Pensions Bill

Public Bill Committee, 30 January 2007.

Clause 5

David Taylor (Labour, North West Leicestershire)

I remind the Committee that with this we are discussing the following amendments:

No. 29, in clause 5, page 5, line 38, at end insert

‘; or by a percentage not less than the percentage by which the general level of prices is greater at the end of the period than it was at the beginning, whichever is the higher.’.

No. 2, in clause 5, page 5, leave out lines 39 to 41.

No. 31, in clause 5, page 5, line 41, at end insert—

‘(3A) The general level of earnings shall be defined as the Average Earnings Index.

(3B) The general level of prices shall be defined as the Retail Prices Index.’.

No. 3, in clause 5, page 5, leave out lines 42 to 44.

No. 4, in clause 5, page 6, line 13, leave out from ‘shall’ to end of line 14 and insert

‘determine the general level of earnings as set out in subsections (8A) and (8B).

(8A) If the average earnings index (including bonuses) for the whole economy for September in any year is higher than the index for the previous September, the Secretary of State shall as soon as practicable make an order in relation to each sum mentioned in subsection (1), increasing each sum, if the new index is higher, by the same percentage as the amount of the increase of the index.

(8B) In making the calculation required by subsection (8A), the Secretary of State shall in the case of the sums set out in subsections (1)(a) to (1)(d) inclusive, round up the result to the nearest 10 pence.’.

No. 33, in clause 5, page 6, line 14, leave out ‘he thinks fit’ and insert

‘may be approved by resolution of each House of Parliament’.

No. 5, in clause 5, page 7, line 3, at end insert—

‘(6A) The Secretary of State must, within six months of the beginning of the Parliament referred to in subsection (6), inform Parliament by means of an oral statement of the date at which the provision set out in this section could be afforded.’.

No. 78, in clause 5, page 7, line 3, at end insert—

‘(6A) The Secretary if State must, on or before 5th April 2009, announce his decision as to the date from which he will implement the provision set out in this section.’.

Nigel Waterson (Conservative, Eastbourne)

Good morning, Mr Taylor. Welcome to week two of the Committee. I am sure that the time is flying by. It falls to me to respond to what in many ways has been a fascinating debate on this group of amendments. I will try to do so fairly briefly. It is worth just commenting at the outset that both the Minister and the hon. Member for Yeovil tried a little too hard to justify the fact that neither of their parties, unlike ours, fought the last election on restoring the link with earnings. I should perhaps remind the Committee that we got there first.

For the record, as the Minister seemed a bit confused about this, we remain in favour of restoring the link with earnings. We agree with the Government that it must be affordable—not a word that appears very often in the Liberal Democrat lexicon. The point was made last week, I think by the hon. Member for Yeovil, that this use of the increase of the state pension age as a kind of smokescreen for putting off the day of restoring the link seems to be a very recent addition to the Government’s armoury on this issue. We think that this is a bit of an afterthought and an excuse. I do not intend to press amendments Nos. 1 and 2 to a Division. We have made our points on those.

I was fascinated to hear what the Minister had to say about amendment No. 3 and his suggestion that it amounted to a spending commitment of £1 billion, although that is dwarfed by the amendment tabled by the hon. Member for Northampton, North which would cost £14 billion. One wonders how that figure is reached. Certainly we would take out the words “up or down” by removing the whole of that subsection, but how can the Minister look into a crystal ball and decide that this will be the cost in future? That will be determined by future changes in average earnings and the extent to which levelling up or down arises. Perhaps he was pulling my leg. I am a good sport, so I will take it in the spirit in which it was intended. In any event, it will be a relief to him and to the Chancellor that I do not intend to press amendment No. 3 to a vote either.

I am, however, minded to press amendment No. 4, and I was emboldened by what the hon. Member for Yeovil had to say on the subject. This is one of a series of amendments promoted, to give credit where credit is due, by Mr. David Yeandle of the Engineering Employers Federation, who has been very helpful on many aspects of this Bill. The Minister went to enormous lengths to deal with the points made by the hon. Member for Yeovil about putting in an alternative to “of earnings and prices”. To some extent, I understand the reason for that, but his only arguments against amendment No. 4 appeared to be the need for flexibility. Well, flexibility is very nice when one has a credit card or is going on holiday, but I doubt whether it is a key function of pensions legislation.

The Minister cited the fact that for one brief period in late 1998 and early 1999, the Office for National Statistics suspended publication of this particular index. It seems to us that he is getting over-anxious about this. If some ghastly development were to occur so that this index was no longer used, it would be a matter of a moment for that future Government to pass brief legislation to deal with the issue. The Minister said rather delphically:

“The point is that different circumstances may call for the use of different uprating measures”.

He then talked about the flexibility

“to enable us to adapt to technical changes or different approaches if we need to.”

However, he got back on track when he confirmed:

“We have made it clear that we intend to use that index”——[Official Report, Pensions Public Bill Committee, 25 January 2007; cc. 145-6.]—

that index being the earnings index set out in my amendment.

There comes a point in every Committee on every Bill at which the Minister says, “Well we intend to do that, but we do not want to put it in the Bill.” The Opposition say, “Why not put it in the Bill if that is what you intend?”. The whole ballet goes round and round in circles. Given that the Minister has confirmed his clear intention to use that particular index, we cannot see any good reason why that should not be in the Bill. I will urge hon. Members to support amendment No 4 in due course.

With all due respect, the Minister did not deal seriously with my amendment No. 78. The amendment is still valid and important. It would require the Secretary of State to make an announcement about the intention to implement the restoration of the link “on or before” 5 April 2009. I was pretty open in my purpose, which was to ensure that, prior to the most likely date for the next general election, the Government should come clean on the issue. I find it inexplicable that they would do anything else. As I said, I even think it possible that the Chancellor, in his first 100 days, might see this as one of his eye-catching initiatives. I am sure that I also speak for the hon. Member for Yeovil, but the Opposition parties will absolutely have something in their manifestos about this, so it is a bit puzzling that the governing party is not prepared to make that commitment.

For the reasons given, the debate is a bit academic, because I am sure that things will be made clear. Particularly if the Government continue to be behind in the opinion polls, they will want to say something warm and cuddly about pensions. Announcing the date of restoration of the link strikes me as something that they could not avoid doing, unless it is completely off the agenda because the economy is in such a state by then.

So, Mr. Taylor, I would like to give notice that, at the appropriate moment, I would like to press both amendments Nos. 4 and 78 to a vote.

David Taylor (Labour, North West Leicestershire)

Order. The Minister has responded to the debate in the main. He wishes to respond briefly to the comments made by the hon. Member for Eastbourne.

James Purnell (Labour, Stalybridge and Hyde)

Thank you, Mr. Taylor. It is a pleasure to be serving under your chairmanship this morning. I respect the right of the hon. Gentleman to press his amendments, but I will ask my colleagues to resist. I will pick up on a couple of his points, which I did not cover earlier in the debate.

The hon. Member for Eastbourne tried to say that we were confused about Conservative policy on uprating. That is slightly tendentious, if I may say so. Even today, he still did not clarify whether his party’s policy is that the state pension should be uprated with earnings from now, which is what his shadow Secretary of State said on Second Reading. The hon. Member for Eastbourne failed to say whether that was the Conservatives’ policy or not. If anyone’s policy is confused, it is the Conservative party’s. At least the Liberal Democrats’ policy is clear—they will just spend, spend, spend. What we do not know is whether the hon. Member for Eastbourne agrees with his shadow Secretary of State; he has not resolved that confusion today.

On the £1 billion, I do not have a crystal ball, but there are analysts in the Department for Work and Pensions who do and who have looked at the precise wording of his amendment. I made it clear that I was sure that the Conservatives’ intention in tabling that amendment was not to cause an increase in expenditure, but that would be a result of the compound increases of 10p on a yearly basis.

The hon. Gentleman is trying to come up with new arrangements for specifying the amount of earnings. He is right that one always comes to a moment in Committee when the Opposition say, “Put it in the Bill”, and the Government say, “That is our intention anyhow, so it is unnecessary.” The existing arrangements have worked well. They have worked well with pension credit. There has not been an issue of substance caused by the proposals, so maintaining the flexibility which the current legislation gives us and which is mapped into the new arrangements from the current legislation is more appropriate. I say, “If it isn’t broke, why try and fix it?” I urge my colleagues to agree.

Finally, the hon. Gentleman said that I had not addressed his argument on amendment No. 78. I thought that I had. What the Conservatives and Liberal Democrats put in their manifestos is obviously up to them, but I would treat cautiously an attempt by the hon. Member for Eastbourne to write my party’s manifesto, although I am sure that he would like to do that. As much as I have great respect for him, however, I am not sure that he would necessarily do with it what we would want.

So the truth is that we have a clear policy on the matter, which is set out in the White Paper and legislated for in the Bill. The hon. Gentleman might not agree with it, but we believe that it is the right approach and, therefore, I urge my colleagues to resist the amendment.

Nigel Waterson (Conservative, Eastbourne)

I beg to ask leave to withdraw the amendment.

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 32, in clause 5, page 6, line 10, leave out from ‘force’ to end of line 11 and insert ‘from 1st April 2008.’.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss the following: Amendment No. 35, in clause 5, page 6, line 43, leave out ‘1st April 2011’ and insert

‘the first 1st April after the first meeting of the next Parliament’.

Amendment No. 36, in clause 5, page 6, line 44, leave out subsections (5) to (7).

Amendment No. 76, in clause 5, page 6, line 46, leave out ‘the relevant dissolution date’ and insert ‘6th April 2013’.

Amendment No. 77, in clause 5, page 7, line 1, leave out subsection (6).

New clause 19—Linking the introduction of uprating the basic state pension in line with earnings and the increase in the state pension age—

‘For each additional year after 2012 that retirement pensions referred to in section 23A(1)(b) of SSCBA (inserted by section 3 of this Act) or not uprated in line with the general level of earnings as defined in section 150A(2) of the Administration Act (inserted by section 5(2) of this Act) the increase in state pension age shall be delayed by an additional year.’.

David Laws (Liberal Democrat, Yeovil)

Mr. Taylor, it is a pleasure to serve under your chairmanship again. I say good morning to all Committee members. Mr. Taylor, you will recall that I held back from making a long and detailed speech on the last cluster of amendments, in the knowledge that we would have a great opportunity this morning to discuss those now before us. Obviously, I did not want to repeat myself.

The amendments deal with some of the issues touched on by the hon. Member for Eastbourne when he spoke to the last set of amendments, and they deal in a bit more detail with the timing of the restoration of the earnings link. They raise other interesting issues about affordability, the implications of delaying restoration and the extent to which restoration of the link is inextricably linked to increasing the basic state pension ages.

I had better begin, however, with an admission. There comes a time in the consideration of every such Bill when a scantily resourced Opposition spokesman must admit that an amendment does not reach the intended heights of perfection. There may be some ambiguity in amendments Nos. 32 and 34, which the Minister will have spotted, although the latter was fortuitously not selected for debate, so I do not have to discuss it.

In case there is any cause for doubt about what my amendments and new clause seek to achieve, I shall explain in plain language. I hope that the Minister will be generous and kind enough, after the weekend break, to conduct the debate on that basis. We believe that the restoration of the earnings link should take place as soon as possible. We are very disappointed that the Government are waiting until 2012—two years after the Turner Commission indicated was appropriate. We are also disappointed that there is an element of uncertainty, as the hon. Member for Eastbourne mentioned; it is possible that the link will not be restored until 2015.

We want the Bill to make clear when the Government will make an announcement on that issue. I am assuming that this Parliament will go the full five years and that there will be an announcement about the earnings link in the first year of the next Parliament, which is where the April 2011 date comes from.

We are wondering why the Government have not sought to put a detail into the Bill to clarify that whenever the start of the next Parliament, there will be an announcement on the uprating within the first year. We all know that there is a lot of speculation at the moment about the changeover of power at the top of Government in this country, and the possibility that there might be an early general election—perhaps as soon as this year. If that were to be the case, we would not want any uncertainty about the commitment that the Government have already made in very clear terms, which is that there will be an announcement on the timing of the restoration of the earnings link at the beginning of the next Parliament. We want to make sure that there is appropriate flexibility to ensure that that will happen, even if the next Parliament occurs surprisingly quickly.

The third issue that we are seeking to raise in these amendments and which is in new clause 19, is the extent to which the restoration of the earnings link should be tied to the increase in the state pension age. We know that prior to the Turner commission no British political party has proposed that there should be higher state pension ages. This is potentially an unpopular and controversial matter with the public. It has been acceptable to all the parties, and to Back Benchers in all the parties, precisely because the offset has been a restoration of the earnings link. So there is a piece of good news to go against the piece of bad news about the state pension age. The Government have said a number of times that these two things—the good news and the bad news—are inextricably linked. New clause 19 will test whether there really is an inextricable link, or whether the Government might delay the good news while not even contemplating delaying the bad news.

It is worth starting off by noting that there is quite broad concern about the fact that the Government are going to take so long to restore the earnings link. This was an issue that the Select Committee on Work and Pensions looked at in detail when it took evidence on the Government’s proposals. The hon. Member for Weston-super-Mare will be aware that the Committee concluded on a cross-party basis that, although it welcomes the decision to re-link the basic state pension to earnings, it was

“concerned by the inconsistency between the unequivocal statement that the link will be re-established by the end of the next Parliament ‘in any event’ and the Secretary of State’s statement that affordability would come first.”

The Select Committee concluded:

“We ask the Government to clarify this. In our view the link should be restored as soon as possible, and certainly no later than April 2012.”

This is a big issue for the existing generation of pensioners right across the country. The Committee will be fascinated to know that I was in Worthing yesterday, talking to a large group of pensioners. The particular issue that they wanted me to raise with the Minister was why there is nothing in the Bill for the existing generation of pensioners. Why will they have to wait so long before the earnings linked is restored?

The Minister will be aware that a number of the representations on the Bill from pensioners groups highlight their concerns about the delays that will be involved. I have a good briefing note here from the National Pensioners Convention, which points out that, relative to the wider population, the pensioner’s income will continue to fall for at least five or six years, as a consequence of the delay in the earnings link. On the basis of its calculations, 3 million of the present pensioner population will not be around to see the link restored because they will not be alive by then. It also points out—as do a number of the other pensioner representative groups—that by the time the restoration of the earnings link takes place, the basic state pension will have shrivelled further in relation to earnings to just £75 a week in current earnings’ terms, or 12 per cent. of average earnings. Other groups, such as Age Concern, made similar points. Even one of the Government’s favourite think-tanks, the Institute for Public Policy Research, indicated that it would like to see the earnings link restored immediately.

Therefore, there is this issue about why the Government are delaying the restoration of the earnings link, and what the implications of that delay will be. Not only will pensioners be worse off than they might be otherwise, but every year that the restoration of the earnings link is delayed the number of pensioners who will be on means-tested benefits in the future will rise. That rise will be locked in for the future, undermining the Government’s hopes that the proportion of pensioners facing a life of means-testing will fall.

The Work and Pensions Committee, when it took evidence, helpfully highlighted how the failure to restore the earnings link until 2012 or 2015 will increase the proportion of pensioners on means-tested benefits. In a note of evidence, dated 30 June 2006, that was given by the Department for Work and Pensions itself, there are figures—figures from the Department, not from the Pensions Policy Institute or another independent body—that seem to indicate that, if the earnings link were to be restored immediately, the proportion of pensioners on means-tested benefits by 2050 would only be about 26 or 27 per cent., which is below the existing estimates. By contrast, if the restoration of the earnings link is delayed until 2015, about 32 per cent. of the pensioner population would be on means-tested benefits, based on the Government’s own figures. That is quite a large difference. It means that, compared with restoring the earnings link now and restoring it at the latest date that the Government concede that they might restore it, there would be about 6 per cent. more pensioners on means-tested benefits, which would be nearly 25 per cent. more pensioners on means-tested benefits than would be the case if the earnings link were restored immediately.

Therefore, this is not just an issue about the incomes of existing pensioners; it also relates directly to the range of concerns that have been expressed about the sustainability of the Government’s pensions policy and the reliance on means-testing.

It is necessary for us to touch briefly on why the Government have decided that there should be a delay in restoring the earnings link. The Secretary of State set out the Government’s position when he made his statement on pension reform on 25 May 2006. He indicated that the Government’s objective of restoring the earnings link in 2012 was subject to affordability and to the fiscal position. He made it clear that the Government would make a statement on the issue at the beginning of the next Parliament—not in 2011, but at the beginning of the next Parliament.

There were some very interesting exchanges indeed in the Work and Pensions Committee about this issue—about why the Government had decided that it was not possible to restore the earnings link now. The hon. Member for Putney (Justine Greening) was magnificently persistent—for about three pages of the transcript that has been printed from that sitting of the Select Committee—in trying to get an answer from the Secretary of State about why he was delaying the restoration of the earnings link. It was quite clear that the Secretary of State understood that there is a big problem with the delay in restoring the earnings link. He said:

“It is not desirable. I clearly accept that.”

As the hon. Member for Putney also pointed out in that sitting, Lord Turner had indicated that, although he was just about willing to tolerate having his proposals about the 2010 date ignored and the Government delaying the restoration of the earnings link until 2012, he had also said that any delay in the implementation of the process in 2012 could undermine the balance of the overall policy package. That was obviously a serious concern for Lord Turner to express.

The interesting element of that debate between the Secretary of State and the hon. Member for Putney was that the Government appeared to be taking the position that they could not give a cast-iron commitment to restore the earnings link in 2012, because of issues about affordability and the fiscal position at that stage in the economic cycle. However, under questioning from the hon. Member for Putney, the Secretary of State indicated that there was no concern about public service expenditure. So it seemed to be in the Secretary of State’s mind that there was concern about the 2012 date; the concern that somehow the economy would go off the rails and that the fiscal position would deteriorate, and therefore that it would plainly be irresponsible to be firmly pinned down to a date. However, as the hon. Member for Putney persistently pointed out, it is somewhat bizarre to suggest that there will be uncertainty about affordability in 2012 but that there will be such certainty three years later that the Government are in a position to announce the restoration of the earnings link come what may. They seem to be trying to hold two different positions: that they cannot make a commitment with regard to 2012 because that might be unaffordable, and that it will be affordable in 2015, come what may. How it is possible to be sure that something will be affordable in 2015 when it is not possible to be sure that it will be affordable in 2012 was beyond most members of the Committee, as they indicated in their conclusions.

We must also point out that in his evidence on that occasion the Secretary of Sate threw further uncertainty into the mix under intensive questioning by the hon. Member for Putney. When she asked what would happen if there were an affordability issue—whether the package of pension reforms or affordability and the public finances would come first—he indicated that the priority would be affordability. He almost seemed to suggest that the Government have a problem with the policy, because the Chancellor is not allowing the earnings link to be restored until 2012 and possibly not until 2015, so we have uncertainty as to whether the situation will be affordable by 2015. The Committee pointed out in its conclusions that it was concerned about that inconsistency in the Government’s position. In their response to the report, the Government claimed that there was no ambiguity about the commitment. I hope that we will find out about that today.

The other element of the earnings link issue is to understand how clearly the restoration of the earnings link is tied to the higher state pension age. We know that when Lord Turner made his recommendations he wanted the earnings link to be restored in 2010, and that he thought that that was affordable. We also know that he wanted a higher state pension age, and suggested that that should come in in the late 2020s. However, in the package that was announced by the Secretary of State, the Government brought forward the higher state pension age and delayed the restoration of the earnings link. That was regrettable—it has caused concern among a lot of people, not least the existing pensioner population—and it raises a further, more fundamental, issue about whether the two parts of the policy package are tied up very closely. The White Paper published in May 2006 claimed at paragraph 3.25 that the restoration of the earnings link is “inextricably linked” to two other elements of the reform package.

Another Conservative Member raised the issue on Second Reading. He asked why the restoration of the earnings link would be affordable in 2012 but not today. The Secretary of State responded by saying that it was

“Because it is linked with our policy for increasing the state pension age.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]

That appeared to imply that the funding of the pledge was inextricably linked to the increase in the state pension age.

New clause 19 simply seeks to ask the Government to confirm what appears to be their position, namely that the two pieces of news, one good and one bad, are inextricably linked, and that we are not going to end up in a situation in which they keep delaying the earnings link yet implement the increase in state pension age on the stated date. I invite the Minister to accept that those two things are inextricably linked in the package. If there is a delay beyond the date that the Government have given in restoring the earnings link, they ought to delay the increase of the state pension age. Those are important issues; we discussed some of them in the debate the other day, led by the hon. Member for Eastbourne, but the amendments probe the Government further. We hope for some detailed responses from the Minister.

