how we might benefit their position. Those are all welcome concessions and reflect the way in which we should make progress when we discuss Bills.

I also hope that Ministers and their officials picked up from the Committee some detailed points for consideration as we get close to making regulations. They may also have spotted some pitfalls relating to the equity of, and the ability to administer, the legislation, which will stand or fall on the regulations and the way in which they are administered.

Frankly, Conservative Members remain worried about extending means-tested benefits to 5 million pensioners. Age Concern is also worried about that. In its general briefing for the debate, it refers specifically to the difficulties of securing take-up of means-tested benefits and the large number—about 5 million—of possible claimants. It goes on to say:

"we believe that the most important issue will be the level of take-up."

That is the cardinal test of whether the Minister's wishes are fulfilled. Whatever else happens, means-testing will put a great premium on the performance of the Pension Service, which for technical reasons we have not been able to discuss in detail today.

We remain concerned about excessive reliance on 26 call centres and a telephone system. We believe, as I think do other hon. Members, that people still need access to a local service within a reasonable time. More generally, the Select Committee said:

"The Department for Work and Pensions must ensure that the Pension Service has the necessary resources and expertise to deal with the challenges that the Pension Credit poses."

Those remain serious challenges. Whatever the Minister may wish to happen, he and his colleagues have still to ensure that it does happen.

We need to reflect on how the Bill came about. The Minister is occasionally long on rhetoric, but the plain fact is that in trying to solve the poverty problem, the Government have widened the gap between the state basic pension and the minimum income guarantee. They are now having to bridge that gap, but the gap is of their making. That was well set out in the written answer that I received from the Minister on 7 May. He gave a detailed response to my request to give the historic levels of the minimum income guarantee and its precursors, supplementary benefit and income support, and of the basic state pension for the past 30 years. I also asked him to give the ratio between them.

It is interesting that for a long period the differences between the two were small, not generally exceeding 5 per cent. In some cases, they were negative. However, the levels began to climb slightly and in the latter years of the Conservative Government, the income support level was roughly 10 per cent. above the basic state pension. However, since the introduction of the minimum income guarantee, the figures have sharply diverged, and they now show a 30 per cent. disparity. We remain concerned about filling that gap and about the pensions and savings implications to which my hon. Friend the Member for Hertsmere.

We will not resolve those issues today. The Minister and his colleagues have produced what I am sure they want to describe as good news for pensioners, and we do not want to challenge benefits to pensioners. However, we will ask whether the money is being used to best effect, whether it could have been better spent, and whether there will be consequences in the long run. We are genuinely concerned that the long-term disincentives to save that are built into the system will have a depressing effect on the savings of young people.

Ministers say, and they have done so again today, that they want to produce an annual pension statement that includes both state benefits and private sector benefits, so that people know where they stand. May I float the suggestion at this late stage that what they need to do is get hold of people like my youngest daughter, who is in her early 20s and just starting her career? It should be made clear to young people where they will stand if they do not get down to saving, and what will be provided by their company pension scheme if—like my daughter—they are still fortunate enough to have one. They should be asked to think seriously about the issue, and made to realise that they are part of the £27 billion savings gap.

Will the pension credit act as a disincentive because its long-term effects and benefits will be unclear?

Ian McCartney (Labour, Makerfield)

I am more than happy to help the hon. Gentleman's daughter, who I believe is a solicitor or a barrister. Small practices and chambers rarely provide in-work benefits such as defined benefit schemes or even defined contribution schemes. That is why we introduced stakeholders. His daughter can start now to save for her retirement through a stakeholder scheme, and as she succeeds and moves from one practice or chamber to another in what I am sure will be an upward career trajectory, she can take her pension with her and suffer no loss. We have made the preparations; all the hon. Gentleman need do is persuade his daughter that she should get involved.

Tim Boswell (Conservative, Daventry)

The Minister is, if I may put it this way, very seductive, but unfortunately he has identified the wrong target. I have more than one daughter. One is employed by the civil service to look into the sorts of problems posed by person such as myself, or those who decide to litigate against Government Departments. The daughter in question has transferred from a personal pension into a company savings scheme.

To the Minister I say in all fairness and friendliness that the current take-up of stakeholder pensions is worrying, if not to him, then to many people in the sector.

