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General Council Report 2002: Chapter 5

Issue date

General Council Report 2002

pensions and welfare

5.1 Introduction

This chapter sets out the General Council’s work on pensions and welfare reform. It notes that pensions have rarely been higher on the political agenda and reports on the range of activities undertaken to promote and protect high quality occupational pensions whether final salary, defined contribution or stakeholder. It also sets out the General Council’s assessment of the Government’s efforts to end child poverty, the progress of the New Deal and the development of the tax credit system.

5.2 Campaigning for occupational pensions

The General Council have continued to support the development of occupational pensions and remain convinced that occupational pensions remain the best way for working people to save for retirement. Work throughout the year has been guided by the remitted Motions 74 and 75 of the 2001 Congress.

In March 2002 the TUC published a report Pensions in Peril? The Decline of the Final Salary Pension Scheme, a critical analysis of the UK’s pension system. The main findings of the report were:

· The cost of final salary schemes has been exaggerated - employers saved £18.5billion in contribution holidays and reductions throughout the 1990s;

· Increased labour mobility, a reason frequently given for scrapping final salary schemes, has been exaggerated;

· A purely voluntary approach to employer contributions into DC schemes has failed. They need to be incentivised or compelled to pay more;

· The average employer contribution to a stakeholder pension may be under 1 per cent.

TUC Pensions Conference - Prospects for Pensions

On 20 June 2002 the TUC held a half-day Conference in Congress House ‘Prospects for Pensions’ the keynote speaker was the Secretary of State for Work and Pensions, Rt Hon Andrew Smith, who welcomed the TUC’s report Prospects for Pensions as a valuable contribution to the debate.

Other speakers included the Pensions Minister, Rt Hon Ian McCartney, and the Chair of the Governments Simplification Review, Alan Pickering. TUC President, Sir Tony Young, chaired the Conference; the morning included two lively debates on future Pensions Policy. The TUC report Prospects for Pensions was launched at the conference; the report called for a national debate on pensions, and the need for compulsory employer and employee contributions to ensure that all workers have access to a decent pension scheme. The report forms part of the TUC Pensions Campaign, following on from the report Pensions in Peril, published in March, which looked at the reasons for the decline of final salary pensions and blamed employers for current pensions crisis.

Prospects for Pensions set out the following broad conclusions:

· responsibility for pension provision must be shared between the state, the individual and their employer. The biggest challenge in pension policy is to give all workers access

· to a quality occupational pension whether final salary, defined contribution or stakeholder;

· the arguments employers have used about the costs of final salary schemes are largely spurious - particularly given the savings employers have made through contribution holidays;

· Defined contribution schemes can provide a decent retirement income where there is a significant employer contribution. For some workers DC schemes may make better sense than final salary schemes;

· Member nominated trustees have a critical role to play in pension scheme governance; all stakeholder schemes should have a trust based governance structure with MNTs on the board.

· Earlier this year the TUC submitted comments to the Pickering Review on Private Pensions Simplification. The TUC submission made the following comments:

· The TUC welcomed the Pickering Review and agrees that there is a need to simplify the UK’s pension system;

· The greatest challenge in pension policy today is the retreat from final salary schemes and the consequent impact on retirement incomes. Defined contribution schemes can offer a decent pension if the employer makes a substantial contribution but in far too

· many cases employers use the move from final salary to money purchase as an

· excuse to reduce their contributions massively;

· The TUC’s top priority is to ensure that

· all workers have a decent income in retirement. The TUC therefore supports compulsory employer contributions to all pensions;

· The regulations on member nominated trustees need to be strengthened and support must be given to trustee education to ensure that the Myners recommendations can be implemented without threatening member participation in scheme governance;

· Legislation surrounding final salary schemes must be simplified and the application of FRS 17 needs to be reviewed;

· Consumer education has a critical role to play in ensuring that people understand their pension rights and can make informed choices between various options.

The General Council’s views on the changes needed to public policy are set out in the Statement below. This will inform the TUC’s work on the issue over the next twelve months.

Occupational pensions for all: General Council Statement

Introduction

The future of the UK’s occupational pensions system is now at the top of the trade union agenda. There is a major crisis because in the last year employers have engaged in a headlong rush from the provision of final salary pension schemes, closing schemes to new entrants and offering employees ‘money purchase’ or ‘defined contribution’ (DC) alternatives with much lower employer contributions. The effect has been a huge transfer of risk from employers to workers. The benefits provided by a DC scheme depend largely on investment performance and no guarantee can be given that an individual’s retirement income will reflect their pre-retirement earnings.

