Chris Grayling

3 July 2007

Chris Grayling (Epsom and Ewell) (Con): I beg to move,

That this House notes the loss of public trust in the UK pension system caused by the continuing £5 billion per year stealth tax raid on pension funds, the winding up of 60,000 occupational pension schemes since 1997, the closure of two-thirds of remaining final salary pension schemes to new members and the acceleration of closures to new accruals by existing members; further notes the loss by 125,000 workers whose pension schemes have failed of some or all of their pensions and the poor performance of the Financial Assistance Scheme in supporting them and the growing concern about the disparity between pension expectations in the public and private sectors as well as the size of the unfunded public sector occupational pension liabilities faced by future taxpayers; and calls on the new Prime Minister to acknowledge his role in the pensions crisis and to take personal responsibility for the urgent task of restoring to millions of hard-working families the confidence to save for retirement.

Before we get to the meat of the debate, may I congratulate the Secretary of State for Work and Pensions on his appointment? I look forward to debating with him over the next few months. I hope that our relationship will be constructive, as well as combative, as is the way with these things. In the past few days, and indeed in the House this afternoon, we have heard the first of what I am sure will be a blizzard of initiatives from the new Prime Minister, but so far almost everything that we have heard has been about the process of government. That is all well and good, but what the people of this country are really looking for is solutions to the real problems that we face, and in particular to the problems that the Government and the Prime Minister have created in the past 10 years.

For the past three hours, we have heard about the way in which decisions made by the Prime Minister have let down our health service, its patients and the people who work in it. I want to address what is probably the Prime Minister's other big failing: the way in which he has presided over the disasters in Britain's pension system. It is noticeable that since Tony Blair announced his retirement at the end of April, we have heard a lot of talk from the new Prime Minister about how he will tackle problems such as the out-of-hours crisis in the national health service, even though he and his colleagues caused that crisis through their mishandling of the issue two years ago. I notice that there is one issue on which he has been as quiet as a church mouse, and on which there has been not a word. It is the issue on which, more than any other, the problems that this Government have created lie right at the Prime Minister's door-our pensions crisis, not entirely made in No. 11 Downing street, but with the Prime Minister's fingerprints all over the scene of the crime.

So how can the new occupant of No. 10 Downing street be the change that he claims to be, when he has been so closely involved in one of the great failures of the past decade? Nowhere is that need for change greater than in the delivery of pensions policy, and nowhere will it be more difficult for the new Prime Minister to deliver, as he is the architect of the policies over the past 10 years that have brought us to the position that we are in today.

Mr. David Drew (Stroud) (Lab/Co-op): If we are having a history lesson, will the hon. Gentleman look back at one of the problems under the previous Government-the pension holidays that were taken by pension funds, and how many of those pension funds have subsequently gone into administration? With the benefit of hindsight, does he think it was a good thing to allow those pension holidays?

Chris Grayling: It is funny how these things work out. Before Labour Members leap to their feet in complaint, I was about to acknowledge that many of the challenges facing our pensions system are far outside the control of Governments, not least increasing life expectancy and tightened global investment returns, and I do not pretend that every decision taken by every past Government, Conservative or Labour, has been the right one.

Sir John Butterfill (Bournemouth, West) (Con): On contributions holidays, they certainly were introduced under the last Conservative Government, at a time when the stock market was roaring ahead and when Revenue rules permitted them, otherwise pension funds would have been overfunded on Revenue rules. The difference is that the pensions holidays were continued under the present Government at a time when the stock market was collapsing, and have been continued to this day by the Government. The parliamentary contributory pension fund, which I have the honour to chair, would be in surplus today if it had not been for the £50 million that the Government have failed to put into it.

Chris Grayling: My hon. Friend makes a good point. One of the great ironies is that the then shadow Chancellor, who subsequently became the Chancellor and is now the Prime Minister, criticised the last Conservative Government when he was in opposition, came into office at a more difficult time for pension funds and took policy decisions that undermined them fundamentally, so my hon. Friend is right to raise those concerns.

