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  • John Reid – 2001 Speech at the Belfast Telegraph Awards

    Below is the text of the speech made by John Reid in Belfast on 4th April 2001.

    I am delighted to be here tonight to celebrate the very best of business in Northern Ireland.

    We are here to celebrate your achievements. In different ways all of you are pushing forward the boundaries of what is possible. Exploring new avenues, forging new partnerships.

    And we are here because we share a vision. All of us are actively seeking to build a new Northern Ireland:

    – a new political landscape, based on equality, mutual respect and lasting peace

    – and an economy based on innovation, enterprise and investment.

    And everywhere there is evidence that peace pays:

    – unemployment continues to fall – unemployment in Northern Ireland now stands at 5.9% – well below the EU average of 8.1%.

    – investment in manufacturing is up 75% over the last 5 years (compared to a UK average of 16%).

    – overseas investment is pouring in. Last November Fujitsu announced that they were setting up a £29.4 million engineering centre in Belfast. This will create 400 jobs for skilled engineers over the next 4 years.

    – new domestic investment has been just as impressive, with £564m invested in the last 4 financial years.

    There has never been a better time to do business in Northern Ireland. But you don’t need me to tell you that we cannot rest on our laurels.

    The world is changing. The coming years will bring advances that our minds cannot even conceive of today. They will bring new political alignments in Europe and further afield.

    But these rich promises come with a warning: as the globe shrinks, as the communications revolution permeates even the remotest areas, we will have to fight harder not to be left behind.

    Because business is changing.

    E-commerce and e-business are radically changing the nature of individual businesses and indeed entire economies around the world.

    Northern Ireland has made a good start. It is at the leading edge of the design and development of communications hardware and software for a worldwide market.

    There is an advanced and reliable telecommunications network that ensures fast Internet access. An environment that encourages and rewards innovation through support for research and development in knowledge-led areas.

    And the educational infrastructure is in place: university research centres of excellence, working alongside industry. A supply of quality IT and electronics graduates, post-graduates and experienced personnel. And there is already a significant cluster of internationally successful IT companies.

    But business will only get faster, competition fiercer. And Northern Ireland simply cannot afford to be left behind.

    Thousands of new jobs could be created in Northern Ireland over the next five years and hundreds of thousands of existing jobs sustained if we immediately grasp the exciting opportunities presented by the Information Age.

    It presents us with a simple choice: we can do what we’ve always done and lose out. Or we can transform the economic landscape, with the simple tool of human intelligence.

    Education is the single most important weapon in our fight to promote innovation, excellence and inclusion.

    In this new world it will be knowledge that divides the haves and the have-nots. So, above all else, we must equip our younger generations to lead the line in technological advances.

    We must build a society, a political culture and the sort of progressive, innovative economy that makes young people want to stay here in Northern Ireland.

    For too long we have had a political culture of ‘name and blame’ rather than one that seeks collective solutions.

    For too long, too many young people have felt that their talents are wasted here, that their lives are less than they might be elsewhere. They are the forgotten casualties of past conflict.

    For too long the images that have gone round the world associated with Northern Ireland have been those of conflict and there are still those like the bombers who placed the device outside the BBC in London who are determined to condemn Northern Ireland in the eyes of the world. Every television bulletin that carried those pictures was one less potential job for Northern Ireland.

    That is the perception that we must reverse. That is why we all – Governments, political parties and people – must accept our responsibilities as well as our rights under the Good Friday Agreement.

    Opportunity for all, matched by responsibility from all.

    That is our duty to the next generation.

    The political progress of recent years has helped to stem that haemorrhage. But we must do more: we must attract the Northern Ireland diaspora back from Silicon Valley and from the Boston corridor.

    We must build centres of excellence of our own.

    Northern Ireland has a talented, motivated, educated young population. They are crying out for the chance to fulfil their potential where their homes are and where their families live.

    Already that outward migration has been reversed. For the first time in our history, more people are streaming back than are leaving our shores. But I want to turn that stream into a tide.

    That should be our promise to the next generation.

    They – and the world – will not understand if we choose to cripple ourselves in parochial disputes, to channel our potential into destruction, not creativity.

    We will only survive if we command respect, not inspire sympathy.

    The last century in Ireland was one of almost continual political conflict. A century of devastating, futile violence. Of wasted lives.

    This must be a Century of opportunities seized, not squandered.

    Tonight I can tell you: this Government will not shy away from change – social, political or economic. In partnership with business we can take this new world by the scruff of the neck. We can shape it and make it work for us.

    And we can look our younger generation in the eye and say: there need never be refugees from Northern Ireland again.

  • Rachel Reeves – 2013 Speech to the Resolution Foundation

    Below is the text of the speech made by the Shadow Chief Secretary to the Treasury, Rachel Reeves, to the Resolution Foundation on 4th September 2013.

    Thank you so much for having me today.

    The Resolution Foundation has been rightly recognised for its role in placing the pressures faced by ordinary working households at the centre of political debate.

    And it’s a great credit to the work of Gavin and his team that the next general election will be about living standards.

    Let me start by saying it’s welcome that we are now finally seeing growth again in our economy – growth that is essential to making up the ground we have lost over three wasted years during which the economy stagnated as a result of the Tory-led Government’s mistakes.

    David Cameron and George Osborne would like us to think that our troubles are over, good times are here again.

    But most families know that this complacency is misplaced.

    Not just a few families on the lowest incomes – but many who thought they were doing alright, yet now find themselves struggling.

    They know that things are getting harder, not easier.

    They feel the effects of real falls in wages that are down an average £1,500 since David Cameron became Prime Minister, and are taking the hit from tax rises and cuts to benefits and tax credits.

    They can see that prices continue to race ahead of their pay.

    They worry about the prospects for their children when almost one million young people are out of work.

    It’s an economy that no longer seems to offer the promise of a better life for the next generation.

    And it’s an economy that, for far too many people, seems only to offer work that is insecure, poorly paid, and in the worst cases simply exploitative.

    Just this week, on my first official day back from maternity leave, I visited a family in Thurrock who told me what they were up against.

    The father, once a partner in a thriving small business, lost his livelihood during the recession three years ago.

    Desperately trying to keep up their mortgage repayments, he has spent the past three years taking whatever work he could get through employment agencies, often on zero hour contracts.

    And only recently has he found a permanent job as a driver that, topped up with evening shifts doing deliveries, gives them a bit more security but falls far short of making full use of his talents and experience.

    His wife abandoned her dream of training to be a primary school teacher so she could hold onto her relatively secure, but modestly paid, job in retail.

    Their daughter is studying for university and should do well, but worries about the fees.

    All of them pointed to a gaping and growing disconnect between their rates of pay and the costs they faced – for travel, housing, and other basic necessities.

    They all, it was clear to me, had so much to contribute to our recovery and to our country – but weren’t being given a fair chance to play their part.

    This family’s experience is all too illustrative.

    There are now more than one in ten people who want to work more hours, but can’t get the extra shifts.

    At the same time there are 700,000 people working more than one job – more often out of desperation than choice.

    One million people are thought to be on zero hours contracts.

    And today we learn in this incredibly important report from the Resolution Foundation, a surge in the number of people paid less than a Living Wage – up from 3.4 million in 2009 to 4.8 million today.

    The report provides worrying evidence that the problem of low pay – which we know is not a new problem in the British economy – is becoming exacerbated and entrenched under this Government.

    Indeed, figures provided for me by the House of Commons library show that almost 60 per cent of new jobs created since the Spring of 2010 have been in low paid sectors of the economy.

    This contrasts with the record of the last Labour Government under which such jobs made up around 25 per cent of new jobs between 1997 and 2010.

    Why does this matter?

    First and foremost, for moral reasons. We simply can’t be satisfied with a situation where an honest day’s work does not bring a decent day’s pay.

    It’s about parents who want to spend more time with their family and children, but hardly see them because they have to take on a second job.

    It’s about a young worker who wants to go to evening classes to improve their chance of progression, but instead has to take a shift in the pub on the side to make ends meet.

    It’s about the women who are cleaning the offices of a building like this while most of us are just getting out of bed, and when we are on our way home are still at work, perhaps on the supermarket tills.

    It just isn’t right that these people – real strivers, putting in the hours and doing the right thing for themselves and their families – are, in Ed Miliband’s phrase, “working for their poverty”.

    Too many people not making the most of their skills and talents is a missed opportunity for Britain.

    And as Shadow Chief Secretary to the Treasury, this issue is of huge fiscal importance too. Research from the Resolution Foundation and IPPR shows that if everyone was paid a living wage or above, then the Treasury would gain £3.6billion a year.

    And all of these problems – falling or stagnating living standards for the majority; widespread insecurity, underemployment and low pay, are interrelated aspects of an economy that isn’t working for ordinary families.

    For three years, we have had weak demand, high unemployment and underinvestment , which is doing damage to Britain’s competitiveness and productivity.

    And instead of doing whatever it takes to support Britain’s families, this government has focused on the fortunes of those at the top, hoping prosperity trickles down.

    Average wages have been falling behind prices for 37 out of 38 months of David Cameron’s Premiership.

    Which month is the odd one out?

    April of this year – when the bankers reaped the rewards of deferring their bonus until George Osborne’s decision to cut the top rate of tax was implemented.

    Meanwhile not one firm has successfully been prosecuted for non-payment of the National Minimum Wage over the past two years

    This government are on the side of the wrong people.

    The difference with Labour is clear.

    Ed Miliband has argued that we need to rebuild Britain as a One Nation economy where everyone plays their part, and everyone has a stake.

    Ed Balls and I have continued to press the case for action to secure the recovery and create the sustainable growth that will be essential to raising living standards at the same time as getting the deficit down.

    We have urged the government to boost capital investment now in areas such as housebuilding, as the IMF has recommended, and a compulsory jobs guarantee for young people and the long-term unemployed.

    We have also been clear that, while the next government will face tough choices on public spending and taxation, Labour would find a fairer way to get the deficit down.

    We wouldn’t be cutting income tax or increasing pension tax relief for the very wealthiest while cutting tax credits for hard pressed families, and we will seek to reintroduce a 10p starting rate of tax funded by a mansion tax on properties worth more than £2 million.

    A Labour government would also tackle vested interests to ensure that every part of the private sector plays its part in easing the squeeze on ordinary families.

    That includes proposals already set out for ending rip-off rail fares, getting the energy market working properly, standing up for tenants in the private rented sector, curbing pay day lenders, and reforming the pensions industry so it works for ordinary savers.

    And we have made clear that tackling insecurity and exploitation in the labour market is central to this agenda.

