CPI/RPI Pensions Uprating

Guto Bebb Excerpts

Thursday 1st March 2012 Commons Chamber

[Richard Graham]

My hon. and gallant Friend is absolutely right, and that is precisely what the new NEST pension is designed to achieve. I am sure that he will join me later this summer, when the NEST pension arrives at the same time as the Olympics, in hoping that many of our poorest constituents will indeed benefit from that new savings scheme.

Is the motion the right way forward? I believe that it is not, because above all else the change in the pension inflation index, from RPI to CPI, which this Government have seen through, is all about benefiting future workers, who are those who will pay for the pensions of current pensioners, about benefiting our children and about benefiting our grandchildren.

Governments are often accused of being short-term and of purely looking for votes in the next election, but Governments should be looking to future generations and to what we can pass on to them. The changes made will, in the longer term, benefit our country and our constituents hugely. I understand the emotion and the beliefs behind the motion in the name of the hon. Member for Hayes and Harlington, but I will be voting for future generations, our children, our grandchildren and their interests, and that is why I will be voting against the motion.

[Guto Bebb (Aberconwy) (Con)]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I do have to remind hon. Members that, having indicated that they want to speak, they have to carry on standing—not looking at their phones.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

I will be brief. It is a pleasure to speak in this debate and to follow the hon. Member for Easington (Grahame M. Morris). I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on ensuring that this issue is debated on the Floor of the House.

Detailed rebuttals of the arguments of Opposition Members have been provided by my hon. Friends the Members for West Worcestershire (Harriett Baldwin), for Gloucester (Richard Graham) and for Eastbourne (Stephen Lloyd), who said that we have to consider the changes in context. Part and parcel of that context is what is being done by the Department for Work and Pensions, which is getting to grips with the need to reform not only the welfare state, but our pensions system. By all measurements, our pensions system was one of the best in Europe in 1997, but was left to us in 2010 in a complete and utter mess.

I have heard it said time and again in this debate that people should have security when planning for the future. I could not agree more, but I worry that the 75% to 80% of people listening to this debate who are not in the public sector will be wondering about their security and pension provision, which were attacked by the previous Labour Government in a raid worth £5 billion a year, starting in 1997 and going on for year after year. That has reduced the value of private pension provision and made it more difficult for private companies to keep that provision in place. As a result, final salary benefits are now almost unheard of. That was not the case 13 years ago.

[David T. C. Davies (Monmouth) (Con)]

I am delighted that my hon. Friend has given way. I congratulate him on what he is saying. Does he share my concern that some unions are in the habit of lambasting shareholders, as though shareholders are people with top hats and canes from a previous century, whereas the majority of them are people in the private sector who are dependent on private sector pensions?

[Guto Bebb]

Indeed. When people say that HSBC’s £14 billion profit is indefensible, I make the case that for somebody with a private pension, that profit is impressive because the greater the profits, the better the pension provision for people who are saving for their retirement.

The proposed changes have to be looked at in context. The triple lock should be welcomed. It has been semi-dismissed by Opposition Members today. They talk about the importance of the RPI link, but under the previous Government, the RPI link resulted in a 75p increase in the state pension. Under this Government, with the triple lock in place, the increase will be £5.35 in the coming financial year. Anybody who says that that change is not worth while should talk to pensioners in my constituency who are grateful for the additional £5.35 that they will receive.

We have also heard about the impact of the change from RPI to CPI on people in the public sector who are planning for their retirement. I heard about that at first hand when I took part in a phone-in programme on Radio Cymru. I was contacted by the headmaster of a very good school in the constituency of the hon. Member for Arfon (Hywel Williams). He stated that the changes were completely and utterly unacceptable because he would lose almost £80,000. People who called in to respond to that were flabbergasted that somebody could lose £80,000 as a result of the change, because it brought home to them the difference between the provision that they were able to pay for through their own saving and what was available in the public sector. The average private sector pension pot is £30,000. To hear of somebody losing £80,000 as a result of one technical change was shocking to the majority of people.

[Hywel Williams (Arfon) (PC)]

How typical does the hon. Gentleman think that head teacher is of pensioners in my constituency, in which he lives, and of pensioners in his constituency, which is full of people on public sector pensions?

[Guto Bebb]

The hon. Gentleman makes a good point. Of course the individual in question is not typical, but I am afraid that the sense of entitlement he portrayed in that conversation is typical of a public sector that does not understand that the average wage is about £4,000 higher in the public sector than in the private sector, excluding pension provisions.

I am not attacking the public sector. I—and others—am trying to highlight the fact that public sector provision is significantly better than the provision for the majority of the population. In their changes to public sector provision, the Government are not attacking the concept of a defined benefit pension scheme. They are introducing proposals that will ensure the survival of defined benefit pensions. The truth is that we cannot carry on with a situation in which the majority of the population are expected to live in very difficult circumstances when they retire, yet their taxes are used to support unaffordable pension schemes.

By getting to grips with the need to change the retirement age and increase public sector workers’ contributions to their pension pots, the Government are putting their pensions on a more secure footing by ensuring that they will be available in the long term. They are also ensuring that the feeling of unfairness about the difference between private and public sector provision is reduced. Private sector workers will see that public sector workers are now making a greater contribution to their own pension provision. It will still be less than the taxpayer contribution, but it will be greater than before. In that context, I applaud what the Government are doing.