The measure of a Government is how they respond to external challenges. On pensions, the Government have so far failed. It remains the case that, in the words-if he will forgive me for quoting him-of the right hon. Member for Birkenhead (Mr. Field), the Labour Government's first Minister for Welfare Reform back in 1997:

"When Labour came to office we had one of the strongest pension provisions in Europe and now probably we have some of the weakest."

That does not mean that every decision that was taken before 1997 was right, but it does mean that in his judgment the system in 1997 was in reasonably robust shape.

Mr. Frank Field (Birkenhead) (Lab): Will the hon. Gentleman also cite me as saying that one of the first attacks on company pension schemes was the Conservative Government's changes in taxation which led, as my hon. Friend the Member for Stroud (Mr. Drew) said, to the running down of surpluses? With hindsight, does the hon. Gentleman think that a wise or an unwise move, given the position that we moved into afterwards?

Chris Grayling: The right hon. Gentleman is very experienced in these matters and he levels a serious criticism of decisions taken in the past. He heard my remarks. I do not claim that every decision taken before 1997 was the right one. None the less, it is his own case that in 1997 the system was in pretty good shape. That clearly was not the case four or five years later. As I said to my hon. Friend the Member for Bournemouth, West (Sir John Butterfill), one of the supreme ironies is that the same man who was shadow Chancellor before 1997 claimed that the last Conservative Government had undermined pension schemes, and claimed that some of the decisions that were taken were flawed, then came into government and took steps that helped wreck that reasonably robust pensions system.

David Taylor (North-West Leicestershire) (Lab/Co-op): This is all pretty scintillating stuff. The motion, like all Conservative pensions motions, refers to the abolition of dividend tax credit, as if that were some central act that has caused particular difficulties, but does the hon. Gentleman agree that in the 18 years of the Conservative Government, successive Conservative Chancellors cut the dividend tax credit on five separate occasions? Can he confirm that and thereby lift the tone of his speech, which has so enthused his party that all but two Members, it should be noted, feel that he has nothing new to offer?

Chris Grayling: The hon. Gentleman will know from his knowledge of history that many of the changes to the dividend tax credit came as part of reductions in corporation tax, part of the tax-cutting policies of the last Conservative Government. Let me challenge him. He implies that that was not an issue. Let me quote to him the words of the Prime Minister's former pension adviser, who said:

"The Chancellor will go down in history as the one who destroyed our pensions system."

The president of the National Association of Pension Funds said:

"This was the biggest attack on pensions in living memory. Even Robert Maxwell only took £450 million."

In the very experienced judgment of the right hon. Member for Birkenhead, in 1997 the pensions system was in pretty good shape, and subsequently it clearly was not.

Mr. Paul Truswell (Pudsey) (Lab): Will the hon. Gentleman give way?

Chris Grayling: In a moment, but let me set out for the hon. Gentleman some of the current issues. The Government have estimated that 7 million people are not saving enough for retirement. The household savings ratio has hit a record low-2.1 per cent.-under the Government. Tens of thousands of occupational pension schemes have closed, 125,000 people have been left high and dry without the pensions that they saved for or the retirements that they planned for, and all the while, as private sector occupational pensions collapsed, the unfunded cost of meeting public sector occupational pension commitments has soared.

Mr. Truswell rose-

Chris Grayling: I will happily give way to the hon. Gentleman. Perhaps he will tell the House whether that is a record with which he is proud to be associated.

Mr. Truswell: Perhaps I can ask a question on the hon. Gentleman's speech. He is almost on the verge of being remarkably frank and admitting that his predecessors in government had form in their impact on pension policy. Will he list the offences that he would like to have taken into consideration? Is it the SERPS scandal, the removal of the earnings link, the promotion of state pension opt-outs, the orgy of pension mis-selling, the ineffectual Pensions Act 1995, or as my hon. Friend the Member for Stroud (Mr. Drew) said, the encouragement of pensions holidays?