Nigel Waterson (Conservative, Eastbourne)

I shall be brief, because as the hon. Member for Yeovil pointed out there is a danger of repeating oneself on this group of amendments.

As long as these are genuinely probing amendments, we support them, as this issue remains in need of probing. The Government cannot have it both ways. In a great burst of glory, they announced that they will restore the earnings link, following the Chancellor’s personal odyssey from opposing the link to coming round grudgingly to restoring it. They then said that it would happen some time in the medium term: 2012, 2015, or perhaps even later depending on affordability. Why the Government are not prepared to advance at least the announcement of the restoration of the link remains a mystery to us, as it does to the hon. Member for Yeovil. I agree with him that it is difficult to see how affordability can change dramatically between 2012 and 2015. I will be interested to hear from the Minister why he thinks it will be unaffordable before then. On the basis of what calculations does he think that?

At the risk of breaking my own rule, I should like to repeat something that I said in the last debate. I am still rather sceptical about the much more recent linking of the increase of the state pension age to the restoration of the earnings link. Like the rest of the Committee, I am agog to hear what the Minister says on those points.

Angela Smith (Labour, Sheffield, Hillsborough)

I shall speak against the amendment. This is not an argument about affordability from the point of view of the Treasury; it is about economic stability and the potential impact of instability on pensioners and their children and grandchildren.

I want to test the Minister on the commitment to introducing the new link as soon as possible. Of course, 2012 is a much preferred date: I would not like to think that the delay would stretch to 2015. I would like to hear from the Minister about the DWP’s commitment to press the Treasury for the earliest possible introduction of the link after the next general election.

The background to this debate bears rehearsing. Pension credit has reduced pensioner poverty considerably. In a previous debate, I intervened to point out that the net income of the poorest 20 per cent. grew by just 28 per cent. between 1980 and 1997, while for the top 20 per cent. it increased by 76 per cent. The pension credit is now paid to 2.65 million households. In Sheffield, Hillsborough, the average credit for the 5,340 pensioner households that receive it is £40. That is a considerable contribution to reducing the gap between the richest pensioners and the poorest.

Nigel Waterson (Conservative, Eastbourne)

Does the hon. Lady accept that there are still 1.5 million pensioners not receiving pension credit who are entitled to it? Does she agree that the best way of helping the poorest pensioners is to boost the basic state pension, of which the take-up, I guess, is 99 per cent.?

Angela Smith (Labour, Sheffield, Hillsborough)

The hon. Gentleman makes an important point. In a previous debate, the Minister said that every effort is being made to ensure that all those eligible for the credit are encouraged to apply for it. The pension credit has got us to a point at which we can start to think about universal measures to reduce pensioner poverty even further.

Sally Keeble (Labour, Northampton North)

Does my hon. Friend accept that contrary to what the hon. Member for Eastbourne said, if the basic state pension is increased it misses out a swathe of the poorest pensioners who are not on the basic state pension: women who have never had the entitlement? That is fundamental in tackling pensioner poverty and inequalities.

Angela Smith (Labour, Sheffield, Hillsborough)

My hon. Friend makes a valid point. The Bill contains a settlement, a package that is designed to give the right combination of universal coverage to increase the number of women who get the full basic state pension—up to 90 per cent. by 2020. It is a combination of security and incentives to save for retirement and I applaud it.

However, we need to test the date of introduction and I look forward to the Minister’s comments on that matter. We must remember that people in the generation coming up to retirement age who are 65 this year, are not ready to put their feet up— Paul McCartney is 65 this year. It is the generation that produced the Stones and the Beatles, and it does not consider itself old in any way. That generation has contributed a great deal to British society, but it also suffered rising unemployment in the 1970s, the three-day week and the mass unemployment in the 1980s. In my constituency, Corus, one of the main employers, employed 6,000 people in the early 1980s and now employs only 600, albeit in very high-value, highly skilled jobs. It is the generation that suffered a collapse in the housing market, high interest rates and inflation in the 1990s.

The key point to bear in mind when we consider the introduction of the earnings link is that the generation that is retiring now values economic stability more than any other in recent years because it has experienced the full impact of economic instability. We cannot do anything that destabilises economic prosperity or risks doing so, because that generation of pensioners understands the importance of having the money in the Treasury in the first place to pay for the earnings link.

Members of that generation value economic stability for their children and grandchildren. It is not true that pensioners are selfish people who think of no one but themselves. Pensioners have worked all their lives, they have brought up children and they want to be able to enjoy their retirement and to see their children and grandchildren enjoying life, enjoying prosperity and seeing that their young ones are doing better than they did, if possible.

We must put the issue in a wider context: that economic stability provides the Government with the resources to invest in health, education, housing and all the other things that are as important as the subject of this debate. It would be reckless to tie the Government to the introduction of the earnings link in 2008-09. Nevertheless, I ask the Minister to respond to the genuine concern about a potential delay to 2015. It is important that the link is introduced as soon as possible, but the judgment about when that will be is incredibly important and I want to know the criteria that underlie it.

James Purnell (Labour, Stalybridge and Hyde)

I start by putting the issue in context, because some of what has been said in the debate assumes that since 1997 the basic state pension has been linked to inflation and that pensioners have not had any other increase, or, indeed, that Government do not accept the principle that as the nation’s prosperity rises so the income of pensioners should rise. That is the opposite of the truth. Since 1997 we have not just recognised that principle but legislated on that basis. Pensioners’ incomes, or just their incomes from the state, have gone up broadly in line with earnings or faster than earnings, depending on which measure one uses. That principle has been well established. Under this Government the amount of public spending on pensioners has gone up faster even than GDP as a result of the measures that we have introduced since 1997. There is an increase of 1 per cent. of GDP in the amount going on pensioner benefits. That principle is accepted.

People often also say that it has gone to people on means-tested benefits only because of pension credit. It is of course true that we have prioritised the incomes of the poorest. That is because when we came to power there was a scandalous amount of pensioner poverty in this country, which has been significantly reduced because of the introduction of the pension credit. The poorest third of pensioners in this country are £2,000 a year better off because of what we have done. That is something for which we make no apology, but it was resisted by and large by the Opposition parties.

It is also true that even pensioners who are not on means tested benefits have seen their income from the state go up roughly in line with earnings. The average pensioner is £1,400 a year better off than they would have been under the policies that we inherited in 1997. It is therefore partly as a result of those policies that we can now say that for the first time in a generation pensioners are less likely to be poor than other parts of the population. The general principle that pensioners should share in the rising prosperity of the nation is well established.

David Laws (Liberal Democrat, Yeovil)

Can the Minister confirm that over the years between 2007 and 2010-11 there will be a decline in the proportion of GDP going on pensioner benefits?

James Purnell (Labour, Stalybridge and Hyde)

That is not the case. We have had that debate. The hon. Gentleman tries to quote figures that are not just about pensioner benefits. I am happy to point him yet again to the figures that point to the fact that the amount of pensioner benefits is flat broadly in GDP terms over the period to 2020. That is because of state pension equalisation, so the amount going to pensioners on a like-for-like basis is growing. The hon. Gentleman also assumes that he can write the Budgets for the next few years. Much as I am sure that he would like to write the Labour party’s Budgets over the next few years, it is something that we would resist in principle.

So the general principle that pensioner benefits should be in part shaped by the growing wealth of the country is one that we have accepted all the way through. We have always rejected making a pledge to link the basic state pension to earnings without having a way of doing that for ever and locking that in in legislation. The danger of the Conservatives’ policy at the previous election was that they were saying that they wanted to restore the link but they had no policy for doing so beyond one Parliament. Indeed, during the election their policy for doing so fell apart as first they had to say that they were not going to abolish guarantee credit and they then came under some pressure as to whether they were going to abolish the state second pension. Much as the policy of the hon. Member for Yeovil on citizen’s income does not bear scrutiny, I am not sure that their policy at the last election would have borne the scrutiny that it would have required had they thought that they were going to get into government.

Andrew Selous (Conservative, South West Bedfordshire)

The Minister has taken us back down memory lane so fairness dictates that we can reply. To quote briefly from our campaign guide:

“A Policy for the Long Term...We are confident that we will be able to identify the savings that will enable us to carry on this process. Provided these are achieved, successive Conservative Governments will continue the policy”.

James Purnell (Labour, Stalybridge and Hyde)

Exactly; they did not have a policy but how to fund it. I think he may regret having made—

David Taylor (Labour, North West Leicestershire)

Order. Would the Minister care to direct his attention to the amendment?

James Purnell (Labour, Stalybridge and Hyde)

The key point has always been, how could one have a plan that would allow a Government to legislate on this? The hon. Member for Eastbourne tried to say that the link between the basic increase in state pension and the rise in the state pension age was only something that had arrived recently. That is the opposite of the truth. One has always had to answer the question of how one would fund the provision for the long term. One can do so through the Bill because those very two things come together in it, exactly as the Pensions Commission recommended. So, this Bill moves from a situation where pensioners have, in practice, been sharing the growing prosperity of the nation to one where we can legislate for that. We can only do that thanks to the difficult choice in this Bill on the rise in the state pension age.

Nigel Waterson (Conservative, Eastbourne)

May I use this opportunity to clarify one confusion on the Minister’s part? He seems to be claiming that my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said on Second Reading that the Conservatives believed that the link should be immediately restored—today, tomorrow or whenever. It is worth pointing out that he was responding to a specific intervention by the hon. Member for Dumfries and Galloway on the pledge for the one Parliament point that we have just discussed. I have tried to make it clear that we agree broadly that this package can go forward and that it should be affordable. Our only concern is why the Government are so coy about making an announcement.

James Purnell (Labour, Stalybridge and Hyde)

That is not actually what Hansard says. It has his colleague, the hon. Member for Runnymede and Weybridge, saying that they believe it is affordable now. If it were to be introduced next year, it would cost about £0.4 billion in 2008, then £0.9 billion in 2009, £1.5 billion in 2010 and £2.3 billion in 2012. Rather as in that Conservative party document, which I will not refer to again, it has no plan for funding that. Until it says that that is not actually its policy, we will continue to scrutinise it.

Nigel Waterson (Conservative, Eastbourne)

I have said, am saying and will continue to say that it is not our policy. If that is not good enough for the Minister, then I do not know what is.

James Purnell (Labour, Stalybridge and Hyde)

I know that you want us to move on, Mr. Taylor, so I will, but what the hon. Gentleman says is a contradiction of what his hon. Friend said on Second Reading.

Amendment No. 32 would do away with the convention whereby increases in relevant pension amounts come into effect from the first Monday in each tax year. It would replace that with a commitment to increase pension amounts from 1 April 2008, regardless of which day of the week that may fall on. To clarify, the tax year begins on 6 April rather than 1 April, so the intended effect might be for increases to take effect from the tax year beginning April 2008. The hon. Member for Yeovil asked me to draw a curtain over the precise implications of the words and the slight “Groundhog Day” nature of the amendment: I am happy to do so. I know that that was not his intention, which is to bring in uprating from 2008. The point about those extra costs remains, and he has still not told us how it is to be funded—whether by a 5p increase in income tax or by abolishing state second pension and the guaranteed credit premium. I am sure that the hon. Gentleman still does not want to answer that question.

Given the importance of earnings uprating as a central plank of our reforms, it may be helpful if I first provide some background on why clause 5 has been drafted this way. It is because we have a clear policy of guaranteeing in the Bill that this will happen in the next Parliament. Our objective is to do that in 2012: we will make a statement on the exact date at the beginning of the next Parliament—exactly as the Bill says.

David Laws (Liberal Democrat, Yeovil)

Is the Minister making it absolutely clear, on behalf of the Government, that there is no question whatever of restoring the earnings link before 2012?

James Purnell (Labour, Stalybridge and Hyde)

I said exactly what I said, which is that our objective is to do it in 2012, and we will make a statement on that at the beginning of the next Parliament. At one point, the hon. Gentleman was saying that the earnings link would never happen—an argument that has been rather undermined by our putting it into legislation. It will happen as a consequence of this Bill and our policy, unlike his, is absolutely clear.

So, clause 5 provides for this to happen and the benefits uprating process relies on activity in two consecutive tax years—the first being the year in which a review of earnings is carried out and the second being that in which earnings increases take effect. Clause 5 provides for that, allowing the first year for review with regard to earnings to be designated, in the words of the clause, and earnings uprating would then take place automatically in subsequent years. Most importantly, it allows for that to happen in time to introduce earnings uprating from 2012. Our proposals fit with these existing arrangements, as we are not looking to change the processes. They are tried and tested and work well every year when we have debates on the uprating process. I am not aware of any complaints about how it is working. That would not be the case, of course, with some of the amendments before us, which would introduce an untested process that we do not think should be supported.

As I have mentioned, earnings uprating is part of an integrated package of reforms. Our plans, including timings, are subject to affordability and sustainability tests, which although not Liberal Democrat tenets, are central to our reforms.

David Laws (Liberal Democrat, Yeovil)

Why is the Minister not certain that the proposal will be affordable in 2012, but is certain that it will be in 2015?

James Purnell (Labour, Stalybridge and Hyde)

If the hon. Gentleman will hold his horses, I shall come on to that later in my speech. I shall try to answer all the questions that he raised.

I shall provide some background: the Pensions Commission proposed that earnings uprating should begin in 2010, as the hon. Gentleman said, although Lord Turner has since confirmed that a short delay beyond that would not seriously undermine the overall direction of his reform. In the hon. Gentleman’s opening remarks, he quoted figures that seemed to imply that the delayed implementation would result in a massive difference between the numbers of pensioners on means testing—between about a quarter, under his plans, and a third under ours.

Actually, we have projected that, as a result of our proposals, about 28 per cent. of pensioners will be on pension credit in 2050. As the hon. Gentleman knows, those projections are statistically ambitious—it is more than 40 years away and the projection is subject to many different factors. We have, therefore, always said that we are aiming for less than a third, rather than pinning ourselves to exact percentages based on very long-term projections. His figure of 26 per cent. and ours of 28 per cent. are not hugely materially different. The material difference will be this: a reduction in the number of pensioners on means testing from 70 per cent. to less than one third.

David Laws (Liberal Democrat, Yeovil)

Does the Minister agree that, based on his Department’s figures, some 6 or 7 per cent. more of the pensioner population will be on means testing as a consequence of delaying the restoration of the earnings link from now until 2015?

James Purnell (Labour, Stalybridge and Hyde)

Our policy is that we will make a statement on exactly when that will happen in 2012. Our central projection is about 28 per cent., but, as I said, it would be inappropriate to pretend that differences of 1 or 2 per cent. in the projections are reliable given that we are projecting to a date that is 40 or more years away. The hon. Gentleman might have a better statistical engine than we do, but we set out quite clearly in our forecasts the reasons why those variations in the statistics need to be taken into account.

So I have dealt with the effect of amendment No. 32. Amendment No. 35 could conceivably bring forward the date by which the order has to be made if, for example, this Parliament were to run for four years, ending in June 2009. That would mean that an order identifying the first review year would have to be made before the first day in April 2010. We doubt whether it will be possible to make legislation based on a start and end date of a Parliament so we thought that the best approach would be to pin it to the existing arrangements on uprating, which is what we have done. That will clearly implement the Government’s overall policy, which I have mentioned already to the hon. Gentleman.

Amendment No. 36 would also remove flexibility and inadvertently the provision to bring into effect the earnings uprating of the pension credit standard minimum guarantee as soon as possible after the Bill receives Royal Assent—in other words, from the tax year beginning in 2008. Similarly, amendments Nos. 76 and 77 would remove flexibility. Like amendment No. 36, amendment No. 77 would remove the link between the commencement of earnings uprating and the dissolution of Parliament. Amendment No.76 then seeks to ensure that the year in which earnings uprating would take effect must begin before 6 April 2013—in other words, no later than the tax year beginning in April 2012.

New clause 19 is at the core of the debate initiated by the hon. Member for Yeovil. His proposal is that, from 2012, for each additional year that the basic state pension is not increased by earnings, the increase in the state pension age should be delayed. I glad that the House has a general consensus on the principle of increases in the state pension age, which is to the credit of the Pensions Commission and the way in which my predecessors ran the national pensions debate. What might have been a very difficult issue for politicians to agree on has been tackled effectively, which is a credit to the way in which the process worked.

The question that the hon. Member for Yeovil asked was whether, if there is a delay in the earnings link, there should also be a delay in the increase in the state pension age. That is to mistake short-term for long-term affordability. The state pension age decision is important because the commitment is long term. We and the Pensions Commission had to come up with a package that was affordable for the long term. On its own, uprating the basic state pension in line with earnings would cost around £56 billion in 2050. That is the main cost in our reform package. By the time that the first increase in the state pension age occurs, from 2024, the basic state pension will already have been linked to earnings for a decade. Increases in the state pension age from 2024 will, by 2050, reduce the cost of our reforms to the state pension system by around £32 billion. That is the bulk of the way in which it is made affordable, and in which it is made fair. By increasing the state pension age gradually, we will be ensuring that the costs of rising longevity are shared fairly between those contributing to and those receiving state pensions.

A more generous state pension and a rising state pension age, therefore, go hand in hand for the long term. They are part of an integrated package of complementary reforms, so they are of course linked. The crucial point is that they are quite different in nature. People must have absolute certainty about when they will get their state pension, so that they can undertake meaningful planning. It would be irresponsible not to provide this.

Let me confirm our commitment on earnings uprating. I said to the hon. Member for Yeovil earlier that our objective, subject to affordability and the fiscal position, is to introduce the earnings link in 2012 or, at the latest, by the end of the next Parliament. I hope that that gives my hon. Friend the Member for Sheffield, Hillsborough some of the reassurance that she was looking for.

Flexibility around affordability is essential if the package is to stay within the envelope of affordability at the time. Neither the hon. Member for Yeovil nor I know what will be the precise budgetary position in 2012. Framing the decision in terms of affordability at that stage has always been important. The issue of the state pension age is quite different and is about affordability in the long run. We do not think that saying to people, “Here’s a timetable, but it might shift”, is appropriate. People have to know when they are going to retire. That is why we are planning to legislate on that basis for the state pension age. We are clear that we can legislate the linking of the state pension for the next Parliament and we have set out as an objective a year for achieving that. We believe that to be the right approach.

Nigel Waterson (Conservative, Eastbourne)

Can the Minister see that people who are being told that, whatever else happens, they are going to have to work longer to get their state pension might see it as unfair that 2015 is not set in stone? If I understand what the Minister was saying, if the promise is unaffordable then, it could be unaffordable later?

James Purnell (Labour, Stalybridge and Hyde)

No, that is not right. We are legislating to make sure that that comes in during the next Parliament. That is guaranteed by the legislation. The legislation would have to be changed if that were not to be the case. The legislation gives people that guarantee. We set out the objective date of 2012, which is clear in our policy, but it is appropriate that that should be subject to affordability. All policies have to be subject to affordability, which was the Secretary of State’s point in response to the Committee.

David Laws (Liberal Democrat, Yeovil)

Could the pledge to restore the earnings link be unaffordable in 2015?

James Purnell (Labour, Stalybridge and Hyde)

No, we believe that we can do it in the next Parliament, and that is why we are legislating on that basis. We are giving people a legislative guarantee that it will happen in the next Parliament, and our objective, subject to affordability, is to do that in 2012. That is a clear position. It is much clearer than the hon. Gentleman’s policy; it might include a citizen’s pension, but he cannot tell us what it will cost, or how it will be funded, or about the second state pension or premiums in guarantee credit. I hope that the hon. Gentleman will accept that we have set out our position clearly, we have costed it and we are legislating for it.

Let me answer a couple of the points raised. It was claimed that we were bringing forward the increase in state pension age proposed by Turner. That is not the case. The proposal that the Turner commission made was for introduction in the decade up to 2030, the decade up to 2040, and the decade up to 2050. Introduction in 2024, phasing to 2026; in 2034 phasing to 2036; and in 2044 phasing to 2046 is completely compatible with the Turner model—it is in no way a bringing forward of what was proposed. I hope that that answers all the points that have been made, and I would urge the hon. Member for Yeovil to withdraw what I think are probing amendments. However, if he does not, I would ask my colleagues to resist them.

