Workers (Economic Affairs Committee Report)

Lord Turnbull Excerpts

Thursday 8th February 2024 Lords Chamber

[Lord Turnbull (CB)]

My Lords, in the seven or so years since I joined the Economic Affairs Committee, it has produced a number of excellent reports such as those on education, training and skills for the half of the school leavers who do not go to university, building more homes, the operation of the Bank of England and the subject of today’s debate, Where Have All the Workers Gone? This was produced when I was not a member, but I am happy to praise it highly.

I wondered whether there was a thread connecting these subjects. I found an answer from the excellent testimony we received recently from Dr El-Erian, the president of Queens’ College, Cambridge. The connecting thread, he argued, was the supply side of the economy, which has been neglected over the past decade, including much of the labour market, while too much attention has been paid to managing demand in the economy. He argued that there was a dominant view in the decade 2010 to 2020 that there was a surplus of savings and insufficient demand in the global economy and in the UK, which was seen as constantly teetering on the verge of recession, meaning that interest rates needed to be kept low. It also meant that you could flood the system with fiscal and monetary stimulus and not pay the cost in terms of inflation. Dr El-Erian’s conclusion was that we live no longer in a world of insufficient demand but in a world of insufficiently flexible supply. The supply side is governing the outcomes for growth.

A number of events have damaged supply here in the UK, some coming from outside the country and some from faulty domestic policy decisions. In the decade between 2010 and 2020, the Bank of England and the Government tried to boost demand by stuffing the banks with liquidity through QE, while boosting household incomes by increasing public spending faster than taxes. But this failed to produce growth; it was described as “pushing on a string”.

Looking through the past reports of the EAC, one can see where opportunities to improve the supply side of the economy are being missed. In the area of skills, we have funded universities generously but, as the noble Lord, Lord Willetts, noted, the provision for school leavers not going to universities but taking courses such as HNCs or BTECs, or going to apprenticeships and FE colleges, has been trashed. As a result, we do not have enough skills to build the number of houses we need. Priority has been given to helping first-time buyers but we have not increased the supply of homes for them to buy, with the result that house prices have risen.

The report we are discussing reveals a major anomaly in the British economy, as the noble Lord, Lord Skidelsky, pointed out. During the pandemic the level of inactivity in labour markets around the world rose, but in almost every other major country the level of inactivity has returned close to pre-pandemic levels. The UK stands out as the one where inactivity levels have gone up and remained high. The ONS published revised figures on the labour market earlier this week and, although there are some doubts as to how much confidence we should place in them, they show a picture even worse than we expected when the report was written. The inactivity rate has been revised upwards and the numbers who are long-term sick have been revised up from 2.4 million to 2.8 million. Something has gone seriously wrong when the numbers who are long-term sick are this high while there are serious labour shortages in key parts of our economy. Because we are failing to get enough of the people already living here into work, we have resorted to bringing in more workers from abroad, with all the tensions that brings.

As the report indicates, the reasons for the inactivity rate rising and staying high are complex: the ageing population, changing preferences about early retirement, access to disability benefits and a deterioration in health, physical and mental, are all contributing. The report rightly urges the Government to study this more intensively. I think paragraphs 58 and 59 of the report rather downplay the role of sickness in raising inactivity. In the light of the new figures, we should possibly revisit that conclusion.

What does all this mean for policy going forward? The emphasis should be on measures that improve the supply side of the economy and productivity, rather than simply pushing more money into the banks or giving short-term, pre-election tax cuts. We should certainly aim to improve health, which is acting as a major drag on our performance.

Other evidence we have heard from the committee recently is that, despite the huge quantity of government debt that needs to be sold each year, there has been no significant difficulty apart from the Truss crisis. This indicates that we may have some time in which we could prioritise measures to improve supply and productivity over further increases in demand: by changes to in-work benefit rules, improvements in healthcare and boosting investment, public and private. That is pretty much the approach recommended by the national institute in its latest report on the economy.

I have one final observation: we should reorganise our thinking and our statistics around the way we characterise age 65 as a watershed. Below that age, people are described as “of working age”, implying that those above that age are not. Many in that age group could be brought back into the workforce with the right incentives and support. That is something we should certainly work on.

