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Mr. David Willetts (Havant) (Con): We broadly welcome the statement. We also welcome the Secretary of State to the House. I was half expecting someone else, when I read a story in The Sun today about Labour's

topped with a nice photo of the hon. Member for Nottingham, South (Alan Simpson)—so it is good to see the Secretary of State here.
 
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I hope that the right hon. Gentleman will explain further the background to his plans for pension credit, because there is an interesting difference between what was stated in the official release of the Chancellor's autumn statement and what the Secretary of State has said today. According to the official release, the Chancellor was going to say last week:

which of course left scope for a change of strategy after that—we know that the Secretary of State regards the pension credit as a short to medium-term policy only. However, what the Chancellor told the House, as recorded in Hansard, is:

and it is that formulation that the Secretary of State has repeated today. Does he realise that if he keeps increasing the pension credit by earnings and the basic state pension by prices, the gap between the value of means-tested benefits and the basic state pension will widen? How could that possibly be consistent with what he told us he wanted when he said that we had to

His uprating statement today is inconsistent with the strategic aim that he set out in that speech last month. We need to know what he is trying to do, and whether he believes in means-testing increasing indefinitely.

It is all right the Secretary of State being a free spirit, speculating about how he can reform the pensions system when he is giving speeches outside this Chamber or in interviews with The Daily Telegraph, but what happens when he turns up here and gives a totally conventional uprating statement that will lead to more means-testing and more pensioners on means-tested benefits? He must make his strategy clear. Following another of his recent media appearances, I read in the Telegraph on Saturday, I think it was, that he spent his youth playing in a pop group called "The In-Betweens"—perfect positioning in today's Labour party, in between the Prime Minister and the Chancellor, and in between means-tested benefits and pension reform. We want to know his strategy for pensions.

Will the Secretary of State confirm that pensioners who got an extra £100 in their benefits this year will not get that next year but will get a £50 special payment instead, so that, after allowing for inflation, there will be a fall in the real value of benefits for pensioners next year compared with this year? Will he also confirm that that is before further increases in council tax? Studying the small print of the Chancellor's autumn statement reveals that average council tax will increase by 8 per cent. next year; what does that mean for real pensioner incomes?

The Secretary of State's statement was billed as being about not only benefits uprating but welfare reform, so let me ask him about what welfare reform means to him. It is obviously important that we reform welfare, and if ever the Government get around to trying to do so seriously, the Conservatives will back them. However, I admit to a certain world-weariness when I see another
 
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enthusiastic, fresh-faced Secretary of State, new to his office, come into the Chamber to announce that he will engage in welfare reform. We have been here before, and reform has never been delivered before. Why should it be any different this time?

Nowhere is the gap more obvious than in incapacity benefit, which the right hon. Gentleman mentioned today. May I quote what the Prime Minister said more than five years ago about reforming welfare and incapacity benefit? He said:

That was in November 1999, but since then the number of people on incapacity benefit has gone up from 2.267 million to 2.405 million. Having previously been promised welfare reform that was not delivered, why should we believe the Secretary of State this time, especially when the number of young people who are not working, studying or training has gone up since Labour came to office in 1997 and since the introduction of the new deal? It now stands at 1.112 million, which is the highest figure since 1997. Does that not tell the Secretary of State that there is something wrong with his protestations about welfare reform?

The Secretary of State referred to families, but will he comment on something that he carefully removed from his uprating statement? He talked about child tax credit and the uprating of the value of the child element of the tax credit. He did not say anything about the freezing for the second year of the value of the family element of the child tax credit. That is significant, because the child element of the child tax credit is heavily means-tested, and that is the part into which the Government are putting more money. The family element of the child tax credit goes to most families, and Labour is freezing it. The underlying policy for families, just as it is for pensioners, is more means-testing. The direction of policy on families is more means-testing, just as it is for pensioners. I am pleased that the Secretary of State has asked his officials for a note because, sadly, there are not many families in this country who can find their way around the Gordon Brown system. The statement involves more means-testing for pensioners and families, but that is not the direction in which we believe the country should go, and it certainly cannot be called welfare reform.

Alan Johnson: I reassure the hon. Gentleman that the Secretary of State for Work and Pensions still resides in Hull rather than Nottingham. I was surprised to see the photograph myself—Alan Simpson must be even more surprised.

I thought that there was terrific news in the statement about pension credit, which is something in which hon. Members on both sides of the House should be interested. Her Majesty's official Opposition do not want to do away with pension credit, and neither do the Liberal Democrats, so we all have a shared concern in making sure that we achieve maximum take-up. In my statement, I pointed out that we are succeeding in reaching the poorest pensioners who are on incomes even lower than the basic state pension because they did not make enough national insurance contributions.
 
