State Pension Credit Bill [Lords]

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Mr. Clappison: We have had an interesting and useful debate. I am grateful for the contributions made by my hon. Friends, and for the comments of the hon. Member for Northavon.

I congratulate the Minister on his response, not least on his ingenuity. He made heroic efforts to construe the debate as a policy announcement. It was a nice try, but I assure him that when we have a policy on the subject he will know about it. He was helpful—[Interruption.] Before he intervenes, I would gently remind him of what he said earlier. He said that the pension provision group that I cited was set up by the Government. It is rather rich that Ministers, when reminded of what their groups have said, should accuse the Opposition of making up policy.

Mr. McCartney: I cannot let the hon. Gentleman get away with that. It is one thing to set up a group, and one can accept or reject its recommendations because it is independent, and it is an ongoing debate, but the hon. Gentleman, absolutely and clearly—I shall take Hansard out to lunch if necessary—supported the recommendations. I congratulate him on the first spending commitment given by the Opposition in this Parliament. I am sure that the self-employed intend to ensure that they stick to it.

Mr. Clappison: I quoted at length the words of the Association of British Insurers on the question of what the Government have done. That would be a unique way of making policy, but I assure the Minister that the purpose of the amendment, as I tried to make clear—[Interruption.] It is an interesting way of answering a question to refuse to say anything about it and then to accuse the Opposition of having the temerity of asking questions.

Mr. Brazier: Many Opposition Members, who are extremely fond of the Minister, feel profoundly relieved that my hon. Friend has managed to get him out of the unfamiliar consensual mode and back into party-political aggro.

Mr. McCartney: I hate to see the hon. Member for Hertsmere so embarrassed. It was not my intention in congratulating him to cut short his career. We all know that we may from time to time declare things that we have not discussed with our leaders. We have all done it. The hon. Gentleman has two options. He can resign, or, between now and the Bill going before the House, he can clarify the matter—the latter would be easier than my having to buy Hansard a meal. There is no doubt that the hon. Gentleman gave a commitment. However much he wriggles, or looks at me with those big eyes, he gave a commitment.

Mr. Clappison: The words in Hansard will speak for themselves. I give the Minister an undertaking, however, that if he finds the words that he claims are there, I will happily treat him to an extra lunch for his

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birthday, particularly as he is in such an expansive mood.

The new clause raises the issue of pension provision for the self-employed to discover how they will fare under the Government's proposals for the state pension credit. It refers to preparing and setting a report before Parliament, but that would not cost a great deal, and no other expenditure is envisaged. It is, however, fair to ask what the implications of the proposals are and what has been said about them.

The right hon. Gentleman had a second line of attack, beyond accusing me of making a policy commitment that I did not make. I apprehended his attempt, which was great fun, and nice while it lasted. His other line, however, was to ask what the Conservatives had done for the self-employed, but I should gently remind him of what his colleagues have done for them. When the Conservatives left office, national insurance contributions for the self-employed were much lower than they are today. As a result of this Government's 1998 announcement, which took effect in 2000, the rate on profits for the self-employed increased, and the upper and lower profit limits were extended. As a result, someone who earned £30,000 a year—

3.15 pm

The Chairman: Order. The hon. Gentleman is talking about contributions, but, as I understand it, the new clause is about benefits.

Mr. Clappison: Indeed, but we must briefly examine contributions to see that the Government jacked them up by £300 in a single year.

We asked the Minister about the position of the self-employed under the state pension credit, and his response took matters a little beyond what we knew at the beginning of the debate. This is an important question, and I, too, shall read Hansard carefully—to see whether the Minister offered the self-employed anything other than bogus debating points.

Like employed people, the self-employed will face whacking increases in their national insurance contributions this year, on top of whacking increases in previous years. In the new clause, we ask how they will fare under the state pension credit. We will read the Minister's remarks carefully and reflect on the issue. However, for today's purposes, and to make progress, I beg to ask leave to withdraw the motion.

Motion, and clause, by leave withdrawn.

New clause 8

Income from capital

    '.—The Secretary of State shall, at intervals not exceeding five years, invite the Social Security Advisory Committee to appraise whether the definition of income from capital under this Act remains appropriate and to make recommendations for any change in the formula or coverage of relevant regulations providing an implied income from such capital.'.—[Mr. Boswell.]

Brought up, and read the First time.

Mr. Tim Boswell (Daventry): I beg to move, That the clause be read a Second time.

The Committee will feel much better for that lively debate. I am conscious of the passage of time and that

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this is the last substantive new clause that has been selected for debate. In a way, it brings us back to technical considerations, but it also has important wider policy implications.

I am always astonished at my own moderation and at my ability to give.

Mr. Brazier: Hear, hear.

Mr. Boswell: I am concerned that my Whip feels that I am unduly modest. I will move into attack mode—it might be safer.

I tend not to use extravagant language, except possibly in the confines of my home, so I shall have to use an agent. In this case, my agent is Mervyn Kohler, who is known to many of us as the public affairs director of Help the Aged. In commenting on the treatment of capital in clause 15, he lets drive, saying:

    ''The prescribed rate should be on the face of the Bill, and expressed as a number in relation to the rate set by the Monetary Policy Committee of the Bank of England, perhaps calculated as a six-month average. It is iniquitous to assume a 10 per cent. return on capital and to leave this as a matter for regulation (not even requiring the positive affirmation process described in 19(2)''.

Those familiar with the Bill will know clause 19 as the regulations clause. Mr. Kohler bitterly attacks the concept and operation of clause 15, which we have already discussed, and to which I shall not return. However, he is right to express concern about it. Of course, we are not beholden to anyone and we will make our own judgment about how to present our concerns.

