§ Order for Second Reading read.
§ 11.5 a.m.
§ Mr. Derek Coombs (Birmingham, Yardley)
I beg to move, That the Bill be now read a Second time.
This is a small Bill dealing with a major problem in the field of national insurance—the notorious earnings rule. In presenting the Bill I feel a bit like David in the presence of Goliath, with the added disadvantage that I cannot possibly be expected to dispose of him at one shot. It will take the big battalions to do that.
Many thousands of our senior citizens bitterly resent the fact that their retirement pensions are reduced or totally extinguished when they go on working after pensionable age, in a manner far more penal than the most burdensome taxation. It may be 30 years since Beveridge first plotted a retirement pension to replace the old-age pension, but it clearly takes at least a generation to remove the widespread notion that a pension is a man's due on his 65th birthday, and a woman's on her 60th birthday, instead of only on retirement, as defined and operated by the earnings rule.
The purpose of the Bill is to double from £2 to £4 the present band, immediately above the earnings limit, within which a pensioner's earnings are treated rather more favourably and justly. I would not argue that the earnings rule is not an essential complement to the thinking behind the retirement condition as it now stands, for otherwise there would be nothing to prevent a token retirement followed by a quick return to regular work and wages paid together with full pension.
918 Nevertheless, why should not Beveridge be looked at again What are we afraid of? Successive Governments have never allowed the National Insurance Advisory Committee to consider the abolition of the earnings rule. Its terms of reference, both in 1956 and 1967, have always been very narrow. Regrettably, this has precluded a thorough review of Beveridge's retirement condition, to see whether it stands the test of time and still maintains the principle of fairness, so important when it was originally conceived.
Abolishing the earnings rule, we are told, would cost the National Insurance Fund about £110 million. The bulk of this sum going to hundreds of thousands of people who are up to five years past retirement age but still in full-time work. However, I believe this to be a high estimate of the cost involved to public funds, because it does not take into account the fact that this would be mainly taxed income which, assuming that the hours of work are not dramatically changed, would yield back, say, 30 per cent. to the Treasury. In any case we would all agree that whether one is dealing with £80 million or £110 million, the huge sum involved only lends itself to a major change of Government policy. It is a political decision which clearly does not fall within the scope of a Private Member's Bill.
This Measure, which I have the pleasure and privilege of presenting to the House, affects only 14,000 retired pensioners and goes as far as we think practicable in the circumstances to reduce their natural feeling of resentment and seeks to strike a balance between what we take to be the view of the majority of hon. Members, that the earnings rule should be abolished altogether, and the policy and practice of successive Governments in keeping in but mitigating its injurious effects.
Successive Governments have periodically raised the earnings limit—indicating the amount of work and wages which can be ignored without infringing the retirement conditions—since it was originally fixed by the National Insurance Act 1946. Last September's rise to £9.50, representing 30 per cent, of average earnings—the same percentage as 1967—was the ninth increase since 1946. Not only are the Government to be congratulated on continuing to raise the earnings limit, 919 but they also raised the maximum permitted earnings of an under 60-year-old wife of a retirement pensioner from £3.20 to £9.50, and have improved the increments whereby a person who continues working after pensionable age can earn a bigger pension when he does retire. These increments will be included in the annual review of basic pensions when the Government's extensive plans for the reform of pensions take effect.
Nevertheless, let me say straightaway that however fine all these steps may be, there is still a fundamental well of discontent among retired people which we cannot and must not ignore. So at this point I would like to explain briefly both the background to the heart of this Bill and why my co-sponsors and I believe it to be so essential.
Since 1956 the earnings limit has been followed by a narrow zone of earnings in which, for every 10p earned, 5p has been taken away from the pension. This proportionate band so-called was recommended by the National Insurance Advisory Committee in its 1956 report as one way of helping to relax the earnings rule. The Committee thought that such proportionate deductions would encourage pensioners to take employment or take on more and reduce resentment at the earnings rule.
This band is then followed by the 100 per cent, deduction, which is what generates so much bitterness. Ironically this absolute deduction was never envisaged or recommended by Beveridge at any level of earnings, but it was carried through regardless by the Government of the day.
However, the Advisory Committee recommended a £1 band which was accepted and included in the National Insurance Act, 1956, an Act which started as Sir Edwin Leather's Private Member's Bill, which is the first and only time that a Private Member's Bill has been able to amend the National Insurance scheme but not, we hope, the last.
Hon. Members will recall that after 11 years the Advisory Committee took another look at how the earnings limit for retirement pensions had been working. In its 1967 report it recommended that the £1 band should be extended, as pension rates had doubled and a rise 920 of over 70 per cent. had taken place in average earnings. The promoters of the Bill contend that after five years it is now time to double the proportionate band again, from £2 to £4, on the same grounds, that pension rates and average earnings have increased enough to justify it, but most particularly prices.
Now that the Government have announced a further welcome increase to a £6.75 pension next October, the retirement pension will have risen almost 70 per cent. between June, 1967, and October, 1972. Average earnings increasing at the present rate will be roughly 66 per cent. higher next October. But retail prices are an even better and much more important index when it comes to seeing how retirement pensioners are faring. When the £1 band operated over the 11 years from 1956 to 1967, prices rose 36 per cent. Since then, with the £2 band in force, they will have risen 36.6 per cent. by next October. If one takes the increases in the retail price index for pensionable households there is an even more dramatic rise since 1967. But whichever index one uses, it is clearly demonstrated that prices have risen more during the last five years than they did during the whole of the 11 years before 1967. That is the main argument for introducing this Bill now. In short, reducing the review period from 11 years to five years because of price inflation.
Financially about 5,500 pensioners now earning between £11.50 and £17.50 a week would have a net gain in income of up to £1 a week, while some 8,500 pensioners earning less than £13.50 could work for more hours and also achieve some extra net gain in income. This means that about 14,000 pensioners whose pensions are reduced or totally extinguished by the earnings rule at present stand to gain by an extension to the £4 band. It seems that very few of the 280,000 people in the 65 to 70 age range—60 to 65 for women—who have not retired would feel disposed to do so. Most of them are continuing in jobs that they had before they reached retirement age and are probably earning well in excess of £17.50 a week, at which point, with a £4band, the £6 pension would be extinguished totally.
The cost to the National Insurance Fund would be a measly £250,000 a year 921 compared with about £750,000 a year that it cost to raise the earnings limit last September. Any consequential costs in other National Insurance benefits would be inconsiderable.
The question of the date at which the £4 band would best be introduced is one which we should like to leave to the discretion of the Government, although the figures I have given seem to indicate that next October, coinciding with the higher pension, would be opportune and none too early.
There is very little to suggest that by encouraging retirement pensioners to stay at work we should be aggravating the serious unemployment problem. In its 1967 report the National Insurance Advisory Committee thought it likely that increases in the earnings limit… result in somewhat more work being done by some pensioners".But if successive Governments raise the earnings limit, they appear to be prepared to take that risk themselves. In any case, one is only talking about roughly 14,000 people in this context. Experience suggests generally not so much that they change jobs but rather that they either enjoy the increased financial benefit without any extra hours of work or that the hours of work are increased only marginally on a part-time basis within the same employment.
We owe it to individual men and women to see that they have a fair deal. It is more a question of equity than economics and more a question of fairness than finance. The Bill is designed deliberately to be a modest proposal and it maintains the percentage relationship between the extinguishment point and average earnings at about the same level as last October. It is recognised clearly that if the extinguishment point were raised to a level too close to average earnings it would cease to have any validity whatsoever and thus, happily or unhappily, the earnings rule would in effect abolish itself.
I hope that the Government will not confine their reply to their record in increasing the earnings limit, which admittedly is first class. This would be irrelevant because it has nothing to do with this Bill which does not seek to raise the limit but only to expand the band and, as a consequence, marginally 922 increase the extinguishment point by £1. Equally, one can always advance arguments that there are greater priorities, although I think that in the context of such a small sum that would be difficult to justify. With this kind of money, to defend staying as we are because of more urgent priorities would seem to me to be the weakest argument of all. It is an argument which has been advanced by successive Governments since time immemorial, but it cannot be justified on grounds of equity in this case. The principle of a proportionate band throughout was clearly accepted by Beveridge in 1942. Therefore it is our duty now to go some way towards making it relevant and fair in terms of 1972.
So far, rightly, our Government have concentrated a great deal of help on the very poor, but here we have a group of people who feel neglected in that they cannot understand why much of what they earn is lost. They are bewildered and resentful, and all of this at an age when surely one is entitled to some peace of mind.
I hope and believe that there will not be any squalid political manoeuvrings to brush this under the carpet, that the Bill will not be used as an excuse for a wide-ranging debate so that it is talked out. It covers only a very narrow band. I hope that all hon. Members who support will demonstrate their concern for the elderly by the brevity of their speeches and the determination of their presence. I believe that we have a duty to act, and act quickly in order to show that we do care, and to demonstrate that Parliament is not always the servant, but can be master in its own House.
§ 11.20 a.m.
§ Mr. David James (Dorset, North)
I am very happy to be called, for I wholeheartedly support the Bill. For a brief period I want to commend what I regard as the humanitarian rather than the financial aspects of the Bill.