    Ed Miliband has set out how a Labour government would prevent exploitation of agency workers through loopholes in the rules, and prevent the use of migrant workers to undermine pay and conditions.

    But my main topic for today is Labour’s agenda for tackling low pay.

    Confronting low pay is part of the very DNA of the Labour movement.

    Our party was born of the self-organisation of workers in the nineteenth century who fought for a share of the fruits of the industrial revolution.

    It was Sidney and Beatrice Webb who made the argument that the livelihood of ordinary people could not be left to market forces alone, but that a “doctrine of the living wage” must be applied.

    But it was not until 1998 that we finally implemented a policy that we know would have featured on Keir Hardie’s own preferred pledge card, a National Minimum Wage

    – a legacy that sits alongside the creation of the NHS as one of Labour’s greatest achievements.

    It raised the pay of millions, reduced income inequality and helped to narrow the gender pay gap – all the while flouting the predictions of doomsayers – not least in the Conservative Party – that it would stifle business investment and create unemployment.

    So I am pleased that Sir George Bain, the founding chair of the Low Pay Commission and someone who says his back still bears the scars of its original introduction, is leading the Resolution Foundation’s work on how best to build on this achievement.

    The success of the National Minimum Wage depends critically on government coming together with representatives of both employers and employees to find consensus and work jointly towards a shared goal.

    In that sense, its success and durability provides evidence of the effectiveness of the One Nation approach that Ed Miliband has espoused.

    But a One Nation economy also has to be built from the bottom up.

    The living wage movement exemplifies this spirit.

    The work of community organisers like London Citizens and Citizens UK has been central to this – building relationships through dialogue, and involving and empowering ordinary workers.

    The success of their campaign has demonstrated that there are people on all sides willing to play their part in tackling low pay.

    First and foremost we can be proud that the best of British business has always sought to do the best it can by even its lowest paid workers.

    In 1851 Titus Salt, the highly successful textiles manufacturer in Bradford, was so appalled by the pollution in his home town that he built Salt’s Mill – purposefully built to minimise noise pollution with houses for his employees, schools, hospitals, libraries and a bath house.

    Joseph Rowntree appointed a welfare worker in 1891, introduced sick funds in 1902, and a pension scheme in 1906. He also built four hundred homes for his employees with educational facilities attached.

    These and so many other pioneering industrialists were philanthropic characters but wily businessmen too. They understood the importance of fairness in the workplace, to encourage workers, build morale and team work.

    And the same insights are well appreciated by the best employers today – including those in sectors such as care, cleaning and retail where rates of pay have traditionally been the lowest.

    For example, the British Retail Consortium has highlighted the efforts that many of its members put into improving job quality and providing good opportunities for training and progression.

    And the British Cleaning Council, which brings together employers and expert bodies from across the contract cleaning industry, has been vocal in its support for a living wage.

    Now we all know that paying the living wage is a big ask for many businesses, especially in sectors such as these. Many employers say they would love to do it if they could but face formidable challenges.

    And yet progress is being made. Not only have we seen the commitment by the large financial services companies who were the early targets of living wage campaigns.

    Intercontinental has now become the first hotel group to pay the London living wage, with Whitbread, the UK’s largest hotel and restaurant group, have said they want to move towards it.

    And the Joseph Rowntree Foundation has been taking forward the traditions of their founder by paying the living wage in the four care homes it runs in the north of England.

    This progress should encourage us to think that, whatever the challenges, there need be no “no go” areas for the living wage.

    In many cases employers have found ways of improving wage rates for lower paid staff by working with trade unions.

    Of course a significant feature of low paid segments of the British labour market is often low levels of union membership. But again there are areas where we can point to progress.

    The innovative methods of recruitment and organisation developed by unions – like Unite in the hospitality sector, USDAW in retail, or UNISON and GMB in the care sector, are helping build momentum and commitment to modernise business models and invest in lower paid staff.

    And at the heart of this, of course, are the workers themselves, who gain so much more than a boost to their pay – valuable though that is – when they take part in, or lead, campaigns to win a hearing, and discussions with employers to secure the living wage for themselves and their colleagues.

    As well as employers and employees, and their representatives, we are seeing an increasingly pivotal part played in this movement by shareholders.

    ShareAction have been mobilising UK and international investors and pension funds to encourage the adoption of living wage standards by FTSE 100 companies since 2011.

    In the future one of the most critical roles will be played by consumers, who thanks to these campaigns are becoming increasingly aware of the issues affecting workers who provide the goods or services they enjoy.

    The brilliant work of the Living Wage Foundation in encouraging and helping employers to win formal accreditation is already moving us towards a time when the Living Wage kitemark could function in a way similar to the Fair Trade badge – encouraging and enabling ethical choices.

    But I haven’t provided this overview so that we can sit back and wish them all well, satisfied that government need do no more.

    On the contrary – for me, the progress and the potential we can already see is an invitation and an imperative for government to get involved, play its part, do whatever it can.

    That’s why it’s such a point of pride that, even while in opposition at Westminster, the Labour Party is playing its part.

    Across the country, Labour councils have been leading the way in signing up to the living wage – even amid unprecedented cuts to their budgets.

    15 Labour Local authorities, from Lewisham to Preston; Norwich to Cardiff; Oxford to Selby; have now been accredited by the Living Wage Foundation, and dozens more have made commitment to pay the living wage.

    And many councils have used their procurement powers to extend the living wage into the private sector. Islington Council, for example, has now built a living wage requirement into 97% of its contracts.

    And Labour councils have acted as champions and leaders for the living wage across their local economies – promoting its benefits to local businesses and encouraging collective commitments to make progress as Birmingham City Council is creating with its Birmingham Business Charter for Social Responsibility.

    Ed Miliband wants Labour to learn from this experience so we can build on this work in government.

    It means learning from what Labour councils have done in the area of procurement to see how central government could further extend the requirement to pay the living wage through public sector supply chains, as well as requiring greater transparency from employers on the numbers of their staff paid less than a living wage.

    And one of the most exciting ideas is that of “living wage zones”. Local employers coming together to pay the Living Wage, in exchange for government sharing some of the tax credit and other savings that it makes from the higher wage being paid.

    This could be through time-limited cash rebates, or funding for the costs of training or new equipment that would mean firms can move to the higher wage business models that mean a living wage makes business sense.

    Or it could be through support provided locally – involving for example councils, LEPS, education and training providers, and local chambers of commerce – for businesses looking to develop their staff or invest in training to enable productivity-enhancing work reorganisation.

    This is an idea that perfectly exemplifies a One Nation Labour approach to tackling low pay.

    It means employers, employees, communities, local authorities and others working together to improve pay and strengthen businesses.

    But it is also based on government recognising the fiscal, economic and social benefits of higher quality, better paid jobs and higher productivity businesses too.

    There remain questions and challenges over how this could be put into practice.

    So I am delighted to be able to announce that Alan Buckle, Deputy Chairman of KPMG international, has agreed to lead a consultation with employers to better understand the barriers that they face in improving pay and prospects for their staff, and the way in which government can best encourage and enable them to do so.

    KPMG was one of the first major UK employers to commit to paying all staff a living wage in 2006 and has since been a key advocate of the idea in alliance with the Living Wage Foundation. So I am really pleased that Alan is leading this work for us.

    This is just one example and illustration of Labour’s approach to tackling low pay, and getting this economy working for everyone:

    – from Ed Balls’ work with Sir George Cox on overcoming short-termism and raising levels of business investment,

    – or Larry Summers on the economic reforms needed to more fairly share prosperity;

    – through Stephen Twigg’s work with Chris Husbands on revolutionising our skills system;

    – to Chuka Umunna and Andrew Adonis’s work with small enterprises and key growth sectors;

    – working together with stakeholders and social partners to build a One Nation economy that brings benefit to all.

    Underpinning and driving all of this work is a determination to reverse the squeeze on living standards we have seen and build a fairer and more inclusive economy.

    This is the goal upon which government’s sights should be focused – and it should be reflected in the measures by which we judge our success.

    Every quarter we pore over the GDP data – rightly so, because growth is the precondition for raising living standards for the majority.

    But as Gavin and his team have argued, while growth may be a necessary condition, it is not sufficient for raising living standards for all.

    And an exclusive focus on GDP can blind us to what is happening to ordinary families, and the divisions and inequalities in our economy.

    Unlike GDP, data on median household income and on how the bottom quarter and decile is faring, is published only annually, and with a lag of more than a year.

    This was a point raised by the LSE Growth Commission earlier this year, which argued that:

    “Prosperity is strengthened when everyone has the capacity to participate effectively in the economy and the benefits of growth are widely shared”

    and recommended:

    “reforming the way we measure and monitor changes in material wellbeing and its distribution, including regularly publishing median household income alongside the latest data on GDP.”

    And I know the Resolution Foundation are planning to carry out some preparatory work on this, looking at whether this can be done from the existing data.

    This simple change could have a powerful and profound effect, informing public debate and focusing policymaking – putting pressure on government to find ways of ensuring that we are growing in a way that benefits ordinary households and leaves no one behind.

    So I will be writing to Andrew Dilnot, the Head of the Statistics Authority, to ask if he will look at the feasibility of preparing statistics on real household incomes – the median and wider distribution – more frequently and promptly so that we can better monitor them alongside the GDP numbers.

    In conclusion, let me return to my starting point.

    The cost of living is a real problem for too many families and the economy is not working for the majority of working people.

    Deep problems in the way our economy has been developing – or, more accurately, not developing – over the past few years are resulting in stagnant real wages and increasing insecurity for the majority, and persistent low pay and outright exploitation for far too many.

    Fixing these problems is in everyone’s interest – essential both to relieving immediate financial pressures, and securing a better future for our country.

    None of this is on the current Government’s agenda.

    It is central to Labour’s.

    We have begun to set out policies to tackle the squeeze on living standards, the spread of insecurity, and, my particular focus today, low pay.

    It’s an approach based upon bottom up solutions – but where government does not shy from playing its part.

    It’s an approach in which the mutual benefits of solving these problems are recognised and shared – but where we are ready to challenge those who are not upholding their own responsibilities.

    It’s an approach where we join together and work together to build an economy that allows us to grow and prosper together, as One Nation.

    We have already begun the journey – and I am very excited about where it could take us.

    The next election will be a living standards election. Thank you.

  • Rachel Reeves – 2012 Speech to Labour Party Conference

    Below is the text of the speech made by Rachel Reeves, the Shadow Chief Secretary to the Treasury, to the Labour Party conference on 2nd October 2012.

    When Ed Miliband calls for an economy that works for working people, some people ask what that means in practical terms.