David Laws (Liberal Democrat, Yeovil)

We have had a relatively good, if somewhat subdued, debate. I was expecting more fireworks, but perhaps it is too early in the morning for that, or perhaps hon. Members, including those on the Government Benches, understand that there is genuine disappointment among the existing pensioner population that they will have to wait so long for the restoration of the earnings link. It might be that hon. Members are also concerned about what those delays will do in relation to the amount of means testing and the incentive structures that people face.

The Government have some logical hurdles to clear—if one can do such a thing. The Minister set out the merits of two completely contrasting and perhaps incompatible principles. One appeared to be certainty, which apparently people welcome in relation to bad news such as the increase in the state pension age. The other is the principle of flexibility, which apparently people welcome in relation to things that are good news, which they would not want introduced too quickly in case that were imprudent.

James Purnell (Labour, Stalybridge and Hyde)

I obviously failed to explain this point in my speech, so I shall try in an intervention. Does the hon. Gentleman recognise that delaying the increase in state pension age in 2024 would make no difference to affordability in 2012?

David Laws (Liberal Democrat, Yeovil)

What I recognise is that the Government have said that the restoration of the earnings link is really an issue for the longer-term costs, even more than for the short-term costs, and that therefore the two things must be inextricably linked. I am saying that pensioners ask me how they can be inextricably linked when they are told with great certainty that they are going to have to work for longer even though they do not know for sure when the earnings link will be restored.

James Purnell (Labour, Stalybridge and Hyde)

By definition those pensioners will not have to work for longer because they are already retired. Future generations will have to work longer.

David Laws (Liberal Democrat, Yeovil)

That certainly is the case. All of the population share the concerns, but it is the pensioners who feel short-changed by a package that does nothing for them. No doubt they have read in detail the paper that was issued alongside the Bill. The regulatory impact assessment gives all the figures; they are very detailed and superbly prepared by the Department and its officials, whom I congratulate on the clarity of the document. In that very clear document, it is very clear that total pensioner benefits as a share of gross domestic product will fall between 2008 and 2011. Indeed, in the period from 2011 to 2020 there will be a lower share of pensioner benefits, including pensions, in GDP than there is today. That explains why there is such a lack of comfort.

I have still not heard a satisfactory explanation of why the restoration of the earnings link is going to be affordable without any shadow of doubt in 2015. This is a definition of uncertainty which baffled the Select Committee and which baffled me. This all begs the question why the Government have made this decision. Is it because the Chancellor of the Exchequer is still not very happy with this policy or that he was bullied into it? Will he change his mind later? Will he attempt to short-change pensioners in some way? Or is it the opposite of this? Does the Chancellor of the Exchequer want to make this announcement of good news himself? Does he want the flexibility, perhaps even within months of becoming Prime Minister, if he does become so, to make this grand announcement?

When I asked the Minister whether he was absolutely sure and could give me a guarantee that the Government were committed to not introducing the earnings link before 2012, I thought I detected a little bit of wriggling. The Minister knows that it is quite possible that the Chancellor will suddenly decide that this is immensely popular and that, if he is going to get all the credit for it, the measure may suddenly be brought forward. Then the Minister and all his honourable Friends will say how marvellous it is and what genius this man has and how wonderful the Labour Government are and tell us all that we should be grateful for it.

We know that positions can change. We know sometimes that even the Minister has not been updated on the latest policy thinking of his Department. He told us last week that the Government did not have it in their mind to change the basis on which lone-parent benefits were available and we wake up this morning to discover that that is back in the melting pot. How confident can we be, therefore, that the Government really have a clear policy on the 2012 date? Maybe we should all be optimistic and actually think that this deliberate uncertainty—or flexibility, as the Minister described it—is actually designed for the Chancellor of the Exchequer.

On the final point, the Minister said that there was a great deal of uncertainty about means testing and that we should not rely too much on the estimates that I cited earlier about the consequences of delaying the earnings link for the number of people on means testing. I pointed out to him that all I did was to quote the figures that are available in the notes supplied to the Select Committee from his own Department. All members of the Committee have the very highest view of the effectiveness and ability of his officials to make these detailed calculations. That is why we take seriously the fact that they have indicated that there could be a gap of 5 or 6 per cent in the number of people on means testing, based on a potential delay in the earnings link.

James Purnell (Labour, Stalybridge and Hyde)

I have great respect for the hon. Gentleman and I would not want him to take what I said out of context. What I was saying was that single percentage figure differences in 2050 should be treated with the caution as set out in the paper that we published on this issue. If one is projecting 40 years away, that is well within the margin of error. What I said in my intervention was that the forecast that we have for the means-tested population in 2050 is 28 per cent. The figure that the hon. Gentleman got for introduction in 2008 was 26 per cent. That was the only point that I made.

David Laws (Liberal Democrat, Yeovil)

I do not want to labour this, but the 28 per cent. that the Minister cited is precisely the amount that appears in the memorandum, based on the dates that the Government envisage introducing this policy. Surely I am correct to say that the earlier the link is restored, and the higher the basic state pension, the more reasonable it is to assume that the number of people on means-testing will be lower.

I accept that the proportion of people on means-testing in 30 or 40 years’ time is very uncertain and, as the Minister knows, we have had plenty of debates in which we have aired the issue of uncertainty about the total level. Surely he would accept, however, that, whatever the central estimate for 2050, it stands to reason that the earlier the earnings link is restored, the lower the proportion of people who will be on means-testing. Whatever that estimate is at the current time, it must surely be less the earlier the earnings link is restored, and that is a fundamental part of the Government’s policy.

James Purnell (Labour, Stalybridge and Hyde)

Of course that is right but that is only a theoretical point until the hon. Gentleman tells us how he would fund such a policy—whether the 5p increase in pension spending or the abolition of S2P in the guaranteed credit premium.

David Laws (Liberal Democrat, Yeovil)

Without going too far astray of my amendments, we will certainly set out before the next general election very clear and costed plans which will not require increases in taxation but will demonstrate how we will reduce existing areas of Government expenditure in order to deliver on our policies on the earnings link and the citizens pension. I detect that that is probably as far as you want me to go, Mr. Taylor, but I look forward to the Minister attending my seminar in the same way as I look forward to attending his—neither of which has a date yet.

The one area where we have made some progress in clarifying the Government’s thinking is that the Minister did not appear to have an objection to the suggestion that an announcement on the restoration of the earnings link should be made at the beginning of the next Parliament, whenever it comes. I think his objection to our amendments on that point was not so much that they were objectionable on principle, but simply that he could not see how the Bill could be amended to make that point. If he is willing to confirm that the earnings link announcement will be made in the first year of the next Parliament, however early that is, that would be extremely reassuring. I note that he is not looking at me so perhaps I am being excessively optimistic. He may want to write to me to give me that warm assurance in the event that the Chancellor rushes to the polls after the Brown bounce.

We have had a useful airing of some of those issues. As the Minister anticipated, I beg to ask leave to withdraw the amendment.

Clause 6

Nigel Waterson (Conservative, Eastbourne)

I am sure that the Committee will be delighted to hear that I shall be very brief in discussing this clause. Compared with its predecessor, clause 6 is a relatively inoffensive clause; it has certainly not attracted an awful lot of comment from outside bodies. However, I wanted to raise a couple of issues before we move on.

Clause 6, along with its various related consequential amendments, is designed to ensure that, for some benefits, the preservation of the link with prices rather than earnings will continue, but some benefits will be linked with the basic state pension as and when it comes to be linked with earnings—we do not want to go back over the issue of when that day will dawn. One example of the second category of benefits is bereavement benefit.

I am asking the Minister to address two issues in his comments. First, I should like him to explain the reasoning behind the distinction between the two groups of benefits. I assume that the reason for the groupings is financial. I should be grateful if he would indicate the kind of saving that is expected by making this distinction between the two groups of benefits: those that will be clinging to the coat tails of the basic state pension, in terms of uprating with earnings in due course; and those that will continue, for ever and ever, to be linked to the level of prices. That is all I have to say.

James Plaskitt (Labour, Warwick and Leamington)

You will recall, Mr. Taylor, that in our discussion of clause 5 we provided for the earnings uprating of the basic state pension, the standard minimum guarantee in state pension credit and industrial death benefit. Clause 6 completes the picture. It amends section 150 of the Social Security Administration Act 1992, which provides for price uprating. Essentially, clause 6 removes references to the benefits that will now be uprated in line with earnings, while preserving the existing position for other benefits. I think that the answer to the second question by the hon. Member for Eastbourne is that this process is about maintaining the status quo; it is not about delivering any savings in expenditure.

The changes that relate to the basic state pension, industrial death benefit and bereavement benefits have effect in relation to the designated tax year. The changes that relate to the standard minimum guarantee have effect in relation to the year in which the Act was passed.

Historically, the rate of certain bereavement benefits has been linked by legislation to the rate of the basic state pension, and consequently they have been uprated in line with that. As I explained before, clause 5 maintains that link in the case of industrial death benefit, because most people receiving that benefit are over state pension age—I think that is the answer to the first question by the hon. Member for Eastbourne.

However, other bereavement benefits—widowed mother’s allowance, widow’s pension, widowed parent’s allowance and bereavement allowance—are paid to people during their working lives, when people have needs and responsibilities that are different from those of pensioners. If we did nothing, those bereavement benefits, which at the moment are uprated in line with prices, would instead increase in line with earnings, as a consequence of the earnings uprating of the basic state pension.

Our policy commitment was to uprate the basic state pension and the pension credit standard minimum guarantee by earnings. Working-age benefits will remain linked to prices, as they are now. So I repeat to the hon. Member for Eastbourne that the clause maintains the status quo.

The clause breaks the link between the rate of the basic state pension and those working-age bereavement benefits, so that those benefits will continue to be increased by prices, as they are now, in line with other working-age benefits.

Sections 39 and 39C of the Social Security Contributions and Benefits Act 1992 provide the legislative links between the rate of the basic state pension and bereavement benefits. Clause 5(5) and (6) amend those sections, the effect of which would be to remove the links to the rate of the basic state pension.

Given that there is, at present, no legislative mechanism to determine the separate rates of these benefits, the Bill gives the Secretary of State powers to make regulations that prescribe new rates for these bereavement benefits before the basic state pension starts to be uprated by earnings. Clause 5(9) will ensure that the prescribed rate of bereavement benefits will be the same as the basic state pension until that is uprated in line with earnings. After that, the new prescribed rates of bereavement benefit will be uprated by prices via section 150 of the Social Security Administration Act 1992. For those reasons, I hope that the Committee will agree to the clause standing part of the Bill.

Clause 7

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss the following:

Clause 8 stand part.

New clause 18—Lower earnings limit—

‘(1) Section 5 (earnings limits) of the SSCBA is amended as follows.

(2) After subsection (2) insert—

“(2A) A person’s gross earnings from all sources shall be aggregated when determining whether an individual is above the lower earnings limit.”.’.

Andrew Selous (Conservative, South West Bedfordshire)

I, too, welcome you to the Chair, Mr. Taylor.

Clause 7 removes the link between the lower earnings limit and the basic pension. The lower earnings limit is £84 a week at present, which equates to an annual qualifying earnings factor, as pension legislation calls it, of £4,368. The effect of the clause will be that the lower earnings limit will not automatically increase in line with earnings in the future. Instead, any future increase in the lower earnings limit will be at the Treasury’s discretion; that will happen when the basic state pension is linked to earnings.

I have huge sympathy with the intent of new clause 18, which identifies an issue that was raised on Second Reading by at least three Labour Members—the hon. Members for Colne Valley (Kali Mountford), for Amber Valley (Judy Mallaber) and for Northampton, North, and I understand precisely what it would do. It deals with people who have several part-time jobs, each of which on its own is below the lower earnings limit on which national insurance contributions have to be paid in order to accrue a pension at a later date. However, when those jobs are taken together, the total gross earnings come above the lower earnings limit.

To put some flesh on the bones, typically—though not exclusively—it tends to be women who are in those circumstances. The hon. Member for Amber Valley gave the example on Second Reading of someone who may work as a dinner lady at lunchtime and in a corner shop in the evening.

A helpful briefing provided by Help the Aged estimated that about 600,000 women are not accruing pension rights because their earnings are below the lower earnings limit. About 50,000 of those women have more than one job, so they could benefit from the proposal.

Although I said that I understand the purpose behind the new clause, and have much sympathy with it, I have a question about its practical impact. On Second Reading, responding to an intervention by the hon. Member for Colne Valley, the Secretary of State said that it would be

“extremely difficult from an administrative point of view.”—[Official Report, 16 January 2007; Vol. 455, c. 662.]

My question is how new clause 18 would work practically with the payrolls run by employers on a computer, or manually if they are smaller employers. There is also the issue of the cost to employers if an employee for whom they do not pay employer’s contributions goes above the primary threshold, which is £97 a week, at which point the employer has to pay 12.8 per cent. Employer’s national insurance contributions, and the employee has to pay 11 per cent. One could imagine a situation in which some women would be priced out of a job, as employers might choose not to offer them work because of the cost.

Will the Minister comment on how class 3 voluntary national insurance contributions could be paid by employees who are in work and earning below the lower earnings limit, to enable them to accrue rights towards the basic state pension? Class 3 contributions can be paid by anyone over the age of 16 to enable them to qualify for the basic state pension. The rate is currently £7.55 a week. As the employees concerned would not be paying contributions otherwise, it would not be an additional payment. If that would be the right way to go, how can the Government bring the option of paying class 3 contributions to a wider audience?

I am not asking the Department to spend more on its promotional material, but it could flag up the option of paying class 3 contributions in the advertising that it already puts out. In the course of communications between employers and employees, such as payslips or P60s, it would be possible to alert everyone who earns below the lower earnings limit to that option. I should be grateful if the Minister would comment on that suggestion. I know that he understands the problem that is addressed by proposed new clause 18.

David Laws (Liberal Democrat, Yeovil)

We have no fundamental disagreement with clauses 7 or 8. Proposed new clause 18 is in my name and that of my hon. Friend the Member for Solihull. She was one of the hon. Members to raise this issue on Second Reading, along with a number of Labour Members, notably the hon. Member for Colne Valley, who made a detailed speech and feels passionately about it. The hon. Member for Dumfries and Galloway also made an intervention during the debate.

The issue relates to how the Government, within the confines of their own approach to pensions entitlement, will include some of the groups that have been left out in the past. The hon. Member for South-West Bedfordshire set out in a detailed, fair way the nature of the problem and some potential impediments to possible solutions.

The proposed new clause is designed to help people with earnings from multiple sources who do not earn at least the lower earnings limit in any one job and therefore end up without a full entitlement to the basic state pension. The inclusion of more individuals in the scope of the basic state pension has been an important part of the Government’s approach. It is an important part of the Bill, which we have already discussed to some extent.

In its second report, the Pensions Commission drew attention to the fact that many female pensioners suffer from problems of the type that we are discussing. The report argued that the need to include those individuals and the practical difficulties of doing so made a strong case for replacing the existing contributory system with a universal pension that would be payable to all who meet a residency test. It pointed out that within the confines of the existing system, it is difficult to fix the problem of individuals who have multiple jobs that are all below the earnings limit.

The magnitude of this problem is set out in the Department for Work and Pensions 2005 report on women and pensions. The report describes how at that time approximately 2.2 million women were not accruing an entitlement to a full working state pension, and of those about 600,000 were earning less than the lower earnings limit, which was at that time £82 a week. Fifty thousand of those individuals are people whom the Government believe to have more than one job and therefore people who would be affected by this new clause, which has good support not only in this place but from a number of bodies outside parliament, including Help the Aged, Age Concern and the Equal Opportunity Commission.

Andrew Selous (Conservative, South West Bedfordshire)

I thank the hon. Gentleman for his kind words about my introductory remarks. He has mentioned outside bodies to which he has spoken. May I ask him specifically to deal with the issues regarding employers and the practicalities of how we make this work within a payroll system? Employers have raised these issues with me. There is also the issue of cost for employers; before we blithely add costs, we need to look at that aspect as well.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman correctly draws attention to the practicalities of what we are seeking to do and of what was raised on Second Reading, and also the potential costs that could fall to employers. We are not unconcerned about those matters at all. Without going too wide of this particular debate, that is one of the reasons why we favour a pension system based on residency rather than on accruals, because it can be difficult and expensive to fix some of these problems. We know that the Government do not want to go down that route. They have said that their fundamental objection is not one of practicality but one of principle. But they believe it is right for people to receive state pensions in return for making economic or social contributions during their working lives.

We believe that the Government’s attempts to ensure that the uptake of the full basic state pension is increased to include as many groups as possible implies that they have an end aspiration to ensure that as many people as possible get the full basic state pension. We would prefer to enforce the responsibilities on people to seek employment and not simply rely on the benefits system in other ways. We know that the Secretary of State has made some proposals on this to date in relation to lone parents. We accept that there are some responsibilities within the benefits system. We have not seen any evidence to date, unless the Minister can contradict me, that the motivation of people of working age in relation to employment, caring and so on is greatly affected by the issue of national insurance contributions. Of course, the fact that the Government have a means-tested level of pension that is set above the level of the basic state pension, to some extent cuts against their desire to have a contributory principle telling people that they are not going to get something for nothing.

In some ways my answer to the hon. Member for South-West Bedfordshire is that that is precisely why we are concerned about the contributory principle that he and the Government have stuck with and why we would like to see a residency principle. We believe that the problem is that the Government will take increasing steps to try and include as many groups as possible when some sort of universal residency-based pension would be more sensible.

The hon. Gentleman rightly explains some of the difficulties that may face the Government in having records that ensure that they can identify these 50,000 people. He also rightly identifies the problems that employers might experience if they have to bear the costs. I believe that that was behind the comments made by the Secretary of State on Second Reading when the hon. Member for Colne Valley made her speech. I should be interested to hear how the Government intend to fix these problems. It would be bizarre for me to suggest that we should have a residency-based pension system with these difficulties, but then propose a series of detailed and thought-out amendments to deal with problems of the Government’s own making.

First of all today I would like the Government to accept as a real concern that some hard-working people on low pay are potentially not going to get a basic state pension. I do not think that any of us would want them to be left out. Then I would like to hear how the Government might deal with the potential anomaly in a practical way that would not impose unsatisfactory burdens on employers. That is what I am hoping to hear from the Minister. If he encourages us to think that the Government will bring forward measures to fix this, then there will be no need to press any of the amendments to a vote.

Lorely Burt (Liberal Democrat, Solihull)

I wanted to add a few remarks to those of my hon. Friend and to remark further on the interesting and valuable comments by the hon. Member for South-West Bedfordshire. When I first submitted my amendment, I was thinking that a simple and fair solution would be to widen the eligibility for pension contributions where people have more than one job but none on its own qualifies towards national insurance contributions. The simplicity has been taken out by the practical implications; I will come to that in a moment. However, I am sure that no hon. Member would deny that, if possible, in a spirit of fairness, it is desirable to aggregate those people’s jobs, so that the poorest, who need their basic state pension the most in retirement, can hopefully be pushed over the lower earnings limit and therefore be able to make some sort of national insurance contribution.

On Second Reading, several hon. Members gave practical examples of the sort of person who would be affected. A disproportionate number of the people who would benefit from the application of the new clause would clearly be women. One might be a woman who does several jobs to fit around a caring role. Perhaps she is a dinner supervisor at lunchtime and a bar steward in the evening. She is putting caring first. She is literally working all hours. She deserves that the money she is earning, the fruits of her labours, should count towards eligibility for her pension.

The hon. Member for South-West Bedfordshire discussed the practical implications. I completely understand his concerns. I thought that his suggestion about class 3 voluntary national insurance contributions might be one way of tackling the matter. If someone has two jobs, would it be beyond the wit of Her Majesty’s Revenue and Customs to facilitate pro rata contributions? Could this be one instance where the computer says yes? If HMRC can work out complex formulae and contribution costs, implementing some form of pro rata system would be possible. That is what I would hope. The Government are committed to widening the circle of people who can earn credits towards their pensions. I hope that the Minister will look at the new clause and see whether the gurus in HMRC could find a way for the computer to say yes on this occasion.

James Purnell (Labour, Stalybridge and Hyde)

I seek your guidance, Mr. Taylor. Do you want to take clause stand part as part of the amendments?

David Taylor (Labour, North West Leicestershire)

Yes.