It has been my experience that time tends to hang heavily on the hands of people who retire. This is particularly true of those who acquire manual skills and crafts rather than office skills. Moreover, as my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) implied, there are many spheres in 923 which elderly people fit more appropriately to the scene than younger people.
For example, in my own village I can think of a number of occupations which could well be fulfilled by elderly people if only they had the financial incentive to do so. The first is gardening. Many people get their greatest solace from gardening. I admit that all my leisure in my constituency is spent on jobbing gardening. However, the day will come when I can no longer do all my jobbing gardening. I shall get older, but the garden will not get smaller, and I shall be only too delighted to find some elderly person to help me with the jobbing gardening. Throughout the nation there are scores of elderly people who derive enormous satisfaction from gardening and there are scores of people who have gardens which are too big for them to maintain. If we could marry this demand for labour with the demand for services, many people would be happier.
Another craft which seems to get people by the throat, in that they do not want to give it up, is hedging. An old man who lives in my village is never happier than when given a couple of chains of hedges to cut and lay. It is a dying craft, but it appears to exert an irresistible attraction to the man who does it. Those of us who are interested in seeing the countryside retain its splendour and neatness must surely hope that these elderly men, who willingly and gladly trim hedges, will be enabled to do so without suffering a financial penalty.
Other workers who obviously hate retiring because they have been busy with their hands all their working lives are carpenters and workers in wood. Until fairly recently there was in my village a retired joiner who suffered from that most tragic of diseases, emphysema, which meant that he could not cross a room without getting out of breath. We managed to arrange an informal association in the village whereby every week someone would take down a piece of furniture which needed a little lacquer inlay or something. This dear fellow died in the middle of renewing a chipped lacquer inlay for me. There is no doubt that the last 12 months of that grieviously ill man's life were made happier by virtue 924 of the fact that people were prepared to bring him work.
Finally, I have in mind a splendid 80-year old who lives not far from me who goes around almost every week collecting binder twine from farms. From that binder twine he makes an extraordinary assortment of shopping bags, waste paper baskets, and so on.
It could be argued that all these people do this sort of thing for the love of it and could well do without the cash. However, for anyone who has worked for money for 50 years, the cash reward is a recognition of his skill in his craft. People feel entitled to it, quite rightly in my view, in recognition of the many years that they have worked to perfect a skill which they wish to continue exercising part-time in their retirement, both to help their follow citizens in their neighbourhood and to make life just a little easier for themselves and their wives.
I am aware that I have talked entirely of the male crafts. I have done so because in my estimation the ladies, God bless them, never retire. As long as they have husbands and houses to keep going they remain employed. However, I think that the quality of life and happiness of a large number of elderly people, quite apart from their cash situation, would be improved if the Measure proposed by my hon. Friend were accepted by the Government.
§ 11.25 a.m.
§ Mr. W. E. Garrett (Wallsend)
I am not opposed to the Bill, but I think that the picture painted by the hon. Member for Dorset, North (Mr. David James) is a bit too rosy. Although modest, this is the type of Bill which, if carried, will encourage people to go on working.
I do not want to widen this debate, but we have situations in certain areas of the country which are not so rural and rustic as the hon. Gentleman implied. There are hard, harsh industrial areas of the country where many people are unemployed, and some of those people would look upon the Bill as an attempt to keep in employment those who should normally be retired. We could spend some time discussing why people, such as the characters mentioned by the hon. Gentleman, should carry on working at such an age and should not be encouraged to retire earlier.
925 The fact that the Bill has been brought in this morning clearly indicates that pensions are not high enough. I think that most of us recognise that if pensions were higher there would not be the incentive for these people to carry on working any longer than necessary. At a time when we should encourage earlier retirement as part of the exercise of bringing down the number of unemployed, this admittedly modest Measure, involving about 14,000 people, will in some respects encourage people to carry on working.
Another point that should be borne in mind is that some of the people who carry on working are often used as a source of cheap labour. Many small-time employers, particularly in the jobbing building trade, like these people to work for them—admittedly, they are often good craftsmen—because they do not pay them high wages. In fact, they often pay below the scale permitted in building workers' agreements, to take that trade as an example. These people are often used as a source of cheap labour in filling stations and by private people for jobbing in their gardens, and the rate for the job is never paid.
§ Mr. David James
I think that the hon. Member has missed one point which I tried to get across; namely that many elderly people do not want to retire because they like working. One has only to look at the composition of the House of Commons to realise that this proposition is true.
§ Mr. Garrett
I recognise that men and women, by their very instinct and nature, like to work. It is also a recognition of the fact that this category of pensioners who carry on beyond normal retirement age is often unattuned to the art of retirement. We all know that a lot of time has been spent by people in large companies conditioning people's minds—I do not say that in a nasty sense—as to how best to use their retirement. I see no reason why a man who has been a bricklayer for 50 years and carries on until he is 70 and gets these additional earnings, should not, at the age of 61 or 62, retire before the normal retirement age of 65 and pursue some other job, outlet or satisfaction in his life. I appreciate that this is widening the scope of the debate.
926 As I said earlier, I am not opposed to the Bill. It is rightly said by the sponsor that it is a modest Measure. However, in fairness I should point out that it will not be received with any degree of large-scale satisfaction in the regions of the country which I have mentioned.
§ 11.30 a.m.
§ Mr. Geoffrey Stewart-Smith (Belper)
Over the years I have received many representations for reform on this subject. The people concerned are deeply grateful to the Government for easing this rule already, but the Government ought to know that there are people like myself who want to see the earnings rule abolished altogether. Even though it would cost £110 million, the Government allocate £1,200 million to cleaning up rivers, and one has to get the priority right. It will be said by the Government that this is not a high priority, that it is a trifling matter and that we ought to let sleeping dogs lie. We cannot accept that, because we ought to have some sympathy for the plight of these people.
I must take issue with the hon. Member for Wallsend (Mr. Garrett) on a small matter. Much of the work that is available for these old people does not pose the threat of increasing unemployment. A lot of it is repetitive, dull work for which they are required only one or two hours a day, or perhaps half a day a week. Therefore, it does not pose a major threat to employment.
Self-evidently, the Bill will increase the income of pensioners. I take the point made by my hon. Friend the Member for Dorset, North (Mr. David James) about the therapeutic value of keeping people in work. If they want to work, they can do so. There is no element of compulsion. If they work it will benefit British industry, and thereby the whole of our nation.
Our party believes that the common good gains from the individual's natural aspirations to economic advancement. We must, as a party, be true to that. Financial inducements must be given to encourage effort. At present there are laws which specifically operate against such a view and cause enforced idleness. People want to work but, because of these laws, do not do so, and, as has 927 been said, the situation is aggravated by inflation.
I beseech the Government to overrule the advice which they will undoubtedly get from the Treasury and the Inland Revenue that this is tedious and administratively upsetting. I hope that if my hon. Friend is not able to support the Bill, he will at least give an indication of sympathy towards it. I hope that the Government will decide to support the Measure, and I shall myself.
§ 11.33 a.m.
§ Mr. R. A. McCrindle (Billericay)
I congratulate my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) on having brought forward this Measure, which I support. Before giving my reasons for doing so, perhaps I may refer to what the hon. Member for Wallsend (Mr. Garrett) said.
I think that the hon. Gentleman was in danger of broadening the debate beyond what anyone would wish when discussing this modest Measure, but I understand his fear that in doing something for the category of people described in the Bill we are preventing younger people who are unemployed from obtaining the jobs which older people are doing. That is his fear, and it is a hark back to the discussion that we had in the House on another Bill not long ago. I must be careful not to get out of order by seeming to be discussing two Bills at the same time.
I think that it is germane to what we are discussing to say to the hon. Gentleman that, while I understand what animated his speech, I am not convinced that to bring down the retirement age, or to reduce the number of people in the category that we are describing this morning, would be of any material advantage to the 30 and 40-year-olds in his constituency on whose behalf he speaks so eloquently.
On a more light-hearted note, I listened with interest to my hon. Friend the Member for Dorset, North (Mr. David James). He seemed to say that he had a liking for hedging. I thought that that was a dangerous admission for a politician to make.
I support the Measure, for two reasons. First, it is five years, according to my researches, since there was any altera- 928 tion in deductions within the band of earnings that we are discussing. Secondly, having improved benefits for many categories of people since they took office, the Government should now turn their attention to helping those who are able and willing to help themselves. As I understand the social philosophy of this side of the House, it is to provide ever-more generous benefits to those who are worst off and to encourage the strong, by tax incentives, to create the wealth to pay for them. As in all shorthand, that no doubt omits many qualifying factors, but it is a not-unfair statement of the approach of this side of the House to social policy.
In the Bill we are dealing with a category which seems to fall almost between the two, the truly needy, and the truly strong. We are dealing with people who have earned their retirement pension but who either find it inadequate and need to supplement it or wish to remain in active employment because, for them, leisure is not the panacea that it is for others.
I have always felt that to force a person to go into retirement by convincing him that it is something that it is not quite proper not to want to do is not part of a policy that should animate us. I believe that there are two distinct categories of persons about whom we are speaking. I think that we should commend them for the initiative which they show in being prepared to continue to supplement their retirement income, and I believe that it is in line with the philosophy of this side of the House on social policy that it should be rewarded.
