HC Deb 24 February 2004 vol 418 cc157-98 1.26 pm
The Secretary of State for Work and Pensions(Mr. Andrew Smith)

I beg to move, That the draft Social Security Benefits Up-rating Order 2004, which was laid before this House on 4th February, be approved.

Mr. Speaker

With this it will be convenient to discuss the following motion: That the draft Guaranteed Minimum Pensions Increase Order 2004, which was laid before this House on 22nd January, be approved.

Mr. Smith

I am satisfied that the orders are compatible with the European convention on human rights.

On uprating, I can confirm that national insurance benefits will rise in line with the retail prices index, which is 2.8 per cent. Most income-related benefits will rise by the Rossi index—1.8 per cent.—in the normal way. That will add more than £2 billion of extra Government spending to help those in most need and to tackle poverty. Of the £1.2 billion extra for pensioners, £140 million is above price inflation, as is £180 million of the extra for children.

In 1997, we said that we would cut the costs of economic and social failure—and we have. Despite the downturn in the world economy, employment in the United Kingdom has continued to grow. We have more people in jobs than ever before and, for the first time in nearly half a century, the highest employment rate and lowest unemployment rate of the major industrialised countries.

Through our investment in the new deal and Jobcentre Plus, we have tackled the legacy of mass unemployment that we inherited from the Conservative Government, whose leader, when masterminding their employment strategy, increased unemployment by more than 1 million. Since 1997, we have increased the number of people in jobs by more than 1.5 million, and we have invested to tackle poverty the £5 billion that has been saved from the cost of unemployment.

Combining that amount with the savings from tackling benefit fraud and error—overpayments alone now cost £400 million less a year than was the case in 1997—we can ensure that more money is available to invest in services. Staff working for the Pension Service, the first ever dedicated service for pensioners in this country, have made more than 300,000 home visits and held more than 220,000 community-based surgeries. Our investment in Jobcentre Plus is helping to deliver the lowest unemployment in the G7. Each day, our offices receive 13,000 vacancies, conduct 36,000 work-focused interviews and help 4,700 people into jobs, including more than 400 lone parents and more than 120 incapacity benefit clients. So we are not only uprating benefits but upgrading the service that we are able to give to our clients.

Our tax and benefit measures, combined with our successful employment policies, are helping to get more parents into work. We have reversed the generation-long trend of rising child poverty, which more than doubled during the 18 years when the Conservatives were in power. Since 1997, we have reduced the number of children living in low-income households by more than 500,000, and we are determined to do more. From April, the child element of the child tax credit will rise by £180 to £1,625 a year equivalent to a weekly increase of £3.50. That will benefit 7.2 million children, including all families on income support and jobseeker's allowance.

Building on these measures, I announced in December how we would judge longer-term progress towards our ambition to eliminate child poverty altogether. The new measure recognises that poverty is about more than money. We will strive to eliminate material deprivation entirely, but we are also firmly committed to keeping up the drive to increase the incomes of the poorest children right through to 2020. Let us remember that in 1997, the Tories left us bottom of the European child poverty league table. As a result of the measures this government have introduced, the UK has already moved four places up that table, and we are committed to go further so that we move beyond the EU average to be among the very best in Europe.

What of the Conservatives? We need to know whether they share our ambition that no child should be left behind, or whether they plan to repeat their performance of the 18 long years during which child poverty more than doubled.

On pensions, we are taking action to tackle pensioner poverty, boost security and provide people with more choice about when they retire. This year the basic state pension—the foundation of pensioners' incomes—will rise by a further £2.1 5 a week. That is £111.80 a year, which more than meets our guarantee that future rises will be at least £100 a year for single pensioners.

Mr. Jim Cunningham (Coventry, South) (Lab)

On pension increases, can my right hon. Friend make a comparison in monetary terms and percentage-wise between 1997 and now so that the House can get a good idea of the increases since then? How do they compare with the record of the previous Conservative Government?

Mr. Smith

The truth is that the Conservatives increased the real value of the state pension only once. That was at the time when they put VAT on fuel. If ever there was a case of giving with one hand while taking away with the other that was it. In total, the real increase in the state pension since we came to office is now more than £5 a week for a single pensioner and more than £8 a week for a couple.

Mr. Steve Webb (Northavon) (LD)

The Minister has moved on from his laudable aim of ending child poverty by 2020 to talk about pensioners. Is it his aim to end pensioner poverty, and if so, by when?

Mr. Smith

We have already set out our ambition to erode and remove those aspects of pensioner poverty that we inherited from the Conservatives, and we are making enormous progress in that endeavour, thanks to increases in the real value of the basic state pension and to the introduction of pension credit, the impact of which I shall come to in a moment. The hon. Gentleman will know from the statistics that we have already cut the pensioner poverty that we inherited by some 60 per cent. in absolute terms. Even in relative terms, at a time when median incomes have been growing quite rapidly—so this is quite a demanding test—more than 500,000 pensioners have moved out of relative poverty. Of course we are committed to driving that forward.

Mr. Patrick McLoughlin (West Derbyshire) (Con)

The Secretary of State is telling us how the Government wish to treat pensioners and about their laudable aim in that regard. Can he tell us how many pensioners were threatened with prison sentences under the previous Government —[HON. MEMBERS:"Hundreds."] How many does he anticipate being threatened with prison sentences for not paying their council tax under this Government?

Mr. Smith

My hon. Friends suggest that hundreds, if not thousands, of pensioners were threatened with prison when the hon. Gentleman s party imposed the poll tax on them. If he is alluding to recent reports in the press, I am sure that he will understand that I am not at liberty to go into the individual circumstances of any recipient of pensions or benefits, no matter how much publicity those circumstances have received. I can assure him, however, that in that particular case, as in others, every endeavour is being made to ensure that the pensioner in question receives in full the entitlements that are her due. If some reports are to be believed, that has clearly not yet happened, for whatever reason. I am sure that the hon. Gentleman would agree with me—I see him nodding—that pensioners should gain their pension credit, their council tar benefit and their housing benefit whenever they are entitled to do so.

Mr. Nigel Waterson (Eastbourne) (Con)

Without my going into that individual case in any more depth than the Minister for Local and Regional Government already has, if it is right, as has been suggested, that that pensioner would not have had to pay any council tax, or would have had help with it, through council tax benefit, does not that underline the massive failure of council tax benefit having the lowest take-up of any means-tested benefit, and the underlying problem of the growth in mean-tested benefits under this Government?

Mr. Smith

I have already said how important it is that all pensioners and others get the help to which they are entitled. This time last year, Opposition Front Benchers questioned us about the work of the local Pension Service, asking whether people who needed a home visit would be able to get one. They have gone quiet on that now. There have been 300,000 home visits, and more than 220,000 surgeries. Never has so much effort gone in to raising the take-up of people's entitlements. When the Conservatives were in Government, they seemed to operate an effective target of keeping take-up as low as possible. There is a big contrast between that and the effective that we are putting in and the impact that they are having.

We have recognised that more needs to be done to improve the take-up of council tax benefit. That is why an information and advertising campaign is due to start shortly, as well as the extra advice being given through the local Pension Service. Thanks to the introduction of pension credit, 1.9 million pensioners are receiving help with housing benefit and council tax benefit for the first time, or getting significantly more than they were before. We recognise that more needs to be done, but we are making good progress.

Mr. Clive Soley (Ealing, Acton and Shepherd's Bush) (Lab)

The case to which my right hon. Friend referred, which has received so much publicity, needs to be spelled out in a bit more detail so as to alert people to the need to read more carefully what is in their newspapers. The story sounded largely untrue when I saw the figures involved, and it transpires that the lady involved is withholding her council tax because of an objection to certain aspects of the European Union. She has been supported in that by the United Kingdom Independence party, which has involved Max Clifford in handling the publicity. She is also receiving £10,000 from the Daily Mail for her story. Had the story in the press that she was receiving only £312 a month been true, she would clearly have been receiving less pension than she was entitled to, and would also not have had to pay any council tax anyway. So nearly all that story was untrue—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The hon. Gentleman is an experienced Member of the House. This is becoming a statement rather than a question.

Mr. Smith

I, like the rest of the House, got the thrust of what my hon. Friend was saying. I am not in a position to comment on some of the alleged aspects of the circumstances that he has drawn to our attention, but what 1 said previously still stands. Notwithstanding all that, and whoever is representing or supporting that pensioner, she is entitled—like anyone else—to the entitlements that are properly her due.

Mr. David Willetts (Havant) (Con)

The Secretary of State said that he would not comment in detail on that case. We have just heard the hon. Member for Ealing. Acton and Shepherd's Bush (Mr. Soley) claim that that woman has received £10,000 from the Daily Mail and that she is employing Max Clifford. The hon. Gentleman made a variety of allegations about an individual pensioner facing a problem with her council tax. Does the Secretary of State agree that it is most regrettable that those remarks have been made about an individual who, as far as we understand it, is wrestling with council tax demands that she finds it difficult to meet?

Mr. Smith

I wonder whether it is wise for the hon. Gentleman to repeat the circumstances that he said should not be aired in the House, and whether the deputy Chief Whip of the Conservative party should have raised the matter in the first place. It would be best to get back to pension credit and its uprating.

Mr. Soley

On a point of order, Mr. Deputy Speaker. I am sorry to intervene, but I must make it clear that what I said was not in any way a criticism of the pensioner, because she wanted it to be known that her objection was to paying towards an aspect of the European Union. That is the issue.

Mr. Deputy Speaker

That is not sufficiently a point of order for me to comment on the matter. The hon. Gentleman has put his point on the record.

Mr. McLoughlin

Further to that point of order, Mr. Deputy Speaker. I ask you to invite the Secretary of State to reflect on the words that he has just used, and on the fact that I talked about pensioners in general. I never mentioned a specific pensioner. It was the Secretary of State who referred to individuals.

Mr. Deputy Speaker

That was no more a point of order than that of the hon. Member for Ealing, Acton and Shepherd's Bush (Mr. Soley). It is on the record, however.

Mr. Smith

I have taken careful note of what the hon. Gentleman has said, Mr. Deputy Speaker, and I am confirmed even more in my judgment that it would be wise to get on with the more general subject of the uprating of pension credit.

In April, in keeping with the Government's earnings link for poorer pensioners, the guarantee will rise again by more than £3 a week so that no pensioner need live on less than £105 a week and no couple on less than £160 a week. Already, more than 2.6 million people receive pension credit, with an average household award of £43.50 a week. That number is growing with every passing day. It is worth reminding the House that the poorest pensioners were expected to live on just £68.80 a week in 1997, and under this Government they will get an extra £36 every week. From April, the Government will spend £9 billion extra on pensioners as a result of measures introduced since 1997. That is almost £6 billion more than if we had just linked the basic state pension to earnings.

Our policies have not only been more generous than the earnings link, but also more progressive £7 of every £10 of pension credit goes to helping women, many of whom have been penalised by a basic pension that short-changed them on the time taken out of work to bring up children. With the introduction of pension credit, almost 1.9 million pensioner households will qualify for more help, or qualify for help for the first time, with their council tax or rent.

The poorest are gaining more under our plans. Those who urge us to scrap pension credit and use the funds to increase the basic pension must realise that their plans would cut the incomes of poorer pensioners by £30 every week. The progress that we are making stands in stark contrast to the Opposition's approach. Our approach is fair and fiscally prudent. Theirs is unaffordable, unsustainable and, above all, unfair.

We will also give people more choice about when they retire, by giving a much better deal to those who choose to take their state pension late. For the first time, people will be given the chance to build up a lump sum by deferring their state pension. I can tell the House today that that will be calculated using an interest rate at least two percentage points above base rate, which would mean 6 per cent. today. Therefore, from next year, a woman with just the basic state pension of £77 a week could start building up a lump sum worth £8,500 if she kept working at 60 and drew her pension just two years later, or a lump sum of £23,000 if she put off retiring until 65.