James Purnell (Labour, Stalybridge and Hyde)

I start by putting the amendment in its proper context. Our previous debate was about how clause 5 provides for the earnings rate uprating of the basic state pension, and if no other action were taken a consequence of the basic state pension being uprated in line with earnings would be that the lower earnings limit would also automatically increase by the same amount. Clauses 7 and 8 are therefore needed to prevent that from happening automatically. I take it from the speeches by the Opposition Front-Bench spokesmen that they agree that that needs to be corrected.

It may be helpful briefly to explain the lower earnings limit and why we would wish to prevent it from automatically increasing in line with earnings. The lower earnings limit, currently £84 a week, is the earnings point at which employees start to build up entitlement to contributory working-age and pension benefits. Another way of looking at the lower earnings limit is to think of it as the benefit entry point.

National insurance contributions do not become payable until an individual has earnings at or above the primary threshold, currently £97 a week. People with earnings at or above the lower earnings limit but below the primary threshold are treated as though they have paid national insurance contributions. At the moment, the lower earnings limit increases in line with prices because it is linked by legislation to the weekly rate of the basic state pension. If hon. Members are interested, that is through section 5 of the Social Security Contributions and Benefits Act 1992.

Sally Keeble (Labour, Northampton North)

Will my hon. Friend repeat the passage where he said that people who earn below the lower earnings level are treated as if they have already paid their national insurance contributions, because I did not get the exact wording? Is that right? Is that what he said?

James Purnell (Labour, Stalybridge and Hyde)

That is between the lower earnings limit, which is £84, and the primary threshold, which is currently £97.

Sally Keeble (Labour, Northampton North)

And they are treated as having paid?

James Purnell (Labour, Stalybridge and Hyde)

Yes. Once the basic state pension has increased by earnings, as I have said the lower earnings limit would also rise in line with earnings. We do not believe that the lower earnings limit should automatically increase with earnings simply as a knock-on effect of the changes to the basic state pension that we are making. For that reason, clause 7 breaks the legislative link in the Social Security Contributions and Benefits Act 1992 and that is the main purpose of the clause. The LEL is prescribed by regulation 10 of the 2001 contributions regulations and is amended annually by the Treasury. Regulations made annually by the Treasury through the setting of the LEL are subject to negative procedures in this House. Clause 8 makes corresponding amendments in the Social Security Contributions and Benefits (Northern Ireland) Act 1992 as it is just an equivalent change for Northern Ireland.

I turn to the amendments before us. I am happy to give the hon. Member for South-West Bedfordshire the assurance that he wanted, which is that of course people can make voluntary contributions if they are earning below the LEL. They can make class 3 contributions. People in that category who are not getting NI credits in other ways would get deficiency notices from HMRC which would alert them to the fact that they had a deficient year and the possibility of paying national insurance contributions. We are always open to suggestions on how that could be more widely publicised, although obviously with the caveat that we would not want to increase burdens on employers in an unjustifiable way.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to the Minister for that reassurance, but will he take that point back to the Department? Given that according to Help the Aged there are at least 50,000 women who should be paying national insurance if we look at their gross earnings, we need to be more imaginative and do a bit more, and it would be possible in terms of existing communications not only from the Department but also those communications that employers already send their employees—such as a payslip and a P60. Will he ask his officials to look further at the matter to see what more could be done?

James Purnell (Labour, Stalybridge and Hyde)

I would have a worry about a commitment to place such a burden on employers. We are talking substantially about people who may have a limited payroll system or personnel department. My instinct is that the right approach is through the deficiency notices. I am happy to set out to the hon. Gentleman how that and everything else is being done and to show him the exact letters, if that would be helpful.

Andrew Selous indicated assent.

James Purnell (Labour, Stalybridge and Hyde)

The hon. Gentleman indicates that it would, so I shall happily do that.

I am grateful to the hon. Member for Yeovil for raising this issue because it is important that we debate it. He is right to say that our overall goal should be to give people contributing, through work or care responsibilities, the ability to build up state pension entitlements. However, there is a difference of principle between our approaches: we believe that certain contributions should be recognised, but that others should not. For example—this is an extreme—we do not think that people in prison have the same right to build up contributions to their basic state pension as someone caring for children or making class 1 NICs.

The hon. Gentleman might have a different point of view. It is worth noting also that his policy is not for a universal residents pension because that would imply that anyone in the country over the state pension age would get the same pension, which would create the illusion that one could get rid of any kind of means-testing. I think he knows that doing so would create difficult political problems owing to the sorts of people who would be getting a full basic state pension. His policy, therefore, is for a person to build up a year’s contribution for every year that they are resident in the UK, which would not be universal.

David Laws (Liberal Democrat, Yeovil)

Returning to his prison example, will the Minister clarify whether somebody in prison for a period of their working life will still be entitled to the Government’s minimum means-tested level of benefits above the basic pension?

James Purnell (Labour, Stalybridge and Hyde)

The two are different. One is a poverty alleviation measure and the other the contributory principle by which people build up their state pension. So, as always, the hon. Gentleman has not quite answered my questions about the details of his policy. I suspect that that is because he does not actually know the answers, or because they are so unpalatable that he wants to delay setting them out for as long as possible. However, the Committee has a few more days to go and we may get more satisfaction before the end of our deliberations.

The hon. Gentleman and other speakers today are right to say that this is an issue mainly about women. The family resources survey estimates that fewer than 50,000 women have two or more jobs that individually pay less than the lower earnings limit, but pay more together. As has been kindly recognised, many of the measures in the Bill are driven by the desire to recognise caring contributions more effectively than we do at the moment. In fact, the core measure—the shift to a 30-year contribution limit to the basic state pension—will largely address the problem that we are discussing today. A minority of women might find themselves in that situation for a period of their lives, but the reduction in the requirement to 30 years should largely deal with it.

It is worth saying also that people with earnings below the lower earnings limit do not necessarily fall through the system. Even though they might not be contributing through their work, they might qualify for home responsibilities protection, through child benefit, under our changes to the weekly credits, or through national insurance credits—for example, the carer’s allowance. The hon. Member for Solihull gave the example of women eligible for carer’s credit or receiving child benefit who, therefore, would be building up an entitlement. They could also build it up through working tax credits or, indeed, maternity pay.

So, as a consequence of the Bill, we will improve the flexibility of those credits and reduce the number of years required. Taken together, those two measures will largely address the problems identified in the amendments.

David Laws (Liberal Democrat, Yeovil)

The Minister might be coming to this, but is his objection to the new clause one of principle or simply practicalities?

James Purnell (Labour, Stalybridge and Hyde)

I am coming to that. It is indeed the practicalities. Given the practical difficulties and given that the other significant measures in the Bill may, in large part, address the question that the hon. Gentleman is raising through his amendment, the great practical difficulties of doing this may not be justified by the benefit that would be achieved.

Indeed, the Pensions Commission looked at this issue and it said clearly in its second report that requiring employers to record and pass on details of earnings below the lower earnings level, so that they could then be aggregated, would significantly increase costs for employers. In that, as in most of this Bill, we concur with what the Pensions Commission said. The Government have also looked carefully at aggregation, but I am afraid that there is no straightforward mechanism to allow earnings from multiple employers to be aggregated in a way that would not impose excessive additional administrative burdens and costs on business.

One of the key principles of national insurance for people in employment is that both the employee and their employer should contribute towards benefit entitlement. If the employee alone were to contribute then the amount of payment needed might be prohibitive. The employer contribution helps fund entitlement benefits in both the shorter and longer terms. And it is because of this employer’s secondary contribution that the system is able to work overall. Unfortunately, that would be very difficult to do if earnings were to be aggregated in this way.

If earnings were aggregated, it is not immediately obvious how the employer’s contribution could be easily calculated. The employer’s contribution would be variable: it would be a percentage based on an employee’s earnings in their work compared with their earnings with another employer. Collecting and calculating it would impose significant administrative burdens on employers. Indeed, the percentage required might change from month to month and even week to week. It might also make the cost of hiring someone uncertain. The employer would not necessarily know about other jobs that the individual might have, and therefore whether they would need to pay some employer’s national insurance contributions.

We cannot have a system to aggregate earnings for benefit purposes but exempt people from paying national insurance contributions on those aggregated earnings. That would clearly be unfair. Let me give the Committee an example. If a person has two jobs, each for 10 hours a week at the national minimum wage, the total weekly earnings would be £107. But national insurance contributions would not be payable, either by the employee or the employer. Another person working the same hours at the same wages for one employer would pay national insurance contributions of £1.10 a week and receive pension entitlement. The employer would pay £1.28 a week. It would clearly be unfair to have a situation where the person in the first category was given pension entitlement but did not pay those contributions if someone who was earning the same amount through one job did.

David Laws (Liberal Democrat, Yeovil)

I quite understand the Minister’s point. Could he recap on those figures? What would be the excess of national insurance contributions paid by the fully employed individual in a year versus his example of the individual who was in two jobs, which was a times 52 multiplication of the figures he used? I should just like to be clear about how big an injustice we are talking about.

James Purnell (Labour, Stalybridge and Hyde)

I think we are talking about £58 a week. I hope that I have avoided my Dan Quayle moment. That may not sound like a significant amount of money to the hon. Gentleman, but the fact that one person would pay tax on a level of earnings and receive pension entitlement and the other person would get the pension entitlement but not pay the tax would clearly derail this proposal. That is in addition to all the burdens on employers.

Lorely Burt (Liberal Democrat, Solihull)

I start by apologising for my lack of expertise in this area. It is not my field. Is the Minister saying that it would not be possible for the first person in the example, who had the two part-time jobs, to pay pro rata national insurance contributions, and that HMRC could not advise the two employers of their requirement to pay pro rata national insurance contributions? Would that not increase revenue to the Government, enabling them to pay a basic state pension in the fair way that they seek to achieve?

James Purnell (Labour, Stalybridge and Hyde)

I do not think that that would be possible. We are talking about an end of the labour market at which people might not have absolute clarity about what they pay; their payments might shift from week to week due to flexible working patterns. Indeed, their employers might not have terribly sophisticated pay-as-you-earn systems. It is worth saying that the effect of burdens on employers at that end of the market could be disproportionate. Given that we are talking about people who are not paid significant amounts of money, even a relatively small burden on employers could have a significant effect on employment patterns. At that end of the market, the key thing is to enable people to get back into work so that they can progress to more hours and higher earnings if necessary.

Lorely Burt (Liberal Democrat, Solihull)

I totally understand; and I agree about the disproportionate effect on small employers. The Liberal Democrats’ policy on national insurance and employee-related payments is that in the case of small businesses the employer should not bear the burden. How would the Government feel about extending the measure to lift the burden completely from small employers?

James Purnell (Labour, Stalybridge and Hyde)

Well, this is a new version of the money tree—not just increasing spending but reducing the amount of taxation that is received to pay for it in the first place. I shall be happy to look at the hon. Lady’s detailed proposal when the Liberal Democrats have decided exactly how they will fund that. However, I do not want to tax your patience, Mr. Taylor, by straying too far beyond the amendment.

There are, of course, people in that category who choose to work in that way. There might well be people who, for whatever reason, want jobs that are individually below the LEL. They might choose to do so or they might not—

Andrew Selous (Conservative, South West Bedfordshire)

I am intrigued as to why somebody would want to stay below the LEL. It is not something that I have thought about.

James Purnell (Labour, Stalybridge and Hyde)

Without wanting to be too blunt about it: so as not to have to pay national insurance. It might be that people do not choose to do that but that they have to, in order to look after children or somebody who is sick or because it is a temporary part of their work pattern. That is not a pattern that is common throughout a person’s working life; it appears to be something temporary. As I said at the outset, our reforms, particularly the reduction to 30 years for carers’ credits, will benefit many people in that situation. I see that the hon. Member for Yeovil is still doing long division. I am starting to worry that he is about to intervene on me.

We accept that other, more difficult, circumstances might result in people not getting a full basic state pension. It is right that we should seek to understand who will retire without a full basic state pension and what circumstances have led to that situation. That is the matter on which I think the hon. Gentleman was asking us to do more research. I am happy to give him a commitment to do so. We are undertaking research to establish more about those who do not qualify for the full basic state pension. We are also going further, and including those who will retire in 2025 without a full basic state pension. We hope to publish the results of that research in summer 2007. Perhaps, at the same time, the hon. Member for Yeovil would like to publish his proposals as to how he will fund his universal residential citizens pension at the unknown level—

David Laws (Liberal Democrat, Yeovil)

I missed the precise detail of what the Minister was suggesting, for which I apologise. Was it that he is going to do research on all categories of people not getting the basic state pension, or does he hold out a small prospect of seeking a solution to this particular problem? I am looking for him to clarify whether he thinks that will ever be soluble within the existing system.

James Purnell (Labour, Stalybridge and Hyde)

The hon. Gentleman was obviously looking for a calculator when I was making my key commitment to address his concern. Our research is to look at people who would not be eligible for a full state pension, both in 2025 and 2050. It is too early to say whether this is a key contributor to that, or whether it is addressed through other means—for example, people’s eligibility through child benefit or the carer’s credit, or because of the 30-year rule. The key point is to look at the 5 to 10 per cent of men and women who might not get a full state pension in 2025, and whether that reflects the contributory principle appropriately or is an unintended consequence of our policy. That is the research that we are committing to publish in summer 2007.

I hope that that gives the hon. Gentleman the assurance that he wants. I have tried to set out the thinking here. The Bill intends to widen coverage for people in this category and its main provisions, which we have debated elsewhere, are the effective way of doing so. A significant burden, in both administrative and, potentially, national insurance terms would outweigh the advantage that would come from this provision.

David Laws (Liberal Democrat, Yeovil)

I want to respond briefly to the Minister. I am grateful for his detailed explanation. It is useful that he has acknowledged that the Government fundamentally want this group of people to be included in the basic state pension system, and that the issue is entirely one of practicality rather than principle. I also accept his point that the 50,000 figure is likely to reduce over time, because of other changes by the Government. I do not know how significantly that 50,000 will reduce, or whether the Department has made any estimate of that in relation to other changes. I assume that it might be quite tricky to do so, as a lot of assumptions would have to be made, but it would be useful if the Minister would let Members of the Committee know in writing whether there is, perhaps, an order of magnitude by which the 50,000 problem is to be reduced.

The Minister has, essentially, set down a challenge to those who are interested in this issue—including ourselves and others outside this place—to table a detailed additional amendment, perhaps at another stage in our proceedings, demonstrating that the aspiration here might be practical. Clearly, that could be designed to deliver the inclusion of these individuals within the existing system, by tweaking the records of national insurance contributions that they are making, or by seeking to advantage those individuals, who will be on very low incomes, regarding those contributions that they do or do not have to pay.

I appreciate that the Government do not want to create an incentive for people to give up their full-time jobs and acquire a number of different part-time jobs. Sometimes, legislation creating such anomalies can result in people changing their behaviour in an undesirable way. However, on the face of it I should not have thought that there were huge numbers of people who are, as in the exchange between the Minister and the hon. Member for South-West Bedfordshire, structuring their work arrangements around some desire to avoid the lower earnings limit. After all, the amount of national insurance contributions that they pay will be pretty small. It is far more likely that they will acquire these jobs because only part-time jobs are available or because—as my hon. Friend the Member for Solihull indicated—they are trying to fit around other caring responsibilities.

I was trying to do some calculations, as the Minister spotted, on his £52 and 52 weeks, and everything else. I may have got it all wrong, as I am not always right on such things, but his estimate of the cost differential of £52 per week between the individual on low pay in full-time employment versus the individual who splits their job into two jobs and gets underneath the LEL, sounded to me very large. Fifty pounds per week—£2,500 per year—sounds like a large contribution for somebody on a very low income.

James Purnell (Labour, Stalybridge and Hyde)

Per year.

David Laws (Liberal Democrat, Yeovil)

The Minister suggested when he responded that the differential would be £50 per week, but he is now saying that it would be £50 per year. That is not a particularly large sum of money. It is not a particularly large incentive to structure one’s behaviour in a different way. That has left some of us with some ideas—some problems, perhaps—about how to deal with this particular anomaly. The Minister has invited us to consider whether there is anything that would be workable and practical that we could do and, if there is, to bring it back at other stages in our proceedings.

With that in mind, I will not press the new clause.

Clause 9

James Purnell (Labour, Stalybridge and Hyde)

I beg to move amendment No. 88, in clause 9, page 9, line 17, leave out ‘and section 44C below’.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss clause stand part.

James Purnell (Labour, Stalybridge and Hyde)

We now enter the delightfully complex area of the state second pension, which we hope to make simpler by means of the Bill. Committee members will know that, since the state second pension was introduced in 2002, certain groups have been deemed to be earning at the low earnings threshold, which is currently around £12,500 per year. Some of the groups that have been deemed to be included are carers and low earners and, as a result, they accrue additional pension and have double the state earnings-related pension scheme rate, typically 40 per cent.

With clause 9, we want to take the reforms that we made in 2002 a step, or indeed a couple of steps, further. We want to allow more people to be deemed to be earning at the low earnings threshold, thus meeting our objective of modernising the contributory principle by making work in care count equally for state pension purposes. This would include those awarded child benefit for children up to the age of 12, approved foster carers and those caring for one or more severely disabled people for at least 20 hours a week.

The recognition of carers ensures that equal recognition for caring is made for both basic state pension and S2P. These carers, in addition to those already covered by the original S2P provisions, will accrue state second pensions because they will have the necessary qualifying earnings factor, either through earnings alone or through credits alone, as before.

Clause 9—this is quite important—will also help those who currently just missed out on accruing S2P in a particular year because they worked for only part of that year and had caring responsibilities for the remainder of the year. It will allow people to combine their credits from caring, for example, with their earnings to bring them into S2P.

I am sure that the Committee will welcome the steps that we took in 2002 and the significant improvements that this Bill makes.

My technical amendment No.88 does not change what we intend to do; it simply corrects a minor drafting error. It makes clear the obvious. It does not require someone who has earned enough to qualify for S2P also to have a credit in a particular year—for instance, if they are a carer—to make that year count for S2P.

Andrew Selous (Conservative, South West Bedfordshire)

We welcome the clause, as it means that a wider range of carers, parents and disabled people will be treated as earning at the lower earnings threshold of £12,500 a year for 2006-07 for state second pension purposes. We particularly welcome the fact that the labour market attachment test, which required people to pay class 1 national insurance contributions for a 10th of their working life since 1978, will no longer apply. We are especially pleased about the provision as it affects carers.

I have just one question for the Minister. The explanatory notes on the Bill state that at present parents who are in receipt of child benefit for a child under six are treated as earning at the lower earnings threshold in respect of S2P. The notes also say that those people in receipt of home responsibilities protection are treated as being at the lower earnings threshold. Paragraph 32 of the explanatory notes defines home responsibilities protection as being awarded to people caring for children under 16. It is a minor point, which I have raised before with the Minister, but I should be grateful if he would clarify the issue of the different ages of children as it relates to qualifying for various levels of pension in the Bill.

James Purnell (Labour, Stalybridge and Hyde)

That point was covered in an earlier debate. The age in respect of qualifying for the state second pension is going up to 12, and for qualifying for the basic state pension it is going down to 12; the two are being harmonised. There was a question whether we could have a theological debate on the matter, and I assured the hon. Gentleman that we could not. The improvements to the basic state pension more than outweigh the reduction from 16 to 12 and raising the state second pension eligibility to 12 will bring a significant number of people into the state second pension.

Clause 10

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 70, in clause 10, page 11, line 14, leave out ‘40’ and insert ‘45’.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss the following amendments:

No. 71, in clause 10, page 11, leave out lines 15 and 16.

No. 72, in clause 10, page 11, line 31, leave out ‘40’ and insert ‘45’.

No. 73, in clause 10, page 11, leave out lines 32 and 33.

No. 74, in clause 10, page 12, line 7, leave out ‘40’ and insert ‘45’.

No. 75, in clause 10, page 12, leave out lines 8 and 9.

Sally Keeble (Labour, Northampton North)

I shall be brief so that the Minister has time to respond before we adjourn. The amendments would make the state second pension more flat rate. They would bring forward the flat-rating of the accrual state second pension to increase redistribution rather than giving increased benefits to the higher earners. That would mean that the state second pension would be more targeted towards the lower earners. The amendments would abolish the second accrual rate band, which gives greater benefits from S2P for those earning more than the lower earnings threshold, currently £12,500 a year, with additional benefit accrued on earnings up to the upper earnings limit.