The Government, having earned the gratitude of the chronically sick, the over-80s. and the poorest workpeople by their actions so far, are today being asked to provide an incentive to comparatively better-off retired people. A few years ago selectivity was the "in" word when we were discussing the social services. It is surprising how these "in" words tend to fall into comparative disuse. If selectivity still means anything in regard to the approach of this House, let alone the Government, to the social services, it surely means just the sense of priority that I am trying to outline.
§ Mr. Brian O'Malley (Rotherham)
It also means, as we see from the policies 929 being pursued by the Government, that year by year an increasing number of people, including those in full-time work, are put on means-tested benefits, which they resent.
§ Mr. McCrindle
If the hon. Gentleman and his hon. Friends when they were in Government, or since they have been on those benches, to which they are welcome, had been able to put forward any proposition effectively to eliminate means tests—and I do not deny that there is a proliferation of them—in order to make sure that benefit was directed to those who needed it most we would have been as pleased to have heard that from them when they were the Government as we would now that they are the Opposition.
§ Mr. O'Malley rose——
§ Mr. McCrindle
Rather than give way, may I tell the hon. Gentleman that I do not think that he will have great difficulty in catching the eye of the Chair, in view of the absence of his colleagues. No doubt he will regale us later and tell us, albeit belatedly, how a future Labour Government will do what a previous Labour Government failed to do.
The philosophy which animates me—and I say this unashamedly—is that the neediest have to be looked after first with increased benefits. Thathas been done in many respects, and now we must provide an incentive to people who are prepared to help themselves. It may be asked, why not abolish the earnings rule altogether? My hon. Friend the Member for Belper (Mr. Geoffrey Stewart-Smith) said that he was in favour of that. It is an attractive proposition, but, in my view—I fear that I am probably in a minority among my hon. Friends in saying it—there is in a retirement pension a certain assumption that the person will have retired. However, that is quite different from saying that we should not take an entirely fresh look at the whole business of the earnings rule. It is just that I consider that we should be unwise to say that the earnings rule should be abolished without saying necessarily that anything should take its place. Certainly, an examination of the earnings rule, an inquiry into whether it is the best way to operate the system today, is long overdue.
930 If the Government were to resist the Bill today—I hope that they will not—I should much prefer their objection to be on the basis that they are embarking on a wide-ranging investigation into the adequacy of the earnings rule as we move into the last quarter of the twentieth century rather than on the basis that money prevents them from accepting what we propose.
I concede that it is a matter of opinion whether our sense of priorities should lead us along this road. In my view, our sense of priority is right, because, for a modest sum, we can extend to the higher-earning pensioner the incentive which we have given to the better-off worker.
I should not wish to go to the stake for the Bill—I am not even sure that I should wish to go to the Division Lobby for it—but I consider that in a modest way it would help a number of people to help themselves. It would represent one more notable landmark in the work of a Government who have, by innovation and compassion, already relieved some of the worst excesses of social injustice.
For all those reasons—the modesty of the Bill, the fact that we have our sense of priorities right, and that, in general, it is a move which will be welcomed by a small but significant number of people as a valuable incentive—I hope that the Government will accept the Bill, and I congratulate my hon. Friend the Member for Birmingham, Yardley on having introduced it.
§ 11.42 a.m.
§ Sir Brandon Rhys Williams (Kensington, North)
I hope that the Government will be favourably disposed towards the Bill and that the House will give it a Second Reading today. My hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) has done himself great credit by his choice of subject for his Private Member's Bill. It touches the conscience of the House and indeed the whole country that we are not doing enough for our old people and that the condition in which many of our pensioners are living is a national disgrace. Any Measure, therefore, which is aimed at improving the lot and the spending power of old people will assuredly receive a warm welcome.
931 At this point, I must observe that the welcome this morning has come largely from the Conservative benches. The Labour Party does not seem to be willing to turn up on a Friday for the sake of the old people.
§ Mr. O'Malley
The hon. Gentleman will know that, when hon. Members promote and arrange to sponsor Bills, especially Bills unlikely to be the subject of party-political controversy, there is the courtesy that the promoter approaches hon. Members on the opposite benches to ask for their support. There has been no indication from the promoter or any of the sponsors of this Bill to that effect.
§ Mr. Coombs
Every member of the Opposition Front Bench, even including the Whips Office, though excluding the Chief Whip and the Deputy Chief Whip, has been approached on this matter——
§ Mr. Coombs
No, that is so, but they were given adequate notice, and many of them orally promised to lend their support, support which, I regret to see, is not forthcoming.
§ Sir B. Rhys Williams
The Labour Party is paid for by the trade unions, and right hon. and hon. Members opposite, quite naturally, incline particularly towards the interest of trade unionists. This is incompatible with the interests of pensioners. Pensioners are a minority group, and they are suffering, I suppose, more than anyone else today from the inordinate demands of trade unionists which are stoking up the inflation from which pensioners are increasingly suffering.
I congratulate my hon. Friend the Member for Yardley on his delivery, too, for he has shown himself to be a master of his subject. Not only is he the promoter; he has taken a great deal of trouble on the Bill. He has not been over-ambitious. He has not, for example, sought to introduce a Bill to abolish the earnings rule altogether; but he has made a specific and sensible suggestion for a step in the right direction.
In regard to the whole matter of the earnings rule, there are two differences which need to be analysed closely. One is the question of its disincentive effect. No one can deny that the operation of 932 the earnings rule has a serious disincentive effect. There has been a gradual drying-up of the availability of workers for casual and part-time jobs. This is a great pity. I do not believe that the drying-up of the availability of part-time workers has a significant effect on employment as a whole, because unemployed full-time workers are not really concerned to find themselves part-time work.
There are, nevertheless, vacancies for workers who could do an hour or two here and there during a week or a few hours a week, and these vacancies are not being filled. There is, therefore, a gap, and pensioners could so easily fill it, but the operation of the earnings rule gives them a sense of bitterness and a disincentive which makes them prefer to remain in idleness. That is not good for them if they have it in them to work and would like to do so.
The other question is the whole issue of entitlement. The time has come for the House to clarify its thinking here. Is a pension a reward for a lifetime of work, is it something to which a man or woman is entitled by virtue of citizenship, or is it simply, in effect, a benefit in relief of need?
Because of the difficulty of finding the money to bring our retired population up to the sort of standard of living which is the minimum which public opinion considers necessary, there has always been a compromise in our thinking. Although we may consider that we are giving people pensions derived from their citizenship or from their record of contributions, in fact, our clinging to the operation of the earnings rule shows that, in truth, the pension is simply a benefit in relief of need.
In their White Paper, A Strategy for Pensions—which I hope we shall soon hear very much more about—the Government have made a break-through and have produced certain specific recommendations as to the way in which entitlement to pension should be established. They have chosen two different routes, and both are right. One is that of relationship to the lifelong record of contributions by employer and employee. When we have strictly earnings-related pensions, nothing more will be heard about an earnings rule, I am sure, since the application of an earnings rule to a pension 933 which is strictly contribution-related would be quite unacceptable.
On citizenship, we are moving forward to the concept of positive tax credits. Those of us on both sides who are seriously interested in the reform of the Welfare State are eagerly awaiting the Government's Green Paper on the subject. What I feel sure is certain to emerge from that Green Paper, however it tackles the question of positive tax credits, is a proposal for cash credits to be paid in relation to citizenship. They will apply to the old as much as to people at work.
Thus, in future it is the Government's intention that there should be at least two pensions. The third retirement benefit, which is the benefit in relief of need, will I hope dwindle away so that in due course it will remain only for those special cases which have to be dealt with by compassionate case-work, and cannot fit into the general pattern of the population at large.
I hope therefore that in the end we are to abolish the earnings rule for all except a tiny minority. It is a shoddy compromise; it is disadvantageous to the economy, and it should end. The question is one of timing.
We must all realise that in bringing forward his Bill at this stage in the Session my hon. Friend can have little hope of its completing its stages. That is why I hope that the Measure will receive its Second Reading today, for the Government need not fear that they will find themselves embarrassed, financially or in any other way, by the Bill unexpectedly becoming law. This is a gesture, a specific recommendation. It is interesting and right, and I hope that the Bill will command the support of the House.
§ 11.51 a.m.
§ Mr. Philip Goodhart (Beckenham)
First, I congratulate my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) on introducing the Bill, and on the manner in which he presented it to the House. He has all the experts on his side when he deplores the fact that the transition from full employment to full retirement is often very abrupt and swift. All the experts in all countries are agreed that an abrupt change from full work to total idelness increases melachololia, often leads to physical and men- 934 tal decline, and is responsible for a sharp upturn in the suicide rate shortly after full retirement—particularly of men because, as has been said, women very rarely do fully retire: they still have the household jobs to do.
This is one field in which those at the top end of the social scale often suffer more than do those at the other end. I cannot claim to know many retired captains of industry but I do know some, and I know that the transition between filling a job in which one is responsible for the employment of several thousand men and the utilisation of several million pounds of capital and suddenly being faced at the end of one full working day with an endless vista of being nothing more than an odd job man for one's wife has a very profound psychological effect on a lot of people. But one knows that those at the too end of the working scale, those who have filled important and responsible jobs, usually have some substantial Derision at least to tide over the physical impact of retirement. Even if they cannot be happy, they can be unhappy in a comfortable way.