Ian McCartney (Labour, Makerfield)

That is propaganda. Stakeholder schemes are very important. In the year after their introduction, 800,000 people who previously had no access or any chance of access to a savings product for their pension got one, and about 85 per cent. of companies that had not provided access registered to do so. That is a significant step forward. The hon. Gentleman is right, in that there is a lot more to do, but let us be clear: we are all in favour of people saving earlier in their lives, so it is in all our interests not to belittle stakeholder schemes, but instead to encourage people to take one out.

Tim Boswell (Conservative, Daventry)

I have absolutely no intention of belittling stakeholder pensions, but I should in all fairness point out that they are currently striking only 2 per cent. of the target group. Of the 800,000 already taken out, a significant number—174,000, if memory serves—have been through the transfer of the construction industry pension scheme. The position is generally regarded as not being as promising as the Minister and I would hope for.

It would be inappropriate to widen a Third Reading debate to cover such issues, but it is relevant to the debate and to the provisions we debated and voted on earlier this afternoon to point out that the price of success in pensions policy is eternal vigilance. We need to keep revisiting the subject to see whether the proposals are working. We have reservations about stakeholder pensions, and we still have serious reservations about the long-term effect of the pension credit on the incentive to save and, if there is no long-term private saving, about the future affordability of the pension credit programme. That rolls on a long way ahead.

This is not just a matter of today's pensioners, important as they are; it is a matter of tomorrow's pensioners and the arrangements that we need to set down now to meet their needs in the future. I have a feeling that when we have finished debating this Bill and when we are no longer around to be drawing our own pensions, today's young people may be paying the price for some of the decisions that we are about to take.

David Cairns (Labour, Greenock and Inverclyde)

At the outset of his remarks the hon. Member for Daventry (Mr. Boswell) said that he would listen to the rest of the debate before deciding whether to oppose Third Reading. As I think I am the only Member on the Government Benches seeking to speak, I will assume that if he does not divide the House, it will be entirely due to the persuasive force of my argument. Of course, if he changes his mind and decides to divide the House, I will take it equally personally.

I had hoped that after the brilliant speech by the Minister we would hear no more of the scaremongering nonsense about mass means-testing. Alas, the hon. Member for Daventry continued, as if he had heard nothing of what my right hon. Friend said, to perpetuate that nonsense, and although I do not want to prejudge the contribution of the hon. Member for Northavon (Mr. Webb), I suspect that he will do the same. I assume, however, that if the hon. Member for Daventry does not divide the House, it will be a principled decision and not the result of incompetence such as we saw a few minutes ago on the last group of amendments.

I want briefly to address a couple of canards from the debate. The first is the extraordinary allegation that the Bill has been introduced to clear up a mess made by the minimum income guarantee. It is quite ludicrous to assert that the Government should or could achieve all their social policy on pensioners in one Bill, and that one cannot begin, as we did, by focusing on alleviating the appalling legacy left to the poorest pensioners in this country.

Not only did we have to spend considerable sums alleviating the dire poverty of the poorest pensioners, but we had to ensure that significant sums and a great deal of parliamentary time were taken up sorting out the scandal of pension mis-selling which we inherited from the previous Conservative Government. We make no apology for focusing first and foremost on the poorest pensioners, as we did with the minimum income guarantee. We also ensured, through the winter fuel payment and other universal benefits such as free eye tests, that all pensioners who had lost out were receiving additional benefits. We were right to do all that.

What we are doing now is not an academic exercise. The remarks made earlier by the hon. Member for Northavon, when he said that giving an extra pound to someone with savings of £6 was better than giving that person £23 through the minimum income guarantee but nothing extra for savings, were like something that Alice might have found through the looking glass. The Government are being extraordinarily generous to our poorest pensioners, and rightly so, because they deserve nothing less.

We are addressing a pressing need that every single Member has heard expressed on the doorstep time after time. People say, "What about me? I have a small second pension and a few savings, and I'm no better off than the person down the road who smoked and drank all his life and didn't bother." The Government are addressing that real need in the Bill, so I hope, although I am not optimistic, that we will hear no more nonsense about the Bill clearing up a mess. We have laid excellent foundations, and the Bill builds on them, and I am very proud of that.