The band would slowly erode anyway under the present system, so that S2P would be flat rate by 2030. Abolishing it now would enable a greater level of flat-rate benefit to be paid to all through an increase in band 1 to accrual rates of 45 per cent., which would give greater support from the state for all, rather than the state pension system delivering more for higher earners. The higher earners can, of course, save for themselves and can accrue a greater retirement income through private savings either in existing schemes or through the proposed system of personal accounts.

Generally, there has been a lot of criticism of the Bill for not providing for pensioners’ needs now. I do not agree; the present generation of pensioners is supported by other means. Pension credits have been mentioned, and there are also things such as fuel allowance, the increase in the personal allowance and the introduction of the 10p starting rate for tax. However, the group that I have been concerned about consistently—they are, largely, the people we are talking about in relation to the state second pension—is women pensioners. They will start to see some benefits under this scheme, but will miss out on the more general improvements that will come, either through the restoration of the earnings link and the reduction to 30 years’ contributions or because they are not of the generation that is earning now and getting the same access to pensions as men thanks to higher earnings and different working patterns. That gives us a generation of women between now and about 2020 or 2030 who may need more financial support in retirement. Bringing forward the flat rate in S2P and making it more redistributive will make it more supportive for that particular group at a critical stage before the other improvements come through.

Nigel Waterson (Conservative, Eastbourne)

I appreciate that the hon. Lady’s amendments aim to make the Government’s proposal, which is already redistributive, even more so.

Sally Keeble (Labour, Northampton North)

That is right.

Nigel Waterson (Conservative, Eastbourne)

Does she accept that even on the Government’s proposals, let alone hers, anybody earning more than £18,000 a year would continue to pay the same level of national insurance contribution, but would have his or her S2P benefit significantly reduced? Does she think that that is fair?

Sally Keeble (Labour, Northampton North)

There is clearly an issue of who should benefit from the different schemes. It is important that measures that are designed particularly to support those on low earnings should provide adequate support to lift them out of poverty. Under my proposals, women would have just over £135 a week, which is not a huge amount for people to live on. Of course it would be nice to give more money to everybody, but people earning the amounts that the hon. Gentleman mentions are more likely to have made provision through other means, or may have savings.

We have to ask who should be supported by the state and what we are trying to achieve. Nobody wants to take money away from anybody, but if we are trying to ensure that women on low incomes, perhaps in marginal areas of employment, can have a better income in retirement without going on to means-tested benefits, is it not sensible to make the measures that are designed to support people on low incomes more rather than less redistributive and bring them in earlier rather than later? That is the argument behind these proposals.

It would be helpful if my hon. Friend the Minister could indicate at what point the Government would introduce the flat-rate £1.40 a week band, and when he would expect S2P to become entirely flat rate. Is there any scope for that to happen before 2030?

James Purnell (Labour, Stalybridge and Hyde)

I am genuinely grateful to my hon. Friend for her amendment. She will be glad to know that this one saves money until 2050, and then it has quite a big spike. In her ping-pong with the hon. Member for Eastbourne, she can quote this one. The precise financial implications after 2050 are that the costs start to grow—up to £7.5 billion annually by 2070.

The reason why the amendment would reduce the overall cost is that it moves towards immediate flat-rating and, therefore, takes out of the Bill the transitional earnings relation. The issue is worth probing slightly. First, the Conservatives say that they support the Bill overall, but their position here is slightly more tentative. Every now and then we read in the Daily Express or Daily Mail that they are against the Bill on the basis that it is some huge stealth tax. The truth is that it is not a stealth tax. Everybody, in all earnings brackets, benefits from the Bill. Secondly, the Conservatives do not have an alternative proposal, unless they are proposing to go back to the old state earnings-related pension scheme.

David Taylor (Labour, North West Leicestershire)

Order. Will the Minister return to the subject of the amendments?

James Purnell (Labour, Stalybridge and Hyde)

Of course. I will stick closely to the amendments, which are about when we go towards flat-rating. What I have been pointing out all the time is that not going towards flat-rating would cost about £10 billion per year. That is a spending commitment, if that is what the hon. Member for Eastbourne meant in his intervention.

What would the effect of the proposed changes be? A low earner would—

Nigel Waterson (Conservative, Eastbourne)

We are now in a twilight zone, where the Minister is making spending commitments for us. To be clear, our concern, which I will deal with in greater detail later in the clause, is that the Minister always lumps together the increase in the basic state pension when he looks at the effects on higher earners. However, higher earners need to be aware that, even without the amendments tabled by the hon. Member for Northampton, North, the proposals are redistributive—highly so, according to some calculations. That is our point.

David Taylor (Labour, North West Leicestershire)

Order. This is not a clause stand part debate. Can we return to the subject of the amendment?

James Purnell (Labour, Stalybridge and Hyde)

I take your directions clearly, Mr. Taylor, and we can return to the issue later.

It is worth reminding the Committee that the state second pension is made up of two components. Everybody who pays into the state second pension, or is credited into the system, is assumed to earn at least £12,500, whether they do or not, which provides for them to receive the flat-rate amount of S2P. In addition, earnings over £12,500 and up to £33,540 attract an earnings-related component to the state second pension. The Pensions Commission recommended that the earnings-related component should be withdrawn to make way for personal accounts.

The commission analysis identified three options for accommodating the withdrawal of earnings relation with the emergence of personal accounts. First, the commission considered stopping earnings relation overnight, which would be the effect of the amendment tabled by my hon. Friend the Member for Northampton, North. At the other extreme, the second option was continuing with the existing withdrawal path of earnings relation, which would see us out of the system by the mid-2050s. The third option, which the commission recommended and we support, was to accelerate the withdrawal of earnings relation by freezing the upper earnings limit at the point where accruals to S2P end. This would see earnings-related accruals out of the system by around 2030. I can confirm that our goal is to get to that point in 2030. There are provisions in the detail of the clauses to allow for changes to be made around that date to achieve that and to revoke those parts of the legislation that would by then have become otiose.

The commission recommended that option, which is what we are doing. A sudden move to flat-rating, which the amendments aim to deliver, would impact not just on those who would otherwise get a transitional amount of earnings relation, but on the contracting out of state second pensions. That could have an unpredictable and quite damaging effect on final salary schemes, which, of course, are supported by the contracted-out element related to S2P. Given the importance of final salary schemes, we decided that that would not be the right approach and, indeed, the Pensions Commission has observed that a gradual decline in the rebate would be the most appropriate policy.

The second objective of the amendment is to increase the accruals rate of the flat-rate element from 40 to 45 per cent. That would make the flat-rate element more generous. We have taken a different approach with our simplification of S2P—the heart of clauses 10 to 12, which we will discuss in the relevant stand part debates. Suffice it to say that our approach is simpler to understand and strikes the appropriate balance between flat-rating and a transitional amount of earnings relation. I therefore urge my hon. Friend to withdraw her amendment.

Sally Keeble (Labour, Northampton North)

That explanation was very helpful. I beg to ask leave to withdraw the amendment.

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 64, in clause 10, page 12, line 15, at end add—

‘(7) The Secretary of State shall publish estimates, no later than 1st April 2008, of how many people he expects to receive less than £135 a week in Basic State Pension and Second State Pension combined in 2030 and 2050.’.

The amendment is similar to the 29th recommendation from the Select Committee on Work and Pensions in its report on the Government’s pension reform proposals and came in the context of a statement from the Government in response to the consultation on the White Paper in October 2006. In paragraph 57 of the White Paper, the Government pointed out that the median value of a state pension for those reaching state pension age in 2050 would be £135 and that anyone with a good working or caring life would be entitled to about that amount. The Government have, of course, already responded to the Select Committee’s recommendation by publishing estimates, in October 2006. They project that under the White Paper proposals by 2050 about half the number of individuals reaching the state pension age will have a total state pension entitlement of at least £135 per week, in today’s earning terms, and that two thirds will have an entitlement of at least £125 per week.

The amendment, which is a probing one, is designed to invite the Government to keep closely under review the level of pension provision for individuals of the type just mentioned by the hon. Member for Northampton, North—those on lower earnings—particularly given concerns that the new personal accounts will not necessarily be very attractive to those on low incomes because of the extent of means testing. It is important, therefore, that we have a good and constant assessment not only of how much they can expect from their basic state pension and state second pension provision, but of how the personal account provision will affect them in the future in order to ensure that it is an adequate replacement for the benefits that the Government would have sought to deliver more securely through the existing system.

James Purnell (Labour, Stalybridge and Hyde)

I am grateful to the hon. Gentleman for tabling the amendment, although he could also have tabled a parliamentary question, to which I would have been equally happy to reply.

James Purnell (Labour, Stalybridge and Hyde)

It is a pleasure to serve under your chairmanship this afternoon, Mr. Gale. I said in our previous sitting that I hoped today to provide the hon. Member for Yeovil with the figures that he has asked for in the amendment—I hope to his satisfaction—and therefore to remove the need to legislate to provide them at a later stage.

In choosing £135, the hon. Gentleman picks a key amount, to which we have referred in our publications on the issue. We have alighted on the figure of £135 because it is our current estimate of what a low earner in 2053 who has had a good working life would achieve by way of state pension, by working and/or caring. To be clear, we have assumed that a good working life would mean someone working or caring from the age of 25 to state pension age. In describing the objectives of the new state pension, we have focused on a couple of key amounts. The first is our estimate of the number of people who, at the point of retirement, will be clear of the standard minimum guarantee of about £114 in the 2050s. The second amount is the minimum amount that will be received by someone who has been working or caring for a good part of their life.

Those amounts are important, because they help to underpin the key objective of the state pension reforms, which is to provide a solid foundation for private saving. Making pension saving worth while to the point at which it is a routine part of organising personal finances depends on giving people decent returns on their investment. We have shaped the reform system to meet just that objective.

By extending the coverage of the basic state pension and the state second pension, the number of people building the foundation will increase and by increasing the state pension by earnings, we will preserve the value of the foundation. By simplifying the system, we will make it transparent, so that people can understand what they will get and, as importantly, will not take kindly to anyone trying to take it away from them in the future.

Just using the current information, and without taking account of greater employability or a fitter work force, I can give the hon. Gentleman the following information, in response to the questions that he sought to elucidate. Around 60 per cent. of those reaching state pension age in 2030 will receive at least £115 a week just from the basic state pension and the state second pension. More than 40 per cent. of those reaching state pension age in 2030 will receive £125 or more in their basic state pension and state second pension, and more than 30 per cent. of those reaching that age in 2030 will receive £135 or more in their basic state pension and state second pension. Those figures are of course not the same as the means-tested proportion of the pensioner population, because people would also have private savings and other forms of income on top of that. We forecast that in 2050 around 75 per cent. of people will retire on an income of more than £115 a week just through their state pension entitlement and that a quarter of pensioners will retire on a state pension of £140 or more in 2050.

Rather randomly, I do not have the relevant figure to give the hon. Gentleman for the £135, but I shall ensure that I give it to him in writing as soon as I have it available.

Given that the Department for Work and Pensions has produced significant material, as part of our long-term projections and continual assessment of the pensions system, and that that information will be made available in the normal way—including through any future parliamentary questions that the hon. Gentleman might seek to table—I urge him to withdraw the amendment.

David Laws (Liberal Democrat, Yeovil)

Welcome back to the Chair for this afternoon’s proceedings, Mr. Gale. You will be delighted to see that we have positively leapt forward since we last saw you, in terms of the number of clauses we have covered.

I am grateful for the Minister’s response, which, apart from a missing figure—or rather, perhaps a missing page of his speech—was extremely helpful. For that reason, I do not need to press the amendment to a Division, so I beg to ask leave to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

Welcome back, Mr. Gale. I am not sure whether it is easier for me to set out my concerns and then for the Minister to deal with them, or for him to set out what the clause is about and then for me to comprehensively rubbish what he has said, but let us try this way round.

We are grateful to the Minister for taking us through the enchanted forest of low earnings thresholds and lower earnings limits. We are now on flat-rating S2P—no wonder nobody understands pensions in the real world. To assist the Committee to make good progress it might help to say that my comments will cover aspects of clauses 10, 11 and 12 together. That should obviate any significant discussion of the subsequent two clauses.

The first point is the redistributive nature of this part of the reform package, which is something that the Government, for obvious reasons, did not trumpet themselves—we had to draw it out in our examination of their proposals. That was thrown into sharp relief by the amendment of the hon. Member for Northampton, North, which sought to go even further than the Government in terms of redistribution.

In fairness, these proposals come on top of reforms made shortly after the Government were first elected, which were redistributive in nature. As I say, the hon. Member for Northampton, North and her group of amendments have shown that there is an appetite, at least from Labour Back Benchers, to go even further than proposed. Back in 1998, the Government’s Green Paper, “A new contract for welfare: partnership in pensions”—Green and White Paper titles really roll off the tongue—made it clear, in fairness, that they always intended in the long run that S2P should cease to be earnings-related and become a flat-rate scheme. The Child Support, Pensions and Social Security Act 2000 contains a regulation-making power to that end. This is one of those occasions when explanatory notes are probably more revealing than the legislation itself. The Library research paper points out that

“the explanatory notes on the Act”—

that is the 2000 Act—

“explain that the Regulations will not be made until stakeholder pensions have established themselves”.

As the Library brief goes on to say with admirable understatement:

“However, stakeholder pensions have not been as successful as the Government hoped in attracting the target market of moderate earners”.

It is worth noting in passing that this reform package—the basic direction of travel of which we, on these Benches, support—signals the last rites for stakeholder pensions. That is an experiment that has clearly failed in terms of encouraging greater participation.

As the Minister will I am sure go on to explain again, the subsequent clause and schedule 2 bring in a weekly rate of £1.40 on deemed earnings below the low earnings threshold. I am told that that figure is designed to be cost-neutral. Concerns have been expressed by outside bodies. The TUC has advised caution about moving to flat-rating S2P too quickly and has said:

“We suggest that before any final decision is taken on reforming the S2P into a flat-rate weekly top-up, the NPSS”—

that is personal accounts—

“should be up and running, and have been subject to an independent review of levels of opt-outs and contribution rates.”

Our old friends at the NPC have also expressed concerns and talked about

“the decline in availability and weakening of private occupational pension schemes”,

which is something that in any view has happened on this Government’s watch. The NPC have also said that that

“underlines the necessity for the second-tier state pension to be strengthened and made more inclusive...it offers defined and predictable benefits, low administrative costs”.

The NPC also talk about the “burden of savings risk” being placed on the individual. Moving beyond that, the Pensions Policy Institute, of which we shall hear more when we get to the great means-testing debate, in its pamphlet, “State pension simplification?” makes the point that there will still be some significant differences between S2P and the basic state pension. It lists four differences:

“S2P may not become flat-rate for all individuals until 2030”—

The Minister may want to come back on that point—

“Some people may qualify for BSP but not S2P, for example, the self-employed.

S2P will still be uprated in line with prices when it is payment”,

while as we have heard BSP in due course will be

“uprated in line with earnings”,

and

“Some of S2P will be delivered by private pensions, through contracting-out”.

The Pensions Policy Institute goes on to say that

“there will still be uncertainty as to the amount of S2P that individuals will receive. Amounts of S2P in payments to individuals will still vary according to lifetime characteristics, and by age”.

It refers to a specific example:

“a woman with exactly the same contribution record as her younger sister will receive less S2P each year than her sister does”.

It concludes by saying that

“many of the differences that currently exist between BSP and S2P will remain”.

If that is in part designed to be a simplification measure, there are concerns from the PPI about whether that will deliver a great deal of extra simplicity.

As I said in my intervention on the hon. Member for Northampton, North, we have referred to the problem of those people—anyone earning over £18,000 a year, as I understand it—who will still continue to pay national insurance contributions at the same level even though the amount that they get from S2P will be significantly reduced. The hon. Lady, with admirable honesty, asked whether it was better that the money should go to people who were poorer. There is a philosophical argument there that I am not going to approach. I respect her position from an intellectual point of view, but is that the Government’s position and may we hear something from the Minister about the redistributive nature of the proposals?

We have done some figures but I am always open to correction on figures from the Minister as he has all the clever people working for him. We estimated that by 2033 someone earning more than £35,000 a year would be paying £2,119 in national insurance contributions for a pension benefit that they would no longer receive; and someone on £18,000 a year would be paying £468 a year for the same lack of benefit.

When that was put to the Department at the time we made an issue of that point and an unnamed spokesman for the Department said that this loss would be partly compensated by an increase in the basic state pension. I accept and can understand that, but it is always interesting to dive into the Government’s regulatory impact assessment.

Sally Keeble (Labour, Northampton North)

If the hon. Gentleman is going to set out what people do and do not get out of the state system in return for the money that they put in, which is a perfectly proper thing to do, will he say what income those people are likely to receive from their other pensions; and also the tax relief that they will obtain on the contributions to their private pensions, because if we are looking at how the state supports people in retirement it is important to look at the whole picture so that we can make a judgment on the whole picture. I should be very interested to hear the other calculations.

Nigel Waterson (Conservative, Eastbourne)

The hon. Lady gives me a tall order, which is beyond the scope of this clause, but there is certainly a debate to be had on whether the funds devoted to tax relief are being put to best use in terms of encouraging pension saving. I think that I am right in saying, although it may have a different purpose altogether, that there is a new amendment from the hon. Member for Yeovil on tax relief, to which we will come later, so there will be an opportunity to talk about that.

In a minute I shall come on to the Government’s figures, which split people into three indistinct groups: low earners, median earners and higher earners. I am not saying for a moment that there are not people who are better off. The basic statistics are very clear that the top quintile of pensioners is far better off in many respects than the other four quintiles—a quick bit of mental arithmetic there. That is a fact of life. If the hon. Lady wishes to tackle that reality, that is fine. If the Government wish to fight the next election on it, that is fine too, as long as they are fairly clear what they are about. If they were to do that, then “stealth tax” would be a perfectly legitimate phrase from us—although the Minister got a bit sniffy about that phrase earlier.

In the excellent regulatory impact assessment that accompanies the Bill, the chart on page 112 is significant. It helpfully compares the current system for higher earners with the reformed system, showing the basic state pension relatively constant under the reforms and a reasonably sharp decline in the value of S2P for the higher earner. The Government have said, by means of such figures, and informally to us as part of the consensus process, that no one would be any worse off. However, that is only true if one takes into account the value of the basic state pension as well. If one were to disaggregate that for some of the higher earners, they would be significantly worse off and would be paying national insurance contributions without getting the benefit.

Looking at the chart on page 112 for median earners, which is those earning £440 per week, there is an almost imperceptible falling off of overall benefit from 2010 to 2050.

Bizarrely and inexplicably, the next relevant chart is on page 42. It deals with the outcomes for lower earners, comparing the reformed system with the current system. The situation is completely the opposite of that on page 113, with a reasonably steeply increasing gradient for 2010 to 2050 under the reforms, again with the BSP element constant, and a sharply rising benefit from S2P up to the end of that chart.

Of course, there is an air of unreality about making projections up to 2050. I certainly do not expect to be doing this job then, but who knows?

Looking at some figures that we discussed with the Minister and his officials when all this was in the melting pot, again there is very much the same argument. The fixed rate of about £1.40 residual earnings-related amount would gradually erode by 2030. Everybody gains, compared with the current system rolled forward, from earnings-uprated basic and simplified second pension.

Simplification is fine, because what the pensions and benefits system cries out for at all levels is simplification, as long as people understand that simplification comes, for some of them, at a cost.

Again, abolition of the S2P and state earnings-related pension scheme rules would result in marginal reductions in second pensions for some older workers, but that is more than made up for by the earnings-uprated basic state pension. I apologise to the Minister if the projections are out of date, but some for outcomes in 2050 to 2053—including the BSP and the effects of an extra three years work—show everyone better off, but lower earners relatively much better off than higher earners. Outcomes in 2050 have a similar sort of projection.

We say to the Minister, if this is what he is doing, by all means be open and clear about what it is. May we hear not how higher earners will still be better off, but how they will fare if the increase in the basic state pension is stripped out? Perhaps he will spend a little time justifying how they can be expected to continue to pay national insurance contributions but receive little or no benefit from doing so. Those are legitimate questions. I look forward to the Minister’s response.