Chris Grayling: That was an interestingly well read list. The most experienced analysis of the state of Britain's pension system from any member of the Government comes from the right hon. Member for Birkenhead, who is more experienced in this area than any member of the Front-Bench team. His judgment is that in 1997 our pensions system was in pretty good shape, so I will take no lessons from the Government about what happened before 1997, as they have done lasting damage to our pensions system since 1997. They have created a crisis of confidence in pension saving that must be addressed as a matter of urgency. It is one of the great challenges facing the Government.

We have a new Prime Minister, a new Secretary of State and a new Minister with responsibility for pensions, but from the new Prime Minister not even a hint that pensions are among his priorities, or that he feels the need to use his new position to right the wrongs of his time as Chancellor. So I make no apology for raising the issue at the earliest opportunity. The truth is that pensions policy has been run from the Treasury since 1997. The new Prime Minister has to take personal responsibility for the decisions that have been made, and must give a personal lead in addressing the crisis that many pensioners and future pensioners face.

As hon. Members know from the debates on the Pensions Bill, we have constantly sought to engage the Government in constructive dialogue about providing solutions to the problems in our pension system. I wait with interest to see how the Government respond to the amendments passed in the other place. My message to the Secretary of State is that we will continue to look constructively at proposals to continue the repair and mend job that has to be done to our pensions system. I hope that in return he will engage constructively with the Opposition on this most long-term of issues. Only by finding lasting solutions and building political consensus around them can public confidence in our pensions system be restored. But that will not change the failings of the past from a Prime Minister trying to pretend that he somehow just was not around for the first 10 years of this Government.

Mr. Jim Devine (Livingston) (Lab): If the Conservatives were in power today, would they reintroduce the dividend tax credit at its 1997 value?

Chris Grayling: I will not write Conservative tax policy three years from a general election, but one of the challenges that we face, as we heard in the earlier debate this afternoon, is the amount of money that the Government have wasted-the trebling of the NHS budget-and still we have debates over a lack of access to service. Labour Members should be ashamed that they have raised all this tax money yet delivered so little for it.

Tom Levitt (High Peak) (Lab): Will the hon. Gentleman give way?

Chris Grayling: Let me make some progress and then I will give way.

We should not forget that before the Prime Minister took office, as Chancellor he promised:

"I can give this pledge-fairness to the pensioners under Labour".

The very next year he imposed the ultimate stealth tax on pension funds, abolishing the tax credits on dividends, costing occupational pension schemes billions of pounds-an estimated £5 billion a year. Cumulatively, about £120 billion was wiped off the capital value of today's funds.

Then we had the unedifying sight of the Prime Minister, who has come to office claiming that he believes in transparency and openness-what a laugh that is-spending two years trying to prevent The Times from gaining access to the documents that proved that he knew all along about the damage that his policies would do. We know from the documents-I have copies here tonight-that Treasury officials advised the Chancellor that the tax change would cause a massive shortfall in pension funds. The advisers concluded:

"We agree that abolishing pension tax credits would make a big hole in pension scheme finances...the loss of tax credits would cost pension providers about £4 billion a year, growing over time with future dividends".

They also concluded that poorer pensioners would be hit hardest:

"The change would therefore lead to a reduction in pension benefits to the lower paid...Quite clearly any loss of pension could be difficult for someone with a small income to cope with."

The Prime Minister seems to have it in for the low paid at the moment, because it is they who will end up paying the price for the decisions taken in this year's Budget-the tax increases that fall disproportionately on the low paid. I will give way to the hon. Member for High Peak (Tom Levitt) if he will tell me whether he supports the policy of targeting the low paid.

Tom Levitt: The hon. Gentleman is the one making the speech and answering the questions that are posed in interventions, but of course I do not support targeting the low paid and that is not what has happened. If the hon. Gentleman is so reluctant to make up Conservative pensions policy on the hoof, was his hon. Friend the Member for Tatton (Mr. Osborne) right when he said that under a Conservative Government no more public money would be going into occupational pensions?

Chris Grayling: I can safely say that my hon. Friend said no such thing in relation to occupational pensions.