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That is relevant to the point about uprating, as it is tremendous news for those pensioners that we will continue to index the guaranteed element of pension credit by earnings.

It is no good embarking on the task of taking millions of pensioners out of poverty—we are providing them with the reassurance of a safety net, including an additional savings element—and lifting 1.8 million pensioners out of abject poverty only to start to go backwards. The result, as I said in my statement, of linking the pension credit to prices rather than earnings would be 600,000 pensioners falling back into poverty. Indeed, the hon. Gentleman's policy of linking the pension credit to price rather than earnings would mean that, at the start of the 21st century, pensioners who are striving to get closer to average earnings—our ambition is to eradicate pensioner poverty—are, in fact, taken backwards. The statement is therefore good news for individuals on pension credit, and people would be extremely concerned about any political party that seeks to unravel what we have put in place.

The hon. Gentleman said that the proposals were inconsistent with the basic state pension, but there is no inconsistency at all. On the back of the Turner commission, we are looking at a new world for pensioners, in which there is a doubling of the number of people over 65 as a proportion of the population. The birth rate is declining, longevity is increasing and all countries must face the issue of what we are going to do in the long term. That should be a more mature debate than the debate about today's pensions. Of course today's pensions are important, but they must be sustainable into the future. We make no apology for looking at the long term. Part of the accusation was that we had a short-term approach, but there was no more short-term approach than that displayed by the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), the Leader of the Opposition, who said that pensioners were more concerned with today than with what happens in 2050. Society and politicians must be worried about the situation now and in the future.

The hon. Gentleman said that there had been various speeches on welfare reform but that nothing had happened. One does not need to look at figures or statistics. One need only walk into a Jobcentre Plus office to see the transformation in welfare reform. It is not just the practical effect of merging the Employment Service with the Benefits Agency. It is the whole approach to people who need help to get back into work—the eradication of the screens and the dreadful atmosphere in those places, which made the customer feel more like a guilty party than like someone seeking assistance. Our reforms through Jobcentre Plus have been remarkable. The hon. Gentleman's policy of privatising Jobcentre Plus and abolishing large chunks of the new deal should concern us all, were there any danger of the Conservative party being elected.

The other aspect of welfare reform that the hon. Gentleman mentioned was IB. It takes a certain amount of panache and style—I give him credit for having both—to stand at the Dispatch Box as a Conservative MP and a member of the Government in the previous Administration, and speak about incapacity benefit. Let me remind the House that that trebled from 700,000 to 2.6 million between 1979 and 1997. Had we carried on that trend, there would now be 4 million people on
 
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incapacity benefit. The figure has risen from 2.6 million to 2.7 million because the inflow into incapacity benefit is down by a third.

We must improve the situation even further. Pathways to work is an incredibly important element of that, and I am pleased that the Chancellor last week announced its extension to a third of the country. Given that we have the most stringent gateway into incapacity benefit in the world, as measured by the Organisation for Economic Co-operation and Development, we must examine why people are coming on to that benefit. One factor—the hon. Gentleman asked for some of our thoughts on the subject—is that a third of people are flowing on to incapacity benefit direct from the workplace. They were originally on statutory sick pay. When that runs out, they lose their link with the workplace, stay on the same rate but are suddenly into incapacity benefit. Then we spend an awful lot of time seeing how we can turn those people around and get them back into a job.

There are some important lessons to be learned there, but the most important lesson from pathways to work is that so many people on IB want to be back in work. They do not want to be treated as they were by the previous Government—condemned to a life on benefits. They want a helping hand to get them into work. That is what pathways to work is all about.

The hon. Gentleman mentioned the NEET figure—those not in education, employment or training. The increase is entirely explained by the increase in population. Nevertheless, it is too high and we need to tackle the problem. That is why there were a range of measures in the pre-Budget report last week, including the concentration on skills and the change to the benefit arrangements so that those who are in full-time training unwaged can pick up some financial assistance, in the same way as others get the education maintenance allowance. There are important issues that need to be dealt with.

Finally, the hon. Gentleman asked a question about which I make no excuse for having sent for a note. My understanding, before receiving the note, was that the issue was part of the changeover to working tax credit. The family element stays at £545, so families will receive exactly the same, in nominal terms. Since we came to power in 1997, families with two children and an income of £50,000 have received a large boost, raising financial support for their children from £20 a week to £38.90 a week next year—a real-terms increase of 59 per cent.


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