Pensions Bill

Lord Turnbull Excerpts

Tuesday 8th April 2014 Lords Chamber

[Lord German (LD)]

My Lords, I am slightly confused by the remarks of my noble friend Lord Forsyth because he referred to a survey. When my noble friend the Minister spoke, I could have sworn that he was talking about a review, and there is more than a slight difference between a survey and a review. A review means that you look at the evidence and take action as a result. I noted the words used by my noble friend, that the matter will be addressed. Given that, can we have an assurance that if any review turns up evidence that this is a matter which affects a large number of people, action will be taken to address it? That is the difference between a survey and a review; a review implies action at the end of it.

I also wonder if my noble friend can reassure me that this review will look at the differences in zero-hours contracts, on which an enormous emphasis has been placed. They are seen as being at the heart of the problem. The ONS labour market survey shows that although there has been an increase in the number of people on zero-hours contracts, the number of women in part-time and multiple jobs has not been increasing over time. I think that a distinction needs to be made because the issue is not necessarily about zero-hours contracts, so I would be grateful if my noble friend could reassure us that that is not the emphasis. The emphasis here is on people who have mini-jobs or who fall below the lower earnings limit. They are not able to get the stamp which would qualify them for building up their pension. Given the number of years that the new pension requires—35 years—can my noble friend also say whether the review will take into account a lifetime of work? That is because if you have earned up to the limit or you have got your 35 years, whatever you do on top of that is not going to make a difference to the £149 or so that we are expecting to be the figure for the new state pension for a single person. That will have effects elsewhere on people’s personal economic trail.

I welcome the announcement made today by my noble friend, and I hope that he can reassure the House that these caveats will be taken into account when taking action.

[Lord Turnbull (CB)]

My Lords, when I heard mention of the Minister in the other place, two words came to mind: “kitchen” and “sink”. Indeed, the Minister claimed that there were 17 logical flaws in the case the Lords had put forward. However, it was not clear to me which were the objections of substance and which were the makeweight arguments. Of course, the problem is that there are not that many people in this category. Is it a problem that is going to be solved by universal credit, or is it not a problem because people have time to catch up later on? That is a very poor argument because you never know whether you are going to have time to catch up. Is it a problem of information? Is it a problem that in the fixing of it would create other problems? Lastly, there were arguments about drafting. For good measure some bad statistics were thrown in that referred to average numbers of people on average hours and average earnings, when you really need to look at the median if you are trying to calculate the numbers.

However, I welcome the statement from the Minister today because he appears to have conceded that there is an issue to address. As a matter of principle, I think it is not acceptable that someone earning £120 in one job can get credit, while someone earning two times £60 a week cannot. We have a duty to address this issue if it turns out that significant numbers of people fall into that category. I also welcome the review, and like other noble Lords I hope that it will be addressed with some urgency.

I think that one further assurance is needed. If it turns out that the Government do not have the powers, they should be introduced quickly. Opportunities to do that in social security legislation seem to arise every few weeks, so I do not think that it will be a problem.

[Baroness Sherlock (Lab)]

My Lords, as the opposition winder, I have rarely felt more redundant. If the Minister had seen the nodding of heads going on from all Benches, including those behind him, he might begin to think that accepting the amendment would have been the easier path in the long run. I was quite disappointed to find the amendment returning to this House, as it had a number of things to commend it. First, it identified a problem which clearly needed attention. If there were any doubts about that, my noble friend Lady Hollis has cleared them up today. The case is compelling.

When we debated this amendment on Report, Ministers seemed sceptical that there was a problem at all. However, since then, we have had some new figures from the Office for National Statistics, specifically on the prevalence of zero-hours contracts. The figure that was used on Report was 183,000 in 2010. The new ONS report, based on the Labour Force Survey, shows that there are 583,000 people currently employed on zero-hours contracts. I fully accept that some of those people will of course be earning enough to bring them into the system, but the point made by the noble Lord, Lord Turnbull, about the use of average figures when this was debated in the other place is very well made. If some people are earning very high salaries, for example as IT contractors, a mean figure is never going to be any help at all in working out the impact of this.

In addition to those on zero-hours contracts, there is the broader issue of those doing more than one mini-job, as described so effectively by my noble friend. Concern has been expressed across the House throughout the passage of the Bill about the asymmetry of the system crediting-in those who earn all that money in one job or those who are unemployed, including those who are unpaid carers, but not crediting-in people working hard in more than one job.

The other thing the amendment had to commend it was that it was wholly permissive: it simply enabled the Government to take action if and when they were ready but mandated them to do nothing. The amendment also had no financial implications, and I was surprised as well as disappointed to see financial privilege being cited for such a permissive amendment. Frankly, I really find that incomprehensible.