Mr. Frank Field: The hon. Gentleman expresses concern about the budgetary impact on the low paid. Some Labour Members moved an amendment to protect them. Why did not the Conservative Opposition support us?

Chris Grayling: As the right hon. Gentleman knows, the detail of amendments often gives rise to additional issues, and I can only say that the wording put forward was not acceptable to the Opposition. However, we recognise, and we have been saying very clearly, that some of the policy steps that the then Chancellor has been taking, both in 1997 and more recently this year, are bemusing in nature because they target people on lower incomes. The tax changes this year will fall disproportionately on those who come close to the national minimum wage. That seems a strange step for a Labour Chancellor to take.

It is today's pensioners, people who are on low incomes, who are paying the price for the Prime Minister's policies. Those same officials added:

"Everyone in a money purchase scheme is a potential loser"

and

"those who are about to retire (or who have just retired) would be worst affected."

The officials said that, at the time, 8 million people were in money purchase schemes. Yet in July 1997, when challenged by Conservatives that the tax changes to pension funds would have a devastating impact, the Prime Minister reassured people, saying:

"Pensioners, in my view, will not lose out over this in the way that people are suggesting."

The changes were not backed by the CBI at the time, despite the right hon. Member for Normanton (Ed Balls), now the Secretary of State for Children, Schools and Families, a few weeks ago desperately claiming otherwise. Lord Turner, director general of the CBI from 1995 to 1999, dismissed that claim as completely untrue. Richard Lambert, the current head of the CBI, said that the right hon. Gentleman's claim was

"a convenient bit of spin by the Treasury".

How right he was, and how clear it is that the culture of spin will not die with the last Prime Minister but will carry on with the next one.

Mr. Mike Weir (Angus) (SNP): Throughout his speech the right hon. Gentleman has talked about crises in the pension system, but there is nothing in the motion about the state pension. Many of the low paid to whom he refers rely almost entirely on the state pension for their income. Does he have anything to say about the difficulties with the state pension system as well as the private pension system?

Chris Grayling: There are, of course, huge issues within the state pension. As the hon. Gentleman knows, the Opposition support the principle, as espoused by the Government-I think that it has cross-party support-of restoring the earnings link. But we want to champion the cause of those who save for their own retirement. It is vital that, as a nation, we restore confidence in the principle of saving for retirement, and under this Government that principle has been dangerously weakened.

It is not the case, as the Prime Minister has told the House, that his 1997 changes were good for pension funds. The charge against him is this. In the areas where he had responsibility, such as taxation and regulation-of course there are factors affecting the markets and the performance of pension funds that are outwith the ability of politicians to influence-in the past 10 years he has plainly got it wrong. The overall effect has been the continuous decline in pensions that we have witnessed.

Since Labour took office in 1997 there has been a collapse in good quality occupational pension provision, and 60,000 occupational pension schemes have been wound up or have begun the process of winding up. The right hon. Member for Birkenhead said:

"five sixths of the final salary schemes that have closed have done so since 2000; in other words, they have closed under our watch".-[ Official Report, 31 January 2006; Vol. 442, c. 257.]

The membership of employer-sponsored defined benefit pension schemes has fallen to 35 per cent. of the working-age population, from 46 per cent. in 1997. Now, 47 per cent. of adult employees are not members of any pension scheme, and 6.7 million women have no retirement provision at all, 400,000 more than five years ago-10 years after the election of a Labour Government. That is a damning record.

Rebuilding trust in occupational pension savings is a long-term issue that must be addressed. But there is also a pressing short-term issue that must be dealt with urgently, and it is something that the Secretary of State and I will undoubtedly be debating in the next few weeks. The failure of occupational pension schemes has, sadly, had all too human consequences. Since 1997, 125,000 people have lost pension savings and been left with little or nothing when their pension schemes failed. These are decent people who have saved all their lives and done the right thing. They did what successive Governments told them to do.