James Purnell (Labour, Stalybridge and Hyde)

The debate goes to the heart of whether there is consensus on this aspect of the reforms. The changes stem from the reforms to the state second pension and the introduction of flat-rating, which would have happened by the 2050s in any case, and from the view expressed in the Pension Commission’s report that the Government should not be in the business of providing earnings-related second pensions and that that should instead be done through a system of personal accounts. As I understand it, the hon. Gentleman and his party back that principle, but he has a habit of complaining to the Daily Mail and the Daily Express that we are introducing a stealth tax. Indeed I think that he was quoting from our response to one of those stories.

The key part of the reform that removed the relation to earnings was the move towards the state second pension, away from the state-earnings related pension scheme. I do not think that the hon. Gentleman is proposing that we go back to that system. To do so would cost a significant amount of money: we would be talking about a cost of £10 billion a year over the long term. If that is not his proposal, I hope that he will not confuse people by making them think that he is against this part of the reforms, because I think that he supports it.

The key question is not whether we should go back to the old SERPS system, be it that which existed in the 1970s or the amended, less generous one that was brought in by the previous Government in the mid-1980s. The question is whether there should be flat-rating. The Pensions Commission was clear on that matter and I assume that the hon. Gentleman supports it as well, given that he is not intervening. People will not be any worse off under these proposals, because any savings from flat-rating will be recycled into the package of reforms.

Lest there is a further press release, I should like to set the hon. Gentleman’s mind at rest. Prior to reform, a lower earner, on wages of about £330 a week after a good working life, would have got about £89 from a combination of the state pension and the state second pension in 2053. Under these reforms, that figure will be £134. A medium earner would have got £100 before the reforms; that will now be £138. A high earner would have received £102, which will now be £139. I hope that there will be no further allegations that we are taking money away from high, medium or low earners.

Nigel Waterson (Conservative, Eastbourne)

Perhaps the Minister could confirm that the figures that he is quoting, which I think are the figures that I was looking at, include two elements, namely the increase in the basic state pension and the requirement to work an extra three years.

James Purnell (Labour, Stalybridge and Hyde)

Yes, that is right. The figure is for 2053. That does not change the fundamental point that all categories of earner will be better off as a consequence of the reforms. I think that the hon. Gentleman was alleging that they would take money away from higher earners, but they do not. Savings are recycled to make the combination of the state pension and the state second pension more generous.

We could have a system in which higher national insurance contributions were completely tracked only if we went back to the old, state earnings-related pension scheme. If that is the hon. Gentleman’s policy, it represents a different approach from ours and that of the Pensions Commission and is a Liberal Democrat-style spending commitment. The hon. Gentleman probably knows that but wants to preserve the impression that in some way the issue is different from how we describe it. I hope that I have answered his point.

My hon. Friend the Member for Northampton, North asked when we intended the flat-rating to come in. We intend it to start in 2030-31, in accordance with what has been predicted about the gradual moving together of the two thresholds in question, which I shall not try to specify from the top of my head. There are provisions to adjust the date if the economic trends differ from what we have predicted.

The clause restructures the state second pension by removing one of the three earnings bands used in calculating how much S2P a person has accrued in a given year. A person’s annual S2P is currently accrued by reference to earnings between the lower and upper earnings limits for national insurance contributions. This tax year, those limits are £4,368 and £33,540 respectively. As I have explained, S2P is based on the existing SERPS framework in respect of how pension entitlement is built up over a person’s working life.

The introduction of banded earnings allowed us to target additional resources on low and moderate earners. In calculating a person’s S2P accrual for a given year, earnings between the upper and lower limits of national insurance are currently split into three earnings bands, each of which builds up at a different rate. The third accrual band of 20 per cent. is a part of the transition from SERPS to S2P and is designed to erode from about 2011. The amendment would bring that forward by one year.

Removing the third accrual band is the first step towards providing a flat-rate benefit. Together with the provisions in clauses 11 and 12, to which we shall turn shortly and which would introduce a weekly cash amount of £1.40 and a fixed upper accrual point, that will enable us to achieve flat-rate accrual by 2030, as I have said. The measures are in line with the Pensions Commission recommendation. Combined with our change to the basic state pension, they will make all earnings bands better off. They simplify the system.

Clause 11

James Purnell (Labour, Stalybridge and Hyde)

I beg to move amendment No. 49, in clause 11, page 12, line 35, at end insert ‘and

(c) Part 3 contains consequential and related amendments.’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss Government amendments Nos. 58, 56 and 60.

James Purnell (Labour, Stalybridge and Hyde)

This series of technical amendments is intended to maintain the current arrangements on widowed parent’s allowance, set out in previous state second pension legislation. The allowance is paid to those widows, widowers and surviving civil partners who are under state pension age and have care of at least one child.

Currently, people receiving widowed parent’s allowance get an additional pension based on the value of their late spouse’s or civil partner’s SERPS or state second pension accruals. When the late spouse or civil partner dies before reaching state pension age, the calculation of the survivor’s additional pension takes into account the fact that the deceased’s working life had been foreshortened. That allows the deceased’s earnings to be averaged over a shorter period, to the widowed parent’s advantage. If, for example, the working life had been five years, the average would be over those five years rather than over a whole theoretical working life.

For pensioners, we intend to move away from that averaging so that we can arrive at a much simpler system—the flat rate of £1.40 that I mentioned. Pensioners will not lose out because the earnings uprating of the basic state pension more than makes up for any shortfall caused by the removal of the complexity. However, if we were to bring recipients of widowed parent’s allowance fully into state second pension reforms, there would be a chance that some younger widows, widowers or surviving civil partners would lose out overall. That is not our intention.

Our amendments will ensure that those people’s pensions will continue to be calculated on the same basis as now, and I hope that the Committee will support them.

I repeat that we do not want to change the position of widows, widowers or surviving civil partners. That is why we have taken the earliest opportunity to amend the Bill.

Schedule 2

‘Part 3

Social Security Contributions and Benefits Act 1992 (c. 4)

Pension Schemes Act 1993 (c. 48)

Clause 12

James Purnell (Labour, Stalybridge and Hyde)

I beg to move amendment No. 50, in clause 12, page 14, line 4, after ‘revoke’, insert ‘any provision of’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to take the clause stand part debate.

James Purnell (Labour, Stalybridge and Hyde)

At this rate, we will have finished the Bill by the end of the afternoon.

David Laws (Liberal Democrat, Yeovil)

No, I am speaking soon.

James Purnell (Labour, Stalybridge and Hyde)

Ah, that is the difference. There was a certain amount of cognitive dissonance in the back of my head, which has now, thankfully, been cleared up.

Clause 11 introduces the new method of calculation for the state second pension, which will consist of a simple flat-rate component and a residual earnings-related element. I say residual because clause 12 brings in the relevant provisions for phasing out the earnings-related element. In our debate on clause 10, I explained that S2P was originally intended to be a short-term measure to increase the pension entitlements of low earners and certain carers, which complemented the introduction of stakeholder pensions.

Let me take this opportunity to correct a slight misapprehension possibly caused by hon. Members’ remarks. We do not intend to abolish stakeholder pensions with the reforms. They have had real success in reducing charges, as we set out in our White Paper on personal accounts, and we foresee them continuing to play an important role in both personal and company pensions. We have made it clear that we plan to remove the requirement on companies to have a stakeholder pension, because it will be superseded by personal accounts.

David Laws (Liberal Democrat, Yeovil)

Is the Minister telling us that the Library is wrong in its assessment of the lack of success of stakeholder pensions?

James Purnell (Labour, Stalybridge and Hyde)

We are very clear about the achievements of the stakeholder pension and we set them out in great detail in the December White Paper, which I am sure all hon. Members have read. In it, we highlight the significant reduction in charges achieved by stakeholder pensions.

As things stand, S2P will eventually become flat-rate in around 2056, when the low earnings threshold—the lower margin used for calculating earnings-related S2P: the £12,500—finally catches up with the upper earnings limit. That would have happened anyway because the former is uprated by earnings and the latter by prices. In line with the Pensions Commission’s thinking, however, we want to speed that process up so that S2P becomes completely flat-rate around 2030. To achieve that, clause 12 provides for a new cap on the earnings-related component of S2P, which we have called the upper accrual point. The changes are contained in subsections (1) to (3), which amend sections 22, 44 and 122 of the Social Security Contributions and Benefits Act 1992.

The clause also applies the upper accrual point to defined benefit contracted-out pensions. That is achieved through the measures in subsection (4) and part 7 of schedule 1, which amend both the 1992 Act and the Pension Schemes Act 1993. In its year of introduction, the level of the upper accrual point will most likely be equivalent to the upper earnings limit for that year. I say most likely because because it may be necessary to vary slightly the level of the upper accrual point to hit our 2030 flat-rate target, as I said to my hon. Friend the Member for Northampton, North.

Unlike the earnings limit, which on current trends will continue to rise each year in line with prices, the upper accrual point will be fixed. That enables the low earnings threshold, which is the top end of the band of earnings on which the flat rate element accrues, to merge with the upper accrual point much more quickly—in 2030, rather than the mid-2050s.

Clause 12 provides, in addition, the necessary sunset order-making powers to abolish both the low-earnings threshold and the upper accrual point when they eventually merge and become redundant. That is provided for in subsections (5) to (9). However, the order-making powers set out in clause 12 allow only for the repeal of a whole Act or piece of subordinate legislation. Amendment No. 50 clears that up, allowing the necessary flexibility so that it will be possible to repeal individual provisions. The repeals made by order are subject to the approval of both Houses. That process will be carried out by an affirmative order, debated in both Houses.

From around 2030, the S2P will start to accrue on a completely flat-rate basis. Of course, any earnings-related S2P and SERPS a person has accrued prior to that point will be fully preserved and paid when they retire.

Clause 13

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss the following: New clause 1—Report by Government Actuary on trends in longevity—

‘(1) Beginning in April 2014, the Government Actuary shall present a Report to Parliament every five years setting out the latest evidence on trends in longevity.

(2) It shall be the duty of the Secretary of State to make a motion in the House of Commons in relation to any report under subsection (1).’.

New clause 21—Report on older workers not paying or being credited with National Insurance contributions—

‘The Secretary of State shall present a report annually to the House of Commons—

(a) analysing, by local authority area and by job sector, the number and distribution of people over 60 seeking work and not being credited with contribution credits, and

(b) on the training opportunities for people seeking to increase the number of their qualifying years for receipt of a full Basic State Pension.’.

New clause 24—Independent Pensions Commission—

‘The Secretary of State must, no later than 1st January 2010, establish an independent Pensions Commission to—

(a) advise the Government on affordability issues in relation to state pension provision and the state pension age,

(b) conduct and publish gender, carer and state pension coverage impact assessment annually, and

(c) publish annual projections of the proportion of pensioners facing different withdrawal rates.’.

New clause 25—Job opportunities for workers over state pension age—

‘Before any increase in the State Pension age the Secretary of State shall publish a report on improved training packages and flexible job opportunities for workers over 55 years of age.’.

Andrew Selous (Conservative, South West Bedfordshire)

I welcome you back to this afternoon’s sitting, Mr. Gale.

Clause 13 is very important. It deals with the increase in state pension age. I note from the schedule in the White Paper, which helpfully sets out the ages and increases in retirement age, that in order to collect my basic state pension I will have to work until my 66th birthday. I think, if I am right about the Minister’s age, that he will have to work until his 67th birthday before he collects his basic state pension. Perhaps other Committee members should declare an interest if they choose to speak to the clause and let us know how the measures affect the age at which they will collect their basic state pension.

I believe it was Bismarck, the German Chancellor, who first picked the age of 65 as the age at which retirement benefits would be paid. I agree with my hon. Friend the Member for Eastbourne, who has said on more than one occasion that raising the state pension age is, in a sense, a no-brainer when one considers the increases in longevity that have occurred since Bismarck’s time. We must also, quite properly, bear another issue in mind when we address the clause, which is the question of inter-generational fairness.

One option would have been to load all the costs of increasing the basic state pension now on to future generations—our children and grandchildren—by sending the bill down through the generations to them so that pensioners now and in the near future could enjoy higher pensions. That would have been wrong. Virtually all of us exist in families and many of us have children or even grandchildren, so we need to bear in mind the effects of such a major change on different generations.

Returning from Germany, it is worth considering briefly the history of the pension age in this country. In 1909, I think, the Liberal Democrats first introduced pensions at the age of 70. In 1925, the age became 65 for men and women, which is the direction in which we are heading—we hope to end up there by 2020. It was not until 1940 that the age went down to 60 for women, remaining at 65 for men. In a sense we are going back to the future, to the 1925 position. Who knows? Perhaps at some point in the future we will end up back in the 1909 position. I am certainly not proposing that now, but given what might happen to longevity in the future, we might arrive at that point again.

New clause 1 contains a requirement on the Government Actuary to

“present a Report to Parliament every five years setting out the latest evidence on trends in longevity.”

It would also place a duty on the Secretary of State for Work and Pensions

“to make a motion in the House of Commons in relation to any report”.

The Government are right to point to the available statistical information, some of which has been helpfully set out in the regulatory impact assessment on the Bill, which points out that, on average, people enjoy 20 years of life expectancy after reaching the current state pension age and that that figure is expected to increase to 21 years after 2046. So far, so good. So far, so reasonable.

Nigel Waterson (Conservative, Eastbourne)

Has my hon. Friend seen the most recent research suggesting that every day average life expectancy increases by five hours?

Andrew Selous (Conservative, South West Bedfordshire)

My hon. Friend, as always, is a fount of optimism, hope and good cheer, as we like to be on the Conservative Benches. I am heartened by his remarks, although there are one or two contrary indications from other bodies.

James Purnell (Labour, Stalybridge and Hyde)

Does that mean that the longer the hon. Member for Yeovil speaks, the longer we all live?

Andrew Selous (Conservative, South West Bedfordshire)

The Minister is always sharp in his observations. He would not be in his current position if he was not. None the less, I am sure that we have all been enlightened by what the hon. Member for Yeovil has had to say, and no doubt we will be again when he makes his contribution.

The regulatory impact assessment on the Bill states that in 1950 only half the population reached pension age. Today, that figure is three quarters. By 2050, 90 per cent. of our fellow citizens will reach the new proposed state pension age of 68. That statistical evidence appears to be overwhelming and to justify the change in the age, which is one means by which we are paying for the extensive package of measures before us. It is interesting to note as well—this is my last observation from the regulatory impact assessment—that the Office for National Statistics does not compile projections for life expectancy by social class.

The excellent House of Commons Library brief on this subject contains some very revealing information and goes into slightly more detail than the regulatory impact assessment produced by the Department. Among other things, it tells us that men in social class I have a life expectancy of 65—five years higher than those in social class V. For woman in social class I, that figure is 3.7 years higher than for those in social class V. Do not ask me to define “class”. I shall leave that to the statisticians.

Quite staggeringly, the House of Commons Library brief also has this sentence:

“Inequalities in life expectancy at age 65 appear to have widened over time.”

That is in stark contrast to the information I have just given the Committee on the overall increase in life expectancy. It is those inequalities on which I want to focus.

There are not only variations by social class; there are striking ones by area of the country as well. In Glasgow city, male life expectancy is 69.9 years. That means that for those who come under the new state pension age of 68, the average male in the City of Glasgow would enjoy under two years of pension. Compare that to Kensington and Chelsea, which has the highest life expectancy in the country, where for males it is 82.8 years. The corresponding figures for women are in Glasgow 76.7 years and in Kensington and Chelsea, 82.8 years. The contrast is stark—both by social class and by area. Those figures are from an ONS news release from November 2006.

The most recent figures that I could find on overall life expectancy are dated 2002 from the Commons Library brief. They say that overall in the UK, women can expect to live to 84.1 years and men to 81.1 years.

The reason for going into that background in a little detail is to highlight the importance of looking at exactly what is going to happen to longevity in the UK—overall, specifically for different groups of workers and, again, in different parts of the country. My hon. Friend the Member for Eastbourne intervened just now to say that our life expectancy increased by five hours every day. That is a rosy prospect and one that I am sure we all look forward to. Just to inject a slight note of caution, I note in the report of the Work and Pensions Committee entitled “Pension Reform”, its fourth report of the session 2005-6—perhaps my hon. Friend the Member for Weston-super-Mare was a Member of that Committee and he will comment on it later—that in paragraph 382 on page 99, the National Heart Forum said, looking at the changes in lifestyle of younger people, that we may actually see decreases in life expectancy. We are all aware of the current debate on obesity—in childhood in particular—and we all know the impact on diabetes and other medical conditions which concern everyone. It is therefore not certain that increases in life expectancy will continue as they have been recently.

So it is important that the House of Commons is updated, every five years, or once a Parliament or so, on exactly what is happening in longevity and that that report should be broken down by social class and by local authority area.

John Penrose (Conservative, Weston-Super-Mare)

One of the things which became apparent during the Select Committee’s inquiry to which my hon. Friend just referred was that changes in life expectancy among different social classes—in particular among those who had been involved in heavy manual labour throughout their lives, and therefore frequently had shorter life expectancies—was something which the Government have recently been saying is to do with health inequality rather than something which they will try and cover in this Bill. However, the difficulty that was exposed in the report was that those health inequalities were some of the most intractable and difficult to deal with. It is all very well to say that health inequalities are not the subject of the Bill, but unless there have been careful discussions between the Department for Work and Pensions and the Department of Health about co-ordinated cross-Government activity to reduce those inequalities, many of the assumptions about longevity have a questionable basis and are increasingly at risk.

Andrew Selous (Conservative, South West Bedfordshire)

I am grateful to my hon. Friend. He is right. When I read the report earlier I noted those comments about health inequalities. I believe that the Committee looked at tying the increases in state pension age to the Government’s reaching their public service agreements target on health inequalities. This is a clause stand part debate and we cannot look at these issues in terms of departmental silos. That point was made by Help the Aged in its briefing. It spoke of the need to look at all these issues in the round. The increase in state pension age is related to longevity, but it is also related to people’s retraining opportunities.

Obviously the nature of work is very different for the 29 million or so people in employment in the United Kingdom. For just about all of us in this room, the heaviest thing we will pick up in our working week will be the calculator on our desks. For many of our fellow citizens, that is clearly not the case. They work in physically demanding environments, perhaps involving heavy manual labour, which clearly have an impact on their health. These are points that the TUC and others have made very clearly. We have to bear them in mind.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman is giving us an interesting oversight of the problem. However, if he knew that these health inequalities and life expectancy inequalities were permanent and we could not narrow the gap, would he argue for people being able to draw their pensions at different ages, or for an earlier basic state pension age for people with lower life expectancy?

Andrew Selous (Conservative, South West Bedfordshire)

My preferred route would be that outlined by my hon. Friend the Member for Weston-super-Mare. It really is the function of the Department of Health to start tackling some of these health and education issues much earlier on. There is a point which my hon. Friend the Member for Eastbourne will no doubt want to come to on later clauses relating to rates of annuitisation. I believe that some of the pension companies have had discussions with the Department about annuitisation of pension benefits related to life expectancy. My preferred approach would be to ensure that we dealt with inequalities of life expectancy and health within the Department of Health.

John Penrose (Conservative, Weston-Super-Mare)

There is a further point to make to back up my hon. Friend’s response. If one decides to adjust retirement age, annuity rates or anything else by social class, one should bear in mind that it is an incredibly nebulous thing to define. I would not like to be in the Minister’s shoes guiding that piece of legislation through Committee. I know that it is terribly fashionable among all parties nowadays to claim to be working class, but almost everyone would claim that they had been involved in heavy manual labour for their entire working lives in order to qualify for a better deal.

Andrew Selous (Conservative, South West Bedfordshire)

My hon. Friend is right. I do not pretend that the answers to these issues are simple or straightforward. That brings me back to new clause 21, which would require the Secretary of State to present a report every year instead of every five years, looking by local authority area and by job sector at

“the number and distribution of people over 60 seeking work and not being credited with contribution credits,”

and the training opportunities for all people

“seeking to increase the number of their qualifying years for receipt of a full Basic State Pension.”

If we are going to increase by eight and three years respectively the age at which women and men they can draw their pensions, it is essential for the House of Commons to have before it very detailed information on the unemployment rates for men and women over 60 who have another eight years or so to go before they can collect their pensions, and on the training and retraining opportunities without which they will find it extremely difficult to build up rights to a basic state pension.

