Finance (No. 3) Bill
Debate between Malcolm Wicks and Michael Connarty(13 years, 7 months ago)
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Malcolm Wicks
Such policies have regressive implications and I understand why the hon. Gentleman asks that question—a not dissimilar one could be asked of VAT contributions. Deeply regressive changes to how we gather money in from the wider community are taking place.
Although the contributory principle has for many years, and arguably for several decades, been withering away—it certainly looks tired and rusty—we need it in the 21st century. One reason why is that if we are to maintain our broader welfare state and social security system as an instrument for redistribution and for tackling the emerging needs of this century, not least those associated with long-term care and the ageing of our population, we need an ethical foundation to underlie social security, rather than bits-and-pieces mechanisms that can be hard to communicate to a wider public.
One basic concept in that respect is that of citizenship. What is it to be a citizen in the 21st century? What are our rights as citizens? Equally importantly, what are our duties and responsibilities? For me, in moving from that simple piece of social philosophy into policy mechanisms that work, we would do away with or neglect the social insurance contributory principle at our peril. That principle says that when people are able to work and to contribute to that community chest, they should do so. That is a duty. However, as of right as citizens, people should be able, at certain times in their life cycles or at times of social need, to draw out not means-tested benefits, but benefits that they have earned through their contributions.
Of course, that was the principle underlying the Beveridge report—that great Liberal—and the one that the 1945 Attlee Government sought to introduce after the war. I am arguing that we should today try to bring about a renaissance of belief in that principle, and to make it an underlying concept of our social security system.
The principle is well understood historically. Long before the advent of the modern welfare state in the 20th century, there were friendly societies, building societies and co-ops, and trade unions emerged. It was well understood that members had rights, but also that they had duties and responsibilities. People paid contributions to trade unions and building societies—interestingly, that was in the early days, when building societies actually built houses—and to friendly societies. As of right, they could then draw benefits when eligible.
It is no coincidence that when we wander through Members Lobby, we see great statues of pioneers of the national insurance system. We could even argue which party has done most for social insurance, as it used to be called, or national insurance. Churchill can lay claim to have done much of the work in the pre-war years, and Lloyd George had more than a hand in it, as did Clement Attlee and his 1945 Government. Our entitlements to claim social security, and our rights and duties, are not simply technical matters that should be detailed somewhat obscurely in social security manuals, but a social philosophy foundation stone that folk in this country can understand as fair.
Of course, the national insurance system as devised in the modern era by the Beveridge report and the Attlee Government was not perfect. Rightly, it was subjected to critique by women’s organisations and feminists, who said that it had more to say about a typical man’s life cycle than a woman’s. Past Governments have done their best to rectify the inadequacies of the system when a mother leaves her career, which happened for quite a long period in the past, to care for her children, and to deal with what happens to the insurance contributions of family carers, who are usually but not always women, who have had to leave the labour market. Labour Governments and others have done their best to modernise the national insurance system, but not with total success. I am therefore saying, not that the principle of national insurance has worked perfectly historically, but that it is a basis on which we should build.
One of the biggest difficulties with national insurance over recent years has been that increasingly our friends in the Treasury—both Ministers and officials—have regarded national insurance as just another form of taxation. To be blunt I would point my finger at Labour Governments as well as Conservative Governments. The Treasury has lost sight of the Beveridge report and the philosophy of citizenship. When considering how to raise revenue, it tends to ask, “What share should come from income tax, corporation tax or VAT, and what share should come from the national insurance system?” That is illustrated by the fact that when, a while ago, the two major parties were having that ding-dong—that argument—about whether extra revenue should be raised by VAT or national insurance, that is how it was viewed. There was very little in that debate about what national insurance should be about and how it should relate to a modern social security system. One reason why the contributory principle has grown rather tired-looking is a failure of communication and presentation. Governments have not gone out there to argue, as I hope to do—albeit inadequately—that social insurance and the contributory principle remain valid foundation stones for this aspect of our social policy.
The other aspect of the contributory principle I want to raise concerns the plans set out by the Department for Work and Pensions and, in particular, the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb), to move towards a far simpler state pension system in which everyone would be guaranteed a certain state pension. On paper, that looks like an interesting concept. I understand that, in theory, everyone is in favour of greater simplicity, but let us consider the matter in relation to the social insurance principle. I am alarmed by bits in the DWP document, “A State Pension Age for the 21st Century”, which was mentioned in the Budget. Although it states that in the future people should get the new simple pension after 30 years of qualifying, which addresses the issue about women—so far so good—it seems to imply, unless I have seriously misunderstood it, that no one would get more than a pension to which they had contributed for 30 years.
