Queen’s Speech

Baroness Drake Excerpts

Tuesday 10th June 2014 Lords Chamber

[Baroness Drake (Lab)]

My Lords, employment is up, the growth rate is up but, still, too many ordinary people are not getting fair access to the benefits. Regional imbalances have increased, household debt is rising and income uncertainty abounds. The real- life experience for too many is declining labour productivity, increasing casualisation, growing low-wage self-employment, zero-hours contracts, part-time working and low pay.

Self-employment accounts for 44% of all employment growth since 2010. Between March 2013 and March 2014, the number of employees increased by 351,000 and the number of self-employed by 375,000. Of the active workforce, 15% is self-employed, twice as much as in the US. The Resolution Foundation concluded that self-employment growth is not correlated with strengthening labour markets—rather, the link is between self-employment growth, a falling number of employee jobs and rising unemployment at the regional level. London has experienced the lowest proportionate growth in self-employment, while the highest has been in the north-east and the West Midlands, where unemployment is highest. In January, there were some 2.7 million zero-hours contracts, of which 1.4 million provided work to people and 1.3 million did not. The problems go beyond the exclusivity clauses that are the focus of the Government’s consultation, to low pay and changes without adequate warning. ACAS chief executive Anne Sharp said about zero-hours contracts that,

“we know from calls to the Acas Helpline that … Employee callers in particular identified strong concerns about their terms being changed at short notice”.

Insecure employment brings insecurity of income, no pension savings, restricted access to the national insurance system and difficulties with mortgages, tenancies, personal credit and debt. The Resolution Foundation found that 15% of self-employed people were prevented from accessing credit or loans because of their status and one in five were prevented from getting a mortgage—difficulties echoed in the Bank of England’s NMG survey. The Council of Mortgage Lenders stated that it is,

“difficult to determine how lenders will be able to continue to lend”,

to self-employed borrowers.

The employment rights of those on casualised contracts can be ambiguous. Do they have continuity of employment? Should they be paid for being on standby? Are they employees, or workers with no rights to notice periods or protection against unfair dismissal and so on? The single-tier pension will improve the position of the self-employed but not of those in mini-jobs. Auto-enrolment will widen the gap in private pensions between the self-employed and employees.

There is a need for a far greater focus on how public policy on welfare, pensions, employment protection, the minimum wage and access to finance is responding to these fundamental labour market changes. There are still too many British businesses operating on the basis of low wages and low productivity, whose wage bills are subsidised by the taxpayer through the benefits system. People want economic growth but most of all they want a vision that makes them feel hopeful about their family’s future and their employment.

The Government introduced fees for access to unemployment tribunals. In the debate in this House on 8 July 2013, the noble Lord, Lord McNally, said:

“It is important that noble Lords understand that introducing fees into these tribunals is not an attempt to deter individuals from bringing claims … we do not believe the provisions of this order will do so”.—[Official Report, 8/7/13; col. 74.]

It took just six months for the Government to be proved wrong. The number of claims received in employment tribunals between October and December 2013 was 79% fewer than in the same period in 2012. This massive drop will have contained many meritorious claims and bad employers will witness that workers have been deterred from claiming.

When the Chancellor announced that people could access their defined contribution pension savings as they saw fit, it was met with acclamation in the media, not least because savers were not getting a fair deal on annuities. As the Treasury has not published an analysis of the impact of these reforms, there are many unanswered questions. The Government are simultaneously introducing freedom for people to withdraw their savings as they see fit while promoting the principle of pooled risk through collective DC schemes, where workers’ savings are pooled with those of others and accessing savings will be subject to rules and restrictions. Is it not possible that the individual freedoms in the former reforms will undermine building the collective schemes?

The tripartite relationship in private pension provision between the Government, the worker and the employer appears subtly to be changing. Historically—and integral to the original auto-enrolment reforms—the deal was that workers saved and the employer contributed, supported by state tax and national insurance relief, because pensions delivered an income stream for the pensioner that benefited the pensioner and society. If we are now building a national savings scheme rather than a pension scheme—and we hear calls to go even further, such as integrating ISAs and pensions—successive Chancellors will take a very different approach not simply to the distribution of relief but to the principle of tax incentives, and employers will feel increasingly remote from any tripartite responsibility to pensioners. Yet for many millions, who are the future generations of pensioners, choice is important but the biggest—and huge—challenge remains building up a pot of pension saving in the first instance.

The consensus now seems less clear. Giving greater choice to pension savers has been applauded but has protecting ordinary savers been sufficiently addressed? People need to know that they can trust the industry and those looking after their money. People will now have a combination of choices: take the cash and pay the tax; stay invested; draw down income; or buy an annuity. The gracious Speech says:

“My Government’s pension reforms will also allow for innovation in the private pensions market”—

the same dysfunctional market that delivered poor-value annuities, hidden charges, complexities and conflicts of interest. What will be the nature and quality of the new products? Will they be subject to the new quality standards and transparency requirements? Will people understand what they are buying? Will there be new presentations of the pensions liberation abuse? Unrestricted choice may change the potential for savers to make better decisions about their retirement lump sum but it also increases the potential to make worse decisions.

The Government intend achieving engagement with the saver by providing everyone accessing their savings with free, impartial, face-to-face guaranteed guidance, but we have yet to see how realistic that is and to understand what is proposed. We do not have a definition of what the guidance will be, the detail of the requirements, who will receive it—whether it will be everyone aged over 55 or 65—who will deliver it, how it will be paid for and the extent of provider involvement, but a delivery system must be built in time for the April 2015 changes.

My further concern is that many people with modest pension pots cannot afford regulated financial advice. I hope that, in trying to engage consumers, the Government will not push thousands of ordinary people into inappropriate, expensive advice, so depleting their modest pension savings.