At the same time the Government has announced that it wishes to see a reduction of the role of the state in retirement provision and an increase in the level of private saving. The objective is expressed in terms of reversing the current 60:40 ratio of public to private provision. The General Council find it impossible to see how this goal can be achieved when for many workers the private pensions system is retreating rather than advancing.

The purpose of this statement is to set out the General Council’s views about the changes in policy needed to guarantee all workers access to a secure occupational pension. In particular it builds on the ideas set out in the TUC’s discussion document Prospects for Pensions published to coincide with a major conference held in June this year.

Principles

The fundamental principle on which the TUC’s pension policy rests is that all workers must have a secure income in retirement that enables them to maintain a decent standard of living allowing for full participation in society. The state pension is the foundation stone of the system. To guarantee that all workers have a decent minimum retirement income, the link between increases in earnings and the basic state pension should be restored.

For much of the post-war period the UK’s pensions system rested on a social contract between the state, employers and employees. The state agreed to provide the basic pension with workers and employers supplementing these arrangements through the occupational pensions system. This notion of shared responsibility has been eroded over time following the reduction in the real value of the Basic State Pension, the introduction of personal pensions and the decline of final salary schemes. The General Council believe that the reconstruction of the UK’s pensions system depends on reasserting this notion of shared responsibility.

Much has been made in recent times of the impact of Government policy on occupational pensions. Some have suggested that the government’s changes to advance corporation tax have accelerated the decline of the final salary scheme. Others have referred to the changes in accounting standards - particularly FRS 17 - which require companies to give a comprehensive assessment of their pension liabilities on their balance sheets. Another factor often referred to is the impact of the Minimum Funding Requirement on scheme solvency.

The most recent figures from the Government Actuary’s Department (GAD) show a decline in the coverage of occupational pensions that predates any of the phenomena referred to above. GAD estimates suggest that the coverage of final salary schemes in the private sector fell from 5.6 million in 1991 to a projected 3.8 million in 2001, assuming that the rate of decline between 1991 and 1995 continued over the following six years. This is an optimistic assumption given the recent spate of scheme closures.

It means that less than half the workforce now has private pensions with an employer contribution to supplement state provision. It is particularly worrying that young people, who are most affected by the switch from DB to DC, are failing to save early in their working lives. This is storing up a huge problem for the future with the likelihood that millions of workers will be retiring with inadequate DC pensions in 30 to 40 years time. Similarly, disabled workers generally have shorter job tenures, shorter working lives and inferior pensions as a result. Pensions policy must be inclusive and must ensure that all workers can enjoy a financially secure retirement.

The greatest challenge in pension policy today therefore is not just to promote, defend and extend final salary schemes where they exist but also to ensure that all workers have access to a quality occupational pension. Employer contribution levels will have to rise whether the pension is to be provided on a final salary, defined contribution or stakeholder basis. TUC policy on occupational pensions therefore has four elements:

· to protect, promote and modernise good final salary schemes;

· to promote good defined contribution schemes;

· to work to make a success of stakeholder pensions; and

· to assess other ways of providing good company pensions.

Why are final salary schemes closing?

The principal reason for the closure of final salary schemes is that employers are looking to reduce costs. A range of arguments has been used to justify employers’ behaviour including longer life expectancies, regulatory and tax changes and declining stock market performance. While all these may have had some impact, in most cases they are simply being used as excuses. The truth is that employers are now being required to contribute to occupational pensions after a prolonged period when soaring equity prices allowed them to take long contribution holidays. It is quite wrong to say that the reasons for the retreat from final salary schemes can be found in government policy. On the contrary, in the General Council’s view the blame lies squarely with employers who are failing to shoulder their share of the responsibility for retirement provision and the TUC, with affiliated unions, intends establishing a Pensions Watch to investigate every company that worsens occupational pension arrangements.

So what should be done?

That the Government recognises the need for further action can be seen from the recent reports of the Pickering and Sandler reviews. While both initiatives have produced some worthwhile recommendations, the majority of which the General Council can support, it remains the case that the focus so far has been on complexity, regulation and a lack of trust in the insurance industry as explanations for the failure to ensure that all workers retire with decent pensions. The General Council would also take issue with the Sandler recommendation that in future it is products rather than advice that should be regulated. A better approach, which the General Council support, is that products and advice should be regulated.