Let us keep our eye on the bigger picture when considering what the measure is seeking to achieve. Pensioners will be more than £400 a year better off on average, and in constituencies like mine and those of my hon. Friends, where people are poorer because their incomes are below the national average, they will be even better off. That goes a long way towards righting an historic wrong; people should not be penalised for thrift and prudence.

The other theme running through our four hours of debate has been the scaremongering about means-testing. After Second Reading, I decided that I wanted to look into the subject in depth, so I turned to what the Library told me was the definitive history of the means test, "Reserved for the Poor: The Means Test in British Social Policy" by Deacon and Bradshaw, which I am sure the hon. Member for Northavon has lectured on. Referring to the 1950s, Deacon and Bradshaw say:

"Sometimes insurance was increased by more than assistance—at which point the Government claimed that it was reducing the role of means testing and the opposition claimed that help was not going to those who needed it most. On other occasions assistance was increased more, and then exactly the same debate was had in reverse, with the Government extolling the virtues of selectivity and the opposition complaining about the means test".

A sterile debate has been taking place since the inception of the welfare state, but the Bill takes us past that. The Government are prepared to go beyond the sterile debate about mass means-testing, but the Opposition want to drag us back to it.

Deacon and Bradshaw also write about the reality of the means test under the National Assistance Board in the 1940s and 50s. They say that it was

"one thing for a claimant to have to tell the Board that he or she needed extra money for clothes or bedding when friends and neighbours were in a similar position and when the cause of need was so obviously beyond the control of any one person. It was quite another to have to show worn clothing to a visiting officer when everyone else had 'never had it so good'".

That was the reality of the means test, which my right hon. Friend the Minister said was designed not to lift people out of poverty but to ensure that they were given just enough to keep them in poverty. Heaven forbid that the Governments of the 1950s would give people enough money to lift them out of poverty and float them beyond range of the means test.

The Bill is quantitatively and qualitatively different. We are not talking about weekly assessments or people from the National Assistance Board coming round demanding to see people's sheets, clothing and ornaments that might have been pawned. We abhor such means-testing. We are talking about one phone call every five years, with a request for the bare minimum of information so that claimants get what they deserve to lift them out of poverty. It is an extraordinary perversion to equate the means-testing of the National Assistance Board with the income assessment in the Bill. The hon. Gentlemen on the Opposition Benches—and they are all hon. Gentlemen—know full well that those are completely dissimilar beasts, yet they are willing to perpetuate that myth for one reason alone: scaremongering.

My right hon. Friend has said on more than one occasion that, as soon as the legislation allows, he intends to publicise and promote the credit; every Labour Member will make sure that every pensioner knows about it. We will hold the Minister responsible for ensuring that the Pension Service is as proactive as he promised. I guarantee to my right hon. Friend that if I suspect that the Pension Service is not proactive and does not provide a localised service I will, to coin a Scottish phrase, be in his face. He knows that, and he knows that every Labour Member feels exactly the same way.

Our approach is completely different from the scaremongering of Opposition Members, who have only one aim in mind—to depress take-up. They will prevent people applying for the credit by telling elderly and poor pensioners, "It's the old means test. It's the humiliation and embarrassment that your parents had to endure." It is no such thing. A glimmer of recognition on the part of the Opposition that the Bill is entirely different from that sort of means-testing would be very welcome.

I commend the Government for introducing the measure. It addresses a real need, it is generous and it is clear. The complexity will be dealt with by the civil servants, not the claimants. All the claimants need to know is whether they have £135 a week coming in. If they can answer yes or no to that question, the system will do the rest. The Bill is a good measure. It is positive, redistributive and progressive, and I warmly support it.

Steve Webb (Liberal Democrat, Northavon)

The contributions of the hon. Member for Greenock and Inverclyde (David Cairns) are passionate and well researched. They are fundamentally misconceived, but none the less entertaining for that.

As a parent—I am sure that there are many parents in the House—if I come home and discover that my child has made a mess of the kitchen floor but has begun to clean it up, I would applaud them for the fact that they had started to clean it up, but I might ever so gently suggest to them that they should not have made the mess in the first place. That is how we view the Bill.

The hon. Member for Greenock and Inverclyde mentioned the familiar cry of the person who finds that their neighbour has the same living standards as they have, even though they have saved. That very problem has been made worse by the Government over the past four or five years. A person with £20 a week of savings this year is no better off than their next-door neighbour, whereas in 1997 a person with £20 of savings would have been better off than their neighbour. In terms of dealing with the resentment felt by people who have saved, the Government have made the matter worse and are only partially remedying it through the Bill.

