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Earnings Rule

Volume 975: debated on Monday 10 December 1979

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6.33 pm

I beg to move,

That this House commends the Government on their declared intention finally to abandon the earnings rule for retirement pensioners within the lifetime of this Parliament.
I am not sure of the name of the cynic who said that Members of Parliament sat and listened only while they waited for their own turn to speak. I assure the few hon. Members who are here that I had quite a battle to get back to the House. I love and respect the traditions of the House and I have been known to sit here for long hours without raising my voice.

I was prompted to set down this motion because of a recent speech by my right hon. Friend the Secretary of State for Social Services. Speaking to the National Association of Pension Funds about retirement pensions, he referred to the widespread interest in a system of flexible retirement. However, he asserted that the operation of the earnings rule was a heavy disincentive to those who wished to work on after pensionable age.

My right hon. Friend declared the Government's intention to end the earnings rule for retirement pensioners during the lifetime of this Parliament and announced that a White Paper on the elderly would be produced next year which would set out the views of the Government on this and other matters concerned with the elderly.

It is clear that any long-term changes involving retirement pensions can best be achieved by all-party agreement. My right hon. Friend spoke of the need to prevent ping-pong pensioneering in election campaigns. Over the years there has been a continuing indication of the basis of the all-party agreement on the earnings rule. Though my motion formally commends the Government, I pay tribute to the Back Benchers who across party lines, and in many Parliaments, have jointly supported this view.

When the earnings rule was originally introduced in the National Insurance Act 1946, which implemented the Beveridge plan, it was necessary because Beveridge insisted that retirement should be a condition of receiving a State pension. He considered that that went hand in hand with the concept of a flexible retirement age and higher pensions for those who deferred retirement beyond the minimum pension age.

There is constant reiteration that it is a retirement pension by both Front Benches, but I know that they will accept that outside the House it is referred to by most people as the old-age pension and that the people who draw it are affectionately known as OAPs. In the event, Beveridge's proposals were not exactly followed. The earnings limit set at that time was £1 a week instead of the £3 per month that he proposed. Men over 70 and women over 65 were treated as being retired whether or not that was the case. They were thus able to earn as much as they liked without earnings affecting their pensions. The rule is still in force basically in the form in which it was introduced, although the weekly earnings limit has been raised to its present level. Ever since the rule was introduced, members of different political parties in this place have tabled parliamentary questions asking for the abolition of the rule or for its specific relaxation.

The rule was submitted twice to the National Insurance Advisory Committee, once in 1955 and again in 1966. On both occasions the committee favoured its retention, but there were notable dissensions in the 1955 report. I think they were from Professor Titmuss and Miss Spellman. Successive Governments over the years have allowed minor relaxations but have refused to abolish the rule, partly, I suspect, because they have wished to preserve the nature of the pension as a retirement pension but increasingly, I believe, because of general economic and social considerations.

The late Richard Crossman, in his plan entitled "National Superannuation and Social Insurance", considered abolishing the earnings rule but decided to retain it. He explained that, so long as the retirement condition remained, something corresponding to the present earnings rule was needed to support it. He referred to the cost of abolition, which in April 1968 was estimated at about £150 million. In 1972, one of my hon. Friends—the then Member for Birmingham, Yardley—introduced a Private Member's Bill aimed at increasing the band of earnings immediately above the earnings limit in which only 50 per cent. of the pension is lost for every pound earned.

My hon. Friend the Member for Somerset, North (Mr. Dean), then Under-Secretary of State at the Department, said:
"I do not seek to debate the earnings rule in principle, except to say that nobody loves it. If we were starting again, we would seek to avoid having it."—[Official Report, 21 April 1972; Vol. 853, c. 950].
He estimated the cost of abolition at that time at about £110 million gross, or £80 million net. The Government's Social Security Act 1973 also retained the earnings rule.

The next Government, in their 1975 Act, retained the rule but added the promise of regular review.

When the Social Security Benefits Bill of 1974–75 was going through the House, the then Opposition introduced an amendment in Committee seeking to raise the earnings limit in three stages: £20 in April 1975, £35 in April 1976, and £50 in April 1977. A Government Back Bencher, the hon. Member for Islington, South and Finsbury (Mr. Cunningham), with great courage, voted for the Opposition's amendment and it was carried. On Report, other Government Back Benchers supported the amendment and it was secured.

The Minister at that time made clear that he was not defending the principle, but again he referred to the cost, which at that time, he said, would be about £225 million gross, or £170 million net.

In a telling speech during that debate, calling for abolition, my hon. Friend the Member for Rushcliffe (Mr. Clarke), then Opposition spokesman on social security matters, said:
"It has a serious disincentive effect on those trying to continue to work."—[Official Report, 29 January 1975; Vol. 885, c. 483.]
A Government Back Bencher, now the hon. Member for Mitcham and Morden (Mr. Douglas-Mann), said during the same debate that this country could not afford such a serious disincentive to work, which damaged our economic performance.

Because of that amendment passed in Committee and sustained by Back Benchers on both sides against the wish of the then Government, the gradual relaxation of the rule passed into law in section 30 of the Social Security Act 1975.