The Government are at pains to tell us that more and more people will have long life expectancies and will work longer in the labour market. What happens, therefore, to those who work 40 or 50 years? I might have misunderstood, but I was alarmed by paragraph 96 of the document, which reads under the heading, “Impact on individuals”:
“Groups who would expect to build up more significant amounts of State Second Pension, such as those with longer working lives and higher earners, would not be able to do so under this option.”
Well, why not? Is there not a danger of being so besotted with the idea of simplicity that we undermine the idea that if someone contributes more through their working life because they are working harder, they should be able to get more out of it at the end through a decent state pension scheme? I have serious concerns about that. Although there are many doubting Thomases in respect of social insurance, we must bear in mind the principles underlying it, such as citizenship and its common-sense nature: people can understand that they should make a contribution when they can and draw out of a community pot when they need to. If we sacrifice those things, we sacrifice a lot in our social security system.
I want to touch briefly on a matter that relates to a paper I published on my website last week. I question whether we are in the right place when it comes to raising the state pension age in the light of increasing life expectancy. May I say first and foremost that I am signed up—not least as a former pensions Ministers—to the reality of increasing life expectancy for most people. It cannot be right that we stick to state pension ages and occupational pension ages devised 40 or 50 years ago, given that more and more of us—hopefully—will live into our 80s and 90s.
Malcolm Wicks
My hon. Friend wants to become one of the centenarians. Indeed, to warm us up for difficult decisions, the DWP is now telling us, courtesy of statistics from the Office for National Statistics, that 11 million people alive today can expect to live to 100. That is an extraordinary piece of demography. I accept the logic, therefore, that most of us should expect to leave the labour market, retire and draw our state and occupational pensions at a later age. However, the main reason for raising this matter in the House today is that this is insensitive to, and has no understanding of, social class variations. There is an assumption that these broad figures about life expectancy apply equally to all of us, regardless of geography, constituency, whether people live in the north or the south, or the kind of work undertaken.
When I looked at some of these issues in the light of social class, I am afraid that, not for the first time, socio-economic status reared its ugly and unequal head. Nineteen percent—almost one-fifth—of men from social class 7, which encompasses those with routine occupations, such as cleaners, packers, van drivers and unskilled labourers, many of whom have been in work since the age of 15 or 16, are dead before 65. They never live long enough to draw their state pension. That compares poorly with those from the professional and business classes. There is a difference for women as well, but it is not so stark. I question, therefore, whether a one-size-fits-all scheme of increasingly raising the state pension age—the Government now want to consult on raising it even further to 68—is a sensible way ahead in this area of social policy. Furthermore, a second pension penalty is, of course, paid by the poorest men and women in our communities. Although most people from those social classes reach pension age, they enjoy far shorter pension lives than those from the better-off social classes. So a second pension penalty is paid.
The arguments for raising the state pension age across the board are based on the assumption that the labour market is sufficiently dynamic and flexible to provide the jobs for those people. Again, however, this ignores social status and the realities of many people’s working lives. It can be no coincidence that many who compete in a kind of macho competition to say how late we should draw our state pension—66, 67, 68, why not 70?—tend to be people from big business, the political class or the media, who may be able to continue their working lives almost indefinitely, writing articles, having portfolios, doing consultancy or, if they are unlucky, in the House of Lords. These people might be able to continue their work, but what about the van driver, the bus driver, the woman who cleans offices, the steel workers, the people with creaking backs and aching limbs, who come their 60s need to retire in a very old-fashioned sense?
The DWP would need to work on the details, but surely we could say that people in those social classes who typically started their working careers not in their early 20s, which will have been the lot of many of us, or their mid-20s, which will be the lot of many of our children and grandchildren with postgraduate qualifications, but at 15 or 16, and who often have worked hard ever since, once they have worked for, say, 50 years—we could check that in national insurance, tax and employment records— deserve a rest, in an old-fashioned sense. They need to retire. Given that the demography shows that those people are, sadly, likely to die four years before the average age, it would surely be only fair and just if they could draw their state pensions four years earlier than most of us.