Most people have higher state pensions than that thanks to the state earnings-related pension scheme and the state second pension, and could therefore build up even bigger sums. On average, men retire with £100 in state pensions, which would allow a man working until 70 to build up a lump sum of more than £30,000, or for a couple, a lump sum of more than £48,000. In the past, lump sums have been the preserve of the fortunate minority with good occupational pensions. These proposals make them an option for everyone. As well as the lump sum, our reforms will offer those who take their pensions late the alternative of a pension for life that is very significantly higher. Someone working an extra five years with typical weekly state pension entitlement of £100 will be able to increase that to £152, with inflation additions on top. The whole thrust of the proposals is therefore to give people new and attractive options to work beyond 65 when they want to.

Mr. Willetts

Will the Secretary of State clarify whether the lump sums that he has just described will be taken into account if pensioners claim means-tested benefits, or whether they will be wholly disregarded?

Mr. Smith

As we have made clear, the principle behind the policy is that people will not be disadvantaged throngh taking the lump sum rather than the increment. The detail by which we will do that on pension credit will be set out in due course, just as the detail of how we will meet the goal on taxation will be set out by my right hon. Friend the Chancellor of the Exchequer. I hope that the hon. Gentleman and his party, and other parties in the House, will see the merit of these proposals in extending the opportunity of genuine, worthwhile choice to people, and in giving a much fairer deal to those who choose to defer taking their state pension. I emphasise choice—that is what this must be about. Together with our plans to stamp out age discrimination and to allow people to work part time while drawing a pension, these initiatives will encourage many people to work into later life, and all of us will benefit from their contribution.

I stress, however, that working beyond 65 must remain a matter of choice. It is not something that can be forced on the least well off. We therefore reject calls to put up the state pension age. Instead, we want to give everyone the choice to boost their pension by working for longer when it suits them to do so.

The measures before the House will benefit a large number of children, parents and pensioners. They carry forward our reform of the welfare state and our mission to tackle all forms of poverty. Through investment and reform, getting record numbers into jobs and tackling fraud, we are able to target extra resources for children and pensioners who need help most. The orders help us build a Britain that fulfils potential, opens up opportunity and tackles poverty, and I commend them to the House.

1.48 pm
Mr. David Willetts (Havant) (Con)

I am sorry to take away some of the drama from this potentially very significant debate, but let me begin by assuring the Secretary of State that it is not the Opposition's intention to vote against the proposed uprating of benefits. We all still remember the year when the Liberal Democrats did that, trying to deprive their constituents of any increase in their benefits, and we will not make that mistake. Of course, we welcome the uprating that is being proposed, but I want to ask the Secretary of State some specific questions about what he has just said.

First, the Secretary of State talked about poverty and the Government's proposals on child poverty. Is he at all embarrassed, however, by the evidence from the Government's own report, "Opportunity for all: fifth annual report", of the incredible stability in the number of people facing persistent low incomes? Between 1994 and 1997, 16 per cent. of children in low-income families faced persistent low incomes, defined as being below 60 per cent. of median income in three of the past four years. Between 1998 and 2001, the figure was also 16 per cent.

Sadly, there is similar evidence relating to people of working age. Between 1994 and 1997, 7 per cent. of working-age people living in low-income households faced persistent low incomes; the figure was also 7 per cent. in 1998 to 2001.

Why do the much-vaunted increases in benefit expenditure, and all the other measures described by the Secretary of State, seem to be having no impact on one of the things that the right hon. Gentleman says that he cares about, and which the Government have set as one of their objectives —the elimination of the persistent poverty in which people are currently trapped? This is the fifth annual report on poverty, but as yet there is no sign of any movement whatever. Conservative Members would like to hear from Ministers—instead of the usual propaganda—an honest explanation of why they are apparently not moving out of persistent poverty those who have been stuck in that position for far too long.

I can offer the Secretary of State a possible explanation. Many of the benefits for families have been lost to his budget, and are now pact of the Chancellor's tax credits. We find ourselves in an odd position: the structure of the tax credits for families does not match the measurement of poverty that the Secretary of State's Department used for the purposes of this document.

Paul Flynn (Newport, West) Lab)

Given the definition of poverty with which we are saddled, if everyone in the country became a millionaire tomorrow the proportion of people in poverty would be the same as it is now. Can the hon. Gentleman exercise one of his many brains and suggest a better definition that would reflect the real situation?

Mr. Willetts

I am not sure whether that follows, but I agree that if everyone had an extra £1 million, the proportion of people with below 60 per cent. of median income would remain the same. I am happy to accept the general, conventional assumption that that is the relevant measurement. There are many others—there are relative measures, absolute measures, measures that change over time and measures that do not—but the central measurement that the Government set when they first identified their child poverty target was 60 per cent. of median income. We will not allow Ministers to get away with changing the target: they should be judged in terms of that 60 per cent. measurement.

In what was perhaps a fruitless endeavour, I was trying to take the House through the finer points of equivalence scales in the measurement of poverty. This, in my view, is one of the problems faced by the Secretary of State. I am pleased to observe Ministers' rapt attention. The measurement of poverty used in the document reflects changes in family structure. If, for example, a household contains two adults rather than one, the income that it will need to achieve a given standard of living will be greater than that of a household containing one adult. Similarly, a household containing three children will need a greater income than a household containing only one. Equivalence scales are needed for the measurement of poverty. However, the structure of the child tax credit introduced by the Chancellor does not match the pattern of equivalent scales used by the DWP to measure poverty. The Chancellor is not using instruments that can tackle poverty as the Government measure it in their annual report.

Mr. Andrew Smith

I hesitate to interrupt the hon. Gentleman's lecture, but as he will have noted from our December publication on the measurement of child poverty, it has been proposed that we move to the OECD's basis for the equivalent scale. Does he agree with that, and what does he expect its impact to be?

Mr. Willetts

I am happy for the Government to adjust their equivalence scales in line with international standards, provided that the Secretary of State undertakes to urge on the Chancellor that the structure of child tax credit, and the other tax credits he has introduced, also reflect more clearly the way in which all Members understand poverty and its effects on households with different structures.

One of the main reasons for the failure of the Chancellor's measures to reduce poverty is the fact that the Chancellor takes no account, in his structure of child tax credit, of the second adult in a household that contains a couple. Two adults receive no more child tax credit than one. When the Secretary of State for Work and Pensions measures poverty, he naturally expects a family containing two adults to need a higher gross income in order to achieve a given living standard than a family containing only one adult. Will he tell the Chancellor that his tax credit should reflect more accurately the way in which all of us here measure poverty? I should welcome an intervention from him if he wishes to respond.

If that change is not made, the Chancellor will not be able to meet his own child poverty objectives because he will be using instruments that do not reflect the way in which the Secretary of State's Department measures poverty. I should have thought that the Secretary of State would be able to stand up for the measurement that he has deployed for the past five years.

Mr. Waterson

Get on with it!

Mr. Willetts

I hope that the Secretary of State will indeed get on with it, and offer us some assurance. If he does not, he will not be able to abolish child poverty and the Chancellor's instruments will not achieve his objective.

The fact that the Secretary of State does not wish to intervene suggests to me that he knows there is a problem, but is not willing to assure the House that he will raise it with the Treasury and the Chancellor so that something can be done.

Mr. Webb


Mr. Willetts

We are fortunate enough to have with us the author of a valuable book on the whole subject of poverty and the measurement of child poverty. I should welcome an intervention from him.

Mr. Webb

I shall scrap the rather partisan intervention that I had planned and suddenly become statesmanlike.

The English translation of what the hon. Gentleman has just said is that the war on lone parents is back on. He says that the tax credit system does not provide extra money for the second adult in a two-parent family, and that the Chancellor should give more to two-parent families than to one-parent families; but he has also made an important point about persistent child poverty. I genuinely do not know the answer to this question: is persistent child poverty, which is the most worrying sort, more concentrated among one-parent families? If so, would not his proposed system give less priority to the severe and persistent poverty faced by children in one-parent families?

Mr. Willetts

It is true that the problem of persistent poverty is more concentrated among lone-parent households. But it is also true that although lone parents are more likely to be poor, in absolute terms a majority of the 3 million-plus poor families are headed by couples. One of the Chancellor's problems is that his child tax credit is extremely harsh on families headed by couples. That is why he is making so little progress with his child poverty target.

Mr. Andrew Smith

May I return the discussion from its present academic level to a level that actually means something to people in communities? If the hon. Gentleman accepts, as he did in replying to the hon. Member for Northavon (Mr. Webb), that the problems for lone parents are more severe, how can he imagine for a moment that the Conservative party's commitment to abolishing the new deal for lone parents can do anything other than make that poverty worse?

Mr. Willetts

I am pleased that the Secretary of State has mentioned that, because it gives me an opportunity to move from the measurement of child poverty to a second subject that I wanted to raise with him: the performance of the new deal and, more widely, the problem of economic inactivity. This is one of the paradoxes of the current Government. We remember all the arguments about the problem of worklessness when they were in opposition; there has been very little progress in reducing the number of workless households since 1997. We remember being accused of taking people off unemployment benefits and putting them on to disability benefits—but what do we see now? We see an increasing number of people on disability benefits and an increasing number claiming incapacity benefit. I have seen the figures

Mr. Smith

The hon. Gentleman should check his figures. If he does so, he will find that the inflow of people receiving incapacity benefit has fallen by a quarter since 1997.

Mr. Willetts

The Secretary of State has made a serious mistake in raising this issue. The big problem that we face is people being trapped on incapacity benefit for longer and longer periods, and that is happening because the Secretary of State changed the rules in order to means-test incapacity benefit. As a result, if someone leaves incapacity benefit under the old rules, holds down a job for a while and goes back on to incapacity benefit, they do so on the new, means-tested basis. His changes have created a new obstacle to people leaving incapacity benefit because they are afraid that they will return to it on that new basis. We warned about that at the time, and I am afraid that the figures have borne out that warning.

Miss Anne Begg (Aberdeen, South) Lab)

How will the Conservatives' plan to abolish all new deals help people on incapacity benefit to get back into work?

Mr. Willetts

I regard the new deal for disabled people as one of the more effective new deals. We have not said that we will abolish the new deal for disabled people. However, the Government's welfare-to-work programmes simply have not delivered what the rhetoric claims. Indeed, as recently as a few days ago, yet another report showed exactly how ineffective they are. The Policy Studies Institute's evaluation of work-focused interviews for lone parents showed that less than 1 percent. of lone parents taking part in that scheme had exited income support as a result of doing so. Page 12 of the report states that the introduction of Lone Parent Work Focused Interviews brought about no detectable change in exit rates from IS"— income support— for eligible new or repeat claimants". The Department for Work and Pensions' evaluations of new deal projects and compulsory interviews regularly show that many such interventions have minuscule, and occasionally even negative, effects. However, instead of learning the lessons and redesigning his policies, the Secretary of State endlessly repeats the same rhetoric. He ought to discuss with the House why, for example, many of these compulsory interview processes are simply not getting lone parents into work and improving their performance. That would be a valuable debate, in which we would be very happy to participate.

Perhaps I might ask the Secretary of State about a third issue—housing benefit. I have some sympathy with the aim of reforming housing benefit. I shall watch with interest the results of the pilot projects that have already been launched. However, it is a pity that we have heard so little from Ministers about how those pilots are going, and I should be very grateful if the Minister for Work could say something in his wind-up about the envisaged future shape of housing benefit reform. I also wonder whether he has anything to add to what we have heard, for at least the past two years, about the piloting of schemes for standard payments. Housing benefit is crying out for reform and it is time that the Government gave us a progress report on their thinking on the subject.

I invite the Minister for Work to tell us a little about the state of Child Support Agency work. We have read reports of continuing problems with the new computer system; indeed, it was even claimed—I am not sure whether the claim was based on an accurate interpretation of what the Secretary of State said to the Select Committee—that the Government had encountered such problems with it that they might have to abandon it entirely. Will the Minister say how well the system is working and whether there is any prospect of transferring the existing case load to the new computers? We need to know whether that it feasible, and whether the Government are still committed to doing so.