Of course, the psychological shock of going from full employment to total unemployment affects those at the lower end of the social scale as well. My old university friend, and expert on poverty and the social services, Peter Townsend, did a study on the family life of old people, and he noted this about the inhabitants of Bethnal Green, where there are not many retired captains of industry living. He said that after retirement, very few of the men in Bethnal Green could occupy their time satisfactorily:Their life became a rather desperate search for pastimesor a gloomy contemplation of their own helplessness, which, at its worse, was little better than waiting to die. They found no substitute for the companionship, absorption and fulfilment of work.Many of us will have found in our constituency work that this applies to a very great many people, who are unhappy with the prospect of retirement, of the fact of retirement. One would therefore have thought that Government policy would be directed to encouraging a blurring of the boundary between full employment and full retirement. One would have thought that every encouragement would be given to people to remain in part-time employment for several years after they retired from their full-time jobs.
935 One finds, in fact, that all the pressure is the other way, and this has led to a reduction in the proportion of the population which remains in any form of employment after the retirement age. In 1959, one man in seven deferred his retirement from 65 until the age of 70. By 1968 the proportion had dropped to one man in 15. This is a move wholly in the wrong direction. The drop in the proportion may have been due to more rigid enforcement of the retirement rules by employers, particularly following the introduction of selective employment tax, but there can be no doubt that the whole system militates against continued working.
There can equally be no doubt that the earnings rule plays a major part in this disincentive system. Some of my hon. Friends have said that they would like to see the total abolition of the earnings rule, the cost of which according to the last estimate I had, would be £110 million a year. I am not sure that top priority can at this moment be given to this expenditure, but I hope that we shall move along that path today.
But the earnings rule is not the only disincentive. Those who remain in employment, or in part-time employment, are also faced with income tax demands, and also have to pay their insurance stamp. I am indebted to Mr. David Piachaud, lecturer in social administration at the London School of Economics, for details of some work he has done in this field. His figures relate to the period from September, 1971 for a man aged between 65 and 70.
If that man ceases to work altogether, if he is single and has an occupational pension from his employment of about £1 per week, and if his housing costs are £3 per week and his savings are small, the net income he will receive from the State amounts to £10.30 a week. But let us suppose that he decides to take anew, part-time job and that he is lucky enough to earn, say, £20 a week. All he would be able to keep from that £20 is £15.67. So the difference between going to work, and earning £20, and being totally unemployed and receiving £10.30 from the State is £5.37 a week.
In other words, the difference between working and not working means that 936 rather more than 70 per cent. of his earnings disappear. This is an equivalent tax rate to that of somebody with an income of £20,000, at the higher levels, if one merely takes the normal income tax rates into account. There is a really disproportionate burden at present on old people who wish to continue in employment.
The Bill would take a very modest step of removing some of this burden. It will cost only about £350,000 a year. The total amount of the earnings rule is well over £100 million, so one could say that the Bill takes us only one-third of 1 per cent. along the road. But I am encouraged by the fact that the Government have introduced a far-reaching review of the inter-relation of the social security and tax systems, and by the fact that we shall soon have a Green Paper. I believe that it is through the introduction of the positive tax credit system that one can get the solution to this problem. I hope that when the Green Paper has been published it will be found that major attention has been paid to the problem of the old people being subject to this rule.
I look forward with active anticipation to the Government's thoughts on the matter. Meanwhile in advance of the Green Paper and the introduction of the positive tax credit system, I hope that today we can take this limited but still valuable step along to the road towards abolition of the imposition of unfair burdens on those retired people who wish to take part-time employment.
§ 12.5 p.m.
§ Dr. Alan Glyn (Windsor)
I would be the last person to want to introduce a party point, as did one of my hon. Friends earlier. I believe that the Bill is very popular and very modest. On that point I congratulate my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs). It is true to say that the Government have done a great deal to help the elderly and those on fixed incomes and pensions. Nevertheless, it would be a fair assessment to say that people in general are bewildered and can never quite understand why the earnings rule should in any way be implemented, and why they should be penalised for working when they have retired.
I know perfectly well what my hon. Friend on the Front Bench will answer 937 to that. He will say categorically that the retirement pension is for the person who has retired from work. I imagine that that is what he will say.
But one has to realise that society has changed and that many people in Britain feel that although they have reached a certain age they would still like to carry on with a certain element of gainful employment. The great advantage of that is that it is not only a help to them but also a help to society. It enables them to do a useful job which perhaps they have been doing throughout their life. As one of my hon. Friends said, it gives them immense happiness and tremendous satisfaction to be able to do this.
There comes a time when a person says "It is no longer worth my while doing this because I shall be so penalised as regards my retirement pension that I am virtually working for nothing." People feel that some modest reward for what they are doing should be given. Many of these people, as my hon. Friend the Member for Dorset, North (Mr. David James) said, are skilled in special trades, many of which are dying out, and they are specially needed in our society for those trades which are very necessary.
From a medical and therapeutic point of view—probably my hon. Friend the Member for Norwich, South (Dr. Stuttaford), will mention this—there is a great advantage if people have some interest in life apart from just drawing a retirement pension, playing golf or bowls, or having a hobby; something which keeps their minds going and gives them interest and a general feeling of satisfaction.
I do not believe that this would interfere in any great measure with the general unemployment level. We all regret the tragic unemployment level. But this is a marginal thing because many of these people concerned in the Bill do not work every day of the week but only part-time. I cannot accept that this would to any great extent alter the general level of employment.
What are we doing? What we have to think about very closely is, first, the cost. We know the cost. It is very modest. I believe that it is part and parcel of a new philosophy of life that a retirement pension should be treated in the same way as any other pension, as earned income.
938 No doubt the Under-Secretary will say, quite rightly, that private pensions will have been paid for. We know this, but it is no good telling the country this. People are sick and tired and bored stiff with it all. They say that they have their pension and ask why it cannot be treated as part and parcel of their income. It is no good carrying on with all the old arguments we have been going through. I do not want to be too hard on my hon. Friend the Under-Secretary, because he and the Government have done an enormous amount, and I do not denigrate what they have done. I am merely putting forward views which every one of my hon. Friends receives every day from pensioners.
There is nothing new about it. It is a fact of life. I urge my hon. Friend to take a look at this and to say "This is part of your earned income. If you earn a bit more, you pay tax." That is fair enough. I do not believe that people should have this tax-free. Anything they earn over and above the pension would be treated as income and I cannot see any objection to looking at this in an entirely different way.
This conception of the earnings rule was born of Beveridge and it is now dying of Beveridge because it is out of date. The whole philosophy, our whole method of living, has completely altered. Although this is a modest Measure I would remind the Under-Secretary that, even if it did obtain the approval of Parliament, which is by no means impossible, he would still be faced with something like under a quarter of a million people not covered by the scope of the Measure. I hope that when Government thinking is finalised on this, we will have a new look at the whole subject.
The existing situation is quite unrealistic. Let us move to an entirely new conception and say to people "This is part of your income. If you take any more employment you must accept that as being part of your earned income as it is with any insurance policy." Led us move forward into a new era. If people wish to use their leisure hours for part-time work they should be permitted to do so. In the light of the Tory philosophy of helping people in need I could not bring myself to oppose this Bill.
§ 12.10 p.m.
§ Mr. Brian O'Malley (Rotherham)
I congratulate the hon. Member for Birmingham, Yardley (Mr. Coombs) not only on introducing the Bill but on his contribution to the debate. It was a substantial contribution, requiring a detailed and considered reply from the Under-Secretary. Nevertheless the very fact that the hon. Gentleman has felt it necessary to introduce this Bill is in itself an implicit criticism of the Budget proposals. I know that the Under-Secretary will say that the Chancellor's proposals included an increase in retirement pensions in the autumn and reflected acceptance of the annual review. I have heard the hon. Gentleman make the same speech so often that I have felt inclined to say that if he goes on much more I must ask him to negotiate a "needle time" agreement. It must also be said that the extent of assistance to retirement pensioners has to be judged in the very special circumstances of 1971–72.
During these years we have seen unprecedented price increases, a massive balance of payments surplus left by the previous Administration, industrial stagnation and 1 million people unemployed. In those circumstances, the Chancellor had a lot of room for manœuvre when considering with the Secretary of State for Social Services whether he could help the pensioners. The Chancellor has announced that he will help them but we have said that the help could be much greater in the special circumstances of 1972.
It was interesting to note that the hon. Member for Kensington, South (Sir B. Rhys Williams), who always takes part in these debates, said this morning that the position of many retirement pensioners was a national disgrace. This is at a time when the Chancellor has literally thousands of millions of pounds of which to dispose. He chose to use that money in giving priority to the wealthier rather than to retirement pensioners.
The hon. Gentleman used that phrase and then went on to imply that the reason was that members of trade unions were asking for what he described as excessive wage increases. That comes hard from an hon. Member who has said over the years in this House that he has a concern for poverty. In the present 940 dispute between the railway unions, the Railways Board and the Government, we can see that the Government are blocking any attempt to reach a £20 minimum wage. Yet the hon. Gentleman says that pensioners are suffering because men are trying to get a decent income for their family—in the mines a few weeks ago and now on the railways. It is a travesty of the facts.
