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We have consistently put the case that the pension credit is an entitlement; we do not want to dig into people's lives, and we do not want to record every possible circumstance in which people find themselves. We want to get rid of as many of the old exclusions as we can. The proposals that I announced today will mean that, from October 2003, any pensioner who has received financial compensation for personal injures will be told that we will ignore this income. Whether it is actual or assumed, it will not be taken into account. This will be welcome across Britain, and in particular, across many of the communities of the former British coalfields.
I pay tribute to right hon. and hon. Friends individually and collectively, as well as to trade union groups, mining groups and others who have maintained solidarity over the issue for a long time. I was pleased to make the announcement today. I did so with the support of my right hon. Friend the Secretary of State, and I wish to record his tremendous support for the change.
The current arrangements are complex; mainly because of the different ways in which compensation can be paid and invested. I will write to hon. Members to give further information and place the letter in the Library.
As for amendment 15, I am almost astonished at the uncharacteristic bravery involved in making such a significant commitment, in both expenditure and strategy terms. The amendment would cost perhaps £1 billion in the long term. Is this part of the strategy of the hon. Member for Hertsmere to prove that his party looks after the poor? That is a bit rich coming from the hon. Gentleman, given some of the policies he supported in previous Parliaments.
The same amendments were tabled in Committee and on Third Reading in another place. We believed that those earlier versions were probing. Now it seems that the Opposition are serious in their proposals, although I cannot understand why, because of the potential costs. Perhaps the hon. Member for Hertsmere will explain how his party leader will pay for the proposal, particularly when the right hon. Gentleman is totally opposed to the introduction of pension credit.
Bob Spink: The Minister is a delightful character and I am delighted that he has given way. He takes a narrow view of the costs. Will he comment on the wider impact that improving savings and the savings ratio will have on our economy? Surely that would not be a net cost, but a net saving to the economy, and would provide a great benefit.
Mr. McCartney: I do not take a narrow view of pension credit. The hon. Gentleman's party does not just take a narrow view, it is totally opposed to pension credit. But the Conservatives are not prepared to say, either in Committee or today, whether they are prepared to repeal
I am getting old and I must be getting deaf, because I hear no reply. My hon. Friend the Member for Bolsover (Mr. Skinner) is smiling at me and perhaps he is telling me that the Conservatives have gone silent. I could ask the Liberal Democrats, and they would be just as silent.
Mr. Clappison: The right hon. Gentleman has been a Member of Parliament for some time and he will remember the long period in opposition that his party experienced. I certainly remember the long period after the 1997 election when Labour Minister after Labour Minister recanted what they had said in opposition. I will give the right hon. Gentleman a long list of specific examples to peruse at his leisure. So we take no lessons from the Labour party, on this or anything else.
Mr. McCartney: We always get one who will get up when he has no argument to make at all. That was not an argument, it was a whinge. I could give the hon. Gentleman pages of commitments given by shadow spokespersons from the Dispatch Box, including on the minimum wage, tackling pensioner poverty and doing something about Tory mis-selling of pensions.
Mr. McCartney: I remember that the Labour party and the Chancellor made it clearas we have continued to dothat tackling pensioner poverty would be our No. 1 priority. Unlike the Tory party, we have not introduced means-testing to stop people having access to income. Our proposals are inclusive. We are providing people with a chance to obtain additional access to income. We are not targeting pensioners, we are targeting poverty that the Conservatives created in the first place.
Conservative Members have tried to distract me from the amendments and the nonsense that they contain, but I shall return to the notes that have kindly been provided for me by the machine. I shall repeat some of the points that the Minister made in the other place, because she was giving a direct response to similar amendments.