I also want to ask the Secretary of State about pensions and pensioners. We are proposing to increase the value of the basic state pension because we do not want to live in a country in which more than half of all pensioners are dependent on means-tested benefits. The evidence of the low take-up of means-tested benefits shows that most people remain uncomfortable about claiming such benefits, however much the Secretary of State's Department spends on advertising them. The take-up of means-tested benefits is still shockingly low. Indeed, the Secretary of State hat had the honesty to admit that council tax benefit take-up is too low, and that he wants to raise it. The take-up rate for the old minimum income guarantee was just over 70 per cent. This is not good enough. It is extremely risky for the Government to put increasing weight on means-tested benefits to try to help poor people, given that the evidence shows that it is very difficult to increase take-up, despite Ministers' best efforts.

We are proposing to help take pensioners off means-tested benefits by increasing the value of the basic state pension. That would tackle a widespread grievance among pensioners and provide a solid basis for the savings industry to sell its products to future generations of pensioners. The industry says that it cannot encourage people to save because many are worried about being caught out on means tested benefits when they retire. Our proposal would offer a better deal for pensioners, and it would provide a better way of encouraging people to save for the future.

Mr. Bob Blizzard (Waveney) (Lab)

Is the hon. Gentleman therefore telling the House that he would simply take money away from the poorest pensioners in order to redistribute it to the better-off ones?

Mr. Willetts

I am happy to reassure the hon. Gentleman that I am not saying that at all. We have no wish to abolish the pension credit—I think that the Secretary of State used that expression, although he did not attribute that wish to a particular person—but we propose to replace it over time with the state pension as it increases in value. No pensioners will lose as a result of our policies, and the poorest pensioners, who are not claiming the means-tested benefits that they are entitled to, will manifestly gain from our policies. It is very important that they get the help that they are currently not receiving.

Mr. Blizzard

Is the hon. Gentleman therefore saying that under his proposal, the pension credit would be frozen, the poorest and middle-ranking pensioners would get no uprating, and that that money would be spread among those who are not getting pension credit?

Mr. Willetts

We are not proposing to make any changes to the pension credit. We are simply proposing to increase the value of the basic state pension in line with earnings, which would gradually ensure that an increasing number of pensioners became free from means-tested benefits.

There is a crucial point on which I have previously asked the Secretary of State for clarification, and the intervention of the hon. Member for Waveney (Mr. Blizzard) gives me another opportunity to do so. It would be extremely helpful, particularly for pensioners and those who represent them, if we knew whether the Secretary of State-assuming that there is a third Labour term and he is re-elected to office-intends to increase the value of the pension credit by earnings or by prices. When we know the answer to that question, we can put further flesh on our proposals for pensioners. But the Secretary of State has never told this House that he is committed to increasing the pension credit by earnings in the next Parliament. Again, I invite him to the Dispatch Box, should he wish to give that assurance today. He seems unable to give it, and our assurance in respect of an earnings link for all pensioners and the basic state pension is a manifest improvement on anything that pensioners have received through the previous proposals of either of the two main parties.

The Secretary of State has again failed to take the opportunity to tell us that he is going to increase the pension credit by earnings in the next Parliament. If he will not do so, it is absolutely clear—[Interruption.] A Labour Member shouts "cop-out" from a sedentary position, but the cop-out is the Secretary of State's. The cop-out is that of a Government who still will not tell us what their intentions are for the pension credit in the next Parliament. However, we have set out our proposals for the basic state pension.

Sir John Butterfill (Bournemouth, West) (Con)

Does my hon. Friend agree that one of the problems—it is particularly apparent in my constituency—is that many of the people who are entitled to benefits do not claim them because they have no experience of doing so? Many of those who are in the most deprived state are widows who have no experience of claiming benefits. Not only are they intimidated by the paperwork that they must complete—it is very intimidating, as anyone who examines it will see—they are too proud to claim and feel that they should not do so. However, others who have claimed various benefits virtually throughout their lives find it much easier to do so. It is that first group who often constitute the very poorest in our society.

Mr. Willetts

My hon. Friend is absolutely right. Although I do not have the figures to hand, this is an important aspect of the council tax problem with which the Government are wrestling. The evidence of the take-up of council tax benefit among owner-occupiers—they have probably not been on income support or the minimum income guarantee in the past—is, from memory, about 30 per cent. I would be happy if Ministers want to intervene to correct me, but the take-up is very low among people who have not previously claimed any means-tested benefits. That is why there is such a problem with council tax at the moment.

Mr. McLoughlin

Do not the Government send out mixed messages when they say that they are trying to target help on the most vulnerable rather than give general increases, yet they have granted a general increase in heating allowances to every pensioner irrespective of income and a free TV licence to people over 75? They cannot argue both ways and claim that they are targeting help on the most vulnerable when they give out extra benefits across the board.

Mr. Willetts

My hon. Friend makes a good point. As I hear the different arguments from Ministers about why the winter fuel allowance is right for everyone; why older pensioners who tended to be poorer should be helped by a free TV licence for over-75s; and why means-tested benefits are also important, I detect completely different arguments in different contexts for different benefits.

Mr. Andrew Smith

For the sake of clarity, is the hon. Gentleman seriously proposing that a Conservative Administration would have no means-tested benefits?

Mr. Willetts

Conservatives are realists. I am a realist and I know that there will always be some means-testing. What we object to is the Chancellor of the Exchequer putting more and more people on means tests, when that should be a necessary but modest part of the benefits system. Means-testing should not be a central part of the Government's policy for tackling poverty and improving living standards. Under the present Government, what has happened—contrary to what the Chancellor said in opposition—is that we have become increasingly dependent on means-tested benefits as the Government's way of trying to help people, but they are simply not working. With more than half of all our pensioners on means-tested benefits, this is not the sort of country in which I wish to live.

Mr. Blizzard


Kevin Brennan (Cardiff, West) (Lab)


Mr. Willetts

I have already accepted two interventions from the hon. Member for Waveney, so I give way to the hon. Member for Cardiff, West (Kevin Brennan).

Kevin Brennan

If I understand correctly, the Conservative party proposes to reduce the proportion of gross domestic product spent by central Government, and in doing so to ring-fence the amount spent on education and health. So how will the hon. Gentleman pay for his pension funds?

Mr. Willetts

My right hon. Friend the shadow Chancellor made it clear in his authoritative statement the other day that his public expenditure proposals include our plan to increase the value of the basic state pension in line with earnings rather than prices. We have set out a very carefully costed programme to be financed by a combination of offsetting savings in means-tested benefits, which will gradually be displaced, and the abolition of the now deals, particularly for young people, which are not helping. What we are proposing is a much better system than the one it will replace.

The Minister for Work(Mr. Desmond Browne)

In reminding the House: of what the shadow Chancellor said, will the hon. Gentleman also remind us that he said that in order to pay for the policy, a Conservative Government would have to take some "painful" decisions. Perhaps the hon. Gentleman could tell us precisely who would suffer that pain? On the new deal, can he explain the arithmetic whereby moneys are released to pay for the policy when the independent evidence shows that the new deal for young people alone saves the Exchequer s significant amount?

Mr. Willetts

The research to which the Minister refers was an extremely sloppy piece of work. [HON. MEMBERS: "Why?"] It was sloppy because it took the receipts from the windfall tax, put them all into a bank account and counted the interest earned on the unspent windfall tax receipts as one of the ways by which the Exchequer benefited from the new deal. That was a ludicrous way of assessing whether the scheme would help young people into work. That is why it is a sloppy piece of research.

We know from the National Audit Office that about 8,000 young people have been helped into work by the new deal for young people—a tiny figure in comparison with the figures that Ministers use. The new deal for young people has not been a good use of public money because most of the young people who got into work would have got into work anyway and they were doing so before the new deal came along. The fallacy of the Labour party is the claim that everyone who got into work since the arrival of the new deal for young people did so because of it. As I said, young people were getting jobs before that:80 per cent. of young people were leaving benefits and getting into work before the arrival of the new deal for young people. That is why it is a bad deal.

Mr. Blizzard


Mr. Willetts

I have given way several times to the hon. Gentleman and I want to move on to my final point, which is another question for the Minister for Work to deal with when he winds up the debate.

I have read the document before us, and I was rather surprised by what has happened to the administration costs of the national insurance fund. Will the Minister explain why the accounts before us—provided by the Government Actuary 's Department—reveal a large increase in the administration casts: the final costs for 2002–03 were almost 40 per cent. higher than the provisional estimate given to us by Inland Revenue al this time last year and the current 2003–04 provisional estimate is 40 per cent. higher than that."? Given that we are all committed to reducing the overhead costs of Government, and that Conservative Members are serious about reducing them, can the Minister explain why the Government Actuary has been caught out by two successive 40 per cent. increases in administration costs? I greatly look forward to the Minister's response and I hope that he will tackle the points that I have made in my contribution to today's debate.

2.16 pm
Paul Flynn (Newport, West) (Lab)

This is an annual ritual in which social security nerds get together and speak to each other in a language that no one else in the country understands. I feel that I have to contribute for the sake of tradition.

I have a few minor quibbles against Government policy, but I am certainly against the policy of Conservative Members, who constantly amaze us with their brass neck after years of ravaging the social security system, cutting the benefits of the poorest people and 17 continuous years of salami cuts to the basic pension. I believe that we can say to the country that the Labour Government have, provided the best period ever for social security benefits and imaginative changes, and that for pensioners this has been the best period in recent history, in which benefits have increased by substantial amounts.

One of my regrets about the basic state pension—I raise the old chestnut again—is the link to earnings. If the uprating had been linked to earnings, the basic state pension for a single person would be 40 per cent. higher and for a couple 65 per cent. higher than now. It is a shame that we did not do so over a period in which the Government have engineered low interest rates and a steady economy, because we could have taken on the role of linking the basic pension to earnings with very little effect on the finances.

The hon. Member for Havant (Mr. Willetts) outlined the Conservatives' policy, which seems to be to link the basic pension to earnings. I believe that that is an admirable aim, for which many hon. Members on both sides of the House have asked over many years, but the downside is that the increase in the means-tested minimum would be at the level of prices. That is an extraordinary position, and for us old lags in the business it is so reminiscent of what happened throughout the 1980s when the link was broken. It would be a return to the Thatcher Government policy of allowing pensioners on income support to fall further behind the income levels of working people each year.

Getting people off means-tested benefits is a fine aim. We all want that to happen, but the Opposition proposals would make recipients of means-tested benefits relatively poorer, year by year. That is entirely morally indefensible. The hon. Member for Havant (Mr. Willetts) has presented a programme that would be aimed at that group of poorest pensioners. It is a cynical move: the Opposition want to grab a headline by saying that they would restore the link, but they do not make it clear that the other side of the coin is that they would cut what means-tested pensioners receive. People must not be taken in by what the Opposition say on this issue.

Another old favourite topic is the state of the national insurance fund. Its administrative costs might have increased for many reasons, but the fund is one of the Government's most successful enterprises, despite this year's seemingly disastrous news. It continues to be very profitable, even though income from contributions in the current year is expected to be £31.4 billion less than the Government Actuary estimated a year ago. That may be a surprising figure, but even so the fund's income is expected to exceed expenditure by a healthy £35 million. The balance in hand at the end of the year will be nearly £27.3 billion—three times the minimum working balance recommended by the Government Actuary.

To put it another way, the fund is supposed to operate on a pay-as-you-go basis, but it has an unneeded balance of some £18 billion—money that contributors have paid to meet the current costs of benefits, but which has not been used for that purpose. A written answer from my right hon. Friend the Paymaster General on 6 February showed that the whole of that £18 billion unneeded surplus had built up since 1997.

What will happen in the coming year, 2004–05? The Government Actuary's estimates show an increase of 5.6 per cent. in the fund's income, but an increase of only 3 per cent. in its expenditure. That produces another massive surplus of £32.4 billion. By the end of the year, the accumulated balance will be £1 billion more than the Government Actuary recommends.