The hon. Gentleman says that what is proposed is not the same as the means-testing of the 1930s. I agree; however, I am not contrasting what is proposed with the 1930s but with the means-testing of the 1990s—the system from which the Bill takes over. The non-take-up rate, not under the system where claimants have to show that their sheets are worn through, but under the system operated now in modern-day Britain, is one in three. Forget about the national assistance board in the 1930s—the means-testing that does not work is the means-testing that is done now.

The hon. Gentleman's noble Friend Baroness Hollis, told Members in another place that the non-take-up rate for the shiny new-fangled benefit credit would be one in three. He can check—it is on the record. The non-take-up rate for the new pension credit would be one in three. Baroness Hollis hopes that that will build up as time goes by, but what I want to know—

Ian McCartney (Labour, Makerfield)

rose—

Steve Webb (Liberal Democrat, Northavon)

No. I will not give way. I did not intervene.—[Hon. Members: "Go on."] No.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

Order.

Steve Webb (Liberal Democrat, Northavon)

Baroness Hollis said that when the new system came in, one person in three who were entitled to it would fail to take up their entitlement. If the system is so good, so different and so simple, and if it requires just one phone call, why will one person in three not take it up?

Maria Eagle (Labour, Liverpool, Garston)

rose—

Steve Webb (Liberal Democrat, Northavon)

No. I will not give way. I did not intervene on the Minister.

We were told in Committee that the Government would allow a year from October 2003 for people to claim their entitlement and backdate it to 2003. That is entirely welcome, but why must they leave a year for people to claim it? The Minister said that the Government had done away with complexity. The Government must leave a year for people to claim the pension credit because it is so complicated they do not believe that they can get the money to people. The system is not simple; it is still extremely complicated, as the Bill clearly shows.

In his earlier remarks, the Minister said that pensioners would no longer lose, pound for pound, as though he had not been listening to what we have been saying this afternoon. Which pensioners will no longer lose, pound for pound? Women aged 60 to 64 will lose, pound for pound. Women with poor contribution records will lose, pound for pound. In the propaganda that we got on Third Reading, that is all brushed under the carpet.

The prejudice against women in aspects of the Bill explains why our campaign for justice in women's pensions is sorely needed. The fact that the Government sweep all these things under the carpet and deal in generalisations does a disservice to people's understanding of how the system will work. It is fiendishly complicated. That is why the Government assume that one in three will not take up their entitlement.

The Minister of State rightly says that the Bill is historic. It is. It will be seen as an historic turning point at which Government policy was set in the direction of mass—I am not to call it means-testing, apparently—targeting and mass attempts to identify the poorer half or the poorer two thirds. In our old age, we will not want to have to report our changes in circumstances or know—or, more to the point, care—about tapers, thresholds and credits. We will want to know that we have state pension and some sort of second pension, and that we can budget on the basis of that income for the rest of our lives. That is what we will want in our old age. None of us would prefer to depend on a pension credit, but that is what we will have imposed on two thirds of our fellow citizens by the time people of my age reach pension age.

It is correct to say that when the Government came to power, they could not achieve all their social policy objectives in one go and it was important to tackle pensioner poverty, but who were the poorest pensioners in the land when they took office? It was not the people getting income support and so on who were poorest, but those who were entitled to that support but not receiving it. The Government's figures tell us that there were 500,000 such people. I have a feeling that the Labour party manifesto referred to a much bigger number; it may even have said that there were 1 million such people. None the less, the Government's figures tell us that 500,000 pensioners were not getting income support, and they did not get a penny from the MIG.

Labour Members who talk about their compassion for the poorest pensioners should be aware that the statistics that Ministers cite are based on simulation models from the Department that assume that everybody gets their money—but they do not. As long as the Government continue arguing about the effects of their policies on the assumption that everyone gets their money, they will continue to give a misleading impression, as one of the fatal flaws of their strategy is that a lot of people do not get it. The trade-off is not between a system that gives money only to the poor—let us call it targeting for shorthand—and our proposal of giving to the old, some of whom are not poor; it is between giving to some of the poor and completely ignoring the poorest, although most of the poorest, such as the elderly who miss out on their benefits, get their income through the basic pension.