§ Sir B. Rhys Williams
I seem to have touched the hon. Gentleman on a tender spot. I am not at all afraid of his attacks because my position with regard to the reform of the Welfare State is well enough understood on both sides. Dealing with the Budget, would it not be true to say that the Chancellor did what was urgently required in the interests of the country as a whole and that the pensioners' increases are tied up with that just as much as with the needs of children, trade unionists and everyone else? What we need is to restore the good health of the economy. When we have done that, there will be money for the pensioners and all the other minority groups.
§ Mr. O'Malley
What is true about the Budget is that the Chancellor could have helped retirement pensioners a great deal more than he did. Instead, he chose to give priority to the better-off in the community.
§ Mr. Coombs
It is regrettable that the hon. Gentleman should be using this Bill as a platform for cheap political points. The criticism in this Bill is directed at successive Governments, particularly the Attlee Administration. Let us be clear about this. The main responsibility for these retirement pensioners not having a fair deal lies with the T.U.C. because it was its influence and persuasiveness that made the Attlee Administration reject the Beveridge recommendations on the proportional band throughout.
§ Mr. O'Malley
If the hon. Gentleman will constrain himself for a moment I will make some comments on his Bill. At the beginning of my speech I congratulated the hon. Gentleman on introducing the Bill and I support him in what he is doing. I am, however, bound from these benches to look at the background against which the hon. Gentleman is moving his Bill. What remains true, in spite of what 941 the hon. Gentleman said, is that the Government have not done enough for pensioners in the circumstances of this year. I hope that the Government will be able to accept the Bill, because anything that will help pensioners, even marginally, should be welcomed by the House.
May I refer to a point raised by the hon. Member for Billericay (Mr. McCrindle) during our exchange on means testing, when I pointed out that one effect of the policy of selectivity adopted by the Government is that year by year larger numbers of the population are being required to submit to means testing. He asked what the Labour Party intended to do about it and what the previous Labour Government had done about it. He understands these things because I believe that he is a pensions consultant. The Grossman proposals would have taken year by year an increasing number of retirement pensioners from means-tested benefits, whereas the results of the Government's proposals will be that by the 21st century there will be two million or three million retirement pensioners still dependent on means-tested supplementary benefits, such as we know today.
But it is odd that the hon. Gentleman should say, "I support the Bill"—and I generally support any Bill on these lines in a year like this—but is not prepared to vote for it. The pensioners in his constituency will think it very strange that he should say, "The Government should do this, and I support the Bill", but if the Minister says that the Government cannot do what is proposed at the moment he is not prepared to defy the whips. I understand these things——
§ Mr. McCrindle
I am not prepared to be drawn into the hon. Gentleman's fairly obvious trap. If he reads in HANSARD what I said, he will see that I was less definite than he says I was. However, that is not the main point of my intervention. I said earlier that means tests were not an ideal solution. On the other hand, what worries me is that there are so many means tests that their proliferation worries me almost as much as their existence. Short of abolishing the means test, I presume that the hon. Gentleman agrees that movement towards one means test is right. Does he accept that the indication in the Chancellor's Budget speech of the possibility 942 of a positive tax credit system is a considerable move in that direction? Is it not a little unfair to say that the Government have taken no action and do not envisage taking action on this matter and that the only thing we should rely on is the half-baked Crossman pension proposals?
§ Mr. O'Malley
My right hon. Friend the Leader of the Opposition said that we would be prepared to consider very carefully the outline proposals which the Chancellor made in his Budget speech. We shall look at them with an open mind. Of course, I would want to see a reduction made in means testing, and I am glad that the hon. Gentleman's view is similar to mine. He must therefore, I assume, find himself in opposition to his Front Bench on this subject.
The hon. Member for Yardley explained that the Bill was modest; it did not seek to abolish the earnings rule. It is right, however, that periodically there should be discussion of all aspects of the National Insurance system, including the operation of the earnings rule. Hon. Members are quite right in saying that many retirement pensioners resent bitterly, and do not understand the reason for, the earnings rule. The Bill does not deal with it, but it is right that hon. Members should express their views about the operation of the rule.
It is true that the earnings rule has been operated by successive Governments on account of the cost to the Exchequer, although it has been modified over the years by successive Governments. My hon. Friend the Member for Walls-send (Mr. Garrett) gave voice to fears in areas like his and my constituency where there is a very high rate of unemployment. But, in the long term, that will not be so important a factor in considering the earnings rule because with the return of the Labour Party to power there will not be the level of unemployment which has resulted from the present Government's policies.
There is no need for me to go into the details of the Bill because the hon. Member for Yardley has explained his proposals far more than adequately. It should be possible further to assist the pensioners this year. The Bill is modest. It affects only a small number of retirement pensioners and its implementation 943 would not be vastly expensive. A Minister is one of the sponsors of the Bill, and I hope that we can take it, therefore, that the Government have decided that they can support their back bench Members this morning in backing the Bill.
§ 12.25 p.m.
§ Mr. Fergus Montgomery (Brierley Hill)
The hon. Member for Rotherham (Mr. O'Malley) tried to make a great political issue out of this subject. As we who sat on the benches opposite before the last General Election know, the hon. Gentleman spent some time in dealing with pensions when he was a Minister, and during that time I did not see pensioners in my constituency going round with happy faces. They had problems then, and they always have had problems. My hon. Friend the Member for Windsor (Dr. Glyn) was quite sure in saying that this situation confronts every Government.
Some pensioners are quite well off. One of the reasons why Harold Macmillan, when he reached the age of 70 and received the pension as of right, created a great deal of publicity about it was to show that every time there was a flat-rate increase in the pension, people like him, who did not need it, received it and Mrs. Jones, who desperately needed the money, received exactly the same amount. One of the problems is that pensioners have different needs, and we must try to concentrate our efforts on those who are in greatest need.
I am delighted to support the Bill, and my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) should be congratulated on his initiative in introducing it. It will help, in a modest way—and the word "modest" has been used a great deal in describing the Bill—pensioners who are affected by the earnings rule. I agree with my hon. Friend the Member for Windsor that people do not seem to understand the earnings rule. It is tremendously unpopular, and no matter how hard we try to explain its workings, people remain unconvinced about it. It affects men between the ages of 65 and 70 and women between the ages of 60 and 65. The pension is called a retirement pension. A man, on reaching the age of 65, can retire and receive his 944 pension. But some people are still very active at that age and they want to go on working because it gives them an interest.
The limit on the earnings rule has been periodically increased since 1946. It is now possible for a person to earn £9.50 a week before his pension is touched. But, after he earns £9.50, 5p of his pension disappears for every 10p he earns. As the law stands, when a pensioner earns more than £11.50, 10p is deducted from his pension for every 10p he earns. Thus, a pensioner who earns £11.50 in addition to his pension has £1 deducted from his pension. He gets in total earnings £10.50 a week, plus pension. But the pensioner who earns £16.50 would have £6 deducted and, therefore, he would be in exactly the same financial position as the pensioner who works shorter hours and who earns only £11.50.
There is, therefore, a complete lack of incentive for people to earn more, and this spotlights one of the problems which we must face. The people who try to help themselves seem to be penalised all along the line, and the people who are prepared to batten on the Welfare State seem to get help all the way along the line. Irrespective of which party is in power, the Government must devise methods of helping thrify people and those who are anxious to help themselves.
Earlier this week I met a deputation of widows from Staffordshire, and the theme throughout the discussion was that they did not want to go on supplementary benefit; they wanted to help themselves. They wanted to keep their pride and their state of independence. Their great moan throughout was that by helping themselves they were penalised all along the line.
The Bill proposes that for the next £4 a pensioner earns over £9.50, a proportion of his pension will be deducted meaning that the pensioner could earn £13.50 before 10p of his pension was deducted for every 10p earned. I talked earlier about a pensioner who earned £16.50 and as a result had £6 deducted. Under the Bill the deduction would be £5 and the pensioner would gain about £1.
The total cost of implementing this Measure is very modest. I think it is about £350,000 a year. I hope that the 945 Minister will accept the Bill. It is estimated that there are some 1¼ million pensioners who are subject to the earnings rule. This Bill would give assistance to many of those people. Again I congratulate my hon. Friend the Member for Birmingham, Yardley upon highlighting this problem, and I am delighted to give my support to the Bill.
§ 12.31 p.m.
§ Dr. Tom Stuttaford (Norwich, South)
I, too, congratulate my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) upon bringing forward this Measure, and thank him for asking me to be a sponsor of the Bill.
It has been very interesting to have heard the Bill continually referred to as being modest but this is a euphamistic view for, although limited, in terms of cash—that is to say, what it would cost the Government; to that extent it might be considered insignificant—in other ways it is very significant, not least because it shows the country that we are at last beginning to recognise the absurdity and unfairness of the earnings rule. By this Bill we are showing to the country—to the Government, perhaps—that we disapprove of the earnings rule.
