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I deal first with Amendment No. 71, spoken to by my noble friend Lady Turner, before I turn to the bigger amendment, if I may so describe it, spoken to by my noble friend Lady Castle. Amendment No. 71 would increase the rate of basic pension received by a couple where the woman relied on her husband's contribution record to the level of the minimum income guarantee for a pensioner couple. In subsequent years the Secretary of State would have the option to increase that pension in line with earnings.
My noble friend will be aware that at the moment there are two ways in which a married woman can qualify for a state pension. Like everyone else, she can pay enough full rate contributions herself. As an alternative, when her husband retires she can receive a pension on his contributions if she does not herself satisfy the contribution conditions. This reflects the operation of the national insurance scheme prior to 1978, when a married woman could choose to pay a lower rate of contribution--I was one--and receive a pension based on her husband's rather than her own contributions. I and many others like me made a deliberate calculation to reduce the contribution and receive a lower return.
Married men pay the same rate of contribution as single men and women and so the pension paid to a married woman based on her husband's contribution is, in practice, partly financed by the contributions of single people. I believe that it would be deeply unfair to increase the total level of retirement pension paid to a married couple on the basis of the husband's contribution. Why should a woman, who may have paid no national insurance contributions at all, or, like me, paid reduced rate contributions, receive an increased contribution for which she has not paid when other women, single men and married men who have also contributed throughout their working lives receive no such increase? My noble friend seeks to give that pension entitlement to people who have chosen to make a lower contribution, or, in some cases, none at all. If there is any merit in the contributory principle for which my noble friend has argued this evening, surely she will accept the truth of that proposition.
I turn to Amendment No. 72, which would uprate the basic state pension by earnings. It has been debated at considerable length on previous occasions. I am sure that all noble Lords around the House tonight share the desire to tackle pensioner poverty. As was said by my noble friend Lord Davies of Coity, my noble friend Lord Warner in particular and other noble Lords, I do not think that this proposal is the right way to achieve that aim. The earnings link, as was pointed out by my noble friend Lord Davies of Coity, existed for a period of only four years between 1974 and 1979. In two of those years prices exceeded earnings. This was at a time when few people had a second pension to add to the basic state pension. Today, when we talk about pensioner incomes we look beyond the basic pension to the total income that pensioners receive.
The basic, irreducible facts, boring though they may be, that my noble friends behind me have consistently refused to take on board are that, over the past 20 years since the earnings link was introduced and then disbanded, pensioner incomes have grown at a faster rate than any other broad group in the population. On average, the incomes of all of us of working age have grown by 38 per cent in real terms since 1979. The increase for pensioners has almost doubled from its base, rising by 64 per cent. As a result, their income increase has been substantial. That has happened despite the break with the earnings link, due largely to the impact of SERPS and occupational pensions. Compared with 1979, the real income of pensioners has grown by almost twice as much as the rest of us on average.
Baroness Hollis of Heigham: My Lords, it is true. I am prepared to accept that my noble friend may wish to challenge me. I know she feels that that cannot be the case because, I acknowledge, she has personal experience of friends and acquaintances in particular circumstances. But these are official government statistics which have not been challenged authoritatively by anyone so far as I am aware. Pensioner incomes have increased by 64 per cent on average since 1979; the incomes of the rest of us by 38 per cent. That is the first point.
The second and important point for our consideration is that that 64 per cent conceals the most appalling growth in pensioner inequality and, therefore, pensioner poverty. The top fifth has seen its income increased by more than double the amount of the bottom fifth. As a result, whereas the bottom fifth of couples in the 1997-98 figures has an income of £126 per week, the top fifth of pensioner couples has an income of £426--nearly four times as much. That is an increase in inequality which far exceeds any other inequalities in our society.
That situation did not face my noble friend the former Secretary of State. Had it done so, I am confident that her response in 1979 would have been different from the response when she established SERPS and the earnings link. But that is the fact now.
We have now inherited a situation in which the top fifth of pensioners has seen its income increase by nearly 80 per cent and the bottom fifth of pensioners by between 25 and 30 per cent, depending whether they are single pensioners or couples. That is far less than the rest of us.