    Well now we’re going to talk about a very concrete example: the campaign for a Living Wage – that’s been built by trade unions, community groups, our own Labour Students who have been fighting for it alongside staff in universities in colleges, and increasingly taken up by far-sighted employers – gives us a great example of the kind of change we want to see and the kind of difference it can make to people’s lives.

    The argument for a living wage is moral and economic.

    It’s based on the belief that work should bring the dignity of a decent wage – enough to keep a family out of poverty and debt.

    And as we’ll hear this morning, it can mean stronger business models, based on better skilled, better motivated, more productive employees.

    Those employers that have implemented the policy, including an increasing number in the private sector, report that the extra money put into the pockets of their employees is more than made up for by the savings they make as a result of improved recruitment and retention and the benefits to their business of the boost it gives to staff morale and engagement.

    But if that’s what we really believe, then we should be looking to put it into practice wherever we can.

    That’s why Ed Miliband and I wanted to do whatever we could to support those Labour councils who wanted to make this commitment to their employees and communities.

    It’s a bold ambition, and a very big ask for councils who have are bearing the brunt of budget cuts and unprecedented pressure on services, resulting from the recession, rising deprivation, and an ageing population.

    You might be forgiven for thinking that a Living Wage was a nice idea for another day, but not a practical proposition at a time like this.

    But you’d be wrong.

    Earlier this year, Labour councils in Lewisham and Islington became the first accredited Living Wage authorities in the country.

    And today, it gives me immense pride to announce that, thanks to the commitment and creativity of Labour councillors, as well as the work of trade unions like UNISON, the GMB and Unite, and community organisations like Citizens UK and the Living Wage Foundation, the following councils are now on their way to becoming accredited Living Wage Employers:

    Camden;

    Birmingham;

    Preston;

    Oxford;

    Lambeth;

    Southwark;

    Hounslow;

    And Cardiff.

    In total, around the country, we can now point to over 12 Labour councils, from Glasgow to Hackney, showing that a fairer economy isn’t just a noble idea, it’s something we can start building right here, right now.

    Even in opposition, even in times as tough as these.

    And I know of many other councils up and down the country who are now looking at whether this is something they can deliver.

    So to tell us a bit more about how it can be done, I’m delighted to be able to introduce:

    Fran Massey, a UNISON member who works at Manchester College;

    Steve Bullock, Mayor of Lewisham, the first council to become an accredited Living Wage employer;

    And Alan Buckle, Deputy Chairman of KPMG International, one of the first private sector employers to take up the call for the Living Wage.

  • Rachel Reeves – 2012 Speech to the Resolution Foundation

    Below is the text of the speech made by Rachel Reeves, the Shadow Chief Secretary to the Treasury, to the Resolution Foundation Conference on 28th June 2012.

    How a Labour government would raise living standards for those on low to middle incomes in the decade ahead

    I want to thank the Resolution Foundation for inviting me here today, and to thank Gavin and his brilliant team for all the work they have been doing to put the issue of living standards for low and middle income families so firmly on the political agenda.

    When Ed Miliband first started talking about the “squeezed middle”, many in the political and media establishment professed confusion. But it didn’t take long before the phrase began to appear in newspaper headlines, with the Oxford English Dictionary pronouncing Ed’s coinage their new “word of the year” in 2011.

    Why has this phrase gained such currency in such a short space of time? It’s because household incomes and living standards are under pressure in a way that is historically unprecedented and this is being felt particularly sharply by those around the middle and bottom half of the income distribution.

    As a constituency MP, and in my role as Shadow Chief Secretary, I see the way this slow, remorseless squeeze is wearing people down.

    Ed Miliband has called it “a quiet crisis that is unfolding, day-by-day, in kitchens and living rooms in every town, village and city up and down this country”.

    It’s the worry about keeping up with the rent or the mortgage, or keeping on top of bills or credit card debt, or the worry that you won’t be able to properly provide for your children.

    This doesn’t just put strain on people’s self respect and immediate relationships. It is corrosive of a broader sense of social solidarity and shared responsibility, especially when people hear of other groups in society who seem to be able to rise above it all, untouched by the tough times the majority are living through.

    This is why Ed Miliband has dedicated the Labour Party to the task of building a different kind of economy for Britain: an economy that works for everyone, not just a few at the top.

    As we’ve just seen some of the trends have been in evidence for as much as thirty years.

    The deep causes of the cost of living crisis are complex, but the key factors include a hollowing out or polarisation of the labour market, driven by a combination of technological and institutional change, and the operation of increasingly globalised market forces reducing the availability of reasonably paid, semi-skilled manual or clerical work and leaving too many workers trapped in low-skilled, low-paid, often casualised segments of the labour market.

    Coming on top of these trends, the global financial crisis and recession have taken a heavy toll on the earnings and employment rates of British workers.

    We can debate where the responsibility for that crisis lay and I certainly think it’s right that we in the Labour Party take our share for failing to challenge the fashion for “light touch” regulation that other countries (and parties) espoused. But there’s also no doubt that Labour did much in government to protect hard-pressed families from its harshest effects.

    The tragedy we are seeing today is that the legacy of that crisis, and the long running trends I have touched on are being compounded and exacerbated by the mistakes and the choices of the Conservative-led government.

    Families with children are, on average £450 a year worse off as a result of last year’s VAT rise and, according to the Institute for Fiscal Studies, another £511 worse off this year because of further cuts, freezes and restrictions to benefits and tax credits.

    But this morning I want to highlight something that is arguably even more important:

    the effect the government’s decisions are having on the state of the economy and what that means for people on low and middle incomes – now and for the future.

    As Ed Balls warned, and has now been confirmed, abandoning the balanced plan for deficit reduction that the Labour government had put in place, by raising taxes and cutting spending too far and too fast, has choked off the recovery and taken the economy back into recession.

    The unemployment figures tell one part of the story, but in many ways understate the full effect of the economy’s weakened state on people’s living standards.

    For one thing, the headline figures for employment and unemployment conceal deeper weaknesses in the labour market. Analysis of the data reveals a growth in part time and temporary work, with the latest figures showing 600,000 people who want permanent positions but can’t get them, and 1.4 million working part time who want to be working full time.

    And for those who are in full time work, and indeed, for many who work extremely long hours, sometimes with two or more jobs, the blunt reality is that the wages they earn are not nearly enough to cover the costs of a decent standard of living.

    Unemployment, underemployment, and stagnant or falling wages are weighing heavily on the incomes of most households today.

    Indeed, new analysis that I commissioned from the House of Commons Library shows that the deterioration of the economic outlook since George Osborne’s Spending Review in November 2010 has led the Office of Budget Responsibility to revise down projections for real household disposable income:

    – by £800 per household last year;

    – £1,100 per household this year;

    – £1,700 next year;

    – and another £1,800 and £1,700 for 2014 and 2015.

    That’s the real disposable income of the average UK household £1,700 lower in 2015 than the Chancellor expected when he first set out his plans, and a permanent loss to households over the life of this parliament of £7,100.

    Economic weakness and the double dip recession are taking a heavy toll on living standards. Even these figures are based on the OBR’s March forecasts that don’t fully reflect the depth of the double dip recession that we have now entered.

    And the truth is – every month our economy stagnates, every month of lost growth is another hit to the incomes and living standards of ordinary households not just now but for years into the future.

    The longer this goes on, the harder it will be to turn the situation around. The Conservative MP Nick Boles gave a thoughtful speech earlier this year, the argument of which I’m sure he’ll develop when he comes to the Resolution Foundation next month, in which he pointed out that the key to sustainable wage growth for British workers is rising productivity for the hours they work.

    Critical to this is investment in new technologies and innovative work processes. As he said then:

    “without a sustained increase in business investment, Britain can kiss goodbye to any increase in labour productivity”.

    He is right on this.

    But today, confidence in our economy is so low, businesses are holding back investment, and banks are cautious about lending to firms. The OBR’s projections for the Chancellor’s hoped for renaissance in business investment has been repeatedly postponed and pushed back and the recent worsening of the economic outlook is likely to have set back prospects even further.

    An 8 per cent increase in investment was promised for 2011, but it actually fell by 2 per cent. A further 10 per cent increase had been projected for this year, but less than 1 per cent growth is now forecast. And the role of investment in driving growth for future years has been significantly written down.

    Every investment delayed or deferred is a permanent setback to the ability of UK plc to raise productivity and raise competitiveness in the years ahead.

    There is also compelling evidence that the economic slowdown and recession are eroding the productivity and future earnings potential of the UK workforce.

    There are now worrying signs that investment in skills is under pressure. With the latest data from the UK Commission for Employment and Skills showing that the proportion of employers providing no training for their staff jumped from 32 per cent in 2009 to 41 per cent in 2011.

    And the “scarring” effects of joblessness translate directly into lower lifetime earnings and living standards. Analysis undertaken for the ACEVO Commission on Youth Unemployment chaired by David Miliband showed that people who experience unemployment in their younger years are not only more likely to suffer spells of unemployment in later life but also, even in work, suffer an average wage penalty of more than 15%.

    So the 407,000 young women now unemployed will, a decade from now, be earning on average £1,700 a year less as a result of being unemployed today. And the 607,000 young men now unemployed will, on average, be earning £3,300 less.

    These effects worsen the longer someone is unemployed. Work by Paul Gregg at the University of Bath and Emma Tominey at the University of York suggest that the 264,000 young people who have now been out of work for more than a year are, on average, likely to spend another two years either unemployed or economically inactive between the ages of 28 and 33, and the men will, by age 42, be suffering a wage penalty of more than £7,000.

    So it’s pretty clear that the first thing we need to do to improve the living standards of these people over the next decade, and beyond is to get them into work as a matter of urgency.

    So the economic slowdown and recession this government’s policies have resulted in doesn’t just create extra costs and hardship today it’s also doing permanent damage to our productive capacity and long term growth potential.

    Because the longer businesses postpone investment, losing their edge in competitive global markets; and the longer people are unemployed or underemployed, missing opportunities to gain experience or develop new skills, the less productive and competitive our economy will be in future and the lower our trend rate of growth making it even harder to maintain or improve incomes and living standards.

    So George Osborne’s years of lost growth mean lost opportunities to improve our ability to pay our way in the world that we will never recover. Britain’s businesses, working families and young people will be paying the price of this government’s economic errors for years and decades to come. And the longer we go on like this, the heavier that price will be.

    As the failure of the government’s economic plan becomes clear with the years of austerity and uncertainty stretching on into the future and no sign of light at the end of the tunnel people are asking if we just have to accept all this or if there is an alternative.