In 1975, the rule was estimated to affect about 20,000 people, but, according to updated figures which I have for July 1979, the total of those on whom the earnings rule now operates is 2,880. These are the people who, despite the rule, continue to work and suffer. Great resentment is felt by those affected by it.

Those figures, however, are virtually meaningless since what no one knows or can estimate is the number of people who are deterred because the earnings rule means that it is not worth their while to continue in some work.

I regard this as the nation's loss. I never cease to be astonished at the accumulated wisdom, experience and energy brought to our national life by those often erroneously described as "elderly". I recognise that not all people reaching whatever we ultimately deem to be retirement age are blessed with sound health and energy or, indeed, have a wish to continue to work, but I am sure that we should not have, and should never have written into our pensions system, a positive deterrent to those who can and very much wish to continue to work.

Perhaps the phrase "flexible retirement age" will cause some qualms in circles which support retirement five years earlier for women. Personally, I find it difficult to sustain the argument for equal pay, on the one hand, and for the right to early retirement, on the other.

We hear talk of the effects of technological advance—at Question Time today my hon. Friend the Under-Secretary of State for Industry was asked about robotics—and perhaps in time the microchip technological age will usher in a shorter working day, a shorter working week and a shorter working life, but, with our nation's seeming inability at present to sustain even a modest growth in our gross national product, the benefits claimed for the microchip do not seem exactly imminent.

I welcome the promise of a White Paper in the spring, with its suggestions of flexibility, and especially do I applaud the Secretary of State's declared intention to see an end to the unloved earnings rule. I am only sorry that the pleasure of this day is not shared by my late hon. Friend Sir Gerald Nabarro. He pursued the earnings rule with the same tenacity as he pursued the anomalies in purchase tax, and he did this in company with Back Benchers of all parties who over many years have joined in a non-partisan way to seek to ease and finally to abolish this rule.

In conclusion—I shall be brief, since over the years I have voted for shorter speeches—I hope that I shall not stray out of order if I ask for greater flexibility in the disregard applied to the disabled, which—let us face it—is another form of earnings-incomes rule. In a petition which I recently presented to the Department, the day patients at a handicapped persons' centre in my constituency, some of them very badly disabled, pleaded to be able to keep more of the money which they earn. Surely, as in the case of older folk, it must be right to encourage those who are already so disadvantaged by handicap or disablement to feel a greater sense of normality through work and earning whatever is possible, if that is in accordance with their own wish.

After so many years, with the principle of the earnings rule long since called into disrepute by politicians of all parties, when all that remains are the accepted difficulties of economic constraint, it is an act of both courage and determination for my right hon. Friend so to have declared his intention, and I hope that the House will commend that declared intention today.

6.48 pm

I, too, shall be brief because of the constraints of time imposed upon us. I congratulate the hon. Lady the Member for Rochester and Chatham (Mrs. Fenner) on her good fortune in securing a short debate for her motion. I agree at the outset that there is no argument about the principle. We on these Benches would have wished to abolish the earnings rule. Basically it comes down to a question of priorities. That is the problem. Today, there are far fewer people caught by the rule than there were a few years ago, and the hon. Lady rightly paid tribute to my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) for the fight that he put up. Far be it from me to say that Back Benchers should not vote against their own Government.

I have not checked back, but I am pretty sure that I did not vote with my hon. Friend on that occasion, because of the issue of priorities. I see that the Under-Secretary of State has checked and knows that I did not. The argument on priorities weighed heavily with me, and I was not prepared to put this issue above other aspects of public expenditure. This is a problem, and I hope that the Under-Secretary of State will say something about the cost. Where does this figure lie in the Government's priorities? I accept that they are not committed to phasing the rule out in this Session, but they intend to do so during the lifetime of this Parliament.

The hon. Lady the Member for Rochester and Chatham said that we should not play political ping-pong with pension issues but should get an agreement. I must remind her that the present Government have announced other intentions. In the Bill which they have published they are already starting to play political ping-pong with pensions, because clause 1 will change the rule under which the general uprating of pensions takes place. That is an intention that we are committed to reverse, so there is already some ping-pong coming in, and it affects all pensioners, not just those covered by the earnings rule.

With the earnings limit now in excess of £50 a week, not all that many pensioners are affected. I accept the argument about a flexible retirement age, but there are not all that many pensioners today who are put off by the earnings rule at its present level.

Although I agree with what the hon. Lady said, I argue that our concern should be for the generality of the present Government's intentions in regard to basic pensions. I hope that the hon. Lady will not support them when we come to debate that Bill. Their declared intention is to cut the pension by changing the uprating rules.

Where does that figure in the priorities of the Government vis-à-vis the earnings rule? When the Bill is discussed, there will be arguments in favour of abolishing the earnings rule, which affects very few people—those earning considerably higher than the normal pensioner's income. At the same time the Government are seeking to cut pensions. For that reason, we shall be back to ping-pong politics over pensions. The Opposition deplore that, but it has been forced upon us by the actions of the Government.