The Bill would bring up to date the proportion of the band of pensioners affected most by the earnings rule. It would do so by taking into account the massive inflation there has been since this rule was last considered. It is not doing any more; it is doing only this. It seems a very modest Measure for the Government to accept, as I hope they will, to show that their heart is in the right place and that they will do their very best to support the feeling, which obviously exists on the Conservative back benches, that sooner or later the earnings rule should be ended altogether.
The earnings rule is absurd medically. I should like to follow the comments of my hon. Friend the Member for Windsor (Dr. Glyn) who today, although he may be wearing his military tie, is wearing his medical hat. There is no doubt whatever that people age at different rates. We cannot take that into account by providing different pensions for different people ageing at different times, but we can take account of the fact that there are some people who could go on working beyond the age of 65. The Bill 946 would acknowledge that some people wear out earlier than others; it would allow those who wish to retire completely at 65 to do so, therefore allowing for difference in the ageing rate of different people.
This discrepancy in the rate of ageing we can see illustrated here in the corridors of the Palace of Westminster. We do not need only to look across the Floor of the House from either side to see how people age differently. There are manual workers in this place: one may see, for instance, plumbers or workmen doing building work. Manual workers tend to age faster than men who do sedentary jobs. A manual worker by the very conditions of his work and of his life wears himself out the sooner.
The earnings rule penalises the poorer section of the Community and it penalises the manual worker. A man who has an occupational pension may retire at 50 under his occupational pension scheme. The earnings rule does not penalise the richer man, or the man on the occupational pension scheme. He gets his pension by virtue of the work which he has done. The State scheme with its earnings rule deprives those who work beyond the age of 65.
Both my hon. Friend the Member for Windsor and my hon. Friend the Member for Beckenham (Mr. Goodhart) dealt in considerable detail with the trauma of men who give up work completely. I should like to underline their point. Manual workers often find at the end of the working day that they have no energy to spend on outside hobbies or outside interests and to develop them. When they retire they can to a small extent, to a limited degree, continue to do their work, but the earnings rule deprives them if they do so. It is discouraging to them, and it deprives all of us of a still useful source of labour. Also, by discouraging those men from doing the work they still can do hurries them both physically and intellectually to an end, a state of affairs with which we on this side of the House certainly do not agree.
I hope that my hon. Friend the Under-secretary of State will take into account the very real feelings which exist among those on the back benches who take an interest in the social services, and that he will accept this Bill, which will not involve large financial cost but will show 947 everybody the way in which we are thinking about these matters for the future.
§ 12.36 p.m.
§ Mr. Ronald Bray (Rossendale)
Like others who have spoken this morning I want to congratulate my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) on bringing this Bill forward and I do so for a number of reasons. First, it is necessary in the interests of those caught within the existing limits. Secondly, the Bill would enable people to obtain satisfaction from some form of work after they retire. Thirdly, it does not state specifically the age for retirement but provides a degree of flexibility. Fourthly, it is flexible in the amounts which one might earn before being caught—for tax, shall I say?—caught for pension deduction.
Analysing the complaints from my constituents who bring them to me I am impressed by the amazing number of criticisms which I have received over the last two years about this earnings rule, and by the fact that they ask, "Why should we work to earn more than £5 or £6 a week when that only affects our pension?" The Bill would definitely alleviate that position. That is all to the good. I might add that thus the Bill would save me a certain amount of work; it would certainly save me a lot of heart searching, since the Bill would meet those complaints or even eliminate them.
I have, however, one slight reservation about the Bill, and that is about the degree of tapering off at the second and third stages. The Bill starts at £9.50; we go on to £13.50 and to 50 per cent, loading. After that there is 100 per cent. write off. I think further thought should be given to that, should the sponsor of the Bill be inclined so to do.
Beyond that I welcome the Bill completely. I would not go along with the hon. Member for Rotherham (Mr. O'Malley) in making a party political speech on this matter. To my mind it is completely unfair and out of order ostensibly to speak on this Bill and then to turn a speech into a purely party political——
§ Mr. Bray
—broadcast, as my hon. Friend puts it so succinctly and pertinently.
All that I would say, briefly, is that this Bill is brought in as a result of the erosion in purchasing power, an erosion which the Government inherited from the previous Administration, an erosion which the Government are doing their best to curb, with little or no assistance—indeed, with a degree of strong obstruction—from the other side of the House. I would add that since I have been here this morning the number of Members present on the Government side has averaged, by between five and six times, more than the number of Members present on the other side of the House who seek to criticise the Government, the Chancellor of the Exchequer, and everything which comes from this side of the House, and who do that purely and simply to play to the gallery.
I support the Bill, with that one reservation I have made, and wish it every success in its passage through the House.
§ 12.40 p.m.
§ Mr. James Kilfedder (Down, North)
The Bill applies to Northern Ireland and that is why I am interested in it. I have taken an interest in national insurance for a considerable time. Although publicity concentrates on the trouble and terrorism in Northern Ireland, there are many other problems which affect the people living there just as much as they affect people living in the rest of the United Kingdom. I am thinking particularly of old people.
I was surprised to hear the hon. Member for Rotherham (Mr. O'Malley) castigating the Government for the way in which they are dealing with old-age pensioners. I made my maiden speech in 1964 on the National Insurance Bill of the day and I remember the appeals on that occasion, from both sides of the House in which I joined, to the then Labour Government to help the old-age pensioners. It is wrong that the hon. Gentleman should criticise the Government who have already done so much in the short time they have been in power.
I support the Bill. There are a great many people in my constituency who will be glad to see it go through the House. I am sorry that we cannot at this stage see the complete abolition of the earnings 949 rule, but I hope that we shall do so before long. This modest Measure may be a pointer to what will eventually come. I was surprised to hear my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) say that the Bill may not go through. I hope that it will go through today, and I join in the congratulations which have already been offered to my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) on having introduced the Bill.
No hon. Member has had the experience of transition from employment to retirement in old age, but we know from what we have heard that it has a terrible psychological effect. My hon. Friend the Member for Norwich, South (Dr. Stuttaford) said that manual workers wear themselves out faster than do sedentary workers. I am not a medical expert, merely an ex-lawyer, and I am perhaps the wrong person to cross swords with him, but I should have thought that manual workers are not more adversely affected than are other people. Hon Members, for example, have not only the physical exertion of running round the Palace of Westminster but also have to make great mental efforts.
Many people look forward with great pleasure to retirement, but when it comes they realise that they are in fact facing empty years ahead. The only way to help such old people is by allowing them to take up some form of employment after they retire. Once they retire, many people, unfortunately, have nothing to look forward to than the day when they die. We should enable them, as this modest Measure does, to take up some form of work to keep their interest alive and to keep them to move along to the stage when they are able to enjoy their retirement. I give the Bill my blessing and I know that it will have the support of all people in Northern Ireland.
§ 12.45 p.m.
§ The Under-Secretary of State for Health and Social Security (Mr. Paul Dean)
I congratulate my hon. Friend the Member for Birmingham, Yardley (Mr. Coombs) on introducing the Bill and giving the House the opportunity to consider an important aspect of our social services which does not perhaps get full consideration when we are discussing Bills to improve various benefits because it is a comparatively narrow aspect of 950 our social service arrangements. I am glad that we have this opportunity to look more fully at the earnings rule and the details in the Bill. I am also pleased that my hon. Friend the Member for Down, North (Mr. Kilfedder) was able to participate in the debate. Although Northern Ireland has slightly different arrangements, they are similar to the arrangements in other parts of the United Kingdom.
I do not seek to debate the earnings rule in principle, except to say that nobody loves it. If we were starting again we would seek to avoid having it, but the fact is that we do have it and have had it since 1948. If it were abolished the cost would be about £110 million gross. Taking into account income tax and other factors, the net cost would be about £80 million. All this would go to those pensioners who, by definition, are the better-off pensioners, namely, those who are able to work and to augment their pensions. The bulk would go to those who are working full time and would continue to work full time were the rule to be abolished. That is the harsh reality.
I am sure my hon. Friends will agree that the most distinguishing mark of our social service policy since we came to office in June, 1970, has been the desire to identify the most urgent needs and, having identified them, to bring effective help to bear. My hon. Friends will also agree—many of them have said so today—that a great deal of progress has been made as a result of this rigid allocation of priorities and looking for the most urgent needs.
To enable us to be successful we have had to avoid new commitments on items which, however desirable they may be in themselves, do not command the highest priority. As a result of this policy a whole series of items which passed the priority test have been put into our programme and are now in operation.
The list is impressive. It includes pensions for the over-80s, which did not exist before; pensions for widows between the ages of 40 and 50 without dependent children, which did not exist before; the various new invalidity allowances within the national insurance scheme; the attendance allowance outside the national insurance scheme—none 951 of which existed before; the family income supplement to assist those families who, in spite of being in full-time work, are not able to provide an adequate income for themselves—again a new venture; and the annual review of pensions, coming into operation for the first time this year. All these represent increased expenditure on cash benefits of over £1,000 million in 1971 and in 1972 if one takes account of the review recently announced.
It is only as a result of a rigid allocation of priorities that it has been possible to make this substantial progress and these advances into new areas of need, which were not covered at all when we came into office two years ago. I ask my hon. Friends to bear in mind the background to the success that we have been able to achieve.