Those issues were put before the Education and Skills Committee by the Age Unemployment Network and Help the Aged, who commented on the Leitch report on the UK skills gap. They thought that the report did not have enough to say about training and retraining opportunities for older people. They looked at people over 40—that is the right sort of age, because in the world of work it is not realistic to stay in the job in which one started until one’s late 50s or early 60s and then try to find something else to do for the last eight or 10 years of one’s working life. It will be sensible for people who think that they cannot work, for example, in a steel mill until the age of 68, to start planning to skill themselves up for other work, perhaps something less physically demanding, well before they get to the age at which they cannot continue their original work.

I will not go through the memorandum from Help the Aged in detail, but among its responses on the skills gap, it notes at paragraph 7 that

“The record of both employer and Government funded training does not inspire confidence in responsiveness to these challenges. All forms of funded training decline sharply from about 40 onwards”.

That is exactly the age at which we are going to have to start increasing very significantly the training opportunities for our fellow citizens if we are not going to deny them the chance of getting a basic state pension until they are 68. I have raised this point at a number of meetings on the issue with the Minister and others, but I have not yet heard the kind of joined-up thinking that we really need to hear from the Minister if our fellow citizens are to think that this is a fair settlement that will give them a fair chance of staying in employment throughout their working lives to the age of 68.

It is also worth noting something that I spotted on page 21 of the Library research paper. A change that will not occur under the terms of this Bill, but which will be brought in by way of regulation is that the old system—brought in by a Conservative Government in 1983 at a time of high unemployment—under which unemployed men aged between 60 and 64 were automatically credited with national insurance contributions, even if they were not seeking work, will be removed as a parallel measure. That is extremely relevant to clause 13, because people who might well have given up the work that they had done all their lives because they were just not able to carry on will not be credited with the national insurance contributions in the way in which they were before.

James Purnell (Labour, Stalybridge and Hyde)

Just to clarify, before we get any idea that this is a measure that has not been scrutinised, the changes to auto credits have been an upfront part of the package all the way through. Any savings from that are re-invested into the overall reform plans that we are putting forward and are easily outweighed by the reduction in the number of contribution years to 30. So there is no hidden agenda there and it has been absolutely clear ever since the White Paper in May.

Andrew Selous (Conservative, South West Bedfordshire)

Well, what the Minister says is clearly correct, but none the less it makes the requirement on the Secretary of State at the heart of new clause 21 even more relevant because, in addition to increasing the state pension age, the removal of these auto credits will have an effect on that segment of the work force who concern me at present.

We also note, most intriguingly, that if we turn back to the Second Reading debate, the Minister’s boss the Secretary of State said on this general area that

“the Pensions Commission...suggested that the Government continue to make sure that pension credit was payable at 60. We are looking carefully at that proposal as one way of addressing people’s concerns”. —[Official Report, 16 January 2007; Vol. 455, c. 667.]

It shows that it is always important to go through Second Reading debates carefully, in particular anything said by the Secretary of State, for that again has a direct bearing on clause 13 and our discussions about making people work up to the age of 68 in order to get their pension.

The Select Committee, on which my hon. Friend the Member for Weston-super-Mare serves with distinction, looked at this area. I think that it was talking about guaranteed pension credit still being available from the age of 65, and was worried about the disincentive effect on working. I will also be interested to hear in the Minister’s response how the Department’s discussions are going, what careful study they have done of that area and what conclusions they have reached.

New clause 24 would require the Secretary of State to set up an independent Pensions Commission. I understand the reasons for that but I am not in favour of in effect setting up another quango. What would it cost to set up that commission? Those of us who stand for Parliament and seek public office should take the hard decisions. It is not up to us to shuffle off the requirement to take difficult decisions to an independent body. Indeed, it could be unsettling for an outside body constantly to review what is going on in the world of pensions. It is much more important for the information to be provided by the Secretary of State—whoever he or she may be at any future time—so that we, collectively as Members of Parliament, can look at it, weigh up the needs and assess them against other demands on the public purse. If the hon. Member for Yeovil wants to press new clause 24 to a vote I am afraid that my hon. Friends and I will not support him.

I am more sympathetic to new clause 25, which is similar to our new clause 21. I commend the hon. Gentleman on attempting to require the Secretary of State to consider flexible job opportunities. I tabled two new clauses that were not selected, one on flexible working and one on work opportunities for the disabled. Flexible working is incredibly important for older workers. Many of them are unable to work full-time. Perhaps we must get used to the idea that the peak of one’s working life in terms of hours worked and income is a few years before retirement. Those of us who have grown up under regimes of defined benefits have got used to the peak of one’s working life being at the point of retirement, on which the defined benefit pension was based. That will not be the case for a lot of people in future, and flexible job opportunities will allow people to stay in employment up to the age of 68. Some employers are excellent on that—Asda is one that is worth mentioning.

The need for a detailed analysis by each local authority to match training opportunities with people to enable our fellow citizens to stay in work up to the age of 68 is what interests me the most. I will listen with great interest to what the Minister says about it.

David Laws (Liberal Democrat, Yeovil)

As ever, the hon. Gentleman has given us an excellent overview of and introduction to the subject. I was delighted by a number of things that he said. I was particularly pleased to hear that people listening to my speeches can be expected to have a longer life expectancy, although they may not wish they did at the time. I was also pleased to hear that he expects this place to continue to zero in on a move towards the policy that my predecessors set out so clearly and effectively in 1909. That policy underlines the prudence of my party in fixing a state pension age that at the time was five years advanced of life expectancy.

Andrew Selous (Conservative, South West Bedfordshire)

I am sure that the hon. Gentleman is aware that in 1909 the life expectancy of those engaged in heavy manual labour was about 50—some 20 years short of 70, the age for which David Lloyd George brought in the state pension.

David Laws (Liberal Democrat, Yeovil)

As I said, that demonstrates the prudence of my party, although the hon. Gentleman raises a serious point, which I shall come to. Following his guidance, I also declare an interest—fortuitously, on a clause about the state pension. I am disappointed that he did not mention that, but I will be affected in the same way as him and will be slaving on until I am 66.

James Plaskitt (Labour, Warwick and Leamington)

Not on this speech, I hope.

David Laws (Liberal Democrat, Yeovil)

No, although I could be persuaded, if provoked by the Minister, to move him on towards his retirement age. I noticed that he looked a little sheepish when I mentioned declaring interests, and I fear that he may be another Minister who is legislating on the matter without being affected himself.

The hon. Member for South-West Bedfordshire highlighted the three points that we are debating: the proposal that the state pension age should rise in the future; what monitoring and assessment mechanisms should be in place and whether there should be an independent commission to report on them; and how older workers can be encouraged to stay in the labour market rather than retire or become unable to work before the new state pension age comes in.

It is notable that although the increase in the state pension age will have a large, somewhat adverse affect on many individuals who will have to work for longer to get their basic state pension, it has surprisingly been one of the less controversial parts of the package. That is partly because of the strength of the case that the Pensions Commission put together and partly because there is consensus among the parties about the need to improve the architecture of pensions, which means being able to fund it. Perhaps it is also because the changes in the state pension age will not begin to have an effect until 2024, which is still some way over the horizon, so people are not focusing on it.

However, to give some credit to the Government and the Pensions Commission, the consensus emphasises that if we want to make such changes, the right way to do so is to have long lead-in times so that people can plan and adjust for the future. The experience of changing the women’s pension age in this country from 60 to 65 between 2010 and 2020 and of the changes going on with the pension age above 65, as well as the changes in other countries, such as the United States, demonstrate the case for making such announcements well in advance.

The hon. Member for South-West Bedfordshire highlighted one of the possible risks in increasing state pension ages in such a way when he talked about the inequalities between the life expectancies of different groups. He rightly pointed out that there are some pretty dramatic differences in life expectancy across the country, citing the case of Glasgow where, I think he said, life expectancy is still below the age of 70. That is a striking statistic given that life expectancies in some parts of the country are probably above 80, and it demonstrates the enormous health inequalities that need to be tackled.

I asked the hon. Gentleman whether he wished to tinker in some way with the state pension age or the pension system to give an advantage to people with lower life expectancies in terms of the age at which they can claim their pension, and he said that he did not want to do that. Broadly, we agree that that is the right approach. We are concerned that there would be too many complexities in trying to introduce some other finesse system and that there would be a difficulty in managing the effect on work incentives for certain groups. It is also not obvious that we have any state policy that seeks to deliver a set period of time for individuals in their retirement or a set amount of pension that we apportion to each. If we did, the consequences could be dramatic because women, who have a longer life expectancy, might suddenly find that people propose that they retire later or have a smaller pension pot. I cannot imagine people wanting to make that proposal, although I stand to be corrected.

As the hon. Gentleman said, the situation highlights the importance of Governments of all parties seeking to reduce the inequalities of life expectancy. To do that, it might be necessary not only to improve health provision across the country but to address some of the fundamental inequalities of income, wealth, work conditions and housing that without doubt lie behind the big inequalities in life expectancy. We must not lose sight of that in a debate that does not easily allow such issues to be aired.

Associated with the point about a higher state pension age are new clauses 21 and 25, which seek to encourage the Government to provide more opportunities for people beyond the ages of 50, 55 and 60 to stay in the labour market. We are all conscious of the enormous impediments of prejudice against people who are older and who seek jobs later in life. We are also conscious of the fact that a lot of people have difficulty in having the right set of skills later in life. We are aware that for some time a large proportion of the adult population above the age of 55 or 60 has dropped out of the labour market and the educational system and gone on to incapacity benefit. The concern is that some of that might have been disguised unemployment, particularly during the periods when we had high unemployment.

I received a parliamentary answer yesterday from the Under-Secretary of State for Work and Pensions, the hon. Member for Stirling (Mrs. McGuire), showing that in the cohort between the ages of 60 and 64, more than one in five are on incapacity benefit. That is only one area of concern in relation to people over the age of 60 who might not yet be in the labour market. Some of the points that have been raised so far highlight that it would be one thing to increase the state pension age to 66, 67 or 68 but that it would be quite another challenge to ensure that people have the skills and support to stay in the labour market for that period of time.

The latest figures—the Minister will correct me if I am wrong—suggest that after a long period of ever-earlier retirement we appear to have passed a turning point when people are beginning to work for longer, as we might have expected. However, that may be due not entirely to a pre-planned, rational process but to people discovering as they near retirement that their pensions are not in as healthy a state as they might have wished. New clause 25 and new clause 21, tabled by Conservative Members, invite the Minister to say what the Government intend to do about that.

Andrew Selous (Conservative, South West Bedfordshire)

As the hon. Gentleman would agree, in respect of the will, or the need, to work later on in life, many of our fellow citizens are doing so. I understand that 9.6 per cent. of men over 65 and 11.1 per cent. of women over 60—386,000 men and 751,000 women—are in employment either because they actually enjoy working or because they need to work to supplement very meagre pensions. For example, they may be one of the 125,000 whose pension schemes have collapsed and who have no remedy. We need to bear that capability in mind when we discuss these issues.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman makes a very good point. Obviously, some people already seek to work longer, as he said. Others may struggle to work up to the existing pension age and beyond and we must ensure that we cater for them.

The issue to which I want to draw attention now is not the increase in state pension age, which we support and which is relatively uncontroversial for us, or the need for more training and support for older individuals, which is also relatively uncontroversial; it is the more fundamental point about the need for an independent commission to keep these issues in mind in the future.

New clause 24 asks the Secretary of State to establish an independent pensions commission to consider three different areas: first, affordability issues in relation to state pension age and state pension provision; secondly, coverage of gender and carer issues and how the state pension provision is expanding; and thirdly, means-testing and its impact on saving.

I was disappointed that the hon. Member for South-West Bedfordshire did not give our proposal more of a fair wind. He said that he was worried about two things, one of which was cost. He seemed to accept the Secretary of State’s line that there would be enormous costs associated with setting up a vast quango. Provided that it was a small and effective group, as the Pensions Commission was, the cost should not be disproportionate. If there was a cost to bear as a consequence of the new clause, and it meant a greater degree of continuity and rationality in UK pension policy in the future, that cost might be quite small.

The hon. Gentleman said that he did not want an outside body to dictate pensions policy to Members of Parliament and I agree with him. We do not propose a body that would be able to dictate to Parliament or to the Secretary of State what proposals to introduce; that would be entirely wrong. Parliamentary sovereignty should remain on those issues, which should be a matter for the Secretary of State. If an independent pensions commission were to make recommendations, it would be difficult to be sure that it would take into account the different factors that Government Departments have to consider when they formulate policy, such as the affordability of their proposals in relation to other Government policies. Therefore, I would not want there to be an automatic presumption that, if an independent pensions commission of this type determined that there was going to be an increase in life expectancy in the future and that it would have a particular impact on the cost of the state pension architecture, there should then be an automatic feed-through that our state pension age should go up by a certain amount. That would be wrong, because there could be other things happening within Government expenditure that might lean the other way. People would be nervous if they felt that we were establishing some kind of escalator process, in which every time they felt that they were getting close to state retirement age some new commission would report and move it up another year or two. I am not thinking of a process as automatic and as unthinking as that.

However, by rejecting what was after all in broad brush terms one of the recommendations of the Pensions Commission, we may be making an important mistake. I am not yet persuaded that what the Government have in mind, with some form of periodic review, will replace the type of proposal that the Pensions Commission itself was making for good reasons. I may have misunderstood the extent of what the Government are offering, which, when the Minister responds, may be a bit more inviting than I assumed. If that is the case and I have missed something in what the Government have said, I apologise.

The Pensions Commission has been astonishingly effective in creating a consensus between the three parties and, to a large extent, with the pension policy groups outside Parliament, on the shape of pension reform. Before the last general election there was no party proposing an increase in the state pension age, but there are now at least three parties, including the minority parties. There was no party, which I can recall, that was suggesting that there should be a compulsory employer contribution, of the type that we now have. There was no party that was suggesting that the earnings link could be permanently restored. There was no party proposing auto-enrolment into personal accounts. There was no party proposing precisely the formulation for crediting into the state pension and increasing coverage that we now have in the Bill.

The pensions commissioners, in binding that consensus together, have done an outstanding job, which they achieved because they were seen to be genuinely independent, even though the commission was established by the Government, and able to bridge the differences of philosophy between the parties, to the extent that there were any. Their figures and statistics have been extremely impressive. There has been a feeling on the part of all the main parties, therefore, that there was pressure to move away from the usual party political debate and to engage with the serious proposals made.

Andrew Selous (Conservative, South West Bedfordshire)

The hon. Gentleman accepts the case for a pensions commission when we were looking at a once-in-a-generation change of the pensions system in this country. I agree that the Pensions Commission did the most fantastic job and shifted opinion markedly, as he outlined. However, does he not think that an ongoing independent pensions commission would lead to uncertainty? The public now need certainty that the agreement will last—for a generation, indeed—and that may be a reason not to have the body continuing into the future.

David Laws (Liberal Democrat, Yeovil)

I understand the hon. Gentleman’s point. He is right that some of the really important decisions have been taken by the Pensions Commission and agreed between the different parties. However, the commission itself and Lord Turner did not take the view that the consensus could be well maintained over time without the presence of such a body—I am about to refer to the report. Intuitively, that sounds sensible to me. If we went out on to the streets and asked the men in the pub in Yeovil whether they would be more confident of the pensions consensus being glued together in the future by continuing the usual party political processes, they would say that they would not be reassured at all. I think that if they were offered instead the prospect of a credible independent commission continuing to report, to impose a discipline on parties that sought to challenge the consensus, and to supply information about issues that different parties might not particularly want to be aired but which needed to be aired in the interests of honesty, there would be a much greater chance of keeping some sort of coherence and underlying stability for the pensions consensus. That was clearly the view of Lord Turner and the other commissioners, who made the case powerfully for an independent commission in their second report.

In the final report, the commissioners say on page 42 under the heading of “Securing and maintaining consensus”:

“British pension policy for decades has been bedevilled by a lack of continuity.”

They point out that that has not been the case in many other countries, even when they have pension systems of our kind. They go on to say that

“over the long-term the likelihood that consensus can be maintained, and that the inevitable adjustments to policy can be made with continued cross-party support, could be improved if debates on pension policy were informed by independent analysis of key trends in demography and pension provision. We therefore reiterate our recommendation, made in the Second Report, that a permanent Pensions Advisory Commission should be created, charged with monitoring developments and laying before Parliament every three to four years a report describing relevant trends and spelling out the unavoidable trade-offs which result.”

In figure 18 on page 43, the commissioners set out the types of issue that they want the independent commission to cover, including life expectancy and changes in the future, the trade-off between public expenditure and state pension age, gaps in life expectancy by socio-economic groups and how they are changing over time, the latest trends in private pension provision, and an analysis of trends in retirement ages and employment rates among older people—in other words, many of the issues that we are dealing with in discussing these new clauses.

I have to say, as objectively as I can, that I am more persuaded by the case made by the commissioners in favour of that type of permanent independent body reporting on a periodic basis than I am by what I understand to be the Government’s alternative. The Secretary of State was quizzed about the issue by the Select Committee on Work and Pensions on 7 June. He said that he was not in favour of an independent pensions commission and he has rubbished that before on the basis that it would be another quango. However, he acknowledged that if periodic reviews could be done to a specific timetable, that would be acceptable.

In their response to recommendation 47 in the Select Committee’s comprehensive report—I am referring to the section entitled “Uncertainty and the need for more research”—the Government welcome the Committee’s comments and talk about having “future periodic reviews” dealing with future life expectancy. My concern is that it sounds as though that will be controlled by the Government; it will be at the discretion of the Government. I do not know how many issues the periodic reviews will cover—whether it will be only life expectancy or whether it will be all the issues that the Pensions Commission wanted covered. One wonders whether that type of process will have the same credibility and impressive independent analysis—and therefore exert the same pressure on the political parties to stay together or to respond to the parts of the pensions consensus that are not working—as Lord Turner proposed.

Andrew Selous (Conservative, South West Bedfordshire)

Before the hon. Gentleman concludes his remarks, will he tell us what would be the maximum annual cost that he would budget for a pensions commission?

David Laws (Liberal Democrat, Yeovil)

I do not have a figure to pick out of the air, as the hon. Gentleman can imagine, but I would certainly have in mind a very small number of people—similar to the number of commissioners in the Pensions Commission. I imagine that to have a group of that type monitoring the situation and preparing reports—which would be issued periodically, every three or four years, as the Turner commission suggested—would not be particularly expensive. If it would help the hon. Gentleman, I am happy to table a question to the Minister, or perhaps he can tell us today what sort of costs would be involved. However, I would not get too hung up on the affordability of a little pensions commission quango. If we are really that worried, I am sure we can find some existing quangos to cull to save the money.

Nigel Waterson (Conservative, Eastbourne)

I have been delighted to listen to the hon. Gentleman as his plans for a semi-detached quango begin to unfold. Will he at least undertake that his party would refer any of its proposals to the commission, to ensure that there was an independent view of their likely cost to the taxpayer?

David Laws (Liberal Democrat, Yeovil)

I am not sure whether I understood the hon. Gentleman’s point. He wants the new body to do the kind of costings work that the Pensions Commission did. That is a very good idea, and I welcome it. I notice that despite the excellent work of the Pensions Commission, the Government have been using all sorts of numbers for the cost of different policy options. Sometimes, apparently, the citizen’s pension will cost £9 billion; the other day, the Secretary of State started the Second Reading debate by saying that it would cost £10 billion; by the latter stages of the debate, it was something between £20 billion and £30 billion. The debate needs to be informed by something better than the Secretary of State pulling figures from the air.

I urge that we do not get too hung up on whether we spend a million quid on a few people doing such work. If the prize of that cost was some kind of future coherence and stability for our pension system, which involves the investment and allocation of hundreds of billions of pounds, spending that bit of money for a few people to oversee the system would look like the biggest bargain possible.

In a helpful briefing note issued last year, the Pensions Policy Institute set out different options for establishing a commission. It set out four types: a general advisory commission, one that would make recommendations, one that would set policy and one that would be for public information purposes. What we have in mind is definitely not simply a public information role such as that of the New Zealand Retirement Commission, and certainly not a policy-setting role that would oblige the Government to act in particular ways. We have in mind a commission with a general advisory role that might well make recommendations, on which it would ultimately be for the Government and Parliament to make a decision.