    And that poses a real challenge to Labour. We need to show that there is much more that could be done by an active government that is in touch with what life is like for ordinary people and determined to find a fair way through the tough times we are living through.

    There are three broad areas I want to highlight where government could be doing more:

    – first, urgent action to get our economy out of recession

    – second, a fairer approach to deficit reduction

    – and third, long term reform and rebalancing of our economy.

    First: an absolute precondition for real improvement in living standards for most families is economic growth. It’s right, as the Resolution Foundation, has stressed, that growth is not sufficient but no one can be in any doubt that it is necessary.

    That’s why we have been urging the government to take action to restore business and consumer confidence, stimulate investment, and tackle the crisis of joblessness and underemployment which, as we’ve seen, will extract a heavy and rising toll on living standards in Britain for decades to come as well as making it harder to get the deficit down and our public finances onto a sustainable path.

    Second, as Ed Miliband and Ed Balls have both stressed: although we need a growing economy to deliver the rising tax revenues and falling unemployment that will help us get the deficit down, tough decisions on tax, spending and pay cannot be avoided.

    When money is tight, our values and priorities matter all the more and we have been clear that a Labour government would be asking those who can to bear a heavier burden which would allow us to do more to protect the living standards of those on low and modest incomes.

    For example: We have said we would repeat the tax on large bank bonuses, to fund a major youth jobs programme. We would hold back pay rises for public servants on the highest salaries, so we can guarantee increases for those on the lowest pay. And we would crack down on tax avoidance, and reverse tax give-aways to the richest one per cent of the population, so that we can better protect those who are most feeling the squeeze by, for example, reversing the withdrawal of Working Tax Credit from couples with children unable to meet the government’s new higher working hours threshold to make work pay and support working families.

    Defending the tax credit system from the government’s onslaught is important, because if you listen to the Tories, you might get the impression that the tax credits were a costly and complex folly.

    But you get a very different picture if you listen to independent, objective observers such as Professor Lane Kenworthy, an international expert on income trends who cites tax credits as the key reason that the UK’s record on low- to-middle incomes has been better than most comparable countries in recent years; or Jane Waldfogel of Columbia University, who has held up Labour’s anti-poverty drive as an example for other countries to learn from.

    There are also areas of spending where the impact on employment, earnings, and by that token, economic growth and the public finances can be even more directly demonstrated.

    As part of Labour’s new commission on childcare I am working with Stephen Twigg, Yvette Cooper, and Liam Byrne to look at how we can build on the successes of Sure Start and childcare to get more help to parents who want to work, which the Resolution Foundation has identified as a critical frontier in the drive to defend household incomes.

    And with Liz Kendall I am looking at how we can deliver the radical reform of social care funding we need – so that people can look forward to a dignified life in old age, without fear of spiralling costs or a funding lottery – but also because, as I know from my work as Shadow Pensions minister, and from my own family, improving the availability and affordability of good care services could be a huge help for those who struggle to remain in work when they find themselves first in line to look after older family members.

    Finally, tax credits and support for families have been critical to reducing poverty and rewarding work over recent years. But a Labour government could achieve far greater leverage over social and economic outcomes at much lower cost to the taxpayer if it found ways of addressing what Jacob Hacker has called the “predistribution” of income and opportunity: rebalancing and restructuring our economy to improve the availability of good jobs paying a decent wage as well as regulating and reforming markets to contain the costs that families face.

    That way we don’t have to just rely on redistributing the proceeds of growth to compensate for the outcome of market forces but also look to tackle these dynamics at source with structural reforms that get our economy working in a way that benefits everyone, not just a few at the top.

    This is an enormous challenge, but it is opening up exciting new frontiers for policy development.

    For example, a bold government ready to challenge powerful providers could do much to cut the cost of living that families face:

    – ensuring energy providers offer cheaper and fairer tariffs;

    – preventing rail companies from exploiting loopholes in fare regulation;

    – improving the availability of affordable housing, for first time buyers but also in the rental sector; and

    – empowering savers and regulators to root out excessive fees charged by banks and pension providers.

    We must also do everything we can to improve opportunities for workers.

    So as well as giving businesses the confidence to invest, we need an active government strategy to encourage investment in high value sectors and high quality jobs.

    I am working with Ed Balls and Chuka Umunna to identify the levers we could use: from a more strategic use of government procurement powers to promote apprenticeships and incentivise innovation; to examining the role that a British Investment Bank could play in increasing the flow of finance into productivity-raising infrastructure, or small businesses with high growth potential.

    But raising living standards isn’t just about the high productivity traded sectors such as high tech manufacturing or business services. It’s also about raising standards and investment in high employment sectors like retail or social care.

    In the German retail sector, for example, 8 in 10 employees have completed vocational qualifications lasting two-to-three years, and are therefore more likely to progress to managerial careers. In the UK only three in ten have comparable qualifications.

    Also in Germany, care workers are trained to a level comparable to that of general nurses, whereas in the UK only one-third of care workers and two thirds of senior care workers hold NVQ level 2 qualifications.

    It may be neither feasible nor desirable to recreate the semi-skilled, routine jobs that have been displaced by technology or trade. But we must make it our mission to turn the lower-status, low-paid jobs that for too many have taken their place into jobs that properly valued, better paid, and offer a real chance of career progression and personal development.

    Finally we need to take steps to ensure that the proceeds of rising productivity are broadly shared. The work of the Resolution Foundation shows that we can’t take it for granted that the gains will trickle down and that productivity and pay can and have been decoupled for large parts of the workforce if wages aren’t set in a way that is responsible, accountable, and equitable.

    The fact that one in four British workers are paid less than the living wage and workers at the median have seen their wages stagnate or fall has as much to do with their power as their productivity.

    The public sector can take a lead in this, setting an example for the rest of the economy.

    As Shadow Chief Secretary, I will be pressing the government to follow through on Will Hutton’s recommendations for monitoring and managing high pay in the public sector; including the publication of ratios between top, middle and bottom pay in every department.

    And I am working with Ed Miliband to encourage and support more Labour councils to become living wage employers and use their procurement power to promote the same standard among their private contractors.

    Lewisham and Islington councils have already become accredited Living Wage employers and we hope that more will soon be able to join them.

    A Labour government could also build on the success of the National Minimum Wage by introducing stronger checks on excessive remuneration at the top, such as binding shareholder votes and employee representation on remuneration committees; and looking at how we can bring greater transparency, and a stronger voice for employees to bear at every level of the pay scale.

    But we know we have a long way to go, and we know we don’t yet have all the answers. That’s why the work of the Resolution Foundation, and its Commission on Living Standards, is so valuable.

    What’s most important at this stage is that we shift the parameters of political debate so that that the challenges facing households on low-to-middle incomes are at the forefront of politicians’ and policymakers minds.

    Since I entered politics, I have often been struck by how skewed our public conversation can be, and how people doing ordinary jobs for modest incomes are bound to feel ignored when we talk so much about university education, but so little about those who never get to university. When restricting child benefit for higher rate taxpayers creates more of a media storm than cutting tax credits for millions of workers paid below the average. And even when fairness and inequality is the issue, there’s far more moral concern about how much companies are paying their top executives than whether they doing enough to improve pay for those at the middle or the bottom of the scale.

    The Resolution Foundation is beginning to change this. And it’s for the Labour Party to take up the cause. The greatest danger of all is of people losing hope and giving up on the idea that any government can do anything to make things better.

    Labour’s job is to give people reason to believe again that we are in touch with their lives, in tune with their hopes and fears, and relentlessly focussed on doing everything we can, from the moment we win power and even from opposition, to get immediate relief to hard-pressed households now facing unprecedented challenges and put the economy on the path to a fairer future.

  • John Redwood – 2007 Speech to the Bruges Group

    The below speech was made by John Redwood at a fringe meeting during the Conservative Party Conference in October 2007.

    The constitutional treaty is part of a process to try and create a United Federal States of Europe. Indeed, it would not be that federal because there would be an enormous amount of central power coming from the Brussels machine. We as democrats object to it because the power is not properly democratically accountable. It is exercised mainly by unelected senior executives (who on the continent are regarded as if they were elected politicians), the Commissioners, and of course a lot of it is done through the process of the court itself, constantly driving decisions in favour of more and more federal power.

    Ladies and gentlemen, this is a mighty cause that we must unite to fight. This is a vital cause if we want to keep our democracy in Britain, or if we want to recapture parts of our democracy that have already been lost, needlessly frittered away by an insouciant government that tells us one thing and does another.

    This is a mighty test of British democracy itself. It goes to the very heart of the breaking of the bond of trust between a main political party and the people who elected it. The government promised and the government has failed to deliver. It goes to the very issue of whether you can believe politicians and political parties in general when you have so many senior politicians in this country seeking to tell you the fanciful, that this is not the constitution, that this is a very watered down version of the constitution, that there is nothing serious going on, that you will be able to carry on governing your own country in the usual democratic way after all these powers have been surrendered.

    This is a government which is now dicing with the most important powers of the state of all. It is playing nonchalantly with the right of parliament and government in this country to decide if and when our forces should be committed to battle, what our foreign policy stance should be on the major problem areas of the world, how people should be charged with serious criminal offences and how they should be treated if they are found guilty of those criminal offences.

    These are the very essence of state power. We here don’t think those powers have always been well used and sensibly used by this government, but what we want is to continue to live in a system where we can challenge the way the government of the day makes decisions over war and peace and criminal justice and foreign affairs, and where we are in the right to persuade the British people and come to power to do something differently.

    What we wish to avoid is the British people ending up in a position where, because they don’t trust their politicians enough, and because some of their politicians so badly mislead them, we end up with those vital decisions taken way away from these shores by people we cannot elect, and more importantly, by people we cannot drum out of office when they do the wrong thing.

    The one power that all parliamentarians seriously fear is the power of the British electorate to dismiss us when we get it wrong and when we misbehave and when we let you down.

    I am a democrat to my core. I believe in that power. I believe I should be accountable to all my electors, and on national issues to the wider nation. I want that power the people have over their elected representatives to be strengthened, and I want the power my elected representatives have over the laws and the administration of this country also to be strengthened so the accountability can mean something. The more the power is transferred to the unelected and the unaccountable, the more people will scorn and despise government, the more that bond of trust will be irreparably broken, the more your democracy will be taken away from you.

    Ladies and gentlemen, it is vital we unite and fight. It is vital we use any general election forthcoming to make this one of the big issues of the day. It is vital we do not miss our opportunity. We fought them and won to save our pound. Now we need to fight them and win to save our country.

  • Nick Ramsay – 2008 Speech on Local Government in Wales

    Below is the text of a speech made by Nick Ramsay on 29th January 2008. The speech is in Welsh and English below.