The Government did have an alternative. The Bill could be called the culmination of their failure to think laterally. Some of the policies mentioned by the Minister, such as relaxation of the capital rules, are not dealt with in the Bill. We did not need the Bill to relax the capital rules. The suggestion that the pension credit is the only way in which such proposals could have been implemented is therefore wrong. It could have been done on day one or at any time.

Ian McCartney (Labour, Makerfield)

rose—

Steve Webb (Liberal Democrat, Northavon)

I shall not give way, as other hon. Members still want to contribute in the short time that remains.

All that work could have been done without the Bill. The only thing that the Bill adds, while introducing some streamlining of the means-testing process, with which I have no problem, is the savings credit, which partly undoes the saving disincentive that the Government have created. If we are to applaud them for partly undoing the damage that they have done, the applause will be pretty limited.

I think that our goal should be bigger. The Minister tried to sound visionary and put some passion into his contribution, but my vision is much bigger than that of ensuring that two thirds of pensioners have to report their circumstances and receive top-ups. My vision is to ensure that as many people as possible are independent of the state. That is the sort of goal for which we should be striving and it is a bigger vision than that contained in the Bill.

Bob Spink (Conservative, Castle Point)

British pensioners are right to feel betrayed by this Labour Government. They do not want yet more gimmicks or means-testing, whether it is old-fashioned means-testing or the new fangled type that Labour is currently trying to spin. They simply want a decent, universal and honest basic state pension so that they can live with the dignity that they deserve. They want decent Members of Parliament who can stand up in this House and represent their interests.

I should like to give the House a quote:

"The concept of the Pensions Credit is . . . far too complex and over-elaborate . . . It inevitably draws more pensioners into means testing, which many will resent . . . We need a system which is simple, understandable, and which accords a proper dignity to pensioners."

Those are not my words, but those of Mervyn Kohler, head of public affairs at Help the Aged, in his press notice of 9 November last year. We would do well to listen to Help the Aged, and the proof of his words is clearly evident. Of the 2.5 million pensioners who qualify for the MIG, only 1.7 million take it up. That take-up is pitifully low because of the complexity of the MIG and the stigma of means-testing. Yet the measure before us tonight is if anything more complex than MIG and extends the scope of pensioner means-testing, notwithstanding the fact that the Labour manifesto pledged to end it—yet another broken Labour promise. As a result, take-up may fall even below the miserable level of MIG take-up, but I doubt whether that worries the Government, because they do not care about pensioners.

I will give the Bill some credit. The Government claim that it will help more than 5 million pensioners, which is greatly to be welcomed, and it is right to target the poorest pensioners. But I challenge their estimate that the Bill will increase benefit expenditure by £2 billion in a full year of operation, because if take-up is only 70 per cent. or 75 per cent.—around the same level as MIG take-up—there would be little or no increase in overall expenditure. That is why I say that low take-up owing to high complexity will not worry the Government.

Ian McCartney (Labour, Makerfield)

Will the hon. Gentleman give way?

Bob Spink (Conservative, Castle Point)

No, I will not. Other Members wish to speak, and the right hon. Gentleman has spent an inordinate length of time at the Dispatch Box today.

The 1997 manifesto on which the Government were elected, "New Labour because Britain deserves better", said:

"We believe that all pensioners should share fairly in the increasing prosperity of the nation . . . Everyone is entitled to dignity in retirement."

Those are fine words, and we can all agree with them. However, under this Government the proportion of national wealth that goes to pensioners has fallen, even after fully accounting for all the gimmicks such as free television licences for over-75s, the winter fuel payment and other concessions.

Quite simply, the Government have failed pensioners. As always, the Prime Minister was long on aspiration and warm words and short on delivery. Pensioners made this country what it is. They created its wealth and established its infrastructure and enterprise base. They gave their blood, sweat and tears—some gave their lives—so that we could be a free nation enjoying prosperity and improved standards of living, yet they are denied a fair share of the very prosperity that they created through their efforts.