It is often suggested that that is not real money, and that the fund does not really exist. It certainly does exist, however: nothing could be further from the truth than to suggest that it exists in some sort of parallel financial universe. The fund does exist, and an account of its investments is presented annually to Parliament. Those investments could be realised at any time if the money were needed for the payment of pensions or other benefits.

Although the fund exists, the Treasury treats it as an undifferentiated source of Government revenue. It is obvious that, in fixing benefit rates for the coming year, no account has been taken of the almost £20 billion needlessly held in the fund, although those who contributed the money assumed that it would be used for that purpose. Neither has any account been taken of the annual loss of £2 billion suffered by the fund as a result of reductions in employers' contributions to compensate them for the climate change levy and other "green" taxes.

That sum of money is rapidly becoming forgotten. I raised the matter in the Select Committee with one of the Treasury Ministers. I said that the climate change levy and other environmental taxes are being paid by the national insurance fund, through the reduced contributions for employers. Although those taxes are necessary and beneficial, why on earth should pensioners—the major beneficiaries of the national insurance fund—be the main payers? The fact that they are doing so is extraordinary, and a distortion of the fund's proper use.

In another written answer on 6 February, my right hon. Friend the Paymaster General said: The UK national insurance scheme operates on the "pay-as-you-go" principle so that the contributions paid by people of working age fund the benefits of people who are currently claiming benefit."—[Official Report, 6 February 2004; Vol. 417, c. 1082W.] That is true, as far as it goes, but it would have been more accurate to say that part of the contribution income is used to fund the benefit, and that the rest is used to help the Chancellor meet his fiscal targets. That is a long way from the original purpose of the national insurance fund, which was introduced by the last Liberal Government—some time ago.

Introducing his pre-Budget report on 10 December, my right hon. Friend the Chancellor of the Exchequer referred to the cost of restoring the earnings link. He said that to revert to the pre-1980 position—an earnings link with pensions—would, by the end of the period"— that is, by 2050— raise deficits by 3 per cent a year just to cover this one item, with the long-term sustainability of the public finances undermined."— [Official Report, 10 December 2003; Vol. 415,c. 1063.] Few people will be neurotic about the possibility of our finances being undermined by 2050. There was no mention of the fact that the basic pension is an insurance benefit, financed by contributions to the national insurance fund. If contributors are prepared to meet the cost from year to year, the sustainability of the public finances will be entirely unaffected.

What we really need is a radical review of the financing and control of the whole national insurance system, so that contributions can be seen to be used for the traditional purposes stated throughout the fund's history. In that way, account could be taken of all the principles on which the fund was based.

A paper entitled "Better Pensions" from the think-tank, Catalyst, proposed the establishment of a national insurance commission consisting largely of representatives of contributors and pensioners. Such a commission would provide a very good starting point for reform of the system.

The question of means testing has been raised already, and will probably run throughout the debate. We are told that it is no longer the means testing of old, and that we now have a new and cuddly version. That is fine, and there is some truth in that statement. People no longer have to supply details of their income on a week-to-week basis, which is a welcome change. We should also pay tribute to the unprecedentedly energetic and resourceful work of the pension services in tracing all those people who are entitled to means-tested benefits. However, the great condemnation of such benefits is that a huge number of people do not claim them.

My right hon. Friend the Secretary of State rightly referred to the poorest pensioners, but the poorest of all are those who are entitled to means-tested benefits but do not claim them. The problem has persisted under all Governments. The Government's target is to get at least 3 million households on pension credit by 2006. That will be an enormous undertaking, given that the number of pension credit households was little more than two thirds of the target figure. Ambitious as the target is, it would still leave 1.4 million pensioners not receiving the credit to which they are entitled.

It is not true that we have solved the take-up problem. We must do a great deal better in that respect, and I look forward to what my hon. Friend the Minister for Work has to say when he responds to the debate.

I turn now to the savings disincentive. The prospect of more than half the pensioner population being entitled to pension credit, not just in the short term but for the foreseeable future, poses a more fundamental problem. Those in receipt of the credit will find that its value is reduced by 40p for every £1 of income that they receive from an occupational or stakeholder pension. What sort of message will that convey to people of working age who are wondering about saving more for their retirement?

The problem is a growing one. I wonder whether those who push pension policies acknowledge that and make it clear that that is what will happen. As long as means-tested benefits exist, it will be hard to avoid the twin problems presented by low take-up and the incentive to spend rather than to save. However, we can stop the problem from spiralling out of control by keeping the gap between universal and means-tested benefits as narrow as possible, or at least by preventing it from widening. The simplest way to achieve that is to restore the earnings link, so that the basic pension rises in line with the means-tested minimum. That is a familiar plea in the House, but it is always valid.

Mr. Willetts

I invite the hon. Gentleman, who might have more success than I did, to ask the Secretary of State whether the value of means-tested benefits for pensioners will rise in line with earnings in the next Parliament, if the Government are re-elected.

Paul Flynn

I am touched by the hon. Gentleman's faith in my ability to persuade the Government. For about five years, I got up at an ungodly hour to table early-day motion I, urging that the link between the basic pension and earnings should be restored. Despite all my endeavours and those of the 100 or so fellow Members who signed those early-day motions, I failed so to persuade the Government. It is dishonest of the Conservatives to propose a programme that clearly would relatively reduce the income of the poorest pensioners. They suggest that the basic pension should be increased by earnings, which is fine, but increasing the means-tested pension only by prices would guarantee an increase in the disparity of incomes between better-off pensioners and the poorest pensioners.

If the Government cannot state their policy today, we must not gaze into a crystal ball but study their record, which is one of fairness, generosity and innovative policies that, as a pensioner of some four years' standing, I know people of my age greatly appreciate.

2.31 pm
Mr. Steve Webb (Northavon) (LD)

This annual debate affords the House the opportunity, which the Secretary of State and the spokesperson for the Conservative party took, to examine in detail benefit rates throughout the social security system and to reflect on Government strategy. I propose to follow them in doing so, but first I want to don my anorak—having been goaded by the hon. Member for Havant (Mr. Willetts)—and refer to article 20(3) of the regulations, which is obviously a contentious subsection: In regulation 16(3)(a)(k) (applicable amounts) '20 per cent.' remains unchanged. The explanatory notes state, in the context of housing benefits for pensioners: Article 30(3) sets the percentage by which benefit is reduced after a period in hospital". There is a corresponding section about council tax benefit.

Will the Minister explain the Government's thinking? Following pressure from others and us, there have been some welcome concessions on benefits for people in hospital, but are such people able to pay council tax any more than those living at home? Why should anything in the regulations cut council tax support for pensioners just because they are ill? Their other bills will continue. When will that provision cut in, and what effect will it have? Do the Government have any plans to review that arrangement? I cannot see any justification for reducing that support. I give the Minister notice of that detailed point, so that he will have a chance to respond.

The Secretary of State referred to the proposal to defer a lump sum for five years, which is an interesting notion. I have no problem with the idea of new options, but I must admit to some concerns. The hon. Member for Havant queried whether that money will be disregarded for the purposes of pension credit—one of two key questions. I was dismayed that the Secretary of State was unclear, saying that the principle is that the recipient will be no better but no worse off. What will that mean in practice? A man of 65 needs to know unambiguously whether the lump sum will count towards pension credit. If it does, that will change the entire calculation and it will become excruciatingly difficult. Although a 6 per cent. gross allowance might be achieved by deferring, which would probably be subject to tax, would the individual lose all future entitlement to pension credit, or lose it only until they had run down some of their capital stock? Some existing capital stock from another source might count, whereas new capital would not. Unless that scheme is implemented simply, pensioners might be asked to make complicated calculations. The Government's record on simple implementation is not particularly strong.

I understand that that proposal has been associated with the Pensions Bill, but I am not sure whether it requires legislation. I hope that the Government will soon be a good deal clearer on how that provision will work. Presumably the typical £100 that rolls up would be taxable, so one supposes that the lump sum also would be taxable. Would it be taxable only at the basic rate—the rate at which it would probably have been taxed when it accrued—or, because the £100 would grow into a socking great sum that would take someone way into the higher rate band, would there be some special tax rate? Would a person at the age of 65 be offered £26,000, or whatever the sum is at age 70, or £26,000 gross, which turns out to be £20,000 net? If so, the individual might have achieved the same return by putting their pension into an ISA. The Government talk about simplicity in pensions but are creating something that is not nearly as simple as has been suggested.

Although some of the Government's ideas are not bad, they have been grossly overspun. The option of going without a pension for five years is not one that the masses will go for. The people to whom the Government want the scheme to appeal will predominantly be part-time workers. I do not believe that the Government have in mind people who work full time until age 70. People in good full-time jobs and on high incomes are probably well placed to sort themselves out anyway.

The Secretary of State mentioned women. The suggestion that women on modest part-time earnings would defer their pension for two or five years is farfetched and fanciful. I hope that the Secretary of State will not oversell the proposal. We do not have a problem with people being offered new choices, provided that they are simple and will not place them at risk of making the wrong decision. I hope that the Minister will not pretend that the proposal is some sort of revolution, because most people cannot afford to do other than take their pension as soon as it becomes available.

The main national insurance benefits for non-pensioners are linked to the retail prices index, excluding housing costs—and because of real increases in rents and housing costs, the rate is lower than inflation. The money spent on schemes such as the contributory jobseeker's allowance is now pathetically small—60p per week for under-25s and 80p per week for over-25s. An unemployed 25-year-old with a good contributions record receives £55.65 a week, whereas average earnings must be approaching £400 or £500 a week. When such allowances were created, they were meant to serve as earnings-replacement benefits. If they continue to be linked to a low measure of inflation year after year, their potential for serving as earnings-replacement benefits must have disappeared long ago. Do the Government plan to permit such allowances to wither, dwindle and become an anachronism, because they cost a lot to administer—money that could be spent helping unemployed people who need support. The Government have an interest in permitting such benefits to wither, but is any systematic policy in place to re-examine the role of benefits, rather than let them die from natural causes?

The age addition for the over-80s remains at 25p. It has stayed at that level for nearly a quarter of a century. Five shillings was once a lot of money, but it is not today. There is a fundamental difference between the Government and us over the potential for using that money to reach the most needy pensioners. There is some common ground between the official Opposition and us in respect of persons who do not receive pension credit, the majority of whom are elderly pensioners. The Government have missed the opportunity to do something with the age addition, rather than let it wither. The length of the regulations is testimony to the complexity of the entire system, which contains all sorts of bits and pieces that do not do what they were originally designed to do but that nobody will sort out. One occasionally wishes that, instead of producing the same document setting the figure at 1.8 per cent. practically every year, someone would take a strategic look at the system rather than let it drift on with bits falling into disrepair. The social security system is like a house that nobody has lived in for many years—things are gathering dust because they have always been there.

I want briefly to raise three strategic issues. First, we have not touched on the transfer responsibility for poor families with children from the social security system to the tax credits system. When I first saw the regulation, I rang the Library and asked whether there had been a typing mistake because the rate for children is £42.27, which is a strange number that looks a bit odd. It became apparent that the figure is not actually a social security rate; it is a tax credit rate per year converted into a weekly amount.

Whereas last year's transition from supporting families through the social security system to supporting them with tax credits was a mess, at least the people covered by that system were generally workers who had some other source of income. This April, people who are wholly dependent on the social security system will transfer to the Inland Revenue's clutches. Most of their money will come from tax credits rather than from social security, and it is vital that the process is right. When the Department for Work and Pensions says on day one, "You are not our responsibility any more. We will give the amount for the adult, but it is over to the Revenue", the Revenue must not say, "We will get it right in July." Such families cannot be put in that position.

I asked the Paymaster General for information on the transition, and she promised the House a statement, which we have not yet heard. It is nearly March and the transition occurs in April. What is going on? Why have we heard nothing from the Government about how the transition will happen? Are low-paid families on income support confident that support for their children will seamlessly—that adverb is not often used in the context of the tax credit system—continue the day after the DWP pulls out? I hope that the Minister for Work can reassure us that he is actively ensuring that such people, for whom his Department is currently responsible, will have their welfare protected and that the transition is already being properly planned. The people involved with the dreaded computer systems that lie behind the transition say that they are behind schedule on the testing, and one's heart sinks at the prospect of the mayhem that might arise.

