Health

Debate between Lord Hain and Geraint Davies

Monday 9th June 2014 Commons Chamber

[Mr Peter Hain (Neath) (Lab)]

I wish to speak specifically about the pensions tax Bill and the private pensions Bill in the Queen’s Speech. The Government have proposed the biggest reform to pension tax rules in nearly a century. There is no denying that it is popular to give citizens—especially those with small pension pots—the choice to take lump sums that may be more beneficial to them than eking out a living from the small annual payments on which they would otherwise rely. Paying off a mortgage or a loan on retirement by drawing down a lump sum may well be better for such pensioners, but there is real danger in destroying good annuities. That has been going on for a few decades now, and is bequeathing a nightmare that Government policies are nowhere near capable of preventing.

We have a rapidly ageing population that is dumping a huge additional burden on the young, many of whom are already leaving university with massive debts thanks to this Government’s dysfunctional policies. Now they will be saddled with subsidising through their future taxes older people who are being encouraged to live for today and not protect themselves for tomorrow.

The closure of defined benefit schemes and the shift towards defined contribution schemes has been an utter catastrophe. Accelerated further by record demographic changes, that shift is a worldwide phenomenon and a product of the neo-liberal orthodoxy worshipped by the right hon. Member for North Somerset (Dr Fox), which has gripped Governments from the era of Margaret Thatcher and Ronald Reagan, and which this Government still seem to be in the grip of. In the US, for example, the number of defined benefit schemes halved in under 30 years, while direct contribution schemes tripled. Australia, also worshipping such neo-liberalism, saw an 80% reduction in the number of workers covered by defined benefit schemes from the 1980s.

That is the background, but there are disadvantages to the new pension freedom. For example, people might decide to spend all their pension savings at the point of retirement, dooming themselves to poverty later in life. Having saved into a pension fund, received tax relief for many years and reached retirement with a pot of money, they might be tempted to blow the lot at once, meaning that they will never have the benefit of the extra income that they would otherwise have had as they got older. If that happens, the tax relief they receive would not fund a pension, and employer contributions that they may have received along the way would end up funding immediate consumption, rather than providing a long-term income. We know that some people will do that; we do not know how many but we hope the number will be relatively low. Pensions expert Ros Altmann suggests that about 7% of people currently say that they would spend it all. In truth, it impossible to predict that accurately.

[Geraint Davies]

I am sure that my right hon. Friend is a supporter, as I am, of the idea of a British investment bank. Does he think that the Chancellor should have set up tax incentives to encourage people who have liberated their pension pots to reinvest in a British investment bank and create jobs and wealth for the future, instead of it being blown on everyday consumption?

[Mr Hain]

That is a very good point.

The new flat-rate state pension, which is cited in mitigation for this new approach to pensions, still means that a lot of people will fall back on the state having spent all their pension savings. Around 20% of pensioners will still be on means-tested benefits even after the new system starts. People might also try to game the system by taking all their pension money and recycling it into a new pension fund, getting more tax-free cash and another lot of tax relief. That could mostly benefit those who are reasonably well-off with high incomes in later life, and it could be costly in extra Exchequer spending on tax relief.

This is mainly a market problem, and it should perhaps have been possible to reform that market without the draconian retreat from annuities proposed by the Government. Would it have been possible to insist that insurers are obliged to treat customers fairly, and ensure they would be liable if they did not carry out suitability checks to identify which type of annuity was best and offer a good rate? Would it have been possible to reform the way annuities work, and allow more freedom but not complete freedom? What protections will be built into the new system to ensure that unsophisticated consumers are not left at the mercy of product providers offering poor product choices, or higher risk products that people simply do not understand and through which they end up losing significant sums? The Financial Conduct Authority needs to be on top of that right from the start, but judging by past form can we be confident of that? I have very serious doubts.

If guidance is delivered by product providers, those providers are liable to entice their customers towards more poor-value products. Experience shows that they will do whatever they can to try to keep customers’ money, or give them poor value and make extra profit. The annuity market has worked poorly for years, with rising profits to insurers and reducing value for customers. How will the Government ensure that the new products developed finally offer good value, and that the charges are fair and terms reasonable?