However, the Government still seemed unpersuaded. Ministers, both in the other place and here, have posted a series of objections to the amendment. Some are minor, such as complaints about the drafting, but, as my noble friend Lady Hollis pointed out, those could have been easily resolved by the Government bringing forward their own differently worded amendment at Third Reading, so we have to assume the problem is bigger than that. When we sweep away some of the flannel in the debate in the other place, the options are these: they do not believe there is a problem; they believe there is a problem but do not know the scale; there is a problem but universal credit will solve it; or there is a problem but the Government do not know how best they want to address it.

Both in debates in another place and, indeed, today, we have had smatterings of all of those. The Government seem unpersuaded that there is a problem, or at least not one of a size to merit intervention to tackle it. They want to do research—lots of really thorough and careful research. I am a great believer in research but want to understand what it is the Government think they could learn that would make a difference to the decisions they would take. There are many noble Lords in this House who may not be biologists but who, as mentioned by my noble friend Lady Dean, can spot long grass when they see it. Frankly, I can smell it from here.

As for the universal credit defence, my noble friend Lady Hollis has taken that apart at different stages of the Bill. The Minister said again today that 800,000 people will be credited-in as a result of universal credit. The new pension system is due to come in in under two years, and I am personally not willing to bet the house that UC will be fully rolled out by the time it does. Even if it is, that leaves out all kinds of people. Single people on even very modest incomes will not be covered by universal credit. A married woman affected by this problem could find that her husband’s earnings float her off universal credit but she can no longer, as a result of this Bill, get a pension based on his contributions, so she is cut out both ways.

Finally, it may be that the Government are eventually persuaded that there is a problem, but they want to address it in a different way from that favoured by my noble friend Lady Hollis. Of course, the amendment allowed them to do that. In addition, the Government could have brought back their own amendment, had that been what they wanted to do. But this must leave the House nervous that the Government are not really supportive in the way that they sound at the outset, however warm their words of welcome. The Minister has a job to do to reassure people on all sides of the House.

First, do the Government accept that there is a problem that needs addressing? Secondly—and this was the killer question posed by the noble Lord, Lord Forsyth—are the Government satisfied for any worker to be excluded from the new single-tier pension just because his or her hours are spread across more than one employer? Is it a question of principle? Is it a question of scale? If so, what is the magic number? Thirdly, as the noble Lord, Lord German, said, if the Government do accept that there is a problem, will the Minister confirm that they are committed to taking action to address it? The only outstanding question, therefore, is how best to do that.

Finally, many noble Lords asked about the timescale and the process. If the forum is to be held by the summer, when can the House expect a report back, and what form will the action take? My noble friend Lady Hollis pointed out that even though this Bill has not yet completed its passage through the House, the entire pension system is to be revolutionised still further. If that means further primary legislation, do the Government intend to take advantage of that legislation to enact whatever decisions they take as a result of the review? If not, what other mechanisms will they choose and how will the Minister report back to the House?

Pensions Bill

Lord Turnbull Excerpts

Wednesday 26th February 2014 Lords Chamber

[Lord German (LD)]

My Lords, I shall try not to repeat the remarks of my noble friends Lord Stoneham or Lord Flight, but my noble friend Lord Flight makes a very important point about the default choice which is before people. That is what this amendment must seek to address but I think that it fails to do so. Noble Lords will recognise that what we have before us is a debate about either pot follows member or the aggregator; it is not a debate about choice. Except for the noble Lord, Lord Turner, who said that under certain conditions, the balance might be right, it is clear that those on the Labour Benches want to see an aggregator policy.

I accept that that is the purpose behind the amendment but that is why it is important to examine these issues. I shall say a few words about why we must have some form of automatic transfers of pensions. The main beneficiaries of automatic transfers are those people who, for the first time, are saving for their retirement, following automatic enrolment into a workplace pension, and then move jobs, leaving behind a small pension pot. A system of automatic transfers is necessary to stop the proliferation of small pots that will ensue as a by-product of automatic enrolment. The average worker in this country will have 11 jobs in the course of their working life. Automatic enrolment by 2018 will probably have 9 million people within it, and maybe even 10 million by 2020 who are new savers, saving more for their retirement than their work-based pensions. These are people who are being automatically enrolled. If we took no action the projection is that there will be around 50 million dormant workplace defined contribution pension pots within the system by 2050.

