Finance (No. 3) Bill

Michael Connarty Excerpts

Tuesday 26th April 2011 Commons Chamber

[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.

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

Hear, hear!

[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.

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[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

Despite what the hon. Member for Bristol West (Stephen Williams) has just claimed about the Bill’s great achievements, I am afraid that the Liberal Democrats will be remembered for only one thing—the fact that they all, including their leader, pledged not to raise tuition fees. That is never going to go away, and everything else that they say will be seen in the light of that betrayal of the future of our young people in this country.

I was pleased to hear the thoughtful contribution from my right hon. Friend the Member for Croydon North (Malcolm Wicks) on the proposals on pensions, and particularly on pension ages. If we look back at the history of the actuarial analysis that was used to set the pension age at 65, we see that it was set at that age because most working-class people—there were many more people in heavy industry then—died before they reached the age of 65 years and six months. The calculation was made to minimise the amount that would have to be paid to the working class for their pension contributions. The change that is now being introduced adheres to that same principle. It does not involve earned rights through contributions. Rather, as my right hon. Friend said, it is seen as an imposition if someone without an adequate income lives too long, and has to rely on the state for support.

I am going to disappoint my right hon. Friend now, because I am going to return to the subject of the oil and gas industry. The contribution by my hon. Friend the Member for Aberdeen North (Mr Doran) was important but, like that of the hon. Member for Dundee East (Stewart Hosie), it related to the upstream industry—the oil and gas exploration and production industry. I shall quote from the June report of the House of Commons Select Committee on Energy and Climate Change, which the Government do not seem to have read. It says:

“The oil and gas industry operating on the UK continental shelf currently faces a quadruple whammy of high costs, low prices, lack of affordable credit and a global recession. Unless the fiscal and regulatory regime is well designed and highly attractive then the likelihood is that the UK may not recover anything like as much of its reserve as would be desirable.”

The Committee did not realise that there was another spectre to add to the quadruple whammy—a predatory Chancellor who did not even consult the industry when he brought in a £2 billion rise in the tax burden. This is not so much about the level of the rise as the method of its introduction. Changing a tax regime overnight without consultation creates uncertainty, which increases risk. According to the economists with whom I trained when I was studying, when the net present value calculations are made when looking at board bids for investment, such activity can reduce the investment’s attraction. We heard that again and again from the Members who spoke about the upstream industry.

I have been pursuing the so-called responsible Department with questions about the downstream industry—the UK oil refining industry. I tabled an early-day motion on 29 March drawing attention to the fact that two oil refineries were up for sale. They have since been sold to overseas investors. I said at the time that 150,000 jobs were involved. Those jobs are now genuinely under threat.

We have looked at the opportunities as well as the warnings, however. One opportunity involves the fact that there are massive deficits in low-sulphur, high-quality diesel and in aeronautic fuel in the EU at the moment. With the right incentives, it would be attractive for someone to invest in those. The Budget proposals that the Government are putting forward in the Bill should therefore provide those incentives.

It is interesting to note that an opportunity was spotted by Mr Ifty Nasir, who owns Essar, an Indian oil company, which bought a refinery at Stanlow. He said on 11 April 2011 that he intends to expand Stanlow’s shipping terminal in the Mersey to provide a UK entry point for diesel and petrol produced at the Vadinar refinery in India—one of the biggest refineries in Asia, which is in the midst of a £1.7 billion expansion that will allow it produce euro high-quality, low-sulphur diesel. That is the very opportunity that should exist for our refineries, for our companies and for British workers.

I wrote about this to the Minister of State, Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry). I asked what future support for our refineries in the UK would be forthcoming. In his reply of 5 April, he said:

“We work closely with the downstream oil industry and its representatives to understand the impact of policy on the sector and to ensure this understanding is shared across a range of Government Departments.”—[Official Report, 5 April 2011; Vol. 536, c. 886W.]

We had an hour and a half’s debate this morning in Westminster Hall about oil refining. I come here tonight to ask Ministers about the Treasury’s understanding of this issue and what its response has been, as I can find no indication that the Chancellor is joined up to the real world in any way in respect of his Budget proposals that will affect the UK refining industry.

Let us consider the background to oil refining. When the climate change levy and the EU emissions trading scheme were brought in, they were to have an impact on manufacturing, but were also to be tax-neutral. The scheme was about redistributing energy-reduction incentives in other parts of the economy, and it is about to become the European trading system mark 3. It puts £15 million a year on to the cost of refining oil in Grangemouth, a refinery in my constituency, alone. That is a high price to pay, but the industry accepted that environmental standards meant accepting it.

