Finance (No. 4) Bill

Eilidh Whiteford Excerpts

Thursday 19th April 2012 Commons Chamber

[Ben Gummer]

I will, but before I do, let me say in response to that intervention that there are many pensioners in my constituency who are on very low incomes. They are suffering considerably at the moment. Most of them do not have incomes anywhere close to the current allowance. What we are trying to do—in improving their lot through the triple lock guarantee, as well as protecting the pension credit, the winter fuel payments, the cold weather payments and the free TV licences—is protect the benefits of those who are least able to look after themselves.

My hon. Friend the Member for Broxtowe (Anna Soubry) is right in another sense. It is not just today’s vulnerable pensioners whom we must look after and seek to help, but the vulnerable pensioners in 20 and 30 years’ time. If we do not make changes now and try to protect the state’s income to some degree, we will not be in a position even to afford the benefits and pensions that we promise people now, let alone to anything like that degree in 20 or 30 years’ time, and that will be a problem for both parties.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Obviously the proposals that we are talking about today do not apply to the very poorest pensioners or the better-off pensioners. However, let me ask the hon. Gentleman a simple question: what incentive will there be for people to save for their retirement?

[Ben Gummer]

The hon. Lady is entirely right. One of the terrifying things that comes out of all public opinion surveys is the lack of savings and even the lack of people expecting to save for their old age. I hope that the reforms brought in by the Minister responsible for pensions—the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb)—for auto-enrolment and encouraging savings will be the beginning of a fully funded pensions system.

However, that is for another debate. I am aware of the strictures regarding Committee time and the fact that other Members wish to speak. I would therefore like to make one final comment. Lord Turner’s 2005 report, which was commissioned by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said that

“unless new government initiatives can make a major difference to behaviour, the present voluntary system of pension savings, combined with the present state system, is unlikely to deliver adequate pension provision.”

Moreover, he went on to say that the only means of achieving that would be through cross-party consensus. If we are to be serious about providing decent pensions, not only to people today, but to people in five, 10 and 15 years’ time—that includes people retiring this year and next year, who will be in their 80s and 90s when we will really be starting to pick up the bill—all parties must, between us, come to some sort of consensus about the difficult decisions that need to be made.

--- Later in debate ---

[Dr Whiteford]

I will try to keep my remarks short. I have listened to today’s debate with great interest. First and foremost, it is important that we take proper account of the long-term erosion of pensioners’ incomes over the past three decades, since the link between earnings and the state pension was broken, and of the more recent pressures in the wake of the financial crisis.

The changes to age-related allowances that we are discussing will not affect the poorest pensioners or those who are comfortably off. They will, however, affect the 40% of pensioners who have modest incomes. Those people have saved for their retirement, and 4.4 million older people will be worse off as a result of the changes.

[Katy Clark]

I agree with everything that the hon. Lady has said so far. Does she agree that a subject that we do not discuss often enough is that of pensioners who rely on their savings? Low interest rates mean that they are currently getting a far lower income from their savings than they had envisaged.

[Dr Whiteford]

I absolutely agree. In fact, that was one of the points that I wanted to make, because that subject has been eclipsed in the debate about the changes.

The Government have made great play of the recent increases to the state pension, and seem to suggest that they will somehow offset the changes to the tax allowances. As the hon. Member for Leeds West (Rachel Reeves) pointed out, however, we must remember that that is simply an inflationary rise. It will only keep pace with prices; it is not an increase. It is only a small step in the right direction towards restoring pensioners’ incomes to a level that most of us would recognise as providing a decent standard of living.

I have mentioned in the House before that the way in which pensioners experience inflation can differ markedly from the way in which the general population as a whole experiences it. One of the most obvious and significant examples of that relates to heating and domestic fuel costs. Retired people are more likely to have to heat their homes during the day, while the rest of us enjoy the benefit of our workplace heating systems. Many pensioners also find it harder to keep warm because of their age and the fact that they are not moving about so much. So any inflation in the cost of energy is felt disproportionately by pensioners, and nowhere more so than in those parts of these islands that experience consistently colder weather.

Last year, we saw sharp and dramatic increases in home energy costs, which played a big part in driving inflation up to over 5%. Energy prices have come down since that peak, but I heard on the news this morning that some economic commentators believe that inflation this year is going to be well above the Bank of England forecasts that the Government are using, and that we could experience inflation of over 3% this year as well. The welcome increases in the state pension have only kept it in line with inflation and might not keep it in line with inflation as it is experienced by people of pensionable age. That is why the Government’s argument that the changes to age-related tax allowances are compensated for by the increases in the state pension is somewhat spurious. In real terms, this tax grab squeezes the incomes of pensioners on modest incomes.

