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7.41 pm

Mr. David Willetts (Havant): I am grateful to the Secretary of State for his crisp and short speech—I shall do my best to be almost as brief—and I assure him that we shall not divide the House. We shall not make the Liberal Democrats' famous mistake of trying to prevent the uprating of the basic pension, so, if there is to be any drama in the debate, it will not be a knife-edge vote initiated by us. Instead, we shall press the Secretary of State and his ministerial colleagues for information on various aspects of the social security system, as the debate presents an opportunity to achieve clarification.

First, let us consider some measures that the Secretary of State did not refer to. We have been waiting for the package to help new carers, which he announced on

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3 October 2000 by saying that new carers over the age of 65 would be eligible for invalid care allowance and the carer's premium in income support. That seems to be slowly making its way through the Whitehall machine, so we are interested to hear from the Minister when new carers might receive those higher benefits, which the Government announced to a general welcome.

I should apologise to the Minister, because I may have to leave to catch the train to my constituency before the debate ends, but my hon. Friend the Member for Daventry (Mr. Boswell), who will make the Opposition winding-up speech, is looking forward to hearing the answer to that question.

The Secretary of State also omitted any reference to housing benefit. I remember the days, only a couple of years ago, when it was to be the next big welfare reform target. On 29 June 1999, he said that

He was clearly expecting housing benefit reform to be part of the wider tax credit reform to which he referred, but it is clearly not to be. We and many outside the House are interested to know whether the Government intend to announce any housing benefit reform. Instead of that, we have had this evening's announcement on the hospital downrating rules in response to a campaign pressed by Age Concern in particular and by many Members on both sides of the House over the past few months.

We welcome the change, which is not a U-turn, but, perhaps, a J-turn that tackles a genuine concern for many pensioners. [Interruption.] A J-turn is shorter than a U-turn, because it runs to only 13 weeks. We have to be Kremlinologists with this Department, because the quality of its parliamentary answers is, sadly, so low that we cannot always get the information to which we are entitled. We have been following its answers on this subject with great care over the past few months. First, we had one from the previous Minister of State, now Lord Rooker, who said:

That was the original position, but then we had the review, which involved an answer from the Minister for Pensions, who said:

Everybody followed the review with great interest.

Miss Anne Begg (Aberdeen, South): Will the hon. Gentleman remind the House of his position on that policy when he was in government?

Mr. Willetts: Since 1948, the position has been that, in principle, people should not receive two separate benefits in respect of the same need. Conservative Members, not least my hon. Friend the Member for Daventry, have drawn the House's attention to practical proposals for tackling that problem. [Interruption.] Perhaps I should explain to the hon. Member for Aberdeen, South (Miss Begg). A significant part of the

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problem has been not just the rules, but the way in which they are administered. The distress among pensioners has been greater because they were not confident that, if and when they left hospital, their benefits would be reinstated as promptly and efficiently as they ought to be.

The Minister for Pensions made another response:

The review seems to have been concluded with a decision against doing anything, which is why today's announcement is such a pleasant surprise. We welcome it, but may I ask the Minister how it compares with the regime for pensioners in care homes?

Bed blocking is a significant problem in the NHS, so I would be grateful for clarification of the rules as they now apply. My understanding is that a pensioner or, as we know from what the Secretary of State said, any person in hospital will receive for up to 13 weeks their full basic state pension and their full income support. How does that compare with the position of a pensioner in a care home, who will receive £16.80 a week pocket money, as it is called, but who will not receive the full basic pension or the full value of income support?

In the process of tackling a grievance, the Secretary of State may have created another and different one—a wider gap between the treatment of people in hospitals and people in care homes. One problem for Ministers is their care homes blind spot, which is apparent in their winter fuel payment proposals. They still say that every pensioner gets a winter fuel payment. That is not true. Pensioners on income support in care homes do not get winter fuel payments.

There is the same problem with the pension credit. The Secretary of State referred to it, but we know that local authorities will take account of pension credit income in setting the income of pensioners in care homes. They will not get the benefit of the pension credit, which will be absorbed in higher charges from local authorities with hard-pressed social services departments. The contrast between today's announcement on hospital downrating and the wider care homes regime is striking.

David Winnick (Walsall, North): The hon. Gentleman may have a point, but the Secretary of State's announcement on pensioners in hospital is very welcome, certainly on the Labour Benches. Why were the Conservative Government so adamant up to 1997 that under no circumstances should pensioners receive any assistance on winter heating, apart from the cold weather payments, which were limited to those on income support and had several disadvantages? The issue was raised time and again from the Opposition Benches, and not just by me. Why was there no shift? Of course, we know what happened the moment that Labour came to office.

Mr. Willetts: I know that the hon. Gentleman has pressed for such measures for a long time. In developing

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our philosophy, we learned much from the Christmas bonus, an attempt to achieve a similar result nearly 30 years ago. We thought it better for such payments to be part of the overall pension, rather than being special payments separate from the wider rules on indexation.

I do not wish to detain the House, but one striking feature of what we have heard today is the absence of an uprating of the winter fuel payment. I suspect that in 30 years it will be as the Christmas bonus is today. We will see whether I am wrong—but who knows whether either the hon. Gentleman or I will still be in the House then? It is one of those forecasts that can be made confidently by those who may not be around to see what happens. I think, however, that whether the winter fuel payment is an important and continuing part of pensioners' incomes or goes the way of the Christmas bonus is open to debate, and I remain sceptical.

David Winnick: Do I take it that, despite all the hon. Gentleman has said in comparing the winter fuel payment to the Christmas bonus, he now accepts the former?

Mr. Willetts: We believed all along that it would have been far better to consolidate the winter fuel payment in the basic state pension.

David Winnick: Subject to tax.

