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Baroness Hollis of Heigham: No, it is not charity. This is an income related benefit which goes to those who need it and it has come from the rest of us through taxation which is also income related. It is from those of us who can afford to pay through a means-tested tax system to those who need it through a means-tested income support system. I think that is a decent and proper way to help those most in need. Give to those who need it. Not a little to everyone, but focus it on those who need that help who otherwise will linger in poverty. I give way to my noble friend.
Baroness Castle of Blackburn: I think it is a little mean to harangue us when we are not as accustomed, as the Minister is, to jumping up to answer every point as it is made. That reduces a debate in this House to chaos. We shall wait for our next turn, do not worry.
Baroness Hollis of Heigham: As I am sure my noble friend knows, one of the differences between Committee stage and Report stage is that there is a debate and therefore noble Lords may intervene freely.
As I said, some have missed out. Therefore, the Government have a clear choice. There can be a little to everyone, which is what my noble friend is proposing, or, as the Government are doing, a focusing of help on the poorest. My noble friend said--I wrote down her words--that it all depends on who benefits. Yes, precisely. It all depends on who benefits. My noble friend wants Members of your Lordships' House--all of us--to benefit, whether our income is £20,000 or £100,000 a year. Frankly, that is not what I am in the game for. I am in the game for those who do not have those levels of income and who would otherwise be dependent on very low levels of income.
To increase the basic pension in line with average earnings would cost an extra £1 billion in 2000, an extra £7.5 billion in 2010 and would rise to an extra £24 billion in 2025. My noble friend said that I do not talk figures and that if I did she would respect me. Well, I am telling her now--that is what the cost would be. I am talking figures--an extra £24 billion in 2025. But, more importantly, that would not increase the overall income of the poorest pensioners--it would merely come off their MIG--and it would spend money on the rest of us, who do not need it, to help ourselves in retirement. I say to my noble friend--
Lord Goodhart: The noble Baroness is being extremely eloquent at the moment. How does she think that this will go down with the 80 year-old pensioner on, let us say, £110 a week who says, "Why is it that I am getting nothing whereas someone who has a few pounds a week less than I do is getting the substantial increase from the minimum income guarantee?"?
Baroness Hollis of Heigham: That is a perfectly fair point. That is exactly why we are proposing to introduce a pensioner's credit. It is going out to consultation. We are targeting help on the poorest. We still want to retain the incentive for people to save and to build for their retirement. Therefore, you must not penalise people just above the income receiving limits. The noble Lord is absolutely right. That is why in the Budget the Chancellor raised the capital limits to increase eligibility for MIG and its passported benefits from £3,000 to £8,000 and from to £6,000 to £12,000. That is a substantial increase as they had not been raised since 1988 and 1990 respectively. It is why the Chancellor has taken on board that entirely legitimate criticism that we need also to consider the equivalent of a disregard for modest income--just above the benefit line. That is precisely why the pensioner credit is being developed and will go out to consultation in the usual way. The noble Lord is exactly right.
To go back to the basic choice facing all of us, if for a poorer couple over 75--people on benefit levels--you linked their pension to earnings, as my noble friend proposes, this year they would get £6. Or you can make them eligible for MIG. That same poorer pensioner couple of 75 would get £18. So £6 or £18? You cannot do it all. You cannot give £18 to everyone. If you give £6 to everyone you still have to help the poorest pensioner more or alternatively they fall behind the rest of us, while others of us enjoy £6 extra that we do not need.
The basic retirement pension alone cannot provide, and was never intended to provide, a complete income in retirement. It is a key building block and that is why we are uprating it with RPI. We are trying to see this as the first step and then put in place the second tier of the state second pension, the stakeholder or the occupation pension; and for those in the meanwhile who fall between the net, to support them with the minimum income guarantee. Through the minimum income guarantee we increased income support for pensioners last year by three times the rate of inflation. This April it was increased in line with earnings.
My noble friend Lady Castle said that one in six was currently on MIG and all that would happen under our proposals in 2050 is that one in five would be. I am sorry. She is incorrect on that. One in three pensioners is currently now on MIG and that will fall to one in five as a result of our proposals. If we did not intervene, that one in three would remain. So we are bringing about a substantial improvement in the lot of pensioners--not, as my noble friend argued, a serious deterioration.