What we have effectively is a 15% disadvantage in EU refining, of which we are part, in comparison with the rest of the world, including India. If we bring in the new carbon tax, which the hon. Member for Bristol West seemed to be lauding, it will add another 10% disadvantage on top of that 15% one—and for UK refining alone. We will be disadvantaged in Europe by 10%, and in the rest of the world by 25%, in terms of the environmental taxes we pay. The cumulative cost to UK manufacturing business in general—we should remember that the Government said that they were going to “rebalance” the economy with their taxes and incentives—will be £9.3 billion. That price will not be faced by other parts of Europe or other parts of the world.

I want to know from Treasury Ministers what thought went into this policy. What extrapolation did they make? What cost-analysis or impact-analysis did they do when they thought up this scheme? The scheme does not attract me, when 1,350 jobs are at stake in the refinery in my constituency. Beyond that, another 4,000 or 5,000 jobs in Scotland are dependent on that downstream work. About 150,000 people working in the refinery industry can see someone coming over from India to import a product that is refined in India where the pollution standards are much lower than here, yet the Indian owner does not have to pay either the emissions trading scheme costs or the carbon floor price. I want an explanation of why that tax is in this Budget.

Let me illustrate what happened on the day of the Budget because of the announcement that a carbon price will be introduced in 2013. A forward pricing exercise run by Heren shows what happened to electricity prices on that day. The electricity price for 2013 went up by £2.20 per megawatt-hour because of the fear and risk that had to be factored in. We spoke of the same thing earlier in connection with the impact of the Government’s decision to plunder the profits of the offshore industry. The price has now risen by another £3 to £56.50. That 5% increase will affect all industries that are heavy electricity users. The oil refining industry cannot pass it on, because its margins are so small. The Government said that they would rebalance the position in favour of the manufacturing base of our economy, but instead they have laid that burden on it.

The second tax that I wish to discuss is the carbon reduction commitment, which was designed by the Labour Government as a tax on office spaces and other entities that could not be reached by the emissions trading scheme. It has since been simplified, and we understand that it will also apply to the manufacturing industry and to United Kingdom refining. The UK Petroleum Industry Association has described it as no more than another general tax. Will the Treasury exempt manufacturing industries and the UK refining industry from that tax? If not, it will impose another burden on the UK’s manufacturing capability.

[Sammy Wilson]

Not only has the tax been extended to a wider range of bodies, but the Treasury has removed an incentive for firms to reduce energy consumption. Some of the money that they had paid into the scheme used to be returned to them, but that will no longer be the case.

[Michael Connarty]

The hon. Gentleman has hit the nail on the head. That incentive has gone. Ports such as Grangemouth, in my constituency, cannot pass the tax on to those who rent or are sublet property. It will not make people who rent property more energy-conscious, although it was originally designed by the Labour Government—who employed an excellent methodology involving a great deal of consultation with the industry—as an incentive for the reduction of energy use.

The Department for Business, Innovation and Skills is probably partly responsible for matters involving the oil refining industry, although it seems to be burying its head in the sand and kicking that responsibility over to the Department of Energy and Climate Change. The two Departments are supposedly engaged in a study of the cumulative impact of climate change and energy policies. However, the Treasury must be involved as well, and it must take responsibility for the damage that it will do if it does not moderate its carbon taxes. Specifically, anyone who pays the costs of the European emissions trading scheme should be exempt from them. It has been calculated that the carbon price in the UK is likely to reach €54 per tonne, while the price on the European mainland will be only €36 per tonne. We are therefore at a disadvantage in relation to Europe, let alone the world.

There is a further tax that the Treasury consistently hang on to. Those who import a fuel oil must pay tax on what they land at the depot or terminal. If, for example, Grangemouth refinery supplies the terminal in the north of Scotland by tanker, it will pay tax on the amount of product that it puts into the tanker. However, an evaporation factor places an additional burden on every tanker load, so no one with any sense will convey fuel from a UK refinery to any UK destination. INEOS in Grangemouth prefers to import it from Lavera in France, because it pays less tax on the same tanker load, because of evaporation. Regardless of which party is in Government the Treasury has retained that tax, but it is time to reconsider. If we want products to be made in this country and taxed in this country, we must have a tax system that gives incentives to industry rather than punishing it.