The Government are right to legislate to permit collective defined contribution pensions, but I warn Ministers about over-hyping the benefits. In principle, such pensions ought to be better for employers than traditional final salary schemes and better for workers than traditional defined contribution schemes, but in practice they still suffer from market and actuarial risks. Ros Altmann points out that lower earners may subsidise higher earners, and younger members may subsidise older members. The new pension freedoms to take most, if not all, of the pension pot in a lump sum, however attractive and justified that may be to certain people, may also mean that people prefer pure defined contribution schemes that they can access in retirement if they wish. Collective defined contribution schemes, admirable as they may be in principle, usually mean that people cannot just take the cash, which means they may well be less attractive for members.

My challenge to the Government is this: rather than leaving the private pension system to market providers and their whims, why not build a new system that works? We need a system with longevity that savers will understand and find confidence in—a lack of confidence in this Government’s approach to pensions is something that I imagine savers and I share. While the Chancellor’s right hand further fragments and individualises pensions through these tax proposals, the pension Minister’s left hand makes legal collective direct contribution pensions. Why should any employer move to that collective system when they can see the Treasury going down precisely the opposite route? I doubt whether many will do so.

The Government are not doing anything like enough to face up to the time bomb of our ageing society and the whole person social care that the shadow Health Secretary eloquently advocated, or anything like enough to face up to the pensions needed to underpin the new life that is rapidly overtaking us, and the whole person care necessary to protect us. The whole Government philosophy of leaving private pensions to the market and saying to citizens, “Effectively, you are on you own” has failed abysmally in the past, just as I believe it will fail abysmally in the future at a terrible cost to all of us—pensioners, taxpayers and the public in general. I urge the Government to look again and come back with proposals that really begin to meet the scale of both the pension challenge and the whole person care challenge that haunts the whole of this country.

Commission on Devolution in Wales

Debate between Lord Hain and Geraint Davies

Thursday 3rd November 2011 Commons Chamber

[Mr Hain]

Indeed, Mr Deputy Speaker, I am happy to, and I will not be led astray any more by interventions from the Conservative Benches.

The Labour Government, recognising the call from the majority within the Scottish Parliament, commissioned the Calman report, to instigate a serious and thorough analysis of how a new settlement in Scotland might be achieved. Crucially, it was based upon cross-party consensus, expert analysis and real engagement with the Scottish public. It is fundamentally important that this Government adopt a similar approach to Wales. I am encouraged by what the Secretary of State said in that respect, but in truth I am deeply suspicious of the real Tory agenda that lies behind the Silk commission.

The commission’s terms of reference state that any devolution of powers must be

“consistent with the United Kingdom’s fiscal objectives”.

Can the Secretary of State explain what is meant by that? I wonder whether, in drawing up the terms of reference, the Chancellor, the Secretary of State and others were thinking of Switzerland, which has a highly federalised and separate tax system in its various cantons, and which demonstrates how such a system can lead to lower public expenditure—not a model that we desire or will accept for Wales. Silk must not become an excuse for this right-wing Government to offload their financial obligations to lower-income parts of the UK, such as Wales.

[Geraint Davies]

Does my right hon. Friend accept that given that gross value added in Wales is 74% of the UK average, and that we therefore have a lower tax base to tax from, if an equivalent to the Scotland Bill passed 10 points of marginal taxation over to Wales, we would end up raising only 74% of the money possible? We could end up with 20p taxpayers contributing only 17.5p in the pound. That may be one of many methods used to reduce the amount of public expenditure in Wales, but the Government could say, “Oh, don’t worry, you’ve got tax-raising powers. You’ll be all right.”

[Mr Hain]

My hon. Friend makes a significant point that the Silk commission will need to take account of in its deliberations.

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[Mr Hain]

I do not think I want to turn my guns on the First Minister at all, but I know the hon. Gentleman is fond of doing that. The First Minister is seeking to make progress on these matters, as he has very effectively so far.

[Geraint Davies]

Will my right hon. Friend give way?

[Mr Hain]

I will make a bit of progress, then I will happily take interventions.