§ Dr. Stuttaford
Does my hon. Friend agree that the longer we can keep people physically active and mentally alert the greater will be the saving to the social services, and that the cost to the social services goes up if they start to fall into decrepitude at an earlier stage?
§ Mr. Dean
I agree with my hon. Friend and I shall be dealing more fully with the valuable points which he and others of my hon. Friends have made in that context.
Against the general background, perhaps I could say a word or two about the earnings rule itself. We are committed to continuing to improve the earnings rule, and on behalf of Her Majesty's Government I wish to take this opportunity of repeating that commitment. It is an absolutely firm commitment into which we entered at the election, and which we put into operation last year when we raised the amount which could be earned. Last September the amount which could be earned without any reduction in pension was increased by £2—from the previous figure of £7.50 to the existing figure of £9.50. This increase of £2 was the biggest increase which has ever been made in the amount which can be earned.
I want to emphasise that this is a continuing commitment. We did not regard last year's change in the earnings rule as a once-for-all operation which fulfilled 952 our commitments made in the Conservative manifesto. This is a continuing commitment, and I assure my hon. Friends and the House that the Government will be reviewing again the operation of the earnings rule carefully and sympathetically, and we shall certainly wish to give consideration to what has been said today.
I hope that any misunderstanding there may have been that having made a change last year, we thought we had done all that was required on the earnings rule, will now be removed. Indeed when I mention in a few moment the significance of the new tax-credit arrangements, my hon. Friends will see that there are big implications here for the subject we are discussing today.
I wish to say a word about the suggestion that there has not been a thorough review of the earnings rule since it began to operate in 1948. I assure the House that we carried out a thorough review when we came into office. I admit that I was one of those who dearly hoped that we would find a way to get rid of this unloved, psychologically bad regulation but, unhappily, it has not proved possible to do so particularly because of the cost implications. I want to assure the House that before we published our strategy for dealing with further pension arrangements, we carried out a thorough review of the retirement conditions and the earnings rule to see whether, in addition to easing the arrangements, it would be possible to make a more radical change. But we decided that at that moment there was no way in which it could be done without very substantial expenditure, which would have created difficulties in terms of the priorities which the whole House accepted as being the right priorities.
§ Mr. Dean
I am afraid that I cannot answer the tax point off the cuff. I can tell my hon. Friend that the gross cost of abolishing the rule outright would be about £110 million. The reason the cost 953 is so large is that a number of people who are now working full time between the ages of 65 and 70 would then retire, draw their pension and go back to full-time work. That is why the cost would be so heavy. I appreciate that some of that additional income would come back in taxation and that therefore the net cost of abolition would be less—but, unhappily, it would not be all that much less. The best estimate I can give the House is that the cost would be about £80 million. In other words, a substantial figure would still be involved.
My hon. Friend the Member for Belper (Mr. Stewart-Smith) said that we should get rid of the rule entirely. On the other hand, my hon. Friend the Member for Billericay (Mr. McCrindle) did not agree with that. This is a retirement pension and therefore an earnings rule is necessary to support the retirement condition. That is the position taken up by successive Governments through the years on this matter.
This subject has been carefully considered over the years not only by Governments but also by the National Insurance Advisory Committee. That Committee has published two major reports on the earnings rule, one in May, 1956 and the other in January, 1967. The Report in January, 1967 went fully into the implications of the retirement condition and the earnings rule. I remind the House of the main conclusions they reached on this matter in principle. Paragraph 13 of the Committee's Report said:The abolition of the earnings rule is not within our terms of reference. But this apart we wish to record our view that the earnings rule is an essential complement to the retirement condition. The retirement condition, in turn, is a fundamental aspect of the provisions made by the national insurance scheme for pensions and does not fall within the terms of reference on the question which we are asked to examine. It would, we consider, only be feasible to dispense with an earnings rule if a method could be found of adequately maintaining the retirement condition without it. In our 1956 Report we discussed this possibility and concluded that once it has been established that a person has retired, an earnings rule of some kind is the only practical measure of work which is consistent with retirement. Nothing has been put before us, in the course of our present inquiry, to suggest that this conclusion is no longer valid, and we would wish to re-endorse it here. The crux of the matter seems to us to be that the present provision for pensions for elderly people are based on the premise that for men 954 between 65 and 70 and women between 60 and 65, a pension is only available when they have completely given up work or have done so to a substantial extent. The principle here is the one which underlies all the main benefits of the national insurance scheme, that they are payable where earnings have been interrupted or have ceased. As long, therefore, as a pension is not payable to those who continue full-time in regular work after the minimum pension age, there must clearly be some provision whereby a return to work once pension has been awarded leads, if it is on any substantial scale, to an adjustment of the pension. Such a provision can, in our view, only be in the form of an earnings rule which is complementary to, and supports the retirement condition.That was the considered judgment of the specialist committee set up to advise the Secretary of State on these matters. I accept entirely that if we were starting from scratch I am sure that we should have done it differently. But we have it, and all Governments having considered the matter, and the specialist committee having considered it, we have not found a way in which these regulations can be altered substantially, as opposed to modified, to deal with the understandable and justified criticisms which are made.
§ Dr. Glyn
The retirement pension which a person gets from Imperial Chemical Industries or any other private firm is dealt with as part of his income. My hon. Friend's case is based on Beveridge, to whom we are all indebted. But, unhappily, he has passed away, and so have many of the principles on which his philosophy was based. Whatever the recommendations may be, I do not think that it is beyond the wit of my hon. Friend to look at this afresh and to see in the context of modern life whether this is not an equitable and satisfactory way of doing it, especially as it would cost only £80 million.
§ Mr. Dean
Perhaps I might be allowed to develop my argument, because I am coming to my hon. Friend's point. We have had a lengthy debate, and I wanted to go fairly fully into the background, what has happened, and why we are where we are. In due course, I shall deal with some of the very interesting implications of the tax-credit arrangements, and then I think that I shall be answering my hon. Friend's points.
Having given that background to the rule as it exists at the moment, perhaps I might remind the House of the regulations which exist and the number who 955 are affected by the rule as it applies at present. When the scheme began in 1948 the earnings limit was set at £1 a week. For every complete shilling earned above that the pension was reduced by one shilling. In 1956, the earnings band attracting deduction from pension at half rate was introduced, and the band was increased from £1 to £2 in 1967. It is with this band that the Bill is dealing. The earnings limit has been increased nine times since 1948. It has gone up from £1 in 1948 when the scheme began to £9.50, where it stands today.
There are about 7½ million retirement pensioners, 1¾ million of whom are in the age band subject to the earnings rule. Of those, only about 16,000 at any one time have their pensions reduced on account of earnings. But if the earnings rule and consequently the retirement condition were to be abolished, 175,000 men, 75.000 women on their own insurance and 125,000 dependent wives would qualify for retirement pension at a cost of about £110 million a year. As I said earlier, the vast majority would be people who are still continuing in full-time work despite the fact that they are over the minimum reitirement age.
I turn now to some of the main arguments which have been used in the debate. One of the main points running through the debate, and raised particularly by my hon. Friends the Members for Billericay and Brierley Hill (Mr. Montgomery), was that pensioners subject to the earnings rule had not had a fair deal in comparison with those in poverty, who had been helped through various measures that we had taken and, at the other end of the scale, the assistance that others had been given through reductions in taxation. They felt that here was an in-between group who had not had the attention that they required.
I wonder whether one can sustain those arguments on the position. Perhaps I might give my hon. Friends some figures on which they might like to reflect. First, a comparison of the earnings limit with actual earnings is an interesting comparison to make. In 1948, when the earnings limit was first introduced, the limit as a percentage of average earnings was 14.7. It has fluctuated over the years, but the tendency has been for the percentage to rise. In June, 1967, it 956 reached a peak of 31.2 per cent. It is now 31 per cent. That is the figure as from September, 1971. Taking into account the comparison of the earnings limit with actual earnings one can see that there has been very substantial progress since the earnings rule began to operate in 1948. The figure has risen from 14.7 per cent. in 1948 to 31 per cent. in September, 1971. I suggest that that is an interesting and relevant comparison to make.
The other comparison is for the improvements in the pension for the pensioner above the earnings limit. This, too, shows fairly clearly that a good deal of progress has been made. It is not correct, as one or two of my hon. Friends seemed to think, that those who were affected by the earnings limit have not been helped either by the pension increases that we have introduced or by tax reliefs. In the vast majority of cases, they have been helped.
Perhaps I might give one or two examples which I hope my hon. Friends will feel illustrate the point effectively. The combined effect of the pension increase and the change in the earnings rule last September increased the total income before tax of those earnings between £11.50 and £16.50 by amounts of up to £3. The largest increases were for those with the lowest earnings. After tax, their incomes were some £2 higher. The effect of the Budget tax changes gives a further increase of £1 in the income after tax of all pensioners whose earnings fall in this band, and the £75 increase in pensions next October will increase the total before tax income of all pensioners with earnings up to £16.50 by 75p. In other words the vast majority of pensioners subject to the earnings rule have benefited and will continue to benefit from the improvements that we are making in the pension and from the tax relief which my right hon. Friend the Chancellor of the Exchequer has introduced.