    IN ENGLISH:

    I am pleased to be able contribute to this important debate. Today, we have reached the end of the long road that we have travelled over recent months, during which we have had many debates and discussions, not only on the local government settlement, but on the other aspects of funding that various services will receive in this year and coming years. During that debate, we have thrashed out many reasons why we felt that local government should receive a much higher share of the budget.

    I thank the Minister for involving me in meetings and in the Chamber in his thinking about where we were going. I am also pleased that he consulted the WLGA, but I do not think that he has taken on board my concerns or those of the WLGA, which only recently described the Assembly’s final budget as ‘tinkering at the edges’.

    We welcome the extra funding and the fact that Conwy, Powys and similar authorities will not receive as low an increase in their revenue settlement grant as they were initially going to receive. However, let us be frank; it was unbelievable that Powys and Conwy ever faced increases of 1 per cent.

    The rise to 2 per cent for those authorities is a marked increase, but it is still far short of what they will need to provide statutory services and to meet the responsibilities placed upon them.

    We are looking at an RSG increase of 2.4 per cent. I hear what the Minister says about that being 3.3 per cent if you include all of the other elements. However, you know as well as I do that the key figure is the RSG, and it has not increased in line with inflation as it should have.

    Listening to the Minister, I am reminded of what the Minister for Finance and Public Service Delivery said in last week’s debate about what local government is receiving being equitable, given the overall amount from Westminster and given what authorities across the border are receiving. I take issue with both of those assertions.

    The fact remains that the Assembly budget has almost doubled over the past decade, while the increase on the local government side is far smaller. I do not think that he has provided an answer to that. As for the argument that our local authorities receive far better funding than authorities over the border, I can provide him with a list of 10 authorities across the border that receive more per head of population. Therefore, I look forward to the Minister answering some of those points.

    Look at what local authorities are being expected to deliver: provisions in the Childcare Act 2006 and the Climate Change and Sustainable Energy Act 2006, rights of way improvement plans, and flood defences. Local authorities must deal with these issues over the coming years, but the money is not being provided to enable them to do that.

    Yes, more money has been made available, and I am not going to be a total killjoy; we are pleased about that and the fact that local authorities are not going to receive the dismal settlement originally proposed. Let us be realistic, and let us listen to the WLGA.

    On your point about council tax, we welcome, as does the council tax payer I am sure, the fact that we will not see huge increases, as was first feared. However, if you are going to cap council tax increases you must accept that it is almost like a deadly game of dominoes, because the need for capping is as the result of the settlement that you gave to local authorities in the first place.

    Let us make no bones about that. I have probably been incorrect when I said during the last few debates on this issue that local authorities in Wales will have to choose between how much they give to local services, and what they do with council tax. It is clear to me now that you are saying to local authorities that the axe will have to fall squarely on local services. I cannot see how that can be avoided if you are telling authorities that they can only spend a certain amount, and no more.

    Let us be realistic about this. Yes, we can bandy figures about, and it is interesting to see in the finance report the amount that the Assembly Government has given to support local authorities that are carrying heavy amounts of debt. Such measures are necessary up to a point, but let us make sure that the replacement for the performance incentive grant, the new improvement agreement grant, delivers not only what the performance incentive grant delivered, but more support for efficient councils, and that it rewards efficient councils rather than inefficient ones.

     

    IN WELSH:

    Yr wyf yn falch o allu cyfrannu at y ddadl bwysig hon. Heddiw, yr ydym wedi cyrraedd pen y ffordd hir yr ydym wedi teithio ar ei hyd yn y misoedd diweddar, gan gael sawl dadl a thrafodaeth, nid yn unig ar y setliad i lywodraeth leol, ond ar agweddau eraill y cyllid y bydd amryfal wasanaethau’n ei gael yn y flwyddyn hon a blynyddoedd i ddod.

    Yn ystod y ddadl honno, yr ydym wedi gwyntyllu sawl rheswm pam y teimlem y dylai llywodraeth leol gael cyfran lawer uwch o’r gyllideb.

    Diolchaf i’r Gweinidog am fy nghynnwys mewn cyfarfodydd ac yn y Siambr yn ei feddyliau ynghylch i ble’r oeddem yn mynd. Yr wyf yn falch hefyd ei fod wedi ymgynghori â Chymdeithas Llywodraeth Leol Cymru, ond nid wyf yn meddwl ei fod wedi derbyn fy mhryderon na phryderon y Gymdeithas, a ddisgrifiodd gyllideb derfynol y Cynulliad yn ddiweddar fel ‘chwarae o gwmpas ar yr ymylon’.

    Croesawn y cyllid ychwanegol a’r ffaith na fydd Conwy, Powys ac awdurdodau tebyg yn cael cynnydd mor isel yn eu grant cynnal refeniw ag yr oeddent yn mynd i’w gael yn wreiddiol. Fodd bynnag, gadewch inni siarad yn blaen; yr oedd yn anhygoel fod Powys a Chonwy’n wynebu cynnydd o 1 y cant. Mae’r codiad i 2 y cant i’r awdurdodau hynny’n gynnydd sylweddol, ond mae’n dal ymhell oddi wrth yr hyn y bydd arnynt ei angen i ddarparu gwasanaethau statudol ac i gyflawni’r cyfrifoldebau a osodwyd arnynt.

    Yr ydym yn edrych ar gynnydd o 2.4 y cant yn y grant cynnal y dreth. Clywaf yr hyn a ddywed y Gweinidog sef bod hynny’n 3.3 y cant os cynhwyswch yr holl elfennau eraill. Fodd bynnag, gwyddoch gystal â mi mai’r grant cynnal y dreth yw’r ffigur allweddol, ac nid yw hwnnw wedi cynyddu’n unol â chwyddiant fel y dylasai.

    O wrando ar y Gweinidog, caf fy atgoffa o’r hyn a ddywedodd y Gweinidog dros Gyllid a Chyflenwi Gwasanaethau Cyhoeddus yn nadl yr wythnos diwethaf, sef bod yr hyn y mae llywodraeth leol yn ei gael yn deg, ac ystyried y swm cyffredinol a ddaw o San Steffan ac a chofio’r hyn y mae awdurdodau dros y ffin yn ei gael. Byddwn yn dadlau gyda’r ddau haeriad yna.

    Mae’r ffaith yn aros fod cyllideb y Cynulliad bron wedi dyblu dros y degawd diwethaf, tra mae’r cynnydd i lywodraeth leol yn llai o lawer. Nid wyf yn meddwl ei fod wedi rhoi ateb i hynny. O ran y ddadl bod ein hawdurdodau lleol ni’n cael cyllid llawer gwell nag awdurdodau dros y ffin, gallaf roi rhestr o 10 awdurdod iddo dros y ffin sy’n cael mwy fesul pen o’r boblogaeth. Felly, edrychaf ymlaen at gael ateb gan y Gweinidog ar rai o’r pwyntiau hynny.

    Edrychwch ar yr hyn y disgwylir i awdurdodau lleol ei gyflenwi: darpariaethau yn Neddf Gofal Plant 2006 a Deddf Newid yn yr Hinsawdd ac Ynni Cynaliadwy 2006, cynlluniau gwella hawliau tramwy, a mesurau amddiffyn rhag llifogydd. Rhaid i awdurdodau lleol ddelio â’r materion hyn yn y blynyddoedd a ddaw, ond nid yw’r arian yn cael ei ddarparu i’w galluogi i wneud hynny.

    Oes, mae mwy o arian ar gael, ac nid wyf am fod yn surbwch llwyr; yr ydym yn hapus ynghylch hynny a’r ffaith nad yw awdurdodau lleol yn mynd i gael y setliad symol a gynigiwyd yn wreiddiol. Gadewch inni fod yn realistig, a gadewch inni wrando ar Gymdeithas Llywodraeth Leol Cymru.

    Ynglyn â’ch pwynt am dreth gyngor, croesawn, fel y gwna’r trethdalwr mae’n siwr, y ffaith na welwn godiadau anferth, fel yr ofnwyd ar y dechrau. Fodd bynnag, os ydych yn mynd i osod cap ar godiadau treth gyngor rhaid ichi dderbyn ei fod bron fel gêm ddominos farwol, oherwydd mae’r angen i gapio’n ganlyniad i’r setliad a roesoch i awdurdodau lleol yn y lle cyntaf.

    Gadewch inni ddweud hynny heb flewyn ar dafod. Mae’n debyg y bûm i’n anghywir pan ddywedais yn ystod yr ychydig ddadleuon diwethaf ar y mater hwn y bydd yn rhaid i awdurdodau lleol yng Nghymru ddewis rhwng faint a roddant i wasanaethau lleol, a beth a wnânt gyda’r dreth gyngor.

    Mae’n amlwg i mi’n awr eich bod yn dweud wrth awdurdodau lleol y bydd yn rhaid i’r fwyell ddisgyn yn union ar wasanaethau lleol. Ni allaf weld sut y gellir osgoi hynny os ydych yn dweud wrth awdurdodau mai dim ond hyn a hyn y cânt ei wario, a dim mwy.

    Gadewch inni fod yn realistig ynglyn â hyn. Gallwn, gallwn daflu ffigurau o gwmpas, ac mae’n ddiddorol gweld yn yr adroddiad cyllid y swm y mae Llywodraeth y Cynulliad wedi’i roi i gefnogi awdurdodau lleol sy’n cario dyledion mawr.

    Mae mesurau o’r fath yn angenrheidiol i ryw raddau, ond gadewch inni wneud yn siwr y bydd y grant cytundeb gwella newydd, sy’n disodli’r grant cymell perfformiad, yn cyflawni nid yn unig yr hyn a gyflawnodd y grant cymell perfformiad, ond hefyd yn rhoi mwy o gefnogaeth i gynghorau effeithlon, ac yn gwobrwyo cynghorau effeithlon yn hytrach na rhai aneffeithlon.

  • James Purnell – 2008 Speech to Employers Conference

    jamespurnell

    Below is the text of the speech made by James Purnell, the then Work and Pensions Secretary, to the Employers Conference on 28th January 2008.

    It’s a pleasure to be here to give my first speech as Secretary of State for Work and Pensions. People keep on telling me there’s no such thing as a job for life any more. With four ministerial positions in less than three years, I’m starting to take that personally!

    In this job, you rarely get the opportunity to think reflectively about the nature of your task. It might seem strange therefore that I should offer any reflections at all when my period for reflection has been precisely four days.

    But, in truth, I’ve had welfare policy on the brain for a long time. So to be appointed as a Labour Secretary of State for Work and Pensions is a great privilege.