Holtham calculated that approximately £17.1 billion of tax revenue is raised in Wales every year. Total public spending in Wales is about £33.5 billion—almost twice the amount raised. We should not be ashamed or embarrassed by that. Wales’s needs are greater than those of other parts of the UK. We have a history of relatively high levels of ill health, caused by our industrial legacy of mining and heavy industry. Also, we suffered the cataclysmic shock of sudden and mass unemployment, with the wholesale pit and traditional industry closures in the 1980s, which left high levels of economic inactivity and, because the then Tory Government did not drive investment to create new industrial sectors, relatively lower levels of business activity. That is why we should look before we leap. The so-called devolution-max or independence-light settlement advocated by the nationalists —and, I suspect, tempting to the Tories—could be disastrous for Wales.

--- Later in debate ---

[Mr Hain]

I am astonished that a Member of Parliament for a Welsh seat is trying to defend the Government’s impact on Wales in the 1980s. As a result of Tory policies, there was mass unemployment and people were smuggled on to incapacity benefit to disguise the unemployment figures and left there—a whole generation of young people—never to work again. I am astonished that he is trying to defend that.

[Geraint Davies]

I have figures from the House of Commons Library on the difference between expenditure and revenue showing net contributions of £14.6 billion in Wales and £14.3 billion in Scotland. Does that not demonstrate that independence for Scotland and Wales would only result in an impoverished Scotland and Wales? We need a fair system based on needs.

[Mr Hain]

That is exactly what I have been arguing.

Under devolution-max, as we understand it from the Scottish model, Wales would be responsible for raising all its own revenue, but we simply could not do it. It would be impossible suddenly to halve public spending in Wales. With devo-max, income tax and other taxes would literally have to double overnight just to maintain current spending levels, which is clearly a preposterous scenario—if ever implemented, it would have a devastating impact upon the Welsh economy and people’s way of life. However, I can see how it would be an attractive solution to some Tory stockbrokers in the south-east—people in Chesham and Amersham, for example—because it could mean massive tax cuts for them. Devo-max is yet another example of shared interests by the Conservatives and nationalists. It is no wonder that Plaid Cymru is so reluctant to criticise the Government, preferring to focus all its fire on Labour, as has happened in the past few minutes. They have much in common, which explains why they have consistently refused to rule out a coalition in Wales.

We should celebrate both the successes of devolution and the economic, social, cultural and political ties that bind us together—they are probably stronger now than ever before—but devo-max, or independence-light, is not the answer to the economic problems that Wales still confronts. Labour’s vision is of a Britain in which the stronger, richer parts support the weaker, poorer parts—a Britain fairer, more just and more equal, not an unfair, unjust, unequal Britain where the weakest go to the wall. I hope that the Silk commission will take close account of that important principle.

--- Later in debate ---

[Mr Hain]

I completely agree; I could not have put it better myself. I hope that the Silk commission will consider the context in which it is operating, and that, if it does advocate some tax devolution, which I think would be sensible in some respects, it will consider the wider picture and the impact of the lost revenue, indirectly, to the Welsh budget.

[Geraint Davies]

Will my right hon. Friend give way?

[Mr Hain]

I want to make some progress, if my hon. Friend does not mind. If there is time at the end, I will certainly give way to him.

Labour has set out a clear five-point plan to create jobs, to help struggling families and to support small businesses in Wales. Our jobs plan includes tax breaks for small businesses taking on extra workers, a temporary VAT cut that would give families a boost of around £450 a year, and a tax on bank bonuses to fund jobs and training for young people. I urge the right hon. Lady’s Government to implement it, alongside the work of the Silk commission. If the Chancellor were to come to the House with such a plan for growth, we would support him.

Thanks to devolution, Wales is showing that there is an alternative. The Welsh jobs fund will provide 4,000 job and training opportunities for 16 to 25-year-olds each year, along with an extra 500 police community support officers for safer communities, and support for Welsh students so that they do not have to pay higher tuition fees. Labour First Minister, Carwyn Jones, is proving that, although cuts are unavoidable, they do not have to be allied to the chaos of a privatisation plan for the NHS, or to a plan to close down opportunities in our universities, or, with the greatest hypocrisy of all, to the simultaneous devaluation of vocational education while making it even harder for young people leaving school to get a job.