What do we do in that situation? Would restoring the earnings link which my noble friend Lady Castle wants to see tackle inequality? Would that reduce pensioner poverty? The answer is a resounding no. Restoring the link would cost an extra £1 billion net in 2000, and extra £7.5 billion in 2010 and an extra £24 billion in 2025. Every pound one puts on the basic state pension adds £0.5 billion to expenditure. But it is not the money question. The cost is not the main problem. The problem is that my noble friend's policy would do nothing to help the poorest pensioners. It would not help in the battle we think that we face: pensioner poverty and inequality.
As my noble friend Lord Warner said, we have spent £6.5 million extra on pensioners in real terms in this Parliament if one includes the winter fuel allowance, the TV allowance, and so on. That is over £2 billion more than we would have spent on earnings uprating and over half of that has gone to the poorest pensioners. Under my noble friend's scheme, only one fifth of that money would have gone to the poorest fifth.
Baroness Castle of Blackburn: My Lords, I am grateful to the Minister for giving way. She said that the restoring the earnings link would do nothing for the poorest pensioner. She is surely aware that, if it had not been abolished by Lady Thatcher, today every pensioner would be receiving £98 a week--more than the minimum income guarantee of £78.
It is a question of what path you follow consistently over the years. Would not she agree that what she is advocating is a consistent path towards the disappearance of the basic state pension? Does not she realise that that is the last thing that even the poorest pensioners want?
Baroness Hollis of Heigham: My Lords, my right honourable friends the Chancellor of the Exchequer and the Prime Minister have made it very clear that the basic state pension will remain an essential building block in pensioners' incomes. That is what we believe and support.
My noble friend will understand that we are not back in 1981, or 1980, when the earnings link was disbanded. We are coming up to 2001; and, since the date when the earnings link was disbanded, the poorest pensioners have fallen well behind not only the median income of pensioners, not only behind the income of the better-off pensioners, but behind the incomes of all of us. The question, then, is whether restoring the earnings link is the right way to address the problem of pensioner poverty.
A flat-rate provision, which is what the earnings link is (for a couple, it would have been £3.70 this year) would not help the poorest pensioners, because it would be deducted from their income support; and it would be barely noticed by the better-off. The choice is straightforward. You can give £3.70 to everyone--the poorest will not gain, and the better-off do not need it--or you can target the benefit on those who need it, and they will receive £18. So the choice is: £3.70 for all, or £18 for those who need it. That choice will not go away however much my noble friend wishes we were back in 1979--or 1978 perhaps, given the results of the election in 1979!
There is a further point. What does my noble friend propose to do about those pensioners who currently need, and receive, £18 on top of the couple's basic retirement pension to take them up to the MIG level? An earnings link would give them £3.60, £3.70 or £3.80. What about the rest of the money? Is my noble friend saying that they would not receive the rest of the money, so they would be some £15 poorer than they are now? Or is she saying that they would receive the money, and that they would still need to be means-tested on top of the earnings link, but with less money to go into that means-tested, targeted top-up because the money would have gone to the rest of us? What is her choice? Either pensioners do not get the money--or they do get it, in which case they have to get it through the very targeting that she has deplored.
My noble friend cannot have it both ways. She must address the fact that the amendment belongs to a society which I believe no longer exists. It belongs to a society in which income differentials between pensioners were very narrow, and where a flat-rate increase for all was a decent, right and proper way of helping pensioners by locking them into an earnings right. That society has gone. My noble friend has criticised, as have all of us on these Benches over the past 20 years, the policies of increasing poverty and inequality that have afflicted so many in our society. No group has been hit harder than pensioners. They are the ones who have suffered. The poorest 40 per cent of pensioners are the ones who have been left behind.
My noble friend's amendments belong to 1979. They will do nothing for those pensioners. If all they receive is the earnings link, they will remain in poverty. If, on top of that, my noble friend recognises that they need to go up to MIG, they will still need means-testing, but she will have spent the money on people like me and others of my noble friends who do not need it, and those pensioners will not get the money they need. Those are the facts. In a society of inequality, we need to target help to reduce that inequality, not give the same to all--because if we do, we merely perpetuate the inequality into the next generation and the generation thereafter.
I ask my noble friend to respect that fact and to withdraw her amendment. If she chooses to press the amendment, I ask the House not to support it.
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