CPI/RPI Pensions Uprating

Andrea Leadsom Excerpts

Thursday 1st March 2012 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I beg to move,

That this House notes that the e-petition entitled Public and Private Pension Increases—change from RPI to CPI attracted over 100,000 signatures very quickly, revealing a high level of concern about the Government’s decision to change the indexation for occupational pensions from the Retail Prices Index to the Consumer Price Index, which will mean that many people, both those retired and those yet to retire, will receive less in their pension payments than they were led to expect; and calls on the Government to reintroduce the RPI measure immediately.

The motion is tabled in my name and those of a number of colleagues, and I should like to inform you, Madam Deputy Speaker, that I would like to press it to a Division.

This important debate would not be taking place today were it not for the efforts of one individual. This is real democracy in action. Jim Singer is a member of the Public and Commercial Services Union, and he was so angered by the Government’s unilateral decision to switch the methodology of how his pension would be calculated from the usual retail prices index to the consumer prices index that he launched an online petition. Within weeks, that petition had secured more than 100,000 signatures in support. I should like to thank Jim and all those who have signed the petition. I should also like to thank the Backbench Business Committee for agreeing to the request for the debate, on behalf of myself and my colleague, my hon. Friend the Member for Aberdeen South (Dame Anne Begg). Hon. Members might know that she has recently suffered a serious accident, and she is unable to attend the debate today. I am sure that the whole House will join me in wishing her a speedy recovery.

Part of the reason that so many people signed the petition so quickly is the anger felt by so many at what they see as a betrayal of the promises that they were given before the election, particularly by the coalition parties. Those parties gave a firm undertaking that they would not interfere in people’s pensions in such a detrimental way. Within weeks of the general election, however, in June 2010, the Chancellor announced in his emergency Budget the replacement of RPI with CPI for the purposes of uprating public sector pensions and the state second pension. That is having a direct impact on 12 million public sector workers and 4 million private sector workers whose scheme rules link upratings with statutory orders. In my constituency, the switch has hit large numbers of pensioners in the British Airways pension scheme, who feel deeply aggrieved. It is not just the broken promise that has angered people; there is also a sense of unfairness that people who have done the right thing—

[Andrea Leadsom (South Northamptonshire) (Con)]

If the hon. Gentleman feels that the proposition is completely unreasonable, will he explain why the Labour party has moved its own pension scheme into CPI on the ground of affordability?

[John McDonnell]

That is also a move that I would not have supported, so I am being consistent in my opposition. I am sure that delegations of Labour party organisers and others will be making representations to the party on the matter.

As I was saying, there is also a sense of unfairness, in that people who have done the right thing, joined a pension scheme and saved through their scheme to protect themselves in their retirement are now seeing their pension undermined and, in some instances, even put at risk. The effects of the shift from RPI to CPI are serious for millions of ordinary people who have pursued a career and invested in a pension with the expectation of a decent pension.

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[John McDonnell]

I can tell the hon. Gentleman that if I form the next Government, it will be. I ask him to stick with me.

[Andrea Leadsom]

I feel the need to challenge the hon. Gentleman’s suggestion that those who created the financial crisis should pay for it. How exactly does he think they would do that? Specifically, why does he think that the real, long-term problem that we have with sustainable pensions is linked to the very recent financial crisis, which I presume is what he is referring to?

[John McDonnell]

I will answer the hon. Lady’s question in a moment, but let me first respond to the point made by the hon. Member for Montgomeryshire (Glyn Davies) about private pensions. I think that they are sustainable. The only reason we currently have a private pension crisis—and it has happened in my constituency as well—is that in the 1980s and 1990s private companies took pension holidays and undermined the pension schemes themselves. What we need now is a period of security during which we can rebuild the balances in those schemes. If public support is required, I will back that as well. The last Government established the Pension Protection Fund so that we could bail people out when there was an individual pension scheme crisis.

Let me end—because I have spoken for long enough—by responding to the point made by the hon. Member for South Northamptonshire (Andrea Leadsom). As I said earlier, there is a straightforward, fair and equitable alternative, namely the adoption of something similar to the principle that the polluter should pay. Those who created the crisis, and who gained most from it, should pay for it. Let me suggest two simple measures. First, we should tackle tax avoidance and evasion, which, as we now know, amount to anything between £120 billion and £150 billion a year. This week—I commend the Government on the way in which they dealt with this—just one bank, Barclays, tried to introduce a £500 million tax avoidance scheme, and that is just the tip of the iceberg given what has gone on over the years and what is currently going on.