Mr. Willetts

I entirely agree with the hon. Gentleman's concerns. Does he agree that although we have been told that the new system is seamless, unemployed families will find themselves dealing with two different agencies and trying to receive money from two completely different sources? It is absurd to regard the transition as simplifying the system for adults who will continue to receive benefits or for children who will need help from the Inland Revenue or tax credits.

Mr. Webb

I sympathise with that point, because I have tried to help constituents to sort out their child tax credits. The system has been running for nine or 10 months only, and my constituents raise concerns such as "My partner changed hours in July" and "I did some overtime in October". Such reporting and record keeping will be part of daily life for families across the land. Again, I am worried that the Inland Revenue is not geared up to act quickly. For all the failings of the benefit system. it was pretty good at responding quickly to emergencies. The Revenue must adopt that culture, and it must adopt it quickly. I am seriously concerned about the matter. Although it will by and large be the Treasury's problem after April, 1 hope that the DWP is throwing its weight 'around behind the scenes because I fear the worst. I am not scaremongering because last year we saw what can happen when the system goes wrong. The people affected last year had some income, but the folk whom we are discussing are wholly dependent on this money, so I hope that lessons have been learned.

Secondly, the hon. Members for Havant and for Newport, West (Paul Flynn) touched on the national insurance fund, and I want to pursue the issue of the report on the regulations. Appendix 7 compares the out-turn for 2003–04 with the estimate made one year ago. The hon. Member for Havant raised the issue of administration costs, which I want to pursue. One year ago, it was forecast that it would cost about £1 billion to administer the national insurance system, but the out-turn is £1.75 billion. In one year, the estimated cost of administration has gone up by £750 million, and a footnote lists two sources for that increase.

There has been a to-ing and fro-ing of funds between the national insurance system and the rest of the DWP. How can one work out how much it costs the DWP to administer its bit of the national insurance system? One must stick one's finger in the air and pick a figure, so the grey area surrounding that figure and the possible end of year adjustments is understandable.

The second reason is interesting: a one-off payment was made to the Welfare Modernisation Fund. That sounds suspicious, so I tabled a written question to find out the size of the payment. The explanatory note does not state the size of the payments, which seems odd given that we are discussing £750 million. It would be reasonable to break that figure down, but that has not happened. The written answer was not helpful, apart from giving me a slight sense that the Department sees the national insurance fund as a cash cow, which is the point made by the hon. Member for Newport, West.

The DWP cannot get rid of the blessed money because it does not want to put it into national insurance benefits, but it can have £750 million for departmental running costs, which is a clever trick if one can pull it off. Once again, the House's scrutiny of the expenditure of such vast sums of money is pathetic, and I take as much responsibility for that as anyone else. I hope that the Minister will tell us more about the £750,000 in his winding-up speech because it is not small change—one could build the dome for such a sum. What is the scrutiny process? I hesitate to say that £750 million has been pilfered from the national insurance fund, but there has been sleight of hand at the very least.

Thirdly, I shall discuss take-up. The benefits are great for people who get them, but they are less great for those who do not. We have heard that council tax benefit is the least well taken-up means-tested benefit—I used to make that kind of comment at dinner parties just to keep the conversation going, but now it is received wisdom. More than 1 million pensioners are not claiming their council tax benefit.

The hon. Member for Bournemouth, West (Sir John Butterfill), who chairs the all-party group on occupational pensions, is no longer in his place, but he pointed out a particular issue for owner-occupiers in an earlier intervention. Three quarters of the pensioners who do not take up their council tax benefit are owner-occupiers. Because they have reached the age to draw their pensions—perhaps they draw a bit of company pension as well-they are not used to claiming benefits and do not think that it has anything to do with them.

We are now seeing the political consequences of people not claiming the council tax benefit to which they are entitled. More than 1 million pensioners find it so hard to pay their council tax that the system puts something in place to support them, but they do not receive the help. The political point is that pensioners who claim their council tax benefit once are insulated from any future increase in council tax, which is slightly odd. In other words, the system works out what people can afford to chip in regardless of actual council tax— for example, the system might say that someone can contribute £5 a week regardless of increases in council tax. If council tax goes on rising at a far greater rate than inflation, all those people will be insulated. There is a huge political reward for the Government if they can get such people on council tax benefit.

Every year I ask the Government why they do not use the income information that they already collect? Hundreds of thousands of pensioners supply the Government with every single bit of information that the Government need to work out council tax benefit because they are claiming pension credit or housing benefit. That does not apply to owner-occupiers, but it still includes more than 333,000 people. Every year, I am told that there is a pilot, scheme or advertising campaign. We heard about another advertising campaign this afternoon—whoopee! The Government have not addressed the structural problem for seven years. I know that there have beets pilots, but I simply cannot understand why the Government are not just doing it. What is the problem? Will the Minister tell us why the Government do not regard a claim for pension credit as a claim for council tax benefit? Why do they not regard a claim for housing benefit as a claim for council tax benefit? If they did so, at least 333,000 pensioners would get the money to which they are entitled. The matter is not difficult and I do not understand the problem.

The system is fiendishly complicated and is becoming more so with every passing year. Any hon. Member who understands the child tax credit and working tax credit systems deserves enormous credit. The people who need the system most are not being helped because it is so complicated and they do not make claims. The transition from one scheme to another could leave far too many people in the lurch. The benefits may be all very well for those who receive them, but far too many people fail to receive them.

2.49 pm
Mr. Clive Soley (Ealing, Acton and Shepherd's Bush) Lab)

I wish to make two brief points and one slightly longer one. First, I agree with my hon. Friend the Member for Newport, West (Paul Flynn), who made the point in an intervention that the definition of poverty needs to be refined. It is absurd that an increase in the number of millionaires leads to an increase in the percentage of people in poverty without anybody getting any worse off. That is a statistical problem that needs to be addressed.

My second point is addressed to the hon. Member for Havant (Mr. Willetts). The sentiment was expressed more eloquently in this House many years ago, but we do not need to look in a crystal ball to see what the Tory party would do: we need only look in the history books. Of course, the Tories cut the link with earnings for pensioners, and thus did more to keep pensioners in poverty than any other party in the 20th century. That is not anything to be proud of.

My third point concerns the fear of poverty and the presentation of it in the press, and it is related to the intervention I made earlier about the lady who was allegedly about to go to prison because she could not afford to pay the council tax. I thought that that story was wrong as soon as I saw it, because the press claimed that she received only £312 a month in pension. I do not know who her MP is and I make no criticism, because we can all let things slip by, but my immediate reaction was that if she had been my constituent I would have tried to find out why she was receiving so little when she would be entitled to at least £400 a month, if not more. In any event, she should probably not pay the council tax or should receive a significant rebate, unless she had substantial savings.

Editors and sub-editors should know, given that many junior reporters will know, that someone on such a low income would normally get benefits. In other words, someone should have recognised that the story was seriously wrong. The hon. Member for Havant appeared to misunderstand me—and if he consults Hansard, he will see why—when he suggested that I was criticising the lady involved. In fact, in some ways, I made her point for her. She objected to the use of her council tax to fund a part of the European Union regional government structure. I make no criticism either of the United Kingdom Independence party or of Max Clifford. All three co-operated on a legitimate campaigning point, although the lady was unwise to say that she would go to prison for the cause.

I do, however, strongly object to the press using the story to present the lady as being in poverty, and that is related to my wider point about the fear of poverty among pensioners. One result of the story was that people sent cheques to the local authority to pay the lady's council tax bill—I do not know what the local authority will do with the cheques that were paid anonymously—but she was trying to make a political point. She said that she was prepared to go to jail because she objected to one aspect—or perhaps the whole—of the European Union, but she was not making a point about poverty

I remember that in 1997, when this Government were elected, some0 pensioners—especially women who had not paid any contributions during their working life —received only some £60 a week. That quickly went up to more than £90 a week and then to more than £100 a week, but—as ever with means-tested benefits—the problem was getting the message over. Some people did not receive the full amount and it was necessary to draw their entitlement to their attention. That is why I think the newspapers could have made a good story out of the lady's example. They could have said, "Look: pensioners who are getting only this amount need to put in a claim, either for council tax rebate or exemption, or for the increased pension that they are owed." The newspapers did not do that, and that was unfair of them.

Paul Dacre, the editor of the Daily Mail, who was very keen on the story, awarded himself £80 million a couple of years ago and presumably does not have to worry too much about paying the council tax. He will probably also accept his state pension in the normal way. I would have been more impressed if he had used his power, knowledge, position and influence to draw to the attention of pensioners their entitlement to those allowances. That would have been a good story and one that the papers could have been proud of.

Pensioners are not a timid group as a whole, but there are some timid people among them. However, the fear of the means test is no longer the main issue. It has a terrible reputation from the period of mass unemployment in the 1930s, but it no longer holds the same terrors. I do not claim that it is easy or has no problems associated with it, because it has, but I have noticed that pensioners who are entitled to council tax rebates or exemptions do not claim them. They assume that they have to pay the council tax whatever their income. The headlines in the press said that the lady in question had to pay or go to jail, so it is not surprising that some pensioners are fooled into believing that if they do not pay they will go to jail. It is irresponsible of the press to use such stories to scare people. We should have no illusions about it: that is what they are trying to do. I do not mind the press making political points, but they should not use vulnerable people to do so.

My ministerial colleagues are doing a good job on pension and benefit issues, but we must get over to people—the hon. Member for Northavon (Mr. Webb) also made this point—the fact that council tax exemptions and benefits are available. It is important to get that across to pensioners, because they are most affected by it. The newspapers could help in doing that. If they had used the story last week to get the message over, there would be many people feeling more comfortable and being slightly better off as a result. Instead, a person who set out on a road out of principle has had it turned into something else and, at the same time, others will have been made fearful about the dangers of going to prison if they do not pay their council tax.

2.57 pm
Mr. Nigel Waterson (Eastbourne) (Con)

It is a pleasure to be able to take part in this short but high-quality debate on the uprating orders. We have heard some interesting contributions—not least, the one from the hon. Member for Ealing, Acton and Shepherd's Bush (Mr. Soley). I always think of his constituency as including part of Hammersmith, having been chairman of the Hammersmith Conservatives many years ago and failing miserably to unseat him, to his no doubt considerable relief.

We started the debate with an orgy of self-congratulation from the Secretary of State about the benefits situation. As the debate has worn on, however, some of the gilt has come off the gingerbread. The Government now spend £125 billion a year on benefits and tax credits. Are they spending all that wisely, sensibly and effectively? Certainly not.

I turn first to the issue of means-tested benefits, especially council tax benefits, as that subject arises naturally from the previous speech. We know that council tax benefits have the lowest take-up rate and we know the reasons. I shall not repeat the good points that have already been made about that aspect of the debate. We also know the problems that have been caused by the recent shift in grant allocation from the south of the country to the north and midlands. We have also had endless debate about the case of the elderly lady, and I shall not dwell on it at any greater length. The hon. Member for Ealing, Acton and Shepherd's Bush has made his points.

As the Secretary of State recognised, however, there is a major problem in getting to claim that particular means-tested benefit. Within that problem is the even bigger problem of owner-occupiers; the hon. Member for Northavon (Mr Webb) touched on that important point. All too often in recent times, retired owner-occupiers, with major difficulties in making ends meet, have been faced with gigantic increases in their council tax and are either unable or unwilling to claim council tax benefit—in many cases, simply from ignorance that it even exists or that it would apply to them if they asked for it. I welcome the Government's publicity campaign, but that very campaign underlines the immutable problem with all means-tested benefits: there will always be a lack of take-up of those benefits, no matter how much any Government spend on advertising, television or writing to people

In my constituency last year, there was a 38 per cent. increase in the council tax element generated by Eastbourne borough council—the fourth highest in the country. The hon. Member for Northavon would be disappointed if I did not remind the House that Eastbourne is a Liberal Democrat-controlled authority. Locally, the Liberal Democrats are running their "Ax the tax" campaign, which is rather like a serial killer pleading, "Please stop me before I do it again". However, in reality the fact remains that many vulnerable elderly people, who have limited resources and have great problems in making ends meet, do not claim their full entitlement.