We have not forgotten our manifesto. We are spending £2.05 billion extra on pensioners. They will have, for example, special winter fuel payments. That is a form of hypothecated contribution to fuel costs, because pensioners spend longer at home, they need higher levels of heat, and they are living in houses that are more poorly insulated. We are introducing free television licences, there are free eye tests, as well as tax reductions which mean that two-thirds of pensioners do not pay income tax. As a result, as I have said, an extra £6.5 billion will be spent on pensioner incomes in this Parliament. We are spending £2.05 billion more than would be the cost of uprating the basic state pension in line with earnings, and in an effective and balanced way.
To put it another way, all pensioner households will enjoy the equivalent of a tax-free £3 per week hypothecated winter fuel allowance, and all pensioner families over 75 will enjoy a free TV licence worth an equivalent of £2 a week, making a tax-free £5 a week. So for all pensioner households over 75 the Government are offering the equivalent of £5 extra tax-free a week. The poorest 30 per cent who are broadly eligible for MIG will, on top, receive a further £10 to £20 a week. In other words, under the earnings-related uprating, the bottom 20 per cent would see their incomes improve by around 15 per cent. Under government policies, their income will improve by double that.
So we are helping all pensioners with winter fuel, and those over 75 with television licences, by virtually as much as the earnings link would have provided. But for the poorest we are offering double what my noble friend's proposals would offer. That is where the need is. Given everything the Committee knows about what has happened to the growing stretch of pensioner incomes, in which two-thirds of pensioners do not need our help in this way but one-third do, I hope that my noble friends behind me will recognise and respect the fact that what was right in 1978 is not right now, because the world has changed. If we are to meet pensioner poverty, this is the best way forward. I hope that, in the light of my remarks, my noble friend will withdraw her amendment.
Baroness Turner of Camden: I thank my noble friend for her eloquent response to the debate, which has been a very good one. She will not be surprised to learn that I disagree with her. I still believe in the earnings-related concept. My reason is that I am a firm and committed believer in a system of social insurance.
I interrupted my noble friend to point out that the basic state pension was not a charity. It is not. People have contributed to this pension during their working lives, through the tax system and through national insurance. When they arrive at the age when they are due for retirement, many look to that as a basic building block, as my noble friend rightly says, of pension provision.
Indeed, my noble friend talks about the basic building block, but that is beginning to crumble, and has been crumbling for some time. It will continue to do so unless the Government do something about improving it. There does not seem to be any indication that they want to do that. The concept is that increased pension provision is paid out only on the basis of people in actual need.
My noble friend has repeatedly said, as has my noble friend Lord Brett, that we are not in 1978 any more. But since 1978 matters have got rather worse than was intended then. SERPS has been substantially diminished. Moreover, as a result of previous government policies, the numbers of final salary schemes have diminished. Indeed, such schemes have hardly been introduced in the past 20 years. What we have instead are money purchase schemes, with the inevitable lack of security that goes with money purchase provision. That now applies right across the occupational pension scene, instead of the much better final salary provision that existed well before 1978. Things have not improved marvellously since then.
I have said repeatedly that much occupational pension provision is based on the assumption that it tops up the basic pension. The pension package in 1978 had two tiers: the basic building block, as it has been described, and an occupational pension or SERPS on top. Part of that package, the basic building block, was to be increased in line with the wages index. The failure to do that produces a situation in which even
I thank the noble Baroness, Lady Greengross, for her support. Her observations deserve consideration. Even if this amendment is not accepted I hope that the Government will think very seriously about making a substantial improvement in the basic state pension. As has been pointed out by every noble Lord on this side of the Committee who has spoken this evening, the increase of 75p has resulted in considerable resentment among pensioners which has been made manifest in recent election campaigns. I have a good deal of contact with pensioners. My union has a section for the retired with its own organisation and annual meeting. A large number of people are in receipt of an occupational pension which is not usually generous. The pension has not been increased in line with the wages index. Pensioners are lucky if they have received retail price indexation. Therefore, even though they have an occupational pension the basic state pension is a matter of great concern to them.
Although I shall not press my amendment at this time of night, I ask the Government to think very seriously about the whole issue of the basic state pension. We have reached a stage where, even if the amendment is not accepted--I remain wedded to the notion of earnings-related indexing--it is essential that the basic state pension is examined carefully in light of very widely expressed dissatisfaction by the electorate who are pensioners. I beg leave to withdraw the amendment.