    My title is more than an honour. It also embodies an ideological break with the past. It is not all that long ago that my predecessor was called the Secretary of State for Social Security.

    What a telling name: security as something handed down; welfare as bureaucratic transfer; people as recipients of funds. The title said nothing about people’s actual lives and ambitions, nothing, in fact, about the best way of securing their welfare.

    The new title, Secretary of State for Work and Pensions, tells a wholly different story. It tells you that work is the best route to personal welfare and well-being : it tells you that if you work hard and contribute then you deserve your retirement to be free from anxiety about money.

    For a long time we lost sight of these common sense truths. If you’d ever said to William Beveridge that work could be divorced from welfare he would have been astonished. Yet, until this government put the two back together again, that was exactly the cul-de-sac we were in.

    For Beveridge, the very notion of welfare was bound up with the idea of independence. That was what was so depressing about the debate that ran, and in some quarters still runs, about welfare dependency.

    The welfare state was conceived as a way to support human flourishing. To foster independence, to give people the support they need, not so that they became dependent but precisely so that they would not.

    To foster that independence will be my main aim. I am fortunate that I inherit a radical policy framework from John Hutton and Peter Hain. I will accelerate those reforms and deepen their reach to build on what has been achieved over the last decade.

    Over those ten years, we’ve shown full employment is achievable on the old definition – those who want work have been able to find work.

    But getting people into work isn’t enough. People also want to get on. That’s why the Prime Minister has made clear we need to improve the skills of our workforce. And that’s where you come in.

    Thank you to all of you for your commitment. Your commitment to helping people into work. Your commitment to helping them raise their skills. Now, we need more employers to offer jobs to those out of work. To invest in apprenticeships. To boost our economy by giving everyone who can the chance to work.

    And as for people who can’t work, for them the maximum independence too – with more support, and control over the care that they receive. I want to work with Alan Johnson to expand the principle of individual budgets, so that people who can’t work still have the dignity of controlling the support that they get.

    Our goal is a welfare state that is a way out of worklessness and a way up the career ladder, but not a way of life.

    And that means tackling inactivity. Our goals are ambitious. 1 million people off incapacity benefit.  300,000 more single parents at work. 1 million more older workers.

    To get there, we will need major reform of inactive benefits.

    Incapacity Benefit is a test case. We do not think of people as incapable. We think of them as being perfectly capable, with the right support. That’s why IB will go, replaced by the Employment and Support Allowance with the emphasis on what a person with a physical or mental health condition can do rather than cannot do.

    The Employment and Support Allowance will recognise that some people face greater barriers to work. But for the rest, we will require them to look for work. We will start with new claimants and with existing claimants under 25.   But our ambition must be to help everyone in this group look for work, with special attention given to those who face problems of mental illness and alcohol or drug abuse.

    To that end, we will follow through on David Freud’s groundbreaking report on reforming the welfare system. That means using the best provider, whether they are from the private, public or voluntary sectors. I want to create an effective and growing market for these services – because we shouldn’t be ideological about who provides the service we should just work out who is best at providing it. I’m glad to announce that David has agreed to come back to advise the department on implementing his ideas.

    We also need to think hard and honestly about our policy for the socially excluded. We don’t fail for lack of spending. But the return on our efforts can be poor. This is where our radicalism is most needed.

    We need to rewrite the terms of the welfare contract. On one side: a decency floor to wage rates, making work pay through in-work benefits, tax credits, a credible ladder of opportunity from low paid jobs to higher skills and better pay.

    Dynamic market societies cause friction and change. A civilized welfare state makes the change as smooth as possible. And it gives societies confidence to welcome globalization rather than turn to protectionism.

    In return those who can work will be obliged to look for work or train for work and if they do not then they will face sanctions. There should be no free riding on the welfare state. It is an insult to people who have contributed.  And it is an insult to the people who deserve help.

    Of course cash transfers will remain part of a modern welfare state. But the Beveridge model lost its way when we began to think of welfare recipients as people who were done to by the state. We began to accept that maybe they needed our support in perpetuity. That mentality is the enemy of social justice and fair life chances for all.

    People who live independent lives tend to flourish. The economist would say they experience an increase in welfare. That is the idea of welfare that, as Secretary of State, I will seek to promote. Social justice through independence, not a socially regressive culture of dependency.

  • James Purnell – 2007 Speech to National Association of Pension Funds Conference

    jamespurnell

    Below is the text of the speech made by James Purnell, the then Minister of State for Pension Reform, to the National Association of Pension Funds conference on 16th January 2007.

    Thank you for giving me the opportunity to address your seminar here today.

    I’d like to start by thanking NAPF for all the advice you have given us in the months leading up to December’s White Paper. Not just because you endorsed many of our key proposals – although that was nice! – but because you put forward some important and helpful proposals that we were able to accept.

    The title of your seminar today begs the question have we got our Personal Account proposals right. We think we have. By giving millions of people an easy way to save, by providing clear incentives through employer contributions and, crucially, by reforming the state and private system to ensure it pays to save; we’re confident that the proposals in the White Paper will help millions more workers save.

    Without these reforms, most people would have been retiring on Pension Credit in 2050. Thanks to our reforms, that proportion will fall from over 75% to around 30%.

    Employees will see their savings matched pound for pound by a combination of contributions from their employer and the Government. Low charges, achieved through economies of scale, will mean that people will see the more of their money going directly into their pension pot rather than being lost in administration.

    This combination of policies will transform incentives to save. As the Pensions Policy Institute have made clear, that means that automatic enrolment into personal accounts will be possible.

    However, the PPI also said there should be good generic advice for those groups that should think about opting out of personal accounts.

    We’ve listened and yesterday, Ed Balls and I announced that work we’ve asked Otto Thoresen – Chief Executive of Aegon UK – to research and design a national generic financial advice service. Otto will be reporting by the end of the year and I am looking forward to developing this project to help meet the information needs of personal accounts.

    The central announcement in the December White Paper was the decision that the National Pension Saving Scheme model represented the best method for delivering personal accounts.

    We chose this model for two reasons: cost and simplicity.

    On cost, our evaluation found that the Commission’s model is likely to be significantly cheaper than the alternatives that were put forward. We are confident that we will be able to achieve the level of charges Turner set out, which could mean savers keeping up to 25% more of their pension pot.

    In your response to the White Paper the NAPF rightly identified that simplicity was going to be key. And for us, it was one of the main reasons for choosing the NPSS model. Under this model consumers will not be forced to make choices about who administers their fund. This is particularly important when you consider our target market will be moderate to low earners – a group who historically have had low levels of financial literacy.

    But our White Paper measures are not simply about the introduction of personal accounts. They are also about protecting and supporting good existing provision.

    Personal accounts are to be focused on a target market – those not currently making adequate provision and without access to a good workplace scehme. In the main, median and low earners, a significant proportion of whom are women. Personal accounts are designed to fill a gap in the existing market, not replace it.

    And we’ve taken measures to mitigate against any ‘mission creep’. There will be no transfers into or out of personal accounts from or to existing pension schemes. There will be an annual limit of the level of contirbutions an individual can put into their account. £10,000 in the first year – to allow individuals currently without access to a good quality occupational pension to save in non-pension products before 2012 and then to move them to personal accounts. We have proposed a limit of £5,000 for subsequent years and have asked for views as to whether this is the right level.

    Many employers today provide excellent occupational pension schemes – and we are determined that alongside the introduction of personal accounts, they should be supported in continuing to do so.

    So we’re taking forward a rolling deregulatory review with the aim of reducing the administration currently associated with occupational schemes. An advisory group has already been set up and last month we appointed two external reviewers – Ed Sweeney and Chris Lewin – to set the direction of the review.

    We know that we can also help by ensuring that the exemption process for high quality schemes is as simple and straightforward as possible – and so we are planning for it to be largely based on existing tests and self-certification.

    I know the NAPF and colleagues in the pensions industry have raised concerns about “levelling down” – fearing that the introduction of personal accounts will usher in a future in which a 3% employer contribution will be the norm for all schemes. So I’d like to make a few points on this issue.

    Firstly, we should not lose sight of the fact that employers are currently free to make no contribution at all if they wish. Indeed, nearly 9 million employees currently work for such an employer. From this perspective the minimum employer contribution could be considered as “levelling-up”, creating a floor below which no employer can fall. This minimum floor will also help those employers who provide a pension today, creating a more level playing field by ensuring that their domestic competitors are at least contributing 3 per cent.

    And secondly, we need to remember that a 3% minimum employer contribution, along with automatic enrolment and personal accounts, will mean that total contributions into pensions will increase significantly. We don’t think that levelling down is inevitable. But it’s worth noting that even in the worst case scenario modelled by the NAPF, in your research report published last month, pension saving would still increase overall. Your analysis shows that in 2012 total pensions contributions could increase by around 60%, from under £20 billion to over £30 billion.

    We think the reality may be more positive. Our research, conducted with over 2,500 private sector employers, about how they might respond to the reforms in 2012 suggested that levelling down would not have the dramatic effect that some are predicting.

    But we do take these concerns seriously. If levelling down is to be minimised, it is important that existing good provision is supported, and that employers continue to view offering a high quality pension as a way of attracting employees. So we welcome the proposals put forward by the NAPF to support existing provision, many of which we have also proposed in the White Paper – a simple exemption test, for example, and an objective for the personal accounts delivery authority around existing provision.

    And we agree with you that more needs to be done to help employees see the value of employer contributions. I was particularly interested in the NAPF’s proposal for a ’Good Workplace Pension‘ quality mark – so that employees can easily recognise a scheme that offers high quality pensions.

    The NAPF envisaged the quality mark would be awarded to employer’s schemes that offered total and employer contributions higher than personal accounts. And that all scheme members would be provided with information about the quality mark, thereby helping them better understand the value of the pension on offer.

    We’re keen to see this happen, although it is the responsibility of the pensions industry to develop further details and ultimately establish a quality mark. But I think this could be a very useful tool in encouraging employers to raise, rather than lower, their standards: The 3% minimum will provide one floor below which no employer can fall. But with a quality mark we would be aiming to set a second floor – a standard to which employers will want to rise.

    And this could be linked to another area we’re exploring: whether there should be waiting periods for companies that make these higher contributions.

    Personal Accounts are only one of a number of significant steps this government has taken in securing the long term future of work based pensions. The Pensions Act 2004 saw the creation of two new independent bodies, The Pensions Regulator and the Pensions Protection Fund.

    Personal accounts will also be an occupational pension, so it is important therefore that we consider how these institutions fit within the Government’s overall pensions policies. In the May White Paper, we therefore proposed an Institutional Review.