My second proposal is that the assets of those who benefited most in the boom should be taxed. Professor Greg Philo—I urge Members to look at his work—suggests a 20% wealth tax on the assets of the wealthiest 10%, which amount to £4,000 billion. That would raise £800 billion. Wealth taxes are currently being discussed throughout Europe.

Those two measures would eradicate the structural deficit and significantly reduce the country’s debt, thus enabling us to protect our pensions. The Government’s new measures are due to come into force on 1 April, but there is still time for them to pull back from the brink. I urge them to do so, on behalf of the 100,000 petitioners, but also on behalf of the millions of members of pension schemes who will suffer so much as a result of the switch from RPI to CPI.

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[Harriett Baldwin]

The hon. Gentleman has clearly forgotten the imposition of a tax on private pension schemes in that first Labour Budget of 1997, which I think many people realised at the time would be a recurrent year-on-year tax that would lead to the erosion of private pension funding over time. Private companies then acted very rationally. Many of them ceased to offer defined benefit pension schemes.

Let me give some figures which I take to be rough estimates. There are approximately 29 million people in Britain’s work force today, 23 million of whom are employed in the private sector. I was shocked to learn that only 3.2 million of those 23 million were currently active members of a pension scheme in which the employer makes any contribution. That contrasts with the position in the public sector, in which about 5.5 million of the 6 million employees are members of pension schemes. That is the proportion that we should aspire to in terms of pension provision throughout the work force. I know that our pensions Minister aspires very much towards movement in that direction.

[Andrea Leadsom]

Does my hon. Friend agree that, many years ago, public sector salaries were lower and therefore pension provision was always higher, but over the last decade or more salary levels have equalised, and in many cases the lowest-paid public sector worker now earns more than the lowest-paid private sector worker and has a pension that the private sector worker can only dream of?

[Harriett Baldwin]

Personally, I aspire to a future in which all Britain’s pensioners can rely on a secure retirement income, which will come from three main elements.

I welcome measures taken by the pensions Minister and the Chancellor to provide a triple-lock guarantee: the linking of the basic state pension, and increases in that pension, to CPI, average earnings or 2.5%, whichever is the highest. That, I think, is an extremely robust foundation. As the Minister knows, I look forward to the inclusion in the Queen’s Speech of further legislation simplifying the state pension system, eliminating the means-testing deterrent to saving and creating a stable, predictable and inflation-linked state pension that will be the foundation for a basic level of income in retirement.

Of course, we need to aspire to be a country where everyone has an additional employment-related pension. About 12 million people are already pensioners, and we welcome the fact that their inflation-linked increase will rise by over 5% this year: I believe that that is the largest cash increase in the history of the state pension. This Government’s budgeting decisions are therefore focusing on the needs of current pensioners, and for future pensioners the largest employers will from October start to auto-enrol their employees into employment-linked schemes. That measure enjoys cross-party support, and it will mark the beginning of a savings programme that is estimated to bring in a further 5 million to 8 million pension savers and add a substantial sum to the savings of this country. Otherwise, we will be woefully under-pensioned in future. We are currently a very under-pensioned country. It is tragic that our country has eroded its position in respect of pensions so much. In 1997, we were one of the leading pension countries in the world, but we now have a lot of catching up to do. I welcome all the steps the pensions Minister is putting in place to improve the situation.

Having mentioned the triple lock and auto-enrolment, I shall now make a few points about the difference between CPI and RPI. We all know that inflation is the big enemy of the pensioner, as nothing erodes retirement income more. Lower inflation results in less erosion of retirement income, of course, but all pensioners must understand that they need to protect their fixed retirement income from inflation.

CPI is the inflation measure that we have instructed the Bank of England to target and to average out over time. I therefore think the Bank of England should, perhaps, consider moving its own pension scheme on to a CPI link. That scheme is currently linked to RPI, but it would increase everybody’s confidence in the Bank’s long-term ability to meet its CPI target if it were to adopt that measure for its pensions. That is a cheeky aside, however.

Neither the RPI nor the CPI measure will ever accurately reflect the inflation that pensioners experience. We have talked about the fact that mortgage interest is not included in the RPI basket. Interest rates fell dramatically in 2008 and that led to the RPI being negative in 2009—it was minus 1.4%. Do we want to follow an index that results in people having reduced income in some years? In that instance, we decided that we did not want that so we maintained a zero rate, but people still complained to me that their pension had not increased that year.