I shall return to means-tested benefits in a moment, but first I want to touch on the issue of economic inactivity on which there was some dispute between the Secretary of State and my hon. Friend the Member for Havant (Mr. Willetts). There is a growing and worrying problem, which David Smith set out well in an article in The Sunday Times only a couple of days ago. He said that, yes, the headline figures for employment look pretty good, on the face of it. Indeed, only the other day, the Minister for Work, who will be winding up the debate, was quick to issue a press release taking credit for what seemed to be relatively rosy figures, but as the article in The Sunday Times says—

Mr. Browne

Will the hon. Gentleman give way?

Mr. Waterson

Yes, although I should have liked to finish my point.

Mr. Browne

I am grateful to the hon. Gentleman for giving way in mid sentence, but it is important that he inform the House of two things. First, the press release was issued in response to the monthly labour market figures published not by my Department but by the Office for National Statistics. Every month from time immemorial, every Minister who has had my responsibilities has issued a press release on those figures, although they have not always been able to welcome the good news that I have been able to welcome so consistently. Secondly, the hon Gentleman should have informed the House of the fact that I drew attention in that very press release to inactivity. Indeed, I have done so in almost every public statement that I have made as Minister for Work.

Mr. Waterson

That is a helpful intervention. I was certainly not criticising the Minister for putting out a press release; that is one of the things that Ministers do. On the Minister's second point, I am delighted that the penny has begun to drop for Ministers and the Department and that they realise that there is a massive hidden problem—

Mr. Browne rose

Mr. Waterson

May I get to the end of this sentence? [Interruption.] Very well, I give way.

Mr. Browne

I do not know where the hon. Gentleman has been over the life of the Labour Government, but, if he does not already have them, I shall send him the documents we have published on the development of our policies to tackle inactivity. He must surely know about the "Pathways to Work" Green Paper, published about two year, ago, and about the pilots which have already taken place, and which will be taking place shortly across 10 per cent. of the country.

Mr. Waterson

In a sense, this argument is the wrong way round. The Minister was obviously so incensed by some of the comments made by my hon. Friend the Member for Havant and endorsed by The Sunday Times that he took the trouble of writing to my hon. Friend on 9 February to complain about the figures on which my hon. Friend has been relying, which I shall cite in a moment. The Minister cannot have it both ways. He cannot agree with what I have yet to say on the subject on the one hand while on the other violently disagreeing—albeit with his usual courtesy—with my hon. Friend in writing earlier this; month. Or are there two Ministers of the same name prowling the corridors of the Department for Work and Pensions? [Interruption.] The Minister says that he can have it both ways. Perhaps he can—at least for the next 15 months.

May I now make the point with which the Minister so violently disagreed before I could make it? The Sunday Times article states: A record 7.85m people of working age are economically inactive, 2.lm of whom say they want a job. David Smith draws particular attention to men aged between 25 and 35—a point that my hon. Friend the Member for Havant has made more than once. One would expect that in any given scenario that would be the age group of young men who were most likely to reach full employment, yet the article notes: employment in this age group has dropped by nearly a quarter of a million to 3.4m over the past two years. There are various possible explanations for that. My hon. Friend has talked about the "lost generation" of more than 1 million young people without jobs or proper education and training. That throws into stark contrast the headline figures comparing our rates of youth unemployment with those in countries such as Germany—[Interruption.] I can see that the Minister is gearing himself up for another intervention.

The youth unemployment rate in Britain is actually 12.3 per cent. compared with 10 per cent. in Germany. Is this a convenient moment for me to give way to the Minister?

Mr. Browne

No, carry on.

Mr. Waterson

The Minister is rustling his papers furiously.

My hon. Friend the Member for Havant has also drawn attention—in a pamphlet—to a further issue: jobs in public administration, education and health—that is, public sector employment—rose by 153,000 last year and that self-employment has risen by 294,000. There are two ways of looking at those figures. Self-employment is a good thing, because people are being entrepreneurial and running their own business; but there is also the problem of involuntary self-employment—people who have been made redundant or have lost their job and been forced to set up on their own to make ends meet.

It is, however, abundantly clear that there has been a significant drop in mainstream private sector employment. No less a person than John Humphrys put that point to the Chancellor on the "Today" programme recently, although the Chancellor flatly denied it.

At the end of David Smith's article he makes a fair judgment of the Government. He states: Full employment remains an ambition, not an achievement".

Mr. Browne

I am grateful to the hon. Gentleman for his generosity in giving way again. I read with interest the article to which he refers. If he quoted it all, he would be able to tell the House that the author gave the Government considerable credit for their achievements in reducing unemployment.

The issue is serious and important and we need to debate it, but the hon. Gentleman ought not to distort or misrepresent the figures. That was why I wrote to the hon. Member for Havant on 9 February. In fact, more than 1 million of the 1.7 million extra jobs in the United Kingdom today compared with 1997 are shown to be in the private sector.

Mr. Waterson

I shall not go back over the article or the pamphlet written by my hon. Friend the Member for Havant, but it seems clear that the current figures for increasing employment relate to the public sector and that the rate for the private sector is not increasing but falling back.

Another point that my hon. Friend rebutted in his response to the Minister's letter is that if we add the number of young people who are not in full-time education to the number of those who are economically inactive, the sum total is well over a million young people, which is a great worry. In fairness, the Minister has accepted that the issue is serious—[Interruption.] —as he repeats from a sedentary position. That is a further example to show that the headline figures on which the Government so often rely are only part of the story.

I come now to the new deal, particularly the new deal for young people. The Minister may remember that, on 17 November, he described the new deal for young people as a "great success"—no, doubt, when taking a break between sending out press releases in similar terms—but recent figures show that only 35 per cent. Of all those starting employment under that new deal have entered unsubsidised jobs. As I have said, there are still well over 1 million young people who are either economically inactive or unemployed. Only 17 per cent. of those starting employment under the new deal for over-25s entered sustained, unsubsidised jobs.

My hon. Friend the Member for Havant touched on the new deal for disabled people. However, there seems to be some misinformation among Labour Members, so let me take this opportunity to make it absolutely clear that abolishing that new deal is not part of our policy, nor part of our savings to restore the earnings link, because that new deal has been relatively successful. A great deal has been spent on the other new deals to much less effect, but there is still a persistent figure of 1 million or so people with disabilities who, when asked, say that they would like to gain or return to employment.

Again, we can agree that that is a serious problem, but I urge Ministers to consider the point that my hon. Friend made so eloquently in his opening speech: there are artificial barriers—we have debated them in the past—to people returning to work. Of course, one of the main barriers, if not the main one, is simply the introduction of the means-tested benefit, whereby people feel that, if they get a job which, for any number of reasons, does not work out, they will be in a more disadvantageous position than they would otherwise have been. I urge the Minister to take that point seriously.

Mr. Webb

The hon. Gentleman makes a distinction between the new deal for disabled people, to which he is broadly sympathetic, and the other new deals, which he wants to scrap. What is different about the new deal for disabled people? Why does he want to keep that new deal and get rid of the others?

Mr. Waterson

I have made the point that the new deal for disabled people has been relatively—I stress that word—more successful. Although vast amounts more are spent on the other new deals, a significant proportion of those involved in the new deal for disabled people have been helped back into work. About 6.6 per cent. of participants in that new deal have found sustained employment under the scheme. Of course, that is nothing like enough—I concede that immediately—but it is at least something. Given the fact that those people have particular disadvantages, we have concluded that we would keep that new deal in more or less its current form for the foreseeable future.

Mr. Browne

I am extremely grateful to the hon. Gentleman for giving way again. On the disincentive effect of the requirement to recalculate benefits for disabled people who move into work, I was interested to hear the hon. Member for Havant developing that thesis during his speech, but I am certain that the reality does not sustain his thesis. The reality is that, for 52 weeks or up to two years, these who enter work through the new deal for disabled people will almost always be guaranteed to return to the same rate of benefit, because of the linking rules, if they lose their job.

Mr. Waterson

If the Minister is right, perhaps this is a matter of perception, but at the end of the day, the means-tested benefit is one of a number of artificial barriers to disabled people returning to work. I have not gone away and dreamt that up in a darkened room; it has been put to me by disabled people and groups that represent them. There is a major, perceived disincentive, but if the Minister is right, perhaps he and the Department should do more to make such things clear to those groups.

I shall now move on to the final issue on the uprating of benefits that I wanted to touch on: child poverty and the Child Support Agency. The Secretary of State for Work and Pensions has conceded more than once—he certainly did so when 1 last raised the issue back in December, and he has not tried to tap-dance round the problem—that there is a major difficulty with the computer system, with the migration of the 1.1 million old cases to the new system and with the date at which it will work properly. This is not some anorak, techie issue. A very large proportion of the people involved in those 1.1 million cases could be significantly better off on the new formula. Many of those families have modest means and are in vulnerable situations. So there is a real injustice, not least because there is no suggestion that they should be compensated ex post facto when they finally get on to the new system. Again, those vulnerable, poorer people's cash flow is being used to subsidise the Government, which is wholly unacceptable.

The initials EDS inevitably rear their head. When the Secretary of State gave evidence on this subject, he made the point that "significant payments" due to EDS had been withheld. Clearly, there is a major problem. Among other things, he said: We have been assured there is a recovery programme in place and that the system is retrievable-in other words, it can be made to work properly rather t Ian needing to be scrapped. However, when pressed, he also conceded that it might have to be abandoned. He went on to say: When you have been through the sort of experience … you ask some hard questions about whether it really can be made to work. So let me ask one of those hard questions again today, for the Minister to cover in his winding-up speech.

Are the Ministers in the Department for Work and Pensions now confident about the long-term future of EDS's involvement in that project? Do they believe that the system is retrievable. or that it needs to be scrapped? I am happy to take an intervention to deal with that point—now or later, whichever is more convenient. I gather that the Minister has wisely decided to deal with it later.

I shall just touch on child poverty because my hon. Friend the Member for Havant went into that issue in some depth in dealing with the clash with the tax credit system. We all know about the problems that our constituents faced when the system was introduced and the hon. Member for Northavon eloquently dealt with the major unfairness involved, but there were two thunderous silences in the Secretary of State's speech. I shall come to the other in a moment, but the first occurred when he was pressed by my hon. Friend on that issue. Having reflected on that and having received inspiration from officials, the Minister may feel able to deal with that point in responding to the debate.

This is the bit where I put on my anorak—although little used—as I want to refer to the Government Actuary's Department document, Command Paper 6117, which accompanies the helpful bundle of papers on the uprating order. In my eternal attempt to be helpful, I remind the Minister of the point that has been made by my hon. Friend the Member for Havant and the hon. Member for Northavon about the apparent 40 per cent. jump in administration costs for 2002–03, and the fact that the estimate for 2003–04 is 40 per cent. higher even than that. We just want to know why.

I wish to make two other points about Command Paper 6117. First, according to the document, contribution receipts are up 5.5 per cent. —from £59 billion to £62.2 billion—but benefits, including uprating, are up only 3.9 per cent. Is that not an example of another stealth tax in operation? Finally on that document, the Government Actuary says: There is still uncertainly about the effect of contracting out on the financial position of the National Insurance Fund. I think I am right in saying, although I was not in this august position last year, that that issue was raised in this very debate a year ago. The Government actuary says that he thought a year ago that we would have the information by now, but that does not seem to be the case. The last reliable data on the numbers contracting out relate to 1998–99—five years ago—and the only data on the ages of those contracted out date from 1995. Can the Minister explain that massive lacuna, and does he agree that the lack of data on contracting out means that policy making is being conducted in a vacuum?