It is very difficult to accept the comments that Opposition Members make when we highlight the positive changes that the Government have made. Those who have spoken in the debate have said that the weaknesses that we point out in the Labour Government’s performance between 1997 and 2010 do not reflect their position. Clearly they do not reflect the position of the majority of Labour Members, because they are not here to defend their track record. I accept entirely that the Members who have spoken in the debate are genuine about wanting to protect RPI, but the majority of their fellow Labour Members are not here. For 13 years, when they could have done something about the decline of the UK pensions sector and private sector provision, they took no action.

One thing that really damages confidence is the fact that many people who saved in private sector pension funds remember being told that the raid on their pensions was to get young people back into work, yet we all know that youth unemployment was higher in 2010 than in 1997. Even the reason behind the raid on private sector provision was a failed policy of the Labour Government.

I wish to touch quickly on the unions’ decision to challenge the changes. I find it very difficult to understand why any changes to public sector provision are challenged in the High Court, yet people working for private companies have accepted changes as a necessary means of ensuring that they carry on getting the support that they want from their pension provision. For example, my best man works for HSBC. He left school to work there at 17 years old, and I told him he should not have done it. However, going to the bank was a job for life and he was happy to take the opportunity. He started off contributing nothing to his pension fund. Now, he contributes a significant percentage and carries on doing so because he values the fact that he will get a worthwhile pension. People working for a private company understand that they will have to contribute to the benefit that they will get. I do not understand why the unions cannot see that the same is true of public sector workers.

We should at least welcome the fact that the unions, in challenging the decision at the High Court, used their members’ funds for their proper purpose, which is to defend their members. They might have been mistaken, but at least they were using their members’ funds to try to change a policy that they perceived to be unfair. That is a big change, because most of the time they appear to use them to bankroll the Labour party.

It is important to point out that the Unite union, for example, which has been prominent in challenging the changes, contributed £5.2 million to the Labour party in 2010 and a further £2.6 million in the first three quarters of 2011. As Unite is such an influential funder of the Labour party, and as it was willing to take court action against the Government’s proposals to move from CPI to RPI, I wonder what influence it brought to bear on the Labour party when Labour decided to move its own staff’s pension provision from RPI to CPI. I would be delighted if Unite sent out a press release explaining how it fought against the Labour party’s internal decision to move from RPI to CPI, but I suspect that we will hear nothing.

Labour Members who signed the motion have been singularly unsuccessful in changing the Labour party’s position. That is a fundamental point. When it comes to the Labour party’s financial needs, we hear nothing, but when it comes to saying that the taxpayer should fund the difference, the Labour party is willing to protest and people are willing to sign motions.

I note that other parties support the motion, and that two Plaid Cymru Members have signed it. My understanding—I am happy to be corrected if I am wrong—is that the Labour party is moving towards defined pension provision based on CPI, not RPI, but that Plaid Cymru members of staff are in a money purchase scheme. Again, Plaid Cymru is happy to use taxpayers’ money to make a political point, but not willing to find the funding to protect its staff. That is the hypocrisy behind the motion, which I oppose.

--- Later in debate ---

[Gregg McClymont]

The hon. Lady’s desire to write the Labour party manifesto three years before a likely general election is admirable, but I cannot advance on the answer I gave to the hon. Member for Gloucester.

Whether CPI is an accurate measure of inflation is an issue—the hon. Lady made important points on heating and housing—but in the few minutes remaining, I want to raise some broader questions. We can talk about CPI or RPI pensions uprating in isolation. The uprating of the state pension using CPI, which happened for the first time this year, is one thing, but as was indicated in the debate, the flat-rate, single-tier state pension, to which the Minister is committed, is important to the debate, as is the future of NEST.

I do not want to misquote the hon. Member for West Worcestershire (Harriett Baldwin), but I believe she said that she was looking forward in the Queen’s Speech to legislation on a single-tier, flat-rate state pension. The Opposition are hopeful that the Minister can move in that direction quickly. I wonder whether the Treasury has a significant role in that. Perhaps negotiations must continue before we can get there. The Opposition will be keen to consider very closely such proposals when they come to the House.

NEST, which has been mentioned throughout the debate, has a huge role to play in moving towards a more sustainable pension system. The Opposition are disappointed at the delay in the staging dates for the move to auto-enrolment. It is not just a question of the companies: contributions from both the Treasury and employers will be lost for those saving into a pension for the first time.

Finally, the hon. Member for Aberconwy emphasised the private pension system. Both he and the hon. Member for West Worcestershire suggested that all the difficulties in the private pensions world have arrived since 1997.

[Guto Bebb]

indicated dissent.

[Gregg McClymont]

I think that is what the hon. Gentleman suggested, but it is far more complicated than that. There are significant issues with the private pension system, a significant number of which can be traced to other Governments and the shift from occupational pensions to group personal schemes—my hon. Friend the Member for Islington North (Jeremy Corbyn) mentioned 1986.

In the spirit of wanting to create a better pension system, I must be clear that we cannot support the switch to CPI as a permanent measure given the impact of that on so many pensioners and future pensioners. I thank my hon. Friend the Member for Hayes and Harlington for securing this debate.