Mr. Willetts: We are revisiting old arguments. The Conservative party said from the start that there would be no tax increase for pensioners as a result of consolidation. We now live in a world in which the winter fuel payment is widely received by pensioners, and, recognising that, we have no plans to take it from them.

I hoped that we would hear rather more from the Secretary of State about the decline of pensions. We did not hear a word about what is perhaps the most significant change that will affect benefits, benefit expenditure and the incomes of those who retire, although it is taking place dramatically day by day. Two measures in the uprating order show that we are heading in the wrong direction. The minimum income guarantee is rising in line with prices, which will extend means-testing, and the pension credit will take it further up the income scale.

At the same time, we have contracted out rebates that create a significant risk of companies' re-entering the second state pension, because the value of the rebates is unlikely to match the cost of the liabilities from which they are escaping. I shall not detain the House with all the arguments, but I was struck by information from William Mercer, a leading firm of actuaries, which said only recently that it did not believe the contracted-out rebates would be adequate.

Companies may well end their current contracting-out arrangements, and enter the state second pension instead. We shall also have more means-tested benefits. Those two developments will mean that we shall not move into a world in which—this being the Secretary of State's own aim—60 per cent. of pensioners' incomes come from genuinely funded savings and 40 per cent. come from the state. Conservative Members entirely support that aim, but we are heading in the opposite direction.

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A stream of companies are now announcing that they are closing occupational pension funds to new members: Alliance and Leicester, AstraZeneca, Barclays, BT Group, British Airways, Boots, Cable and Wireless, Capita, GlaxoSmith-Kline, HSBC, ICI—I could go on. Many companies now say that their final salary schemes will not be available to people joining them.

I was disappointed not to hear from the Secretary of State any recognition of the significance of the change that is taking place around him. What it means is that many people will retire with pension incomes much below what they expect, and will depend on means-tested benefits. Does the Secretary of State accept that there is a problem, when so many companies are announcing closure of their occupational pension schemes to new members? Do the Government recognise that there is an issue, or are they going to bury their head in the sand? We have heard nothing from the Secretary of State about the subject today, or over the past weeks and months during which it has become a matter of public concern.

I know that there are many factors behind the change, which pre-date 1997. Not just one factor but the burden of regulation, the burden of taxation and the impact of FRS17 led to it. Clearly, however, the consequence of a combination of ever-heavier regulation, ever-heavier taxation and, now, the new accountancy rules is that those who retire cannot expect to enjoy the incomes for which they hoped. Instead, they will depend on means-tested benefits. The pension credit about which the Secretary of State boasted will embrace more and more people as a substitute for what Conservative Members want them to enjoy—a more valuable funded occupational pension.

Rather than providing more generous occupational pensions and less dependence on means-tested benefits, we are heading in the opposite direction. We have yet to hear anything from the Government that shows that they recognise the scale of the problem, or can produce any measures demonstrating their willingness to tackle it. I am sorry that the Secretary of State has not intervened; we hoped that we might at least hear some reflection from him on the significance of the change that is taking place.

We need to hear more about credits and tax credits, which the Secretary of State did mention. His speech will have been the last to cover some of the benefits that are being uprated, and I think it important for those in all parts of the House to understand how measures for parliamentary scrutiny and parliamentary debate will function in future. According to the Institute for Fiscal Studies, there has been a

in regard to the Government's proposals for credits and tax credits. What will be the arrangements for scrutiny of the value of such credits in future? What will be the parliamentary procedures? My understanding is that, unfortunately, we will not have the procedures that we have for the uprating of benefits.

At present, social security benefits are uprated by Standing Orders that are subject to the affirmative procedure. That includes the working families tax credit. Now, the new tax credits in the Tax Credits Bill will be subject to the negative procedure, and debated only if they are prayed against. It looks as if there will be similar arrangements for pension credits. The level of parliamentary scrutiny of the value of those credits will be much lower than the level of parliamentary scrutiny of the value of the benefits they are replacing.

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I am pleased to see the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). He chairs a Select Committee that has already done useful work on pension credits, and we hope that it will be able to perform a role in the absence of full parliamentary scrutiny.

How will the credits be treated in the public accounts? We know from the Office for National Statistics that there will be a move towards the European and OECD conventions, but does the Secretary of State seriously claim—I am thinking here of the working families tax credit conventions—that, for example, child premium and income support, with which all Members have been familiar for a long time, will miraculously become a tax cut? Will it appear in Government expenditure figures? Will it disappear from expenditure figures, and appear on the other side of the balance sheet as a tax reduction? Is that what will happen to the benefits whose uprating we are discussing? It seems an extraordinary proposal, but if working families tax credit is anything to go by it is what the Government envisage. Miraculously, the Secretary of State will be able to claim that he has saved money on the social security budget and that the Government are cutting taxes. It will have been done entirely with smoke and mirrors.

What about the other features of the system? Will the benefits be available, have the circumstances changed, what constitutes a significant change in circumstances, will people who may be on modest incomes lose as a result of a change in their finances of which the Inland Revenue will not take account until the end of the year? Those are important questions that will affect people who currently receive the benefits we are discussing, but we have had no clear explanation from Ministers.

I hope that Labour Members will pursue the issues as strongly as we have, because it is important to consider what happens in future years to people on modest incomes who experience a change in circumstances with no matching adjustment of what was their benefit entitlement. That is what happens if one tries to make a benefit into a tax. It does not work. Many people, including some of the most vulnerable members of society, will lose as a result.

This may be the last uprating statement on some of the benefits, which are going to disappear into the Treasury and become tax reductions. I hope that the Treasury and the Chancellor of the Exchequer, who will take responsibility for these measures, will ensure that they at least apply the level of scrutiny and sensitivity to the needs of our constituents that has been displayed over the years by the social security system.

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