Last year, the ombudsman produced an independent report into the scandal, and found the Government guilty of maladministration. Since then, the European Court of Justice, the High Court and the Public Administration Committee have criticised the Government's handling of the crisis. Yet Ministers have still refused to accept responsibility. The Government have consistently refused to provide those people with a proper package of assistance. All that they have is the failing financial assistance scheme.

Some 10,000 people should be eligible for help from the FAS now, with an additional 115,000 or so people becoming eligible once they reach the age of 65. But so far the FAS has made payments to only around 1,300 people, and this matter should be in a prominent position in the Secretary of State's in-tray. The scheme has cost some £10 million to administer so far, but it has paid out only £4.9 million to the pensioners affected, and that is a scandalous failure. It is totally unacceptable. The scheme must do much better and quickly. The money is not yet getting to those who need it.

The scheme chose to publish its most recent annual report, showing up this failure, last Wednesday, the day that the Chancellor became the Prime Minister, giving rise to more suspicions about burying bad news, one of the Government's more persistent traits.

We have put forward constructive proposals to top up those people's pensions to Pension Protection Fund level without long-term public expenditure implications. Those proposals have support on both sides of the House and were passed in the other place last month as new clauses tabled to the Pensions Bill. The first test for the new Prime Minister and the new Secretary of State is whether they have the decency to acknowledge that those people need a better solution. Will the Secretary of State now give his support to those amendments? Will he give those 125,000 people the good news that they have been waiting for?

There is another big pensions issue in the Secretary of State's in-tray. The gold-plated retirement promises made to millions of Britain's public sector workers have incurred, depending on whether one believes the Government or independent actuaries, liabilities of somewhere between £530 billion and £1 trillion, which is a staggering amount of money. The Government still will not disclose what the liabilities were at March last year, and the figures are now three months late. The new Prime Minister has claimed to usher in a new era of transparent Government, but he is not even willing to publish such an important figure. As usual, what he says and what he does are miles apart.

Of course, public sector workers are entitled to fair treatment, and many perform vital roles under extremely difficult circumstances.

Tom Levitt: On occupational pensions, the hon. Gentleman discussed topping up the Pension Protection Fund level. Does he agree with his immediate predecessor, the hon. Member for Runnymede and Weybridge (Mr. Hammond), who told members of the Turner and Newall fund in my constituency 10 days ago that it is important to have an alternative to the PPF-in other words, a better deal than the PPF? Is that Conservative policy?

Chris Grayling: I am sure that the hon. Gentleman sympathises with that aspiration. We want to make sure that the people who have lost out as a result of pension collapses do not lose out indefinitely. We will continue to push proposals that give those people a better deal. It is to the discredit of this House that the Government still refuse to accept changes that command support from hon. Members on both sides of the House. When the proposal returns to the House next week or the week after, I hope that we will see a change in Government policy.

The Secretary of State knows that we must all share the burden of demographic change, and it is the Government's duty to the taxpayer to ensure that the costs of public service pension provision are transparent. The cost of unfunded final salary benefits, with retirement at 60 for many, indexation and a lump sum allowance plus generous ill-health and death benefits for millions of public sector workers have created a gaping black hole in public funds, which will ultimately have to be filled by the taxpayer, which is one of the great challenges facing the new Secretary of State. It is an issue that the Prime Minister conspicuously failed to tackle throughout his time as Chancellor. Whenever problems were around, the former Chancellor was nowhere to be found. Now that he is Prime Minister, that will have to change.

We have heard much in the past few days about how the Prime Minister is trying, rather improbably, to be the change that Britain needs. That claim will ring pretty hollow among current and future pensioners whose retirements have been jeopardised by the misjudgements of the new occupant of No. 10 Downing street. Today, 125,000 of the worst affected pensioners are still waiting for a pensions lifeboat, and millions of others face a retirement where money will be a constant struggle. The repair job will take a long time, and it will take cross-party consensus and the continued help of some of Britain's best financial minds. However, none of that work should provide a smokescreen from the finger of blame, which last Wednesday moved from No. 11 to No. 10 Downing Street.