Further, no pensioner under the existing arrangements is absolutely enmeshed in the earnings rule. My hon. Friend the Member for Dorset, North (Mr. David James) mentioned the jobbing gardener. I do not know how much my hon. Friend pays him, but he can pay him £9.50 without his gardener having any reduction in his pension. The same is true of the 957 part-time worker mentioned by my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), since very often it is possible to arrange part-time work in such a way that the earnings rule does not bite at all or that it has the best effect under the existing arrangements for the person concerned. Provision was made some years ago whereby, because a pensioner was earning a substantial amount in retirement, the best course was for him to "de-retire". Anyone in that happy position is now free to cancel his retirement, in which case the earnings rule does not operate. He goes on paying contributions and earns an additional pension for himself when he retires finally. There are plenty of ways under the existing arrangements. There is flexibility which makes it possible for many people who continue to work in retirement to condition their type of work, the length of time that they work and the amount that they earn so that they can make the maximum benefit both from the pension and from their earnings.
My hon. Friends the Members for Beckenham (Mr. Goodhart), Windsor (Dr. Glynn) and Norwich, South (Dr. Stuttaford) rightly drew attention to the need to avoid the harsh line between full-time work and part-time retirement. They said how bad it is both psychologically and from the point of view of loss of status that a man should be working flat out one day and be completely retired the next day. Indeed, my hon. Friend the Member for Beckenham talked about the contrast between a man who successfully runs a business one day and the next day finds himself as the odd-job man for his wife. This is an undesirable situation. In many cases the last thing the wife wants is to have the old man hanging around the place getting in her way. There is the woman's point of view as well.
We want to do all that we can in the arrangements we make, through our social services and employment, to encourage gradual retirement and to avoid the risks and dangers which are otherwise involved for the people concerned.
Equally, we have to take into account the point made by the hon. Member for Wallsend (Mr. Garrett) that, where there is unemployment, there could be a clash of interests between the pensioner who, understandably, wishes to go on working 958 and the younger man who, understandably, wishes to start or to continue his career. That aspect has also to be taken into account.
Having conceded, as I freely do, the power of these arguments, I do not think that it necessarily follows that the earnings rule, as it operates at the moment, is as powerful a disincentive to gradual retirement as some of my hon. Friends have suggested. I put it to them that the figures which I have quoted and the flexible arrangements which I have mentioned within the existing system do not provide the bar to gradual retirement which was in some instances mentioned.
The next point—this is one of the most important points I wish to put to the House—concerns the tax-credit arrangements. This matter was mentioned by my hon. Friends the Members for Kensington, South and Beckenham in particular. It was also mentioned by the hon. Member for Rotherham (Mr. O'Malley), who has apologised to me for having to leave the Chamber for another engagement.
The hon. Member for Rotherham—I hope that he will not mind my saying this in his absence; I am glad to see the right hon. Member for Blackburn (Mrs. Castle)—made the criticism, which he has made before, that one aspect of our social services arrangements which disturbs him is that we are introducing a new set of means tests. My hon. Friend the Member for Billericay interrupted the hon. Gentleman and reminded him that that was not the case, but that we have been continuing the arrangements which were operated by the previous Administration. The only new means test that we can be said to have introduced is for a new benefit, namely, the family income supplement. However, we have done a great deal to refine the means tests which exist, and the passport concept attached to the family income supplement is one good example.
More important in this general context is the tax-credit system which my right hon. Friend the Chancellor foreshadowed in his Budget speech. This, of course, is still in its early days. There is to be a Green Paper and discussion by a Select Committee. The all-important details which are still to be worked out will be done in the light of all the views and knowledge which can be gained on this matter. One thing which is 959 absolutely clear already from this far-reaching scheme is that it will substantially reduce the number of people now dependent upon means tests, as we understand them.
It ill behoves the hon. Member for Rotherham to criticise us for maintaining a long-established system when we have announced the most radical advance in this sphere by any Government for many years past.
There is a direct significance in the tax-credit system for the future operation of the earnings rule. This is the point which my hon. Friends have been urging. They said: "Never mind about what has happened during the last 20 years. What about the future?" There is no doubt whatever that the future of the earnings rule will have to be considered carefully because it has direct implications within the tax-credit system. In other words, I am giving my hon. Friends an assurance that we are not satisfied just to go on with the earnings rule; we shall continue to modify it at appropriate times.
We are also embarking, directly as a result of the tax-credit system, on a complete review of and radical look at the whole of this rule. I hope that my hon. Friends will feel that that is good news, as is the fact that I am able, on behalf of Her Majesty's Government, to respond to some of the points which have been strongly and understandably put today.
Against that background I will now take a closer look at the Bill which has been introduced by my hon. Friend the Member for Birmingham, Yardley. As he told us, it increases from £2 to £4 the band of earnings at which the pension is reduced by 5p for every 10p earned. This is a modest proposal. I do not claim otherwise. It will benefit only some of the pensioners whose pensions are subject to adjustments because of their earnings. It will not affect those pensioners whose earnings range from £9.50 to £11.50 a week. For those whose earnings fall between £11.50 and £13.50, the effect of the proposed change will be to reduce the pension adjustment by varying amounts up to £1 a week. When earnings are over £13.50, the adjustment will be£1 less to the point where, under the present rule, the pension is extin- 960 guished. This will apply to the pensioner earning £16.50 a week who receives the standard pension of £6. For such pensioners the effect of the proposed change will mean that the pension will not be extinguished until earnings reach £17.50.
My hon. Friend the Member for Rossendale (Mr. Bray) doubted whether, if this sort of money were available, this was the best way to use it. I remind my hon. Friend that the effect of his proposal will be to help pensioners with higher incomes rather than those with lower earnings. It is arguable whether the detail is the right allocation of priorities, though I fully understand the reasons why my hon. Friend has made this specific proposal.
The cost of the proposed changes will be about £200,000 a year. That is on the assumption that a group of people who are not covered by the Bill will continue to be excluded. I refer to the wives of disability and retirement pensioners. The House will recollect that one of the changes in the earnings rule last September, which was welcomed in all parts of the House, was the substantial improvement which we made in the earnings rule provisions for the wives of the invalidity and retirement pensioners. Prior to September, 1971, they were able to earn only a very small amount, and if they earned more than that their husbands lost completely the dependency allowance in the national insurance scheme.
That was a harsh rule, which operated much more harshly on these people than the earnings rule. The change that we made last year was to put these people in the same position as the retirement pensioner subject to the earnings rule. We gave a fairly clear indication then that, having got these groups of people together, it would be desirable if, in any further changes in the earnings rule, they were kept together.
Unfortunately, my hon. Friend has excluded these highly deserving groups of people from his Bill, and therefore the effect would be that the retirement pensioner would benefit but the earning wife of an invalidity or retirement pensioner would not. If these groups of people were included in the Bill the cost would rise, and the best estimate that I can 961 give the House is that the cost would be between £500,000 and £1 million a year.
That, then, is the position on the Bill.
May I summarise the arguments and the attitude of the Government to the Bill. I mentioned—and my hon. Friend suspected that I would—the harsh reality of priorities. I submit that we have to take this into account, particularly when we have been able to do so much for so many needy groups of people, and when my right hon. Friend has announced another substantial improvement in benefits to come into operation in October of this year. Not only is the annual review starting this year, but the increase of 75p for a single person and £1.20 for a married couple will represent a real improvement in the buying power of the pension, while the extension of the attendance allowance, which has been urged upon us, means substantial additional resources being made available for the chronically sick and the disabled. There are other measures, too, which, as part of this year's package, add up to about £500 million a year. It is easy to ask what is an extra £500,000 or so on top of that sort of money, but the fact is that these small items add up, and if one goes on piling them on then, inevitably, we shall not be as successful in identifying and bringing effective help to the high priorities, as I am sure my hon. Friends will agree we have done in the past.
It is that, plus the Bill itself, which prompts me to put these points to the House: would it be wise to bind the Government in this way? Might it not be that the objective which my hon. Friends have put forward so eloquently today would be more effectively achieved by giving the Government a free hand to consider this aspect carefully for next year? It may well be that in next year's review—and, after all, we are now on annual reviews—we can do more than the Bill provides. I hope that we can, and I am sure that when we do next move on this we shall want to include the wives of invalidity and retirement pensioners, who are not included in the Bill.
Then there is the aspect of the tax-credit system which I mentioned and on which I have given a firm commitment that this scheme means that there will be 962 a full and radical examination of the operation of the earnings rule as a whole. I have also given a firm commitment that, in the light of this debate, the earnings rule will be looked at carefully and sympathetically for next year's review.
I ask my hon. Friend who has introduced the Bill and today's interesting debate, would it not be better, in view of the commitments that I have given and in view of the deficiencies in the Bill, for him to withdraw the Bill now, in the knowledge that the debate has extracted some important commitments which I have made on behalf of the Government? That is the course which I commend to my hon. Friend.
§ Question put and agreed to.
§ Bill accordingly read a Second Time.
§ Bill committed to a Committee of the whole House.—[Mr. Coombs.]
§ Bill immediately considered in Committee.
§ [Miss HARVIE ANDERSON in the Chair]