A successful system must focus on the interests of the member, allowing them to consolidate their pension savings. I notice that the noble Lord, Lord Monks, is not in his place but he is a trustee of the NOW: Pensions fund. His fund conducted research of more than 2,000 21 year-old plus people with at least one workplace pension. The result was quite clear: 39% of the individuals surveyed said that pot follows member was their preferred option compared to just 6% for the aggregator model. It was suggested that the aggregator model is so difficult to understand that people chose the easier one because they recognised its simplicity. Is it not the case that we are looking for simplicity? People were asked, “Do you want your pension to follow you, or do you want it placed somewhere else, which will be some distance from you both in employment terms and in being able to influence what it does?” People in that survey, which is probably one of the most comprehensive that we have had, said, given the choice, they preferred to have their pot following them when they changed jobs.

That suggests that explaining an aggregator model to the public, who do not understand the pensions market well anyway, would be much more of a challenge. People will not understand what is being made of their pension, seeing it going away to a distant aggregator, compared to the idea that their pension moves with them to their new employer. I do not believe that there is evidence that the interests of individuals would be best served by the undefined aggregator system. It will be difficult to administer, as my noble friend Lord Stoneham said, and will lead to the market being dominated by a few large schemes and providers, and where everyone will be guaranteed to have two pensions rather than one.

The issue raised by the noble Lord, Lord Turner, and by the noble Baroness, Lady Drake, about quality is crucial. I recognise, as we all do, that the OFT in its report on DC pension schemes said clearly that competition was not driving good value for money for all savers. That is precisely why the Government intend to legislate, and we are seeing some of that today at Clause 43 and Schedule 18, which the Government are dealing with. The whole process of raising the standard is crucial—most importantly, perhaps on charges. Perhaps my noble friend can confirm that it is the Government’s intention to introduce matters in relation to charging before the end of this Parliament.

I believe, too, that we have to consider the choices that people will have to make. Who will decide where an aggregator policy for them will be placed? How would the allocation process work? Would it be by a random list, a computer allocation or perhaps names in a hat? These are all unknowns. What happens to people’s pensions which are forced on them when they move jobs under the aggregator system is very unsatisfactory. Far better that they should have a simple system in which they have one contract with one pension which they take through with them.

However, the crucial factor is the standards that each of these pensions schemes have applied to them. That is why I welcome the Government’s initiative. I know that by the end of this year they will introduce proposals to ensure that the standards are right. As my noble friend Lord Stoneham said, we are looking for high standards, not a minimum standard, in this process.

We have before us a choice. We already have 2 million new savers as a result of automatic enrolment, and waiting will mean that many of the people being enrolled will be denied this opportunity as another scheme would have to be worked up and compared with the one proposed. The pension funds are already working with government in order to work the scheme up and to get it ready and in place. Can my noble friend tell me what progress has been made already to ensure that pot follows member is in a fair and fit state to be introduced rapidly?

We have to make a choice. It seems to me that we should choose the pot-follows-member position and thereby give greater power and greater pension outcome to millions of new savers. We should not accept the amendment.

[Lord Turnbull (CB)]

My Lords, I have not previously intervened in this debate. I declare an interest as a director of a life insurance company, the Prudential, which is not a big player in this market, but the views I will express are my own.

My first point relates to the high rate of change in our economy and society, which was remarked upon by the noble Lord, Lord Hutton. People are increasingly likely to adopt more flexible employment patterns. Does a seasonal worker—let us say he is a county cricketer who is not good enough to have a central contract with the England team but plays cricket in the summer and works in a fitness centre in the winter or, like Alec Bedser, humps bricks and builds up his strength—alter his provider season by season? How would you make that kind of system work? The pension pot follows member would not necessarily work for those kinds of people.

Secondly, the life expectancy of employers is not as great as one might think. Only 18 of the original FTSE 100 members are still in the index—some of them have gone out of business or been taken over and broken up—and turnover is likely to be even greater at the SME level. So relating pensions to one’s employer is not necessarily the best thing to do.

The noble Lords, Lord Stoneham and Lord German, have tried to argue that the aggregator model will provide a comfortable ride for the existing incumbents and will create mega-providers. However, who are the providers of pot follows member? They are the existing pension providers. We should not make the easy assumption that one model is anti-competitive and will produce a concentrated market and the other will create a highly diverse and competitive market. They each have their own faults and we should not attribute a monopoly of virtue to pot follows member.

That is why this amendment, which provides a degree of choice, is valuable. It would give us a chance to rethink the circumstances in which aggregator is better and to answer the many questions that have been raised, and to rethink the circumstances in which pot follows member is the superior solution.