May I touch briefly and separately on the pension uprating order? Means-testing is at the heart of all such debates—we will no doubt come on to it again in the Opposition-day debate later. The Conservative party fundamentally believes that growing means-testing is not only wrong and bad for society and the individuals involved but deters help from getting to those who most need help. We debate the roll-out of the pension credit endlessly in the House, but even after all the advertising, letters, home visits and surgeries. only about half of those who are entitled claim the credit. The Department's target—to use the word used by the Minister—means that 1.4 million people will never get round to claiming pension credit.

The second thunderous silence during the Secretary of State's speech came when he was pressed on his party's future plans to link pension credit either to earnings or to prices. The Government seem unable or unwilling to answer that enormously important question. Thus, our argument is that the only fair and sensible way of dealing with the problems, as set out by the hon. Member for Newport, West (Paul Flynn), is to restore the link with earnings. I know that we must be on strong ground because a range of older people's organisations and organisations such as the TUC support our policy.

Mr. Jim Cunningham

I must say that I find it strange that the Opposition now argue for the restoration of the link for pensions, given that they abolished it in the first place. Why the conversion?

Mr. Waterson

Talk about looking a gift horse in the mouth! The landscape in 1980 was different from that of today for all sorts of reasons. Why does the hon. Gentleman take umbrage with a proposal for which organisations have been calling for years and which is, in truth, what most Labour Members want? It can only be because it is a Conservative party policy.

Mr. Browne

May I bring the hon. Gentleman slightly more up to date? His colleague the hon. Member for Havant said only three years ago that restoring the earnings link would be a wild and uncosted policy"—[Official Report, 8 June 2000; Vol. 351, c. 440.1

Mr. Waterson

Let me then register the profound gratitude of Conservative Members to the Chancellor of the Exchequer, because no less a person than he has made the policy possible; first, by squandering, in many cases, so much money on the new deal and, secondly, by introducing the pension credit. As I have tried to explain—my hon. Friend the Member for Havant explained it better than I ever could—the answer is not to keep increasing the proportion of pensioners on means-tested benefits. We all know the horrific projections about the latter part of this century, but the proportion of pensioners on means-tested benefits is already approaching 60 per cent. That is wrong as a matter of principle, and it is also an extraordinarily inefficient way of delivering help to the poorest pensioners.

Mr. Frank Field (Birkenhead) Lab)

Why are the Opposition being so gentle on the Government on that point? The Government cannot maintain the policy. Does the hon. Gentleman recall that the introductory papers on pension credit showed that its final roll-out would put 11 p on the standard rate of tax? None of us wants to go into an election with policies that advocate raising income tax by 11p, so at some stage the measure will be scrapped. It is thus proper to discuss the alternatives.

Mr. Waterson

I am grateful to the right hon. Gentleman for his measured and sensible contribution—as usual. As my hon. Friend the Member for Havant and I have explained, it is not our policy to scrap the pension credit. Our policy is that it should wither on the vine as the state retirement pension rises to a proper level that is linked with earnings. That is important not only for the purposes of this narrow debate, but for the wider debate that we will have—especially during our consideration of the Pensions Bill—on whether there is a proper and appropriate platform for people who want to make further provision of their own for their retirement.

Mr. Jim Cunningham

I was not arguing against the link in any way during my last intervention—I am probably one of the few people here who support the link. I was saying that the Opposition's U-turn after two or three years is strange, in that they have undergone a great conversion on means tests. They are suddenly against them and want to restore the pension link, yet they introduced more means tests than anyone. To get some credibility, they owe us an explanation of their alternative policy.

Mr. Waterson

I thought that I was explaining our alternative, which is to restore the earnings link. If the hon. Gentleman wants to check the figures, an excellent pamphlet published by my hon. Friend the Member for Havant sets out exactly and clearly how our policy would be financed.

Of course, the pension credit changes everything. It would have been more difficult for us to do this U-turn, as the hon. Gentleman describes it, and produce the new policy if it were not for the pension credit. The pension credit rams home the message that it is the Government's firm intention to increase inexorably, year on year, the proportion of the population, especially older people, who are reliant on handouts from the state—it is as simple as that.

There is a further side issue to the point that I made about the platform for people's retirement provision: the amount that people must save during their working lives to be sure that they will not be subject to means-tested benefits. We produced an independently researched figure of £180,000. Ministers take every opportunity to rubbish it and say that it cannot be right, but—another thunderous silence—they have consistently failed to tell us their figure. Sooner or later, they will have to tell the financial services industry because it will want to be sure that it will not mis-sell products in years to come to people who will actually end up being the losers because they will miss out on means-tested benefits.

A fundamental issue underlies those points. The Government's policies create a massive disincentive to save for retirement. Their policies on pension credit and other means-tested benefits fatally undermine anything that they are trying to achieve through the Pensions Bill and other measures.

Sir John Butterfill

Has my hon. Friend heard that it has been estimated that an individual would need a savings pot of about £180,000 to avoid going into pension credit?

Mr. Waterson

That is exactly the figure that we have put into the public domain. Before I sit down and give the Minister every opportunity to respond to all these detailed points—he will have plenty of time—I put a question to him: if he does not accept the figure of £180,000, what is the Government's figure? They must have a figure for internal planning purposes, but they are unwilling to share it with us at the moment. May we know what that figure is?

3.29 pm
The Minister for Work (Mr. Desmond Browne)

I thank hon. Members who have contributed to the debate, in preparation for which, in the absence of any anorak in my wardrobe, I took the opportunity to reread the reports of the equivalent uprating debates for the last three years: I may qualify for an anorak now. Consistent with tenor and content of those years, this has been a useful and interesting debate, and I am happy to admit thin it has been educational to some degree for me, for I never fail to pick up something in debates about social security and related issues. While I do not bring the stills of an anorak to debates of this sort, I try to brim i other skills to them and hope to contribute in that way.

It is my intention. so far as time permits, to answer the relevant points that have been made, but first I think I should make some key general points that set the context for the debate and which bear some repeating.

First, as my right hon. Friend the Secretary of State made clear in the early part of his opening speech, the estimated cost of uprating for 2004–05 is £2 billion. That extra Government spending means £1.2 billion for pensioners, £340 million for disabled people and carers, £360 million for people of working age and £240 million for children.

As my hon. Friend the Member for Newport, West (Paul Flynn) pointed out, this Labour Government have been able year on year to cut the costs of economic and social failure. As my right hon. Friend made clear, with record employment levels we have £5 billion of savings that can be invested to tackle poverty. We have been able to do that by a combination of sound economic management and policies to increase employment, key subjects on which the dogs did not bark among those on the Opposition Benches who are keen to point out in some detail some of the issues that those on our From Bench did not respond to. The combination to which I referred is why we are able to reverse the legacy of pensioner poverty and why we have made significant progress towards our long-term objective of ending child poverty within a generation and halving it within 10 years. In 1997 the Tories left us at the bottom of the European child poverty league table. We have started to move up significantly, already having moved four places up that table. But we have ambitions to move further, and quickly.

I turn to some of the issues raised in the debate. I shall endeavour to answer all the relevant points, but as I may not have the detailed information to answer all of them, particularly some of the detailed points about the national insurance fund. I undertake to write to hon. Members giving detailed responses. A copy of the letters will also go to the Chair of the Work and Pensions Committee, and a copy will be put in the Library.

I listened with interest to the discussion of the hon. Member for Havant (Mr. Willetts) with himself. The hon. Member for Ncrthavon (Mr. Webb) never ceases to stir from his chair in these circumstances. I suppose that that is the problem of the relationship of teacher and pupil on some occasions.

The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle)

Which way round is it?

Mr. Browne

It is a sort of Protean relationship, and it changes on occasions depending on whether they think there is a decent point or not.

In any event, I listened with interest to the discussion by the hon. Member for Havant about measures of poverty and equivalence. I am sure that we will continue to have discussions as to whether the measure of poverty that the Department has chosen is supported by the policies emerging on tax credits. I know that we shall have debates into the future, because the hon. Member for Havant has got his teeth into the matter and he will not let go for a significant period.

The fact is that we are on course to meet or exceed our public service agreement target to reduce the number of children in low-income households by a quarter by 2004–05—of course, on a before-housing-cost basis. We could have had another discussion about that as a measure of poverty.

We are increasing the child element of child tax credit in these measures by £180 to £1,625 a year in April 2004. That is equivalent to a weekly increase of £3.50, benefiting 7.2 million children—more than half of the children in the United Kingdom. Nearly 20 million people, including 10.5 million children, are benefiting from the new tax credits. By 2004–05 total spending on financial support for children will have gone up by more than £10 billion in real terms since 1997, a rise of 72 per cent.

The national minimum wage arid the working and child tax credits have made work pay, with guaranteed minimum incomes for those in employment. There are now more than 1.7 million more people in employment than there were in 1997, and around 350,000 fewer children in workless households.

There has been excellent progress on the numbers below the absolute low income threshold: around 1.8 million fewer children are below the 1996–97 measure of 60 per cent median income after housing costs threshold, held constant in real terms, and there are half a million fewer children in relative low income than in 1997, even accounting for strong income growth. That does not seem to me a bad performance for people who may well have got their measure of poverty wrong.

I turn to child support. There is understandable concern across the House about our ability to deliver the necessary reform of the system of child support. One of the great ironies is that this was one area of social policy that was consulted on extensively, and the reforms in order to improve the system attained significant support across the House and in the other place. The hon. Member for Northavon narrows his eyes at me. As long as he does not move his feet, we shall be all right. He perhaps did not agree with that; in Fact, I now remember that he had another way of approaching the issue, but that is a debate for another day—or. rather, it was a debate for a past day, because the hon. Gentleman lost it. Anyway, the new scheme is simpler and will work better. The agency is now clearing thousands of cases each week.

I was asked for some information, and I shall give the information that I have. So far under the new scheme more than 100,000 cases have been cleared. Around 10,000 of the poorest families are benefiting from children maintenance premium. and maintenance has been paid in more than 17,000 cases. The poorest families are starting to benefit in real terms from the child maintenance premium:600,000 children in the poorest families stand to gain a total of more than £150 million a year. It is certainly easier to work out liability under the new scheme, which means that more time can be spent on collecting.

Hon. Members were right to point to my right hon. Friend's candid and detailed evidence to the Select Committee on this issue less than a fortnight ago. He is entitled to credit for the fact that he answered candidly and clearly the questions put to him.

Mr. Jim Cunningham

Does my hon. Friend recall that the Opposition introduced the Child Support Agency when they were in Government? Its target was savings, and it did not necessarily go after the people it should have gone after. While we are on the Opposition's handling of pensions and payments, does my hon. Friend recall who introduced the Horizon project? We are still dealing with the aftermath of that project, which has affected our new approach to the CSA and the need to separate the wheat from the chaff.

Mr. Browne

My hon. Friend is quite right to remind the House that the motivation when the CSA was introduced was not to get benefit and support to children—the thrust of our child support policy and CSA policy—but to save money for the Exchequer. He is also right that although the system was flawed and difficult when it was introduced, part of the problem was that it changed significantly as it was developed, often in response to the demands of absent parents, who wanted it to reflect their lifestyles. It is accepted by Members on both sides of the House that the child support system that we inherited consequently allowed people, particularly absent parents, to devise a lifestyle that defeated the right of the child to be maintained. People were given advice by financial advisers about how to structure their debts or mortgage liabilities to defeat the right of their natural children to be maintained. The new method of calculation does not allow that, and it is far simpler. As I shall explain, when it works properly it will make a significant difference to the maintenance of substantial numbers of children and poor families throughout the country.

In favour of the Conservatives' introduction of child support is the fact that they moved forward significantly the debate about who had primary responsibility for maintaining natural children. I remember that when the new child support system was introduced, there was a debate about whether or not people should maintain their natural children or whether the state should pick up the cost. We no longer have such debates, and to some extent the Opposition, whatever their motives, are to be thanked for taking the issue up and moving social policy forward significantly.