I shall not add anything further because I know that the Minister wishes to make some remarks. It is better that the House knows the Government's intentions, so I shall not take up any more time.

6.50 pm

On behalf of the Government, I welcome the motion of my hon. Friend the Member for Rochester and Chatham (Mrs. Fenner) and the further opportunity which it provides for a debate, albeit short, on the earnings rule. I shall comment later on the remarks of the hon. Member for Birmingham, Perry Barr (Mr. Rooker). We should recognise that in recent years there has been a strong feeling that it is wrong to discourage people who want to work after pension age. There is a widespread belief that the earnings rule for retirement pensions discourages pensioners from working.

At my hon. Friend the Member for Rochester and Chatham pointed out, in our manifesto we undertook to phase out the earnings rule during the lifetime of this Parliament. At present we estimate that only about 5,000 pensioners have their pension reduced or extinguished because of the earnings rule, out of the 2 million pensioners who are within the scope of the rule, in so far as they are in the age bands to which the rule applies. The rule applies for women between the ages 60–65 and for men between the ages 65–70. In 1977, the latest date for which figures are available, approximately 140,000 people deferred retirement. Most were earning above the earnings rule limit.

The abolition of the rule figured in the last three election manifestos of the Conservative Party. In our 1974 election manifesto we condemned it on the grounds that it was socially harmful as well as being widely resented. We said that it discouraged able men and women—merely because of their age—from making a contribution to society which would help both them and the rest of society. We pointed out that we had relaxed the rule in the past and that we would relax it further. As my hon. Friend the Mem- ber for Rochester and Chatham pointed out, we took many steps during our period in Opposition to try to relax the rule and to make it easier for older people to continue working after the age of 60 or 65.

Earlier this year we took a further step towards the abolition of the earnings rule. During the passage of the Social Security Act 1979, we forced upon the then Labour Government a provision which enabled steps to be taken towards abolition by an order under an affirmative resolution instead of by main legislation. We are now examining ways of fulfilling our commitments.

The hon. Member for Perry Barr said that it was a matter of priorities. I accept that. We must therefore consider the most appropriate method by which to end the rule. It is important to consider the effects of different approaches on other elements in pension provision, including possible future developments.

We must also reconsider the assumptions on which the cost of abolition, as set out in the 1978 report on the earnings rule, was based. There is no doubt, however, that the cost of phasing out the earnings rule will be considerable. For that reason, we cannot abolish it immediately. We knew when we took office that our economic difficulties were great. Until we were able to examine the books, we did not know how great they were. Our immediate aim, therefore, must be to get the economy right. That is our first priority. Until we have achieved that, improvements in social security, including abolition of the earnings rule, must take second place. Our first priority must be to stabilise expenditure.

The hon. Member for Perry Barr, when he spoke of priorities—which is a daily headache for every Minister—asked which programmes should receive priority. It has been heartening for us to note how often Back-Bench Members have raised the issue in correspondence, in motions, and so on. We know that there is a real wish to abolish the earnings rule. We must find a way in which to fulfil it. There is no doubt that the work carried out by the Office of Population Censuses and Surveys, the report of which we hope will be published next year, on older workers and retirement will give more information on the topic.

We cannot move immediately to abolition. We knew that we would have difficulty in fulfilling our commitment, and we do not hide that fact.

In these circumstances, although the abolition of the retirement pensioner's earnings rule cannot command priority over more pressing candidates for public spending, it remains a priority of the Government. We are heartened by the terms of the motion.

My hon. Friend mentioned flexibility. It is the intention of the Government to look also at the question of a flexible retirement age. It is interesting that in the survey the findings of which are to be published next year just over half of those questioned who had already retired said that they would have preferred to do so gradually. Others who had retired, because they were bound to do so by the present rules, said that they would have liked to have continued working, partly because they liked the work, partly because they did not want to be bored, and partly because they wanted to make a real contribution. There is no real doubt that there is a case for abolition of the earnings rule. However, we realise also that there is much to be done in the meantime.

The hon. Member for Perry Barr referred to the Social Security Bill published two weeks ago, which we shall debate in the coming weeks and months. He referred to the change in the uprating for retirement pensions. We have said that we shall increase pensions by the level of price increases, at the least. At the present time, that is one of the most valuable steps we can take to protect pensioners against rising prices. That is the minimum that we shall do.

We have been discussing the earnings rule for retirement pensions. A different earnings rule applies to the wives of retirement and invalidity pensioners, who receive an increase in their pensions in respect of their wives who live with them. That rule reduces the amount of the increase if the wife's earnings exceed a specified limit, which is currently £45. The 1978 report on the earnings rule dealt separately with the earnings rule for retirement pensioners and that for the wives of retirement or invalidity pensioners. Both sides of the House were agreed that we should not uprate the earnings rule limit for the wives of retirement and invalidity pensioners, and that has this year become part of our law.

My hon. Friend was discussing the earnings rule as it affects retirement pensioners, and it is that that we are committed to abolishing. That rule is bad—

It being Seven o'clock, proceedings on the motion lapsed, pursuant to Standing Order No. 6 ( Precedence of Government business).