    The institutional review will consider how the functions of organisations involved in the regulation and protection of workplace pensions – such as the Pensions Regulator, the Pension Protection Fund and the FSA – fit with our new proposals.

    I’m very pleased to announce today that we have appointed an independent external reviewer to lead the Institutional Review – Paul Thornton. Paul has a wealth of experience in this field. He is currently a Managing Director of Gazelle Corporate Finance. And has previously been a President of Institute of Actuaries and a senior partner at Watson Wyatt.

    As with our White Paper proposals, in taking forward the review, we want to encourage debate amongst the stakeholders involved and build a consensus on the best way forward. Ensuring we have appropriate regulation and protection for all work based pensions – including personal accounts – means we need to think carefully about how the functions of the various institutions involved can best be arranged. The review will commence from today and report – with recommendations – to Ministers by Spring 2007.

    Advice on how to contribute to the Review is available from today on the DWP website.

    I’d like to conclude by thanking you for your positive engagement with us as we have developed the proposals in our White Paper and also make a plea for you to continue with this engagement as we refine and finalise our plans over the coming months. “Getting it right” – to borrow from the title of today’s event – and delivering a robust, enduring and comprehensive pension settlement is something in which we all have a vital interest.

  • James Purnell – 2006 Speech on Young People, Pensions and Savings

    jamespurnell

    Below is the text of the speech made by James Purnell, the then Minister of State for Pension Reform, to the IPPR Conference on 12th July 2006.

    Building consensus with future policy makers

    We published our White Paper on pensions in May. I’m spending much of the summer trying to build a consensus around its core proposals.

    When I talk to people about how to do that, they often suggest holding events with pensioners. And of course, that’s important.

    But the White Paper is about saving, and our core target for that message isn’t today’s pensioners.

    It’s the people in this room. Because the White Paper is not about solving a problem today. It’s about solving a problem that would develop over the next few decades. It’s a problem that would affect today’s twenty and thirtysomething generations most, because those are the generations that are under-saving most.

    So, today I would like to talk to you about how we can build a consensus that will last. Of course, the detail of the policy will change over the next forty years. But if we can agree on a general approach, we can create a more stable framework. And just like Bank of England independence has made it easier for companies to save, a real consensus on pensions would make it easier for workers to save.

    But such a consensus can only be achieved if our generations are part of the consensus-building process.

    This new pensions policy is built on a new set of foundations. Linking the Basic State Pension to earnings rather than prices. Retiring at 68 rather than 65. Automatic enrolment rather than purely voluntary saving. These foundations won’t be solid unless they lead to behavioural change with people working longer and saving more to provide for their retirement.

    And they will only be solid if they are scrutinised now. And scrutinised by those of us who it will affect the most. We don’t want this to be a mushy, wishful agreement. It needs to be a consensus built on confidence that this solution will work.

    And for you to have that confidence, we need to focus on the areas where concerns remain, not the areas where consensus is developing.

    Because any mistakes in the design of this policy won’t emerge in the next few years. They would emerge on the watch of the next generation of policy makers – in other words, potentially on your watch.

    Avoiding being the live fast, die poor generations

    Today’s twenty and thirtysomethings can expect to live longer than ever before. But if many don’t change their pattern of saving, they risk becoming the live fast, die poor generations.

    That’s because at the moment, people are acting as if they expect to be able to fund a longer and longer retirement, with less and less saving.

    It’s striking how fast retirement is lengthening. In 1950, the average retirement lasted about 10 years. Today’s it’s around 20. In 2050, that would have risen to around 25 years, if we didn’t raise the retirement age.

    Yet we are not saving more to fund those extra years of retirement – on the contrary, we are saving less. Young workers are saving much less than their parents did, even though they can expect to spend 50% more time in retirement.

    Again, the facts are stark. Since 2000, the proportion of 20 to 29 year olds contributing to a private pension has fallen from one in three to one in four. From one in three, to one in four, in just five years. In contrast, figures for their parents’ generation remained unchanged over the same period.

    This is what the Pensions Commission meant when they said that if we did nothing, a crisis would develop. And they themselves estimated that 3.7 million people aged 26-35 are either under-saving or not saving at all.

    The three C’s: confidence, complexity, culture

    What has caused this situation? I can see three main factors – confidence, complexity and culture, the three C’s if you like.

    Firstly, confidence. Many of today’s pensioners have got very good pensions. Two in five pensioner couples have private pension income of £180 per week or more. But high profile scandals have created the impression that saving generally is not safe – from pensions mis-selling to Equitable Life. These cases are very much the minority: fewer than 1 per cent of pension entitlements in Defined Benefit schemes are in schemes which have wound up underfunded. The tragedy of this minority of cases can too easily overshadow the vast majority that still provide good benefits for their employees.

    Secondly, complexity. For the last thirty years, policy has changed frequently, under successive governments, leaving us with what the Pensions Commission described as the most complex system in the world. The savings decisions required have just been too complicated. Recent research found that over 70% of 22-34 year olds find all pensions confusing – and almost half felt they did not understand the options available to them in saving for retirement.

    Thirdly, culture. In a recent survey, half of 22-34 year olds agreed that ‘it’s more important to live well now than to save for the future’. That’s partly about a desire to enjoy the leisure that modern society makes possible. And we should be careful about seeming to condemn that or lecture people about enjoying themselves. There’s nothing wrong with that.

    So, we shouldn’t set up a false choice between living well now and saving for later. Not only would that be untrue, it’s also unlikely to work: if our message is that people shouldn’t enjoy themselves, but should save instead, then we are unlikely to persuade very many people.

    But we need to be careful of caricature here – it would be easy but simplistic to say that young people don’t think about the future. A survey out today has found that just under half say they are worried about how they will fund their retirement. So how do we explain them saving less?

    It’s not only a question of living for today, but of other financial priorities and immediate financial needs, like saving for a mortgage or paying off debt. In a recent survey by the FSA, over half the population reported no borrowing other than their mortgage. For 20-29 year olds, that figure fell to 1 in 3, with a quarter reporting borrowing more than three times their monthly income. And for some, it’s simply the case that good intentions to save do not carry through to action.

    We need to persuade people that it’s easy to save, by tackling the three C’s – restoring confidence, tackling complexity, and creating a culture where people achieve a balance of spending and saving.

    Confidence

    The 2004 Pensions Act addresses the first challenge – confidence. The new Pensions Regulator is taking a risk-based approach to occupational pensions. This should allow well-funded pensions to have less regulation, whilst requiring others to increase the investment in their pension funds.

    This new regulatory framework should be more effective and increase confidence. But we cannot eradicate the risk of schemes winding up under-funded, so we created the Pensions Protection Fund to ensure scheme members receive at least a proportion of their pension.

    Complexity

    The Pensions White Paper aims to tackle the second challenge – complexity. It does this by reforming both the state and the private pensions system. It makes the state pension simpler and reduces means testing. And it introduces a new type of saving, based on automatic enrolment to overcome the weaknesses of a purely voluntary system.

    The Pensions Commission found that if current policy continued unchanged, then 70% of pensioners in 2050 would have been on a means-test. This was never the Government’s intention. But the possibility that it might happen would have clouded incentives.

    We believe our proposals will reduce means testing to around a third by 2050. This is an issue we may want to discuss during questions, as the Pensions Policy Institute have produced estimates that put this figure at over 40% by 2050.

    Far from wanting to ignore this debate, we want to engage with it. This is exactly the kind of issue where we need to address concerns if this policy is to succeed. We will therefore publish our analysis in the Autumn, so that everyone can examine the assumptions underlying it. And we will explain why we believe this architecture will create a system that makes the next part of our reforms possible – the introduction of automatic enrolment.

    This is the most significant innovation in the White Paper. It starts from the Pensions Commission’s finding that the current voluntary system will never be able to increase saving sufficiently. Some argue that we should concentrate on simplifying saving. We agree that simplification is important – that’s why we will abolish contracted out rebates for defined contribution schemes, and why we are planning to deregulate occupational pensions.

    But even if we made the system as simple as possible, under-saving would be likely to remain. That’s because savings decisions for pensions are inherently complicated. Research shows that people have a tendency to procrastinate and to under-estimate how much they need to save for their expected income in retirement.

    So, while nearly three-quarters of 22-34 year olds disagree that it’s too early to start saving for retirement, far fewer are in fact actually saving themselves – with only around one in three currently contributing to any sort of non-state pension. People know they should save – they just don’t get round to it.

    That’s why the Pensions Commission recommended a system of automatic enrolment, backed up by compulsory employer contributions. From the age of 22 onwards, employees will automatically have 4% of their salary deducted, on a band of earnings between around £5000 and around £33,000. This will be matched by a compulsory contribution of 3% from their employer and 1% in tax from the State. Although they will be able to opt out, they will be re-enrolled automatically every three years. We expect that between 6 and 10 million people will save in this scheme of personal accounts.

    These reforms will make it easier to save and also more profitable. The gains result from a combination of a more generous state pension, lower charges and the added impact of the employer and state contribution. Reducing the annual management charge from 1.5% to 0.5% would mean a pension fund around 20% larger at retirement for someone saving for 40 years. And as a result of the employer and state contribution, each pound an employee saves is matched by another pound. By 2050, as a result of our reforms, a regular saver on median earnings of £23,000 could be up to £50 a week better off than if the system continues as it is.

    And these reforms not only deliver a higher income in retirement – they should also deliver an improved return on an individual’s pension saving. For example, for a lifetime median earner starting to save in a personal account from around age 25, the return on an individual’s own personal accounts saving could roughly double as a result of our reforms.

    Of course, the outcomes of savings depend on a wide range of factors, including charges and the stock market; but all things being equal, these reforms represent a stark difference.

    Culture

    So these reforms will make saving simpler and easier. But they should also help us to create a culture where people start saving earlier and realise that they can combine it with spending for today.

    In this system, a person in their 20s on income of around £19,000 would pay in just over £10 a week – about the price of a DVD.

    If they continued saving at this rate, this same hypothetical person could expect to retire at 68 with a pension fund worth around £69,000 in today’s earnings terms.

    But if they delayed starting to save until age 30, their pension pot would reduce to £55,000 – and if they delayed until age 40, it would go down to £38,000.

    Ten pounds a week doesn’t sound an impossible amount to ask someone on median earnings to save. I would be interested in your views on this, but it seems possible to create a culture where the default reaction is for employees not to opt out of this new system of personal accounts.

    Engaging with concerns

    So, that’s our goal – a simpler, more trustworthy system, which creates a new culture of saving. It is aimed at younger workers, because they are the ones who are saving least now. That’s one reason why I was keen to discuss these issues with you today.

    But I also want to ask your views as policy makers. No policy is perfect – and pensions policies are even more imperfect than others. They are complex, long-term and involve inevitable trade offs. We should therefore beware of seeking perfect solutions.

    But neither should we run away from concerns that people raise.

    The key issues that have been raised so far have been:

    – How much will we really reduce means testing?

    – Will automatic enrolment be possible?

    – Have our reforms done enough to restore confidence?

    – Will the automatic enrolments cause employers to withdraw from occupational pensions, or to reduce their level of contributions?

    – How do we encourage people to save now, before the introduction of personal accounts?

    – What role should the private sector play in delivering personal accounts – in particular, should consumers choose between different providers?

    – Is the rise in the State Pension Age to 68 enough or too much? Will it be fair given that poorer groups die younger?

    – If we are expecting people to work longer, how do we make sure they can?

    – How do we help young people to balance the need to pay off debt, or to get a foot on the property ladder – with the need to start saving for a pension now?

    I look forward to discussing these issues with you today. But we won’t finish addressing them today. So, over the summer, we want to provide a forum for debating these issues, using both face to face meetings, but also our pensions website to bottom them out. We will be giving opportunities to experts and stakeholders who have concerns to put them forward.

    We will then aim to address them – for example, by publishing research showing how we believe that automatic enrolment is justified.

    We believe we can reassure people on many of these issues. And where we can’t, it will be up to others to decide whether they are so significant that they don’t want to sign up to the emerging consensus around this approach – or, I hope, for future generations to come up with answers to the parts of this problem that we failed to solve.

  • James Purnell – 2006 Speech to Cicero Financial Services Summit

    jamespurnell

    Below is the text of the speech made by James Purnell, the then Minister of State for Pension Reform, to the Cicero/Moneymarketing Financial Services Summit on 12th October 2006.

    I’d like to thank Cicero Consulting and Money Marketing for the opportunity to speak at today’s event.

    The White Paper we published in May set out a series of major reforms to create a new pensions settlement for the future. I’ve spent much of the past few months talking to the public and to stakeholders – including some of you here today – to build a consensus around those reforms. The consultation period following the White Paper has now officially ended – but work on our reform proposals continues.

    Over the next few months my officials and I will be developing further the detail of these reforms – and in particular, the detail of the new scheme of personal accounts. In the May White Paper we committed to a further technical consultation paper later this year on personal accounts. That is still the timetable to which we are operating, but we now intend the document to be a White Paper rather than a technical document.

    This decision reflects the significance we are placing on this element of our reforms. The introduction of personal accounts will be a significant institutional change – one of the most important institutions created since World War II – and one which deserves to be widely assessed in policy as well as technical terms.

    Personal accounts are designed to effect a widespread change in the savings culture of this country. I’d like to spend a few moments reminding ourselves why that change is so necessary – why it is that there is currently widespread undersaving, and how our reforms will tackle the problem.

    On an individual level, the problem lies in the fact that significant groups in society – and particularly low to middle income earners – have low incentives to save. And there are three clear reasons why this is.

    Firstly, because the market has not served this group effectively. The costs to market providers of serving these groups of people are high, which has traditionally made it difficult to serve them profitably. This means that charges are relatively high – and so the cost of saving in the product is too high for these individuals.

    Secondly, because the complexity of the current state pension system means that people are not clear what they will get from the State in retirement. Over several decades, there has been a series of modifications, reforms and adjustments by various governments, with the result that very few people today understand how the pensions system all fits together. Against this background, it is very difficult for someone thinking about their retirement to assess what their income from the state will be, and make a judgement about how much they will want to save on top of that.

    And thirdly, because many people, when faced with financial decisions that seem complex and difficult, have a tendency to disengage entirely, and do nothing. Even though most people realise that they need to save for retirement, inertia frequently means that they simply don’t get round to doing it.

    These three individual factors combine to produce a stark collective problem: there are simply not enough people saving. We’ve estimated that there are around 7 million people today who are not saving enough for their retirement.

    And that is where our reforms come in. The policies we set out in our White Paper will address undersaving – at an individual and a collective level.

    Let’s take the three barriers I just described. Our reforms will address each one.

    First, the lack of suitable savings products for low and moderate earners. Our new scheme of personal accounts will provide everybody in this group with a suitable savings vehicle – suitable because charges will be low. That’s something that we are absolutely clear about. We don’t buy the argument that the level of charging is a secondary concern. Neither did the Pensions Commission. They argued that low charges in personal accounts were essential in order to ensure that individuals would benefit from cost-efficient pension saving, and therefore to increase the incentives to save for precisely those groups where undersaving is most prevalent.

    We have looked in detail at the significance of charges in personal accounts, and remain convinced of the importance of keeping charges low. Every 0.1 % reduction in the annual management charge we manage to make could increase a long-term personal account holder’s fund by around 2%. That’s a crucial difference to retirement income.

    If we manage to reduce annual management charges to 0.5% the average employee in personal accounts would be just under £600 per year better off in retirement.

    And the other crucial difference that our reforms will make, of course, is the presence of the employer contribution. This is, for all employees, the very clearest incentive to save. Every £1 contributed into a personal account will be matched by the employer contribution and by tax-relief from the state, so £2 will go into the fund. Over a working life, with investment growth and low charges, that contribution might almost double. So you could end up with nearly £4 in the fund for every £1 invested by the individual. That’s a pretty good return.

    Let’s look at the second barrier – the complexity of the current system. Our reform of state provision– wider coverage, fairness for women and carers, and linking the basic State Pension to average earnings – plus additional measures such as the abolition of contracting out for DC schemes – will mean that the state system in the future will provide a solid and clear foundation for private saving. Planning for retirement, and the decision to save, will be straightforward when individuals can be clear about what the State will do, and what they must do for themselves.

    And, finally, the third main barrier – the prevalence of inertia when it comes to savings decisions. Our reformed system will overcome this barrier through automatic enrolment. All employees will be automatically enrolled into either good quality employer-based provision, or a personal account, with the freedom to opt out if they choose.

    There is wide consensus that automatic enrolment is the right approach to tackling the behavioural barriers to saving inherent in our current voluntary system. Evidence suggests that it is one of the most effective ways of combating people’s tendency not to act when faced with difficult financial decisions. In other words, it ensures that those employees who do not take an active decision to save will not lose out on the very real benefits offered by tax relief and employer contributions.

    Our reforms will tackle the problems that currently mean that many individuals have low incentives to save. And in tackling these, they will tackle the collective problem of undersaving: in the reformed system, saving will increase dramatically. Up to 10 million people could be saving in a personal account.

    There has been a counter-argument made that automatic enrolment into personal accounts will constitute mis-selling. The line of this argument is that people will be automatically enrolled, but that it will not be in everyone’s interests to save because of the presence of means testing. And it claims that incentives to save will therefore still not be clear enough because we won’t be able to say to everyone that they will be better off.

    We are determined to build a consensus around the reforms we have set out. But that should not be a sloppy consensus – it should be based on the fact that people have examined our proposals thoroughly. And so we welcome scrutiny and debate. But in this case, we believe that the evidence simply does not support the argument being made.

    The test criteria by which to judge whether saving was beneficial for an individual is whether they ended up with more money in retirement.

    I’ve explained that personal accounts will give a good return on contributions paid into them. Our analysis shows that an average earner saving in a personal account from the age of 25 to State Pension age might get an increase in retirement income of nearly £50 a week. But some people argue that they won’t work if there is still means testing in the system.

    The problem is that this misunderstands how Pension Credit works. By 2050, our reforms will mean that only around a third30% of pensioners will be entitled to Pension Credit. And 80% of these would be on Savings Credit.

    Savings Credit exists to reward people who have made some provision for their own retirement. And this won’t change under these reforms. People on Savings Credit would clearly be better off for having saved: for every pound they put in to Personal Accounts, their employer and tax relief would also put in a pound.

    Add investment growth to this, and an individual on Savings Credit would still be receiving over £2 back in retirement for every pound they’ve put in. And again, that’s a good return on their investment.

    But what about Guarantee Credit? I know that people’s real worry is about 100% withdrawal rates, which only occur on the Guarantee Credit. But again, we need to be clear about where this might feature. Our reforms to the state system mean that, by 2050, someone would have had to work or care for less than 20 years in order to be on the Guarantee Credit only at retirement.

    This will be a pretty rare occurrence – people who, out of a working life of 50 years, had spent less than 20 earning, or caring for a child, or a sick friend or relative. Our analysis indicates that only about 6% of pensioners by 2050 would fall into this category, and therefore have private income fully taken into account.

    And, typically, most of these people would have worked for very few years in which they were paid enough to cross the earnings threshold for automatic enrolment. They would therefore by and large not have been automatically enrolled. And, if they had managed to build up a small pension pot then they could take it as a lump sum, and might therefore avoid 100% withdrawal rates.

    So, we think the vast majority of people will be better off in retirement for staying in personal accounts. And we think the argument that claims we would be mis-selling on the individual level is therefore wrong.

    It is important to remember that automatic enrolment does not remove choice or responsibility from the individual. It will still be up to the individual to decide whether they remain in a personal account. The test for us in this will be whether we can give simple generic advice to people about whether they should do so. And we think that will be possible.

    Widespread undersaving is a big problem to tackle. But because we think that our policies will work to tackle barriers to saving at the individual level, this makes it possible to address the collective problem. The vast majority of people will be better off for having saved in personal accounts. We are therefore justified in automatically enrolling them, but leaving them the choice about whether to stay in.

    Let’s also not forget that the issues surrounding the interaction between saving and income-related benefits exist in all systems. For example, the system proposed by the Pensions Policy Institute has a similar proportion of people on 100% withdrawal rates to that we’ve outlined. The only way that you could avoid that would be to have no safety net for the poorest pensioners – and I don’t believe that’s a responsible suggestion in terms of preventing pensioner poverty.

    It’s worth remembering, too, that this is what Pension Credit was designed to do – to tackle poverty. It doesn’t take money away from people – it gives them more money. And it will continue to do so. Under our new system, a pensioner with an income of £100 per week from their state pensions, and £20 per week from their private pension, would typically get an extra £15.50 from Pension Credit. That is extra money, topping up pensioner incomes.

    And I am clear that that is the right balance. A safety net, in the form of Pension Credit, that ensures a basic income, and gives those with modest savings a higher weekly amount. And on top of this, automatic enrolment and personal accounts, which together will mean that millions of people will have more money in retirement.

    This is a balance which will be sustainable over the long term. And that is why we are determined that it is built on widespread consensus – consensus that this is a pensions settlement fit for generations to come