To return to the functioning of the IT system, I have been asked whether I can give the House more detailed or candid information than my right hon. Friend the Secretary of State gave the Select Committee only a fortnight ago. He gave that evidence to put the record straight, and on the issue of transfer, which is the issue that, quite reasonably, exercises people, we have consistently made it clear that we will allow only those cases that are the stock of the CSA system to be transferred to the new system when we are certain that it is working properly and will not damage people's family incomes, as it would if it were not working properly. The House can rest assured that when we are satisfied that that is the case it will be told immediately, and arrangements will be made to make that transfer. If hon. Members would like more detail, I recommend that they read my right hon. Friend's evidence to the Select Committee when, after careful questioning, he revealed a significant amount of information. In answer to a question about whether he would contemplate cancelling the contract, he said that if things did not get any better, that would have to be considered. That is as honest as we can be—there is no point shirking our responsibilities.

Mr. Waterson

I do not want to press the Minister beyond what is appropriate in what is partly a commercial situation, but I would be grateful for clarification. Current thinking is that the migration will start in the autumn—[Interruption.] The Minister says that they have not said so, so I shall put it differently. Without my wishing to pursue the EDS point, does the Department have a working assumption about the date when either the migration will start or when it is minded to say that enough is enough?

Mr. Browne

I accept that the hon. Gentleman wants to get his question on the record, but he will not get an answer from me that is different from the one that he has already been given. When we are satisfied that the design and functioning of the system are robust enough to allow for migration, we will set a date for that migration. Until then, the Secretary of State, Ministers in the Department and senior officials will continue to work with the provider or contractor to ensure that they are sticking to their agreement that they will work to improve the system. I am not in a position to go into any more detail, but nothing has been kept from the House, which has been told candidly that there are difficulties with the system that are being worked on. When the work is complete and the system is robust enough to support migration, a date will be fixed for that. However, a date has not yet been fixed.

A substantial part of the speech by the hon. Member for Havant dealt with the alternative to our pensions policy—the restoration of the earnings link to pensions. It was said that he needs help to pay for that by scrapping the new deals. Indeed, it now becomes apparent that to do their sums on this policy, the Conservatives need to know whether we are committed to the uprating of pension credit by reference to wages. It is no wonder that the right hon. Member for West Dorset (Mr. Letwin) admitted that they would have to make some "painful decisions" in order to pay for their policy. I was disappointed that the hon. Member for Havant did not respond to that point. Perhaps he or the hon. Member for Eastbourne (Mr. Waterson) should do so at some time in the future, because a significant number of people out there want to know who will have to suffer the pain for that policy.

Let me deal with the reasons why we in Government think that it is the wrong policy and are not responding to the constant siren songs urging us to move in that direction. First, it is unaffordable; secondly, it is unsustainable; and thirdly, it is unfair. Although the pension credit had not yet been introduced in May 2002, the hon. Member for Havant knew full well that it was about to be. Did he have a Damascene experience in October 2003 when the pension credit appeared? It would be interesting to know why he did not anticipate that that was going to happen some time before when we discussed it in some detail and considered the White Paper and other papers that informed it.

In any event, in May 2002 the hon. Member for Havant said on "On the Record" that he opposed reintroducing the earnings link as it was "not affordable". Nothing has changed since then. Even if he took more than £200 million off pensioners in extra tax, as he would, there would be a £500 million shortfall by year 4 of a Tory Parliament.

Mr. Willetts


Mr. Browne

Will the hon. Gentleman give me a moment? That shortfall assumes that there are savings to be made of hundreds of millions of pounds a year from scrapping the new deal programmes. I understand why he does not like the report by the National Institute of Economic and Social Research on the new deal for young people. but the evidence just from the new deal for lone parents says that it saves the Exchequer £40 million a year by getting people off benefits and into work. There are no savings to be made by scrapping the new deal, but there are significant other additional costs, as we already know from 18 years of Tory Government in which we saw growing numbers of young people in long-term unemployment.

Mr. Willetts

I am grateful to the Minister for giving way, although he did not do so as promptly as my hon. Friend the Member for Eastbourne (Mr. Waterson) did to him.

When the House debated the pension credit, I supported a reasoned amendment, which was also supported by the Liberal Democrats and by the right hon. Member for Birkenhead (Mr. Field), and which proposed that the money going into the pension credit should instead go into a higher pension for older pensioners. I continue to believe that that would have been a better way forward. We are now in a world where the pension credit has come into force, and where more than half of all pensioners will be on it. We are therefore tackling the problems of a world in which more than half of pensioners are on means-tested benefits. The question is: what is the best way forward in the world that we are now in? I think that increasing the value of the basic state pension by earnings is the best way of getting us out of the mess that has been created by the pension credit.

Mr. Browne

I am grateful to the hon. Gentleman for that, but he needs to explain why he has indulged in this significant U-turn. I have a whole page of quotations from him—[HON. MEMBERS: "Go on."] Well, 1 shall be persuaded, then. In 1993, he said, in relation to sustainability, that his Government had taken the crucial step of Ending the link between the basic pension and earnings and had resisted the seductive politics, but dangerous economics … which has bedevilled state pension arrangements in other countries."—[Official Report, 8 July 1943; Vol. 228, c. 516.] No doubt those other countries did not have the pension credit at that time. Ht said that because, as he knows, restoring the earnings link will cost, in net terms, £4.6 billion more by 2010; it will cost £12.4 billion more by 2020; and by 2030, the extra net cost will be £25.7 billion. That policy is unsustainable, but also unfair.

It is interesting to note that in discussing taxing pensions the hon. Gentleman does not make great play of a part of his policy, about which al pensioners should know: under the Tory plan, nothing will be done to help the poorest pensioners. They will not only fall further behind, but any increase in their basic state pension will be knocked straight off their pension credit. Not only will the poorest be worse off, but any advantage that they could anticipate will be knocked off the pension credit.

We heard today that it is the Tory party's intention to allow the pension credit to wither on the vine. That would involve another significant on-cost, and the Conservative proposal that we are considering would cost £18 billion, and £12 billion after netting off the savings from income-related benefit. It would take 14 years to achieve that. All women who are watching the policy develop should be especially afraid of it. They will fare especially badly because half of them do not get the full basic state pension. They would be seriously short-changed.

David Taylor (North-West Leic) (stershire) (Lab/Coop)

Does the Minister know about the recent joint campaign by the Fawcett Society and Age Concern? It points out that one in four single pensioner women already live in poverty and that methods of ameliorating that—without relinking—include reducing the lower earnings limit to allow more people access to the national insurance fund, paying pensions to all those with NI contributions, making credit for caring periods more effective and making the state second pension more useful to women. Are not they all worthwhile means of tackling pensioner poverty among the oldest women?

Mr. Browne

I am grateful for that interesting contribution. Of course, my hon. Friend knows that we have extended greater cover to women through the state second pension. We shall keep all the other matters under review.

I am conscious of the time and that some issues will be burning in the minds of those who contributed to the debate. I shall try to deal with them. If I cannot do that because of time constraints, I shall write to hon. Members, as I said earlier.

Annabelle Ewing (Perth) (SNP)

Will the Minister give way?

Mr. Browne

I shall not give way to the hon. Lady, who made no contribution to the debate, although she was present for all of it. If I make some decent progress, perhaps I shall give way, but people are waiting for answers and I am happy to provide them.

The hon. Member for Northavon made the reasonable request that we should ensure continuity of payment as a priority for those who are transferring to the child tax credit. I assure him that that is our priority. He has been told that the Paymaster General will make a statement about that and its administration in due course. I assure him that there will be no withdrawal of benefits until the tax credit award is in place. All families will be informed of the transfer, and I hope that that provides sufficient reassurance.

The hon. Gentleman asked about deferring the state pension and the treatment of capital sums. He made some interesting points, but they were no more interesting than the questions that my right hon. Friend the Secretary of State was asked in an intervention when opening the debate. He said that he would make clear the way in which the sums would be treated in relation to other benefits and that the Chancellor would make a statement about the tax treatment. When a Secretary of State gives the House such information at the beginning of a debate, it is highly unlikely that a Minister of State will say anything different at the end. I therefore direct the hon. Member for Northavon to my right hon. Friend's comments.



Mr. Browne

We are always consistent. Since the Government have a consistent preferential policy agenda for the poor and we consistently move older people and children out of poverty, there is a lot to be said for consistency in the context of the debate.

Let me deal with the reference to article 22 (3), which relates to council tax benefits for pensioners and why the figure of 20 per cent. remains unchanged. There are two aspects to that. First, I point out to the hon. Member for Northavon that the point relates to hospital downrating. He will remember that we changed that from last October so that pensioners and others in hospital would see no reduction in pension credit, council tax benefit and other income-related benefits for a full 52 weeks.

Mr. Webb

I have already said that.

Mr. Browne

Well, some things are important to repeat. That reduction does not kick in until after that period, and the 20 per cent. level is unchanged, because that is simply the amount by which council tax benefit is reduced after 52 weeks.

Secondly—I shall have to check this and write to the hon. Gentleman on it, as I do not want to be accused of accidentally misleading the House—my understanding is that it is highly unlikely that a council tax payer could be in hospital for 52 weeks without having the opportunity to benefit from some other reduction in council tax. As I recollect them, rules relating to council tax set out that when a house is unoccupied or there is a reduction in occupation for a period, there is a right to make an application for a reduction in council tax.

Mr. Webb

Those people still have to contribute.

Mr. Browne

They might not have to contribute the whole amount, only a comparatively small amount. They might not have to contribute at all, although there probably has to be some contribution, as the 20 per cent. must relate to something, as the hon. Gentleman has pointed out. I shall check the detail.

On the housing benefit reform pilots, we are making good progress in applying local housing allowance. All nine local authorities involved have begun implementation, which has been smooth to date. It is as yet too early to understand fully the response that tenants and landlords will make, and a comprehensive evaluation strategy will be put in place. Interim findings will be made early in 2005.

Several hon. Members referred to the need for the Government to encourage take-up of council tax benefit, and linked that in particular to pension credit. The Government recognise that there is more to be done. With the introduction of pension credit, almost 1.9 million pensioner households will get more help, or get help for the first time, with their council tax and rent. That is one of the significant consequential by-products of the Pension Service, which is reaching out to pensioners. As my right hon. Friend the Secretary of State said, we are launching a campaign to raise awareness of council tax benefit. As well as promotional material, we will provide guidance and advice to local authorities to help to ensure that they have procedures in place to handle inquiries about entitlement and to provide support for those making claims. The hon. Member for Northavon asked why we did not simply use the information that we have from pension credit for council tax benefit, which he said would be easy. I can assure him that it would not be easy, but would be quite complicated. That is not to suggest that the Government have not considered that possibility; we are constantly looking at ways in which we can increase take-up, and the hon. Gentleman can rest assured that we will do what we can on that.

The uprating order continues to deliver on our promises to help those who most need help. We are supporting families, and are continuing our action to tackle pensioner poverty and end child poverty. We continue to give help where it is needed most, and thanks to the increase in line with earnings of the guaranteed minimum and of pension credit from April, no single pensioner will need to live on less than £105.45 a week, or a couple on less than £160.95 a week.

Annabelle Ewing

I am grateful to the Minister for giving way, and I apologise for having missed the first 15 minutes of this interesting debate. The Minister is surely concerned about the current take-up of pension credit. Would it not be appropriate to consider putting hack the October deadline for the backdating of claims, so that all those currently entitled to receive pension credit receive their full entitlement at some point?

Mr. Browne

I am grateful for the hon. Lady's contribution, although it comes late in the debate. However, I should point out to her that we are not disappointed with take-up. The take-up process is moving very well. As we have not yet written to all pensioners who can entitled, it is premature to be discussing whether the October date is appropriate.

These orders confirm our conviction that it is essential to provide support, respectively, for those who cannot work or who are retired, while promoting the principle of work for those who can. I commend the orders to the House.

Question put and agreed to.

Resolved, That the draft Social Security Benefits Up-rating Order 2004, which was laid before this House on 4th February, be approved.

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