Let me be perfectly balanced and fair in what I say. On balance, during the 1980s and 1990s, Conservative Governments improved the lot of pensioners—although, to be honest, we did not do enough—but under this Labour Administration many pensioners have become worse off. Just as they are worse off under Labour as regards health, transport and street crime, they are worse off financially. So what is the Government's response to current levels of pensioner poverty? First, to introduce more, not less, complexity; secondly, to introduce more, not less, means-testing; and, thirdly, to create a long-term disincentive to saving. That will lead to lower pensioner take-up of their hard-earned entitlements and more, not less, pensioner poverty. In short, Labour has failed pensioners, and the Bill may compound the Government's failure by leading to an increased dependency culture. As the Minister said, socialism still lives on those Benches.

Paul Goodman (Conservative, Wycombe)

It was interesting that the Minister devoted so much of his summing up to means-testing. It was no accident that, of all the various elements in the Bill, he chose to concentrate on that one, because it is at the heart of new Labour thinking on this matter. Old Tory means-testing is apparently bad, but new Labour means-testing is apparently good.

At this point, hon. Members should remember who is, as it were, the "onlie begetter" of the Bill. It is not the Minister, nor even the Secretary of State, but the Chancellor of the Exchequer, who is absolutely confident that, by extending these credits both through his Department and—I hope that the Minister will not be embarrassed by this—his proxies in the Department for Work and Pensions he will be able to raise the living standards of poorer pensioners. I believe that it is widely acknowledged in and outside the House that the Minister is an admirer of the Chancellor. I am sure that the Under-Secretary, who is sitting next to the Minister, will not mind my putting that on the record.

There is a difficulty with the Chancellor's approach. According to the Government's figures, 2.5 million pensioners are entitled to the MIG, but only 1.7 million have taken it up. Some of us find it hard to distinguish between old and apparently wicked Tory means-testing and new, wonderfully effective Labour means-testing. As the hon. Member for Northavon (Mr. Webb) ably pointed out, between a fifth and a third—the latter was his figure—do not get a penny of the MIG.

The Government have presented no evidence that the take-up for the pension credit will be higher. I acknowledge that the Government hope that it will be higher, but they cannot reassure any hon. Member about that. The fundamental flaw in the Government's approach, which the Chancellor masterminded, is becoming clearer as time goes on. The Minister placed great stress on means-testing in his summing up because he is so worried about the failure of new, apparently effective Labour means-testing that he wants to meet the point head on. However, he cannot guarantee that the take-up will be higher. He is naturally unwilling to listen to criticism from the wicked Tories, but perhaps he should take account of the concluding paragraph of the report by the Labour-dominated Select Committee on Work and Pensions. It states

"Most importantly, it"—

that is, the Government—

"will need to ensure that the levels of take-up for the Credit increase dramatically from those currently seen with the MIG, and that the poorest pensioners benefit in full from its provisions."

That acknowledges that the poorest pensioners do not benefit in large numbers from the MIG and that they may not benefit from the provisions of the pension credit.

In short, we know that those who take up the pension credit will be better off, but the system is gradually becoming increasingly complex. It is not so easy for my elderly constituents, especially those who are of an ethnic minority, to pick up the telephone, as the hon. Member for Greenock and Inverclyde (David Cairns) suggested, and get their benefit, as Tommy Cooper would have said, just like that. The Select Committee believes that, in practice, it is enormously difficult for many pensioners to cope with the complexity of the forms and take up the benefit as the Government want.

The Select Committee report concluded:

"the Pension Credit unquestionably adds further complexity to an already byzantine system of retirement provision, which is causing confusion for pensioners, pension providers and those saving for their old age. In particular, the Credit throws the role, and indeed future, of the State Second Pension into serious question."

By placing so much stress on means-testing, the Government introduce a fundamental weakness into their plans that affects the country's poorest pensioners. I believe that they will pay dearly for it in the long run.

Ian McCartney (Labour, Makerfield)

I simply want to place on record my thanks to my Front-Bench and Back-Bench colleagues who have taken the Bill through its stages. I also want to thank the hon. Member for Daventry (Mr. Boswell) and his colleagues and the hon. Member for Northavon (Mr. Webb). They have battled and put their cases with rigour. I hope that, at the end of our debates, the Bill is stronger and that many pensioners will receive a clear signal that, for the first time in their lives, they have a Government on their side, who will represent their interests. On income, social care, health care, transport or any public service, the Government are on the pensioners' side.

Question put and agreed to.

Bill accordingly read the Third time, and passed, with amendments.