Other voices in the debate have recommended that the retirement age should rise to either 67 or 70. The General Council are firmly opposed to such simplistic solutions. There is a strong case for looking at a more flexible approach to retirement in the context of working hours throughout an individual’s working life. Giving people the choice and flexibility to vary their working hours to meet their caring responsibilities or to undertake further education and training is consistent with the notion that hours might be reduced as workers get older to permit a gradual withdrawal from the world of work. While some workers may see this as a more attractive option than a stark choice between full-time work and retirement it raises serious questions about the redesign of the pensions system - how for example would a final salary scheme cope with a reduction in the number of hours worked in the years before retirement? The General Council believe that the issue needs to be kept under review and will give careful consideration to the implications of this approach over the next year.

Some of the Pickering conclusions are an important contribution to the national pensions debate and the General Council urge the Government rapidly to implement the very welcome recommendations on day one occupational pension rights, trusteeship, regulation, automatic scheme membership and a 4 per cent compulsory employer contribution. However, the General Council are resolutely opposed to Pickering’s suggestions that occupational pensions should no longer be indexed to rise in line with inflation; that schemes should be under no obligation to provide survivor’s benefits; and that reductions in benefits might have retrospective effect. To legislate in this way would be an open invitation to employers to cut pension rights further and will do nothing to encourage employers to retain final salary schemes.

There are other important considerations that have been wholly ignored by Alan Pickering which reinforce the case for rejecting these proposals. If survivors’ benefits are removed then the responsibility for ensuring that dependents have an adequate income will revert to the state. Somebody has to ensure that dependents have adequate resources and if employers are allowed to abandon their responsibilities here then the taxpayer will have to pick up the bill. Put crudely, this is a proposal for a further subsidy to employers.

Allowing for the removal of survivors’ benefits will also have a serious impact on women - who generally live longer than their husbands or partners, will often have a lower occupational pension themselves (if any) and therefore have an expectation that they can rely on their rights to survivors’ benefits to meet their commitments.

Abolishing the limited indexation that currently exists will also lead to a gradual shifting of the burden from the occupational pensions system to the state. It is a recipe for the gradual erosion of pensioner incomes and is inconsistent with the employer’s pensions promise.

Far from being ‘bells and whistles’, indexation and survivors’ benefits are essential if pensioners are to enjoy financial security in retirement. The proposals are thoroughly misconceived and should therefore be abandoned.

Despite the self-evident weaknesses in some of the Pickering proposals, both reports are, on balance, a step in the right direction. Yet neither Pickering nor Sandler has got to the root of the UK’s pensions problem. In most cases workers are saving too little not because they are ill informed, irrational or feckless but because they simply cannot afford to make the necessary contributions. Individuals, acting alone, will never be able to build up enough savings to provide a decent pension - hence the importance of shared responsibility.

The scale of the problem can be seen from research undertaken by the Financial Services Authority which reports that 43 per cent of annuity purchases are for less than £10,000 - delivering an income stream of £700-£800 per year on current annuity rates. The amounts payable under an annuity would be even lower if limited indexation were to be abolished.

Other estimates have found a ‘savings gap’ of £27 billion - the difference between what is currently being saved and what needs to be saved if the Government is to succeed in achieving their desired objective of the 60:40 ratio of private to public provision. Closing the gap demands a 54 per cent increase in the amount being saved.

Making individuals exclusively responsible for covering the shortfall is simply unrealistic. It demands deferring current consumption in favour of retirement saving and could have potentially destabilising consequences both for the level of effective demand in the economy and for workers’ wage expectations. Suggesting that individuals should save more for their retirement will inevitably feed through into demands for higher wages to cover these costs.

Put more crudely, if the state is not going to pay for pensions from general taxation and individuals cannot save enough themselves then employers will have to bear their share of the burden of retirement provision. The case for a compulsory employer contribution to occupational pensions is compelling.

In the General Council’s view it is essential that a statutory obligation is imposed on employers to contribute to their workers’ pensions - whether final salary, defined contribution or stakeholder. That is why the General Council endorse Pickering’s proposals that employers should once again be able to make it a condition of employment that workers should join an employer’s pension scheme - and that, in such circumstances, employers should be required to contribute 4 per cent to the scheme. A compulsory employer contribution, reinforced by the basic state pension, the Pension Credit and the State Second Pension will help to rebuild the social contract on which a successful settlement must rest.

