amendment of the law

Phil Wilson Excerpts

Monday 24th March 2014 Commons Chamber

[Phil Wilson (Sedgefield) (Lab)]

I will first touch on the housing market and the role of housing benefit, and then move on to the Government’s proposals for pension reform, because they are linked.

According to the Office for Budget Responsibility report, the largest driver in the growth of housing benefit has been a growing case load in the private rented sector. The share of housing benefit spend in the sector is projected to increase to 40% by 2018. The trend towards renting from private landlords and away from owner-occupation is accelerating. The increase in the proportion of the private renting population who claim housing benefit is a consequence of low wages and a rise in rent inflation. The recent rise in housing benefit in the private rented sector has been accounted for by people in work, and the fall in owner occupation since the recession has been particularly marked among young people. I ask Members to bear that in mind when they hear what I am about to say about the Government’s pension proposals.

I agree with the Chancellor that we should trust the people. I do not have a problem with trusting the people; I have a problem with trusting the financial services industry. I understand why the Chancellor made his announcement on Wednesday, but I feel that his proposals are treating the symptoms and not curing the disease. The Government say that they trust the people, as they rightly should, but what are they doing to ensure that the people can trust the financial services industry? What are they doing to ensure that 40% of the retirement or savings pot will not be lost in hidden fees in the future? Some savers can lose as much as £230,000 in the value of their pensions when a 1.5% fee is charged over their working lives. What are the Government going to do to ensure that those fees are transparent, and what are they going to do to ensure that the financial services industry does not come up with mis-sold financial products, as it has in the past? I say all this because we should not forget that the insurance companies that are selling annuities now will start to present what they will call “innovative and creative products” to fill the chasm left by the collapse of annuities.

There are three measurements by which these proposals should be gauged. First, when is “advice” advice, and not guidance? The Chancellor said that £20 million was to be set aside over the next two years for the right to advice, but the Treasury consultation document calls it a right to financial guidance. There is a big difference between the two: advice means telling people what is in their best interests, whereas guidance means informing them of their options and then sending them on their way. Secondly, there should be a test to ensure that those with low and middle incomes are not disadvantaged but are offered the certainty that they need in retirement, especially at a time when the average pension pot is about £36,000. Thirdly, the Government should ensure that reforms do not result in extra costs to the state as a result of, for instance, higher social care bills, and force pensioners to fall back on benefits. We should not set up a system that socialises the risk and ensures that only the private sector reaps the benefits.

The Chancellor said in his speech:

“People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances”.—[Official Report, 19 March 2014; Vol. 577, c. 793.]

I agree that we should trust the people, but we should also be able to trust the financial services industry. For many people, their pension investments are not just about trust, but about faith. They want to have faith in those who look after investments, and to know that they are doing right by them.

The mis-selling of future financial products must be a big worry. It has happened time and again in the industry, which is why I have demanded, in the House, that a fiduciary duty be placed on those in the financial services industry who look after the trillions of pounds in the existing pension funds. Every practitioner must be able to put his hand on his heart and say that he acted in the best interests of those whose funds he has invested. That should be at the core of the Government’s proposals. I believe in “trust in the people”, but, in this instance, trust must be earned by the Chancellor and the financial services industry.

That brings me back to my original point. As a result of the Government’s reforms, we will see an explosion in the number of buy-to-let properties, inflating house prices and further diminishing the opportunities for young people to own their homes. The challenge for all of us is not the abandonment of the pension system, but the building of a system that actually works, under which money is given to someone who can be trusted to use those savings wisely to generate a retirement income. Holland and Denmark have private pension systems that are collectivist and large, so that risk is shared and fees are low. If a typical Briton and a typical Dutch person save the same amount, have the same life expectancy and retire on the same day, the Dutch saver’s pension will be 50% higher than that of the Briton. There is much to be said for the collectivist approach to pension provision, and it should not be deserted.

The question is not “Should we trust the people?” Of course we should. The question is “Can the people trust the Government and the industry to get this right?” Given the long history of mis-selling by the industry, I believe that the jury is still out.

--- Later in debate ---

[Kwasi Kwarteng]

That is absolutely right. The right hon. Gentleman’s principal fault was that he thought he had abolished the business cycle—no more boom and bust. He essentially believed—and it is incredible to think he did believe this—that he had discovered perpetual motion and that the laws of economics and of economic gravity had been suspended or abolished. That was the problem we were in: we were borrowing money even when the economy was growing. In 2004 I recall the economy grew at 3%, yet we ran a deficit of 3%. There is no Keynesian in the world who would suggest it was a good policy to borrow 3% of GDP when the economy was growing, yet the previous Government persisted in doing that.

[Phil Wilson]

rose—

[Kwasi Kwarteng]

It is quite true that the economic and financial crisis that hit in 2007-08 was a global phenomenon, but our country was in the worst position of any in the OECD to deal with that problem because of the poor management of our public finances in the six years before the crisis hit.

Germany is not a bastion of hard right-wing fiscal conservatism, yet it managed to reduce its spending right through the first decade of this century. It started to reduce public spending in 2004 and 2005. Today the Federal Government have a balanced Budget because of the prudent housekeeping and fiscal management of the previous German Government, first under Schröder and the Social Democratic party and then continued under Merkel. By contrast, in this country at that time we saw a total dereliction of duty by the Government.

[Phil Wilson]

Will the hon. Gentleman give way?

[Kwasi Kwarteng]

We saw an expanding public sector, big public expenditure and tax revenues which frankly could never meet the expenditure that the Government were embarked upon. So talking about what happened in 2010 can never be repeated enough times and must never be forgotten: in 2010 this coalition Government inherited the biggest deficit in our peacetime history.

[Phil Wilson]

rose—

[Kwasi Kwarteng]

I can see that Members opposite are eager to intervene and rightly so, because that was a shocking record of public financial management, and they are absolutely right to be indignant about what I am saying because it is the simple truth. They fell asleep at the wheel and left this country with an enormous deficit.

[Phil Wilson]

If what the hon. Gentleman is saying is true and he has the answer to everything we did wrong, why did the current Chancellor—the then shadow Chancellor—agree with our expenditure plans in 2008?

[Kwasi Kwarteng]

I have publicly said that I think that was a mistake. It was a mistake to stick to Labour’s spending plans when we were running six or seven years of straight deficits. I do not understand how that makes any sense in financial management terms.

[Phil Wilson]

Will the hon. Gentleman give way?

[Kwasi Kwarteng]

No. The hon. Gentleman has had his say and I want to finish my speech, given that I have little time left.

It is very important that we remember exactly what the last Government did. In 2010, as everyone remembers, we had a deficit of £160 billion, which was the largest peacetime deficit. It is a remarkable testament to this Government that they have managed to reduce it by a third and at the same preside over economic growth. That is an extraordinary record, and I am very happy to meet my constituents and seek re-election on that basis.

I know that we should not be too obsessed with polls, but the one consistent thing emerging from the polling evidence over this whole period is that the British people consistently blame the last Government for the deficit and for the economic crisis we are in. There is an intuitive understanding that the Labour Government spent too much money, and that this coalition Government have been elected with a mandate to sort out the mess that Labour made. Intuitively, people across our constituencies get this, and that is why the Labour party, even through all these difficult times, continues to perform very poorly in the opinion polls and has yet to win the confidence of our countrymen and women.