It is also all too easy to forget that pensioners have already paid a heavy price for the financial crisis. Those pensioners affected by these new changes to age-related allowances are in many cases the same people who saw the value of their savings and investments plummet in the wake of the financial crisis. Since then, they have had to contend with record low interest rates, coupled with high inflation. As the Treasury Committee reminded us earlier this week, quantitative easing, whatever its intended consequences, has had some very nasty side effects for those reaching retirement age and looking to buy an annuity in the last few years.

[Fiona O'Donnell]

The hon. Lady, like me, has many pensioners in her constituency who are on modest incomes and thought they could afford to live out their retirement and be able to cope with running a car, higher food prices and all the other added costs of rural living. Does she agree that this change is going to wreck the plans of many of those pensioners?

[Dr Whiteford]

I agree entirely. It is about not only rural and transport costs, but increases in VAT, cuts in fuel allowances and so forth. All these things have put a real squeeze on people living on fixed incomes, who have little opportunity to find money from any other source. These have not been easy financial times for those on fixed incomes, who have been the forgotten victims of the financial crisis. It is not fair to say that pensioners have got off lightly so far from the public spending squeeze—quite the reverse. In considering changes to age-related allowances, we need to understand that the granny tax will tighten the screw on people who have already had significantly to tighten their belts in recent times.

Those affected by this measure are all living on below-average incomes. Most will have paid tax throughout their working lives, and most thought they were doing the responsible thing by saving for their retirement. Crucially, they do not have the opportunity to find alternative sources of income. They are on fixed incomes and are living off savings.

[Stephen Williams (Bristol West) (LD)]

Will the hon. Lady give way?

[Dr Whiteford]

I was about to wind up, but I would be delighted to take an intervention.

[Stephen Williams]

The hon. Lady just said that this group of people are on below-average incomes. That might be true across the broad span of the population, which includes people in work on enormous salaries, but for pensioners, surely they are on way-above-average incomes.

[Dr Whiteford]

The hon. Member for Leeds West pointed out that nobody on an income of more than £25,500 a year will be affected by this measure. Frankly, with average earnings above that, I do think that most of those pensioners are living in what most people would consider to be quite modest circumstances, particularly when, as I have already argued, they have to pay much greater heating costs. Their lifestyles are not without particular burdens that they have to bear, and they do not have a chance to improve them.

[David Mowat (Warrington South) (Con)]

rose—

[Dr Whiteford]

I shall not take another intervention; I am trying to conclude my remarks.

The Government had a chance to regain the confidence of pensioners after a long hiatus and much erosion of the position of pensioners over a number of decades, but they have squandered that opportunity. They are sneaking through these proposals in the fine print, claiming that they are for simplification. That undermines whatever confidence pensioners had left in them. On the streets of my constituency, people have been angry to see that what has been given with one hand as a modest increase in the state pension has been taken away from their occupational pension with the other hand.

We are leaving pensioners without any real incentive to save. We are not going to tackle the challenges of our changing demographics with that kind of attitude because people will question whether it is worth their while putting money aside for their retirement. I do not think that is a way forward, and I hope the Government will step back from this very regressive measure.

[Margot James (Stourbridge) (Con)]

I welcome the Budget, which has been a Budget for enterprise and growth, and I would defend the reduction in the top rate of tax, which seems to be the Opposition’s main bone of contention. I think older people have a stake in the future of our economy just as great as everybody else. There is no doubt in my mind that the introduction of that 50p top rate of tax by the last Government—right in the last throes of the last Government—was extremely damaging to our country’s image as a place of business, growth and prosperity. I am glad that the Chancellor has taken the brave step of reversing it in part.

--- Later in debate ---

[Mr Gauke]

I recognise that not everyone wants to address the matter and that there are those who do not want to change the position whereby people earning £20,000 or £25,000 a year are paying taxes to fund child benefit for substantially wealthier families, and I realise that arguments are made to defend that. But if we are to do something about it, we have a choice. Do we do this through a tax credit system, which means putting everybody through that system, and doing it on a household basis, or do we try to find an alternative way of doing it that reduces the administrative demands? I do not deny that there is complexity in this method, but relatively, we believe that this is the simpler way of doing it.

[Dr Whiteford]

It is misleading to insinuate that poorer families are subsidising better-off families. If there is a need to address income inequalities, why should people who have children pay the price of that rather than people who do and do not have children according to their means?

[Mr Gauke]

The only benefit received by those in the top 10% of earners, which includes all of us, is child benefit, if they have children. That is the only benefit that we receive, so it is the only one that can be reduced or withdrawn. That is why we have this approach. It is perfectly fair that steps are taken to remove child benefit from those households that contain people in the top 10%.