It is a pity that the Government have not taken on board that important proposal from the Pensions Commission. They have adopted a lot of the Pensions Commission’s report and worked hard to secure the consensus that we have so far. There have been bogus arguments about quangos and more serious arguments about Governments not liking to give away power—they do not like to be criticised by outside bodies or hear that means-testing or some other controversial aspect of policy is not working. I detect a disappointing tendency on the part of the Government to run back to the usual element of pensions policy, which is to keep it in the hands of the Government of the day and one party. That has not proved a successful way of running the pensions policy of this country since the magnificent Liberal Government of 1909.

James Purnell (Labour, Stalybridge and Hyde)

That last note was slightly harsh, given that we have tried to have a wide range of seminars on exactly the issues that have been raised about the policy and about the private savings side of what we are doing. We have published documents on our pension credit forecasts, setting out all the assumptions, and on financial incentives to save. We have engaged very much with people’s concerns and when possible tried to allay them by publishing extra information.

I think I recall answering recently a parliamentary question tabled by the hon. Gentleman about all the independent research that had been done on both White Papers, which listed a number of independent consultancy reports. Given what he has just said about the very reasonable budget for the quango that he proposes, I am looking forward to his shredding his press release on the outrageous costs of those—[Interruption.] Exactly. He is obviously comforted; he obviously thought that it was not enough and should have been more—but there we are. I am glad that that particular PQ will not be boomeranging back in the form of a Lib Dem press release.

One reason why we want periodic reviews is because of the good political consensus that has been achieved on the reforms. The best way to maintain that consensus is through the political process rather than by subcontracting policy to an outside body. We agree with the hon. Members for Yeovil and for South-West Bedfordshire that the Turner commission’s work was exemplary. However, there is now a framework that we can hope to maintain for the next few decades, and there is a danger that an independent commission would constantly uproot, question or cause uncertainty about the stability of the framework.

I shall just respond to one point raised by the hon. Member for Yeovil. There was one body calling for automatic enrolment, a more secure state pension and the locking in of our progress on pensioner poverty before the last election. He does a disservice to his erstwhile colleague, Lord Kirkwood, who chaired a very good Select Committee inquiry, after which it recommended all those measures. The hon. Member for South-West Bedfordshire was also involved in that.

Before I speak to the clause, I thank hon. Members for tabling new clauses 1, 21, 24 and 25, which provide us with an opportunity to discuss the important issues related to the rising state pension age. That change is the hard choice that makes the rest of the Bill possible, so I shall begin by restating the case for it. We live in an ageing society. While the state pension age has remained unchanged for the past 50 years, average life expectancies have changed. In 1950, a man of 65 could expect to live 11 years longer, but that expectancy has nearly doubled to 20 years longer today. The same figure for women has also increased significantly in the same period from 15 years to 23. Without reform, the number of pensioners would rise from 11.4 million today to 17.5 million by 2050.

We are not alone in facing this challenge, and state pension ages are increasing in other developed countries. In the US, the age at which people can draw a full pension will be 67 by 2027—sooner than here. In Europe, several countries have already increased the pension age, and the German and Danish Governments recently proposed raising the pension age in those countries from 65 to 67 by 2029 and 2027 respectively.

Based on current projections, in 2050, men of 65 will have an average of 24 years of life ahead of them, and women 27 years. The core of the debate has not been about the principle of increasing the state pension age, but about its effect on the parts of the population that have a lower life expectancy. The reasons for those differences in longevity are complex, and there are many causal factors. The differences exist within all income groups, although below-average life expectancy is, of course, more prevalent in lower socio-economic groups and, therefore, in more deprived areas.

Those inequalities are not acceptable in a modern society, and we are working hard to tackle them. I want to reassure the hon. Member for Weston-super-Mare that the Government do have a framework for tackling health inequalities—the public service agreement target. The Department of Health has the lead responsibility on that, but we support it in that work. He will understand that these are long-term issues that are quite difficult to shift given the cultural and behavioural roots of health inequality, but some progress is being achieved. The Department of Health reports that in 20 per cent. of the areas with the worst health and deprivation indicators, we are on track to meet the target. In a further 40 per cent. of areas, we are on track to meet our target for either men or women. More progress is needed, but the indicators are going in the right direction.

John Penrose (Conservative, Weston-Super-Mare)

I am sure that the Committee is pleased to hear of the progress in that important area. Do the Government have any view on how long it will take at current rates of progress to even out the inequalities in life expectancy that we talked about earlier?

James Purnell (Labour, Stalybridge and Hyde)

I cannot tell the hon. Gentleman that off the top of my head. I believe that the targets take us to 2010, but they are not to eradicate health inequalities, which would be a very significant achievement. The debate is sometimes framed in terms of the gap between the highest and lowest socio-economic classes, which reflects one part of the debate but not all of it. Those two classes—the very, very richest and the very, very poorest—represent only 10 per cent. of the population. They are relevant in that they indicate the existence of groups that are much more deprived than the rest of the population, but the difference in life expectancy between manual and non-manual workers, for example, is significantly less. That gap is two and a half years, as opposed to five years between the extremes of social classes I and V. I hope that that provides some interesting context.

Meg Hillier (Labour, Hackney South and Shoreditch)

I am delighted to hear the Opposition’s concerns about health. In my constituency, men’s life expectancy is six years shorter than in Kensington and Chelsea, as the hon. Member for South-West Bedfordshire mentioned, but does my hon. Friend agree that there is an important “but”: the constituency includes a lot of migrants to this country who have lived physically difficult lives in other countries, perhaps without adequate health treatment? Although I would not want to be such a pessimist as to say that we will never meet some of the targets, some of the people over 50 in my constituency have particularly challenging health needs because they have not benefited from the national health service, and all that it can provide, for most of their life.

James Purnell (Labour, Stalybridge and Hyde)

That is absolutely right. This debate is closely tied to deprivation. There are wards in Kensington and Chelsea that have a lower life expectancy than some wards in Glasgow. People in the richest parts of Glasgow live longer than those in the poorest parts of Kensington and Chelsea, so the debate is slightly more complex than it is sometimes given credit for.

Our core point is that those health inequalities need to be addressed, but the way to do so is not to adjust the state pension age. The hon. Member for Weston-super-Mare made the point clearly that having different state pension ages for different socio-economic groups might lead to perverse incentives, although I think that I might face hurdles at the interview stage if I tried to squeeze myself into a lower state pension age category.

John Penrose (Conservative, Weston-Super-Mare)

You are not working class?

James Purnell (Labour, Stalybridge and Hyde)

Exactly. The question is not whether there are health inequalities and whether they should be addressed: I think that all parties agree that there are and that they should be. The question is whether our proposals are proportionate and fair, given those inequalities.

As has been mentioned, the Office for National Statistics does not produce projections of life expectancy broken down by socio-economic group. We therefore cannot predict the development of trends with the same degree of confidence for individual groups as for the average. Analysts in the Department for Work and Pensions have estimated life expectancy for manual and non-manual workers, based on past trends that have been provided by the ONS. With that qualification, extrapolating from those data in line with ONS projections, it appears that by 2050 we would see an increase in life expectancy at 65 even among manual workers, that is more than the three years by which we propose to increase the state pension age.

I can say slightly more about variations in longevity—

John Penrose (Conservative, Weston-Super-Mare)

Will the Minister confirm that manual workers’ projected increase in longevity will mean a narrowing of the gap in life expectancy between manual and non-manual workers by 2050?

James Purnell (Labour, Stalybridge and Hyde)

I think that that is just an extrapolation from what has been happening in the past few years, but I am happy to correct it. What the statisticians have done is to take the past evidence and project it forward.

John Penrose (Conservative, Weston-Super-Mare)

Is that narrowing the gap?

James Purnell (Labour, Stalybridge and Hyde)

That is narrowing. It means that there has been a narrowing and if it were extrapolated forward the narrowing would continue to happen. We can say a little more about the difference in longevity between areas of the UK.

Sally Keeble (Labour, Northampton North)

May I point out to my hon. Friend and perhaps to Opposition Members that similar work on health inequalities—the Black report—was carried out and was suppressed by the Conservative party when it was in government?

James Purnell (Labour, Stalybridge and Hyde)

That is a very good point. It is good to see that attitudes have been changed by our period in government and that people are trying to draw on our consensus. So by 2046 when the transition to 68 will be complete, projections indicate that the geographical gap will have narrowed. So, for example, taking Scotland, which is often where the debate starts, the average male life expectancy at 68 will have risen to 20.1 years, 1.3 years longer than it currently is at 65. That is not the average life expectancy for everyone but the life expectancy for people who reach the state pension age at that time.

That presents a reduction in the current differential at state pension age of about six months. So if those projections prove correct, men in Scotland will on average see higher gains than men in England over the next 50 years. As with the figures for the UK as a whole, by 2046 there is no reduction in the numbers of people in constituent countries projected to survive to a higher pension age at 68 compared to the numbers that currently survive to age 65. More would be reaching 68 under the new proposals than reach 65 today.

So if we draw it down to specific localities, which is what the hon. Member for South-West Bedfordshire asked me to do, although we do not have projections at the local level, the story is still one of increases in life expectancy in all areas—even in Glasgow, which has the lowest life expectancy of any local authority in the UK. Over the past two decades, life expectancy for men aged 65 increased by just under two years. For women, as for women elsewhere, life expectancy increased at a slower rate, by a year and four months, but a 65-year-old Glaswegian woman is still likely to live three and a half years longer than a Glaswegian man.

It is worth placing in context something that the hon. Member for South-West Bedfordshire said. It is true that the average life expectancy in Glasgow is 69.9 years, but the Pensions Commission went to some lengths to explain that using the figure for life expectancy at birth underestimates life expectancy at pension age. People who reach pension age expect to live longer than 4.9 years in retirement. So life expectancy at 65, rather than at birth, is currently 13.4 years and, as the Pensions Commission explained, that is an underestimate. People who reach 65, on a snapshot basis, have a life expectancy of 13.4 years.

Nigel Waterson (Conservative, Eastbourne)

Will the Minister give way?

James Purnell (Labour, Stalybridge and Hyde)

I will finish my point and then the hon. Gentleman can leap to his feet. There is a better measure, which is the life expectancy of the cohort; that factors in expected improvements in longevity and gives a true estimate of about 16 years. So people who reach 65 in Glasgow today have a life expectancy of about 16 years; that is, they live to 81.

Nigel Waterson (Conservative, Eastbourne)

I have a great interest in the subject, not only from a personal point of view; we could all declare that interest, but I have a constituent who is 110. Looking at the issue from a cohort point of view, it is fine looking at Glaswegians who make it to 65 and are going to live for another 12 or 13 years, but what about the ones who have not made it to 65? I appreciate that taking the figure at birth might be very misleading nowadays, particularly given—I hope—health improvements. However, Scotland spends 20 per cent. more per head on health than England, yet has the worst health outcomes in western Europe, although I guess that that is for another day and another Bill. How do we square off the fact that many of those people will not have reached 65 and that longevity figures at 65 are by definition somewhat misleading?

James Purnell (Labour, Stalybridge and Hyde)

As I said earlier, more people will reach the state pension age under the proposals, even once it is extended to 68. More people will reach the state pension and people will be living for longer after that as well. The hon. Gentleman will be interested to know that, for the first time, the Scottish Executive have set a target of increasing the rate of improvement in inequalities, measured across a range of indicators, in the most deprived communities by 15 per cent. by 2008. That includes coronary heart disease, cancer mortality, rates of adult smoking and smoking during pregnancies, which I am sure will reassure him.

Although I accept that there are limitations on what the current data can tell us, I am confident that our timetable for change will not disproportionately affect those with below-average life expectancy, as compared with their position today. As a further safeguard, we have made clear our intention to commission periodic reviews of the evidence on life expectancy, to ensure that our timetable remains on track. That will include consideration of whether the qualifying age for the guaranteed pension credit should remain at 65 after 2024, which relates to the point that the hon. Member for South-West Bedfordshire made in his speech.

I wish to clarify what the Secretary of State said. He was not saying, “We’re thinking about it because we haven’t made up our mind now, and we’ll come back in the next few months”. The point is that the situation in 2024 might be very different from the situation now. We do not know what progress will have been made on health inequality or deprivation. We therefore made it clear in the May White Paper that the decision whether pension credit should remain at 65 as the state pension age increased should be considered closer to the time. I hope that that gives the hon. Gentleman the explanation that he was after.

The hon. Member for South-West Bedfordshire might be reassured to know that any man or woman between the ages of 60 and 65 who seeks work will continue to be eligible for credits, as now. Auto credits were for men aged 60-plus, whether they were seeking work or not. The hon. Gentleman mentioned that auto credits were introduced in the 1980s by the Conservative Government. Some say that they were introduced to reduce the unemployment figures at the time, although I would not want to comment on that.

The intention behind new clause 1 is sensible. Trends in longevity are important, and any responsible Government would want to keep them under review. However, as the hon. Gentleman is aware, the Government Actuary already has a statutory duty to carry out a review of the national insurance fund every five years, the starting point of which is an analysis of demographic trends. That report—the Government Actuary’s quinquennial review—is laid before the House in the normal manner. Indeed, we can expect the next report by 2008. That means that subsequent reports will more or less meet the hon. Gentleman’s proposed timetable. I therefore see little value in imposing another legislative requirement to review trends in longevity.

Raising the state pension age is also a key part of the Government strategy to balance time spent working with time in retirement, which brings us to paragraph (a) of new clause 21. We agree that it is vital to understand the characteristics of older workers so that we can constantly improve our policy of supporting them in seeking work. I therefore hope that the hon. Gentleman will be reassured to know that the “Older Workers: Statistical Information Booklet” is published biannually by the DWP and is freely available from the Government’s Age Positive website. Again, I do not see a very good reason for legislating to introduce another report. I hope that on those two particulars the hon. Gentleman is assured that there are already Government research publications that will address those needs.

Paragraph (b) of new clause 21 and the thrust of new clause 25 relate to training opportunities. The hon. Gentleman is quite right to raise that issue; it is important not only in the context of raising the state pension age but in the general economic context in any case. Even if we were not raising the state pension age, the issue of helping older workers to work for longer would be important, partly because people tell us that they want to, and partly because it is crucial if we are to reach the 80 per cent. employment rate that the Government have set as a target. About half of the recent increase in employment has been made up of older workers, so that trend is already growing, but we want to work on what more we can do to support them.

A significant amount of work is going on in this area, such as the Opportunity Age document that was published before the last election, and chapter four of the White Paper that was published in May. We keep our mind completely open on such matters and if there are particular policies that the hon. Member for South-West Bedfordshire thinks that we should pursue, we are happy to do so. We keep the policy area under review, and we are happy to hear any suggestions from him or from stakeholders.

I do not think that there is a magic bullet that will help older workers to stay in work. There are things that Governments can do, but it is just as much a matter of cultural change. One can legislate on age discrimination, but changing the attitudes of employers is just as important, as is changing individuals’ attitudes. I agree with the hon. Gentleman’s overall point about the need to help older workers to work, and I hope that I have set out by mentioning those documents, and the implementation of the Leitch review, that we have an important range of policies in this area, which we are happy to continue to discuss with him and others.

New clause 25 would require the Department to produce reports on flexible job opportunities for workers aged over 55. That is an important issue, but the Government are publishing several studies on flexible working, the most recent of which was the third work-life balance employee survey, the executive summary of which was published by the Department of Trade and Industry last July. There is a range of publications in this area, but—this is the point where I will try to be consensual so the hon. Member for South-West Bedfordshire may want to listen to what I say—

Nigel Waterson (Conservative, Eastbourne)

It will be in Hansard.

James Purnell (Labour, Stalybridge and Hyde)

It is always better in the telling, when you are there, than it is reading it dry on the page.

It is important that we collect the right information in order to ensure that the policy remains correct in the future, and as the hon. Member for Yeovil knows, we do not think that the right way of doing that is through an independent commission. There is a danger that that would undermine the stability of the proposals, rather than improve it. We agree that much of the evidence on which we have based our reforms will have to be kept under review. We have already announced a review of generic advice led by Otto Thoresen, which we are undertaking with the Treasury.

It is important to ensure that we collect the right information in a more general way to ensure that the policy remains right for the future. The best way to do that is not to set in legislation exactly what should be reviewed in the future and when that should take place. If our predecessors had tried to set out in 1982 whether it would be right to have a Pensions Commission in 2002, that would not necessarily have been a very effective exercise. Instead, we want to consult a range of stakeholders on what evidence needs to be kept under review to ensure that we have a first-class evidence base. We propose to consult later in the year, and we will then publish our plans on how we intend to build and maintain a credible evidence base that will support future policy considerations on a range of issues. I hope that the hon. Member for Yeovil will take that in the spirit in which it is intended—a reassurance based on the argument that he and the hon. Member for South-West Bedfordshire made.

David Laws (Liberal Democrat, Yeovil)

The Minister is, by rejecting this proposal, rejecting one of the proposals put forward by the Pensions Commission itself to sustain this consensus in the future. Will he tell us which arguments he has deployed to Lord Turner in rejecting this key plank of his recommendations?

James Purnell (Labour, Stalybridge and Hyde)

Lord Turner and I have not discussed this specific detail. We have discussed the overall thrust of the proposals, and he is very happy with the way in which we are implementing this aspect, and the private pensions side, of what he proposed. Were we hypothetically to discuss that proposal, I would say that, because his commission has achieved such a high level of consensus, we believe that progress can now be achieved through the political process rather than through a standing commission, which would be difficult to maintain in practical terms. As I said, setting out now what it should consider in the next 10, 20 or 30 years would be a heroic task. We believe that the right way to deal with the matter is to have periodic reviews of individual issues rather than a standing commission, which might keep the whole of the policy framework in play.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for being so patient. He has said that he will consider the issue and consult on it, but can he indicate what the Government’s thinking is now? In particular, how often would periodic reviews occur, who would do them, and would they simply consider statistical issues or would they result in policy recommendations?

James Purnell (Labour, Stalybridge and Hyde)

We shall be consulting later in the year on that. I do not want to prejudge the consultation, but the general principle is very much the one that the hon. Member for South-West Bedfordshire set out. We believe that the trade-offs are for politicians to make, and that the situation is not analogous to that of the Bank of England, where a particular decision can be made within a policy framework. Decisions that go to the heart of the policy framework should be taken by politicians. We think that that is right.

I hope that I have reassured the hon. Members who tabled new clauses 1, 21, 24 and 45, and I urge them not to press them. If they do, I shall urge my colleagues to reject them.

Andrew Selous (Conservative, South West Bedfordshire)

I have listened carefully to the Minister’s response to the debate. On the basis of what he said, I am prepared to withdraw new clause 1, because he has satisfied me that it replicates an existing requirement in respect of the work of the Government Actuary’s Department.

However, I am not satisfied on new clause 21. I respect the fact that the Minister said that some of the work had been done, but his response on paragraph (b), which deals with training opportunities, was particularly poor. I understand that it is not part of the Minister’s departmental remit to deal with training, but the need for co-ordination in the area is paramount, and the opportunity to knit the work together and review it coherently on an annual basis in conjunction with the Department for Education and Skills would be valuable for the Department. Therefore, I serve notice that I shall ask my colleagues to vote in favour of new clause 21 at the appropriate time.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Minister for his detailed and, as ever, patient response, and I accept the points that he made on a couple of the issues around the edges of this debate. I am still genuinely disappointed that he will not take up the Pensions Commission’s recommendation of a body to give advice to politicians on how the pensions system should develop. I can easily anticipate the thinking in Government and in Departments about such issues. I can understand the temptation and pressure, once the commission has been established, made recommendations and produced what appears to be a consensus, to repatriate policy and to avoid a situation in which a standing commission appears to be monitoring the effectiveness and success of Government policy, but I think that we will be less successful in making the pensions consensus stick and making the policy work if we do not accept Lord Turner’s recommendation. I hope that there will be further debate on it in another place, and that the arguments will be more convincing than mine appear to have been. As I do not detect upwelling support throughout the Committee, I shall not press the new clause to a vote.

Schedule 1

James Purnell (Labour, Stalybridge and Hyde)

I beg to move amendment No. 57, in schedule 1, page 30, line 5, leave out paragraph 21.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to take the following: That this schedule be the First schedule to the Bill.

James Purnell (Labour, Stalybridge and Hyde)

Unless there is a great upsurge of interest in the technical nature of schedule 1, all that I intend to say is that Government amendment No. 57 is a minor technical amendment. If any Member is fascinated by why it is necessary, they can catch me afterwards.