Spelling out the future

Sitting in his modern but by no means palatial office near Westminster Abbey Steve Webb told me just how much he liked being Minister for Pensions. “I’ve used the phrase ‘dream job’. It really is. I love learning things” and he could not help sharing his latest amazing fact with me. “We are still paying 30 Category C pensions in respect of people who reached pension age before 1948.”

I was a bit puzzled. To reach pension age before July 1948 a man would be aged 127 now and a woman 122. While I mulled that over I asked Webb what had driven him into politics. He already had a good career as a researcher and academic, first with the Institute for Fiscal Studies (IFS) and later as Professor of Social Policy at Bath University. But in 1997 he overturned a Conservative majority of 11,000 in Northavon near Bristol to become a Liberal Democrat MP.

“I have always had a concern about social justice and a lot of my research was done in the 1980s when inequality was growing. Poor households used to get grants for essentials – a cooker or a bed. Then the Government decided they wouldn’t get a grant, they would have to borrow the money and pay it back...This was the time of the Lawson boom, taxes were being cut in the top and middle and we were saying to poor people you’ve got to pay back for essential items out of your meagre benefit. This for me symbolised an unfair society.”

But if he wanted to make the system fairer, why become a LibDem? Until May 6 this year the prospect of LibDems in Government was, to say the least, highly unlikely.

“At the IFS you come into contact with all parties. Some of the people I met were researchers – Ed Davey, David Laws, people like that and senior MPs like Alan Beith. People who had joined the LibDems because of what they believed in. That’s partly what drew me there.”

One thing that Steve Webb and the LibDems believe in is the state pension. And the Coalition Government introduced the ‘triple lock’ to raise it each year in line with prices, earnings or 2.5% whichever is the highest. But from 2012 the measure of price rises is to be the Consumer Prices Index not the Retail Prices Index which has been used since the 1980s (and will be in 2011) for the annual pension rise. The CPI leaves out most housing costs and does the arithmetic differently. As a result it usually shows a rate of inflation about 1% lower than the more traditional RPI. And that means if the CPI is higher than earnings that is the index which will be used.

In 2012 the triple lock will mean pensions rise by the highest of 2.5%, CPI (expected to be 2.6%) and earnings (forecast to be rising at 1.9%). The highest of these is CPI so if these forecasts are right the basic state pension will rise by 2.6% in April 2012. But that is significantly lower than the forecast level of the RPI – 3.4%. Would Webb confirm that that the basic state pension could rise by nearly £1 a week less in 2012 than if it simply followed the RPI? He made this remarkable admission:

“Depending on what CPI and earnings are…it could do.”

So the famous triple lock would actually result in a lower pension rise in 2012 than if it had remained pegged to the RPI.

But he claimed that if the pension did rise by less than the RPI, that was more than Labour would have done. “The previous government had linked the basic pension to the average earnings index, not the higher of earnings or prices and so its rise was less than 2.5% in the spending plans.”

And did he really believe that Labour would have done that?

“Well. If they weren’t going to do that where was the money? Why didn’t they put the money into the spending plans? There are all these promises and hints but the money isn’t there.”

Labour had never suggested that linking the basic state pension to earnings would result in a lower rise than if it remained pegged to price rises. So I put this charge to Liam Byrne MP (Labour’s Chief Secretary to the Treasury who in April left the famous note to his successor “I’m afraid there is no money”). He confirmed that the last Government’s figures did show the cost of raising the state pension in line with earnings not prices. But he added “the reality is we would have taken a call on what was higher – RPI, 2.5%, or earnings.” but when I asked is there was any written proof of that he admitted there was not.

State pension age
Another controversial policy of the Coalition is to raise the state pension age to 66 earlier than the current target of 2024/2026. Steve Webb revealed that may mean accelerating the rate at which women’s pension age rises. The Coalition has said state pension age would rise to 66 ‘no sooner’ than 2016 for men and ‘no sooner’ than 2020 for women. But women’s pension age is already rising to equalise it with the age for men and it will hit 65 in April 2020. So was Webb’s intention to speed up that process for women?

“That’s one of the options. Yes. Has to be one of the options.”

Could it reach 66 in 2016 or 2018 for men and women even though under current plans women’s pension age will not have reached 65?

“Nothing before 2016 and women won’t hit 66 until 2020, that’s the guarantee we’ve given.”

I asked if that could mean that the age for both men and women could reach 66 in 2020? “That’s an option,” he replied.

If so most women born in 1953 who currently expect to reach pension age in 2016 while they are 63 could find the finishing line moved further away even as they approach it. But this plan would have the advantage that men and women would be treated equally – something European law insists on. Steve Webb has written to the Equality and Human Rights Commission for advice on that point.

Raising state pension age means people will be paying the National Insurance tax for longer even though they may have paid enough for a full pension 20 years before they reach pension age. “The logical thing would be people of working age paying national insurance. That would be my assumption” said Webb.

Women
In opposition Steve Webb was behind campaigns to get women better state pensions. Many Saga readers have benefited from his work, encouraged by this column, to encourage women to pay extra contributions to get a bigger pension. In the past, LibDems had hoped to raise the state pension to more than £130 a week, especially for older pensioners most of whom are women. And throughout our conversation that theme of helping women recurred. Webb had intervened to ensure a review of workplace pensions specifically looked at “what does this do for women...a little nudge to say women are always the poor relations on pensions, let’s take a particular focus to try and readdress that…and bring that perspective to every judgement I have to make.”

And he wants to go further. “In the longer term we’re going to be looking at the whole state pension system – basic [state] provision, second tier [workplace] provision, relationship with means-tested benefits. Which is a big, big piece of reform we’ve got to look at”

Big – and potentially very expensive. Despite his commitment to it, would it need explicit Treasury approval before anything could change?

“Everything is something we have to get through the Treasury” Webb replied with a wry smile.

It reminded me of an answer from one of his Labour predecessors when I asked in 2005 why he had failed to introduce a change I knew he believed in? “Paul,” he replied, “what can I do? I’m only the Minister.”

Tory tax
Like hundreds of other LibDem candidates at the last election Webb had campaigned against the ‘Tory Tax Bombshell’ of putting VAT up to 20% – which his party correctly predicted. So how did he feel as a LibDem voting for that specific Conservative policy after the recent Budget?

“You don’t pick and choose individual elements. For me having a Budget that raised the tax threshold and redistributed some tax changes – compared to the [Tory] Budget that might have been – I actually felt we had made a difference.”

Making a difference is what all politicians want. So what could a Pensions Minister really do, with the Treasury breathing down his neck and ‘no money’ left? His eleven Labour predecessors lasted on average 14 months in the job. But the Coalition intends to be in power for five years and David Cameron has said he prefers continuity to change in ministerial jobs. So Steve Webb could be with us for a long time. What did he hope to achieve?

“For me the prize is the state pension scheme. A foundation for people, simple, decent and on which they can then build private savings. So, if we can get state pension reform and get this long term stuff right so that people are building on that and making themselves better off, that will be quite a big transformation.”

And those 127-year-old men I mentioned getting Category C pensions I mentioned at the start? Of course, they do not exist. But there are 30 of their widows still getting a Category C pension of £58.50 a week. All are over 80, and twenty are over 90. And from 2012 their pension will also be raised by the triple lock – not by RPI – costing them 45p a week.

e-mail Paul Lewis on paul@paullewis.co.uk