Clause 15 will abolish the rules that exclude pensioners with £12,000 or more of savings from any help, so for the first time there will be no automatic cut-off. Instead we will apply a notional rate of return of 10 per cent.half the present rateon any capital sum over the first £6,000, which we will disregard. That figure will be £10,000 for people in residential care and nursing homes. That means that 95 per cent. of pensioners entitled to pension credit will have any income they receive from their savings ignored entirely. Ignoring the first £6,000 of savings helps all pensioners, including the better-off. For example, only pensioners with capital above £12,000 will face effective assumed rates of return greater than 5 per cent.
Amendment No. 15 seems to discount the fact that the Government's proposals take no account of actual income from PEPs, TESSAs and ISAs. Instead, we intend to apply the same notional rate of £1 in £500 that will be applied to any other capital holding. If we were not to do that, it would influence people to save more in ISAsPEPs and TESSAs are no longer available for new saversthan in any other forms of savings, including pensions products. The immediate costs would be £400 million.
The ultimate effect on pension saving could be startling. It could increase the cost of pension credit by £1 billion a year in the long run, but the money would not reach those with little or no savings. The redistribution would go to those higher up the income scale. People who chose to put all their money into, say, an ISA would get full pension credit no matter how much they had saved.
That would skew the savings market towards such methods of saving and, as people moved their savings, eligibility for pension credit would expand further up the income distribution. So the reach of pension credit and the cost to the state would expand while private pension saving would fall. Let us remember that the amendment comes from a party that has spent this afternoon criticising the Government for not giving people incentives to save in the private sector.
A person who has already saved in a PEP, TESSA or ISA has already been advantaged because they have benefited from tax relief. Treating PEPs, TESSAs and ISAs differently would doubly advantage them, for no apparent good reason and at the expense of the taxpayer. I could go on and give a range of examples, but I shall write to the hon. Member for Northavon (Mr. Webb) and put some practical examples of my remarks in the Library, if that would be helpful.
I am surprised that amendment No. 16 was tabled. The treatment of capital was discussed throughout the Bill's passage in both Houses. The amendment would restrict the assumed income from capital to a rate that is more or less what people would get from their savings. That would be achieved by applying the base rate plus 2 per cent. to pensioners' capital.
Opposition Members did not listen to our arguments. Our decision was reached only after the most careful consideration of the representations made to us on the issue. In our original consultation document we proposed taking actual income into account. However, Age Concern, among others, told us of its real anxiety that that would make the treatment of capital in pension credit more complicated than in income support.
Examples were cited of the difficulties pensioners would experience in recording information about actual income. We listened to those real concerns. It was clear that the tariff-type regime in income support offered the most straightforward way of calculating income from capital. We actually did what older people asked us to do: we held consultations and we listened. The Opposition have consulted nobody and listened to nobody.
Once we had the method of calculation we turned to the other element in the treatment of capital: how much to factor into the calculation. There are two parts to that: the disregard and the rate of return. Setting the right level of disregardthe lower capital limitwas critical. We had to consider costs. We also had to consider how to reduce the intrusion into pensioners' lives that inquiries
The second consideration was the rate of return. Looking at the rates of return available in the High street was not appropriate: what investment would return nothing on the first £6,000 and something on top of that? That is why the amendment, with its bogus resonance with the commercial world, is so badly focused.
A further element had also to be considered. We received representations from the Financial Services Authority and the Association of British Insurers. Their concern was that if we failed to get the balance right between the disregard and the rate of return we would alter the balance between saving to build capital and saving to build a pension.
The view of the Financial Services Authority was that a rate of return of 10 per cent., after taking account of the £6,000 disregard, was the right balance to strike in considering the two methods of investing for retirement. Again, we listened to the expert advice and took it. The Opposition proposals completely ignore the fact that there is no rate of return on the first £6,000 of capital. That would cost an additional £350 million.
I hope that I have explained why we cannot accept the amendments. I have also tried to explain the difference between our policies, the policies of the Conservative party and those of the Liberal partyall three of them. I ask the hon. Member for Chesterfield (Paul Holmes) to withdraw the amendment.