I shall deal first with the assessment period. The assessment period is set at five years, and the suggestion is that there should be a review every five years. That is no accident. Every five years, the sort of period during which a normal case would not be varied in relation to pension credit, there should be a fresh look at how the capital formula is determined or transmuted into income. That builds on the idea of Help the Aged. The really meritorious part of the comments of Help the Aged, apart from its attack on the Government, was the suggestion that there should be some objective test or process by which the process of taking notional capital and converting it into income should be carried out. It suggested a link to the Monetary Policy Committee rate, so that one could read off an implied capital rate. In my proposal, I want to leave slightly more discretion for Ministers, but the principle touched on by Help the Aged is important. We need an independent body that we can run such issues past. We have an admirable example, in doctrine and in practice, in the Social Security Advisory Committee.

The new clause proposes that, every five years—that is consistent with the assessment period—the Secretary of State should invite that advisory committee to see whether the definition of income under the Act remains appropriate and to make recommendations for any change in the formula for implied income. That is a modest and reasonable proposal. We have already said that there are concerns about treating capital as income. However, Ministers have made the point that it is much easier if it is treated in that way, because capital is easier to capture than income flows, which may vary, and we certainly

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do not want a situation in which persons who find that their income is diminishing cannot benefit from changes in their assessment. There may be cases in which capital increases and we have to ask whether income follows that, and whether their high notional assessment is actually fair. I pass over the matter that the working tax credit, as introduced in the Budget, will do away with the test of implied income altogether, so there is now inconsistency between the various tax credits.

I suppose that the biggest concern, which is clear from the comments of Help the Aged and other pensioner organisations, is that the Government will set a 10 per cent. notional rate of return on capital in excess of £6,000, as they have suggested. That is a bit steep to put it mildly, even in present circumstances.

The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle): If the hon. Gentleman thinks that is steep, would he like to make an alternative suggestion?

Mr. Boswell: If I were to make an alternative suggestion, the Minister of State would immediately say that I had made a policy pronouncement. With greatest respect to the Under-Secretary, charming as she is, it is for Ministers to decide the figure. I do not want to make a suggestion; I want the Social Security Advisory Committee to make suggestions. It can do that independently, without my figures or the Minister's.

Ministers have pointed out that 85 per cent. of pensioners are below that starting point of £6,000 capital. That may change over time, which is also relevant to our proposal in the new clause. They also said, when we debated clause 15, that the implied average rate of return on capital as pensioner income is attenuated by the bottom tranche. If it is zero on the bottom £6,000, the average rate is reduced, and there is no point in arguing with that. However, while that may be true of the average rate, it is not true of the marginal rate of return, which is expected to be 10 per cent. I challenge the Minister to find me a reliable security on which I can have a reliable return of 10 per cent. on capital at the moment. In the present circumstances of a low-inflation economy, it would be necessary to look for a special set of circumstances such as a person of advanced age—over 75—who bought an annuity. Because a high loading is put on the possession of capital, there is an implied suggestion that pensioners should dis-save or annuitise their existing capital assets, which might not be a good idea. People working for our team have done some exemplifications on the figures, and it is difficult to understand how a pensioner can possibly receive as much income as under the 10 per cent. formula set out by the Minister.

I do not want to belabour the point, but we understand that the Government—and especially the Chancellor—want a degree of stability. I quoted the Prime Minister with approbation this morning, so I shall be kind to the Chancellor this afternoon to preserve balance. However much the Government want stability and feel that they have achieved it in

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relation to monetary policy, which my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) has essentially approved, major changes could take place quite suddenly in inflation or interest rates, for example. Such changes would affect the returns on capital.

We should also consider the relationship between capital generally, or particular kinds of capital, and the interest determined from it. The notes from Help the Aged express concern about the long-term valuation of real property. Many buy property as their pension fund—by buying to let, for example. Especially in London and the south-east, that property might have a high and escalating capital value but give a relatively low income when expenses are taken into account. A circumstance may arise in which a property that was tenanted suddenly falls into vacant possession and the capital value shoots up because the premium falls to the landlord, but the property produces no income at all until it is sold.

Let us consider another example. If changes were made in other benefits, such as council tax or housing benefit, the capital rules or coverage might be different and it would seem inequitable to have two sets of regulations subsisting at the same time. Until recently, for example, the rules on quantity have varied in relation to the distinction between pensioner and disability benefits.

In addition, as a matter of public policy, it may be necessary to consider whether a measure is working out fairly. A capital assessment may appear wrong, or it may become difficult to make a reliable capital assessment—on an overseas asset, for example. What happens if an asset is in a devalued currency? Will that automatically affect the assessment?

Finally, some important issues of policy might arise. We might decide to remove certain kinds of capital holdings from the system altogether. I refer, for example, to the compensation payments in which the hon. Member for Bassetlaw (John Mann) expressed interest.

None of that is intended as a policy recommendation, so there is no need to get excited about that idea. That is not to say that it is impossible to derive an implied income from capital. The new clause would mean that for a period of time, which for convenience we suggest should be consistent with the maximum assessment period in the Bill, the Social Security Advisory Committee should examine the matter and any representations that it might have received, reach an objective view and make a recommendation to Ministers. It would always remain Ministers' responsibility to receive that advice, deliberate on it and to make a decision.

3.30 pm

The new clause would introduce into this part of the world, as the Monetary Policy Committee introduced into the setting of interest rates, a degree of objectivity and independent appraisal. That is why the new clause has considerable merit. I hope that the Minister can see that it is tendered in a non-partisan way and is designed to help make the system work better and more fairly for pensioners.

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