No doubt this proposal will be met with howls of outrage from the usual suspects who incessantly complain about the uniquely burdensome nature of UK regulation. Nevertheless, British businesses should bear in mind that their continental European counterparts bear the costs of pension provision through higher levels of corporate taxation and higher social security contributions. If the current decline in employer pension contributions in the UK continues then business taxes will inevitably have to rise to cover the costs of increased payments of means tested benefits.

So how much should employers pay?

The level of the compulsory employer contribution will depend on the judgements made about the level of pension that people ought to receive. Prospects for Pensions set out a range of options beginning with a lower boundary just above the level of the Government’s Minimum Income Guarantee and an upper boundary set at a level that would enable a pensioner to maintain their pre-retirement standard of living. The General Council believe that there is significant support across the trade union movement for the adoption of this approach. Achieving this objective demands a contribution from both employer and employee in the region of 15 per cent of pay.

The General Council also propose that the contributions should be divided between the employer and employee in the proportion of 2:1. In turn this means that employers would be obliged to contribute at least ten per cent of pay to their employees’ pensions.

The General Council recognise that to introduce a compulsory employer contribution is a significant intervention in the labour market at least on a par with the introduction of the National Minimum Wage - and perhaps even more significant because it would apply to all employers and people at work. It is also important to remember that pensions policy is a long-term exercise and policy choices made today will only bear fruit in 30 to 40 years time. It would be wrong therefore to move forward without a durable consensus to underpin a new pensions settlement. Managing the implementation process will be much easier if the Government consults the social partners in advance.

The General Council also recognise that there may be a case for phasing the implementation of compulsory contributions. This will cushion the immediate impact on the labour market and allow businesses and unions to adapt to the new arrangements. The Australian experience may be instructive here in that it has taken ten years to move from a purely voluntary pensions system to a compulsory nine per cent employer contribution. The initial steps were taken by a Labour government, which established a timetable for compulsory contributions to rise from three per cent in 1992-93 to nine per cent today. Even though there was a change of government in 1996, it is clear that the Australian superannuation system, despite a continuing party political discussion, is underpinned by a bipartisan consensus. The General Council believe that UK legislation implementing a requirement for all employers to contribute should also set out a clear statutory timetable for contributions to rise from an initial level of four per cent- in line with the contribution level recommended in Pickering - to the ten per cent target level.

Protecting the interests of the low paid

A particular issue that must be addressed is the position of the low paid. It would be quite wrong to impose compulsory saving on those workers least able to afford it and in any event the amount that they could save would be unlikely to deliver a decent private pension. For this group of workers it may be better to rely on the state provision of the basic pension and the state second pension (S2P). However, there is also a strong case for saying that the proposed ten per cent employer contribution should be credited to S2P for this group of workers so that they can enjoy better pensions than would otherwise be the case.

There is also an issue however for those on modest rather than low incomes who might find it hard to match automatic pension scheme membership with their existing commitments. That is why the General Council believe that further consideration should be given to fiscal measures to help people to save and, consistent with the government’s broader labour market objectives, ensure that ‘work pays’.

Scheme governance

Once it has been determined what levels of contribution should be made compulsory there remains the question of how these contributions should be used to provide pensions. It would clearly be wrong if earners were compelled to make contributions to pension arrangements that were poorly run, insecure or expensive. It must be accepted, therefore, that where contributions to a pension scheme are compulsory, the Government has a responsibility to ensure that the receiving schemes are well run and secure. It also has a responsibility to ensure that the required contributions are paid promptly. On the other hand it is important to keep supervision and monitoring to the minimum required to achieve these objectives. The TUC considers that an important element in achieving these sometimes contradictory objectives is to require any scheme that receives compulsory contributions to be run jointly by employers and members using the trust structure that applies to final salary schemes. The membership of the trust board should be divided equally between the employer and representatives of scheme members.

Outsourcing, sub-contracting and business transfers

Thousands of workers see their pension rights eroded every year as a result of business transfers and other forms of outsourcing in the private sector. This is because the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) currently exclude occupational pension rights from the protected list of conditions of employment. In 1998 the Government supported an amendment to the EU Acquired Rights Directive - to which TUPE gives effect - that now allows member states to extend the coverage of their national law to protect pension rights. The General Council note that as a matter of good practice public sector workers transferred to the private sector are entitled to a ‘broadly comparable’ pension. There is an irresistible case to offer a similar degree of security to workers affected by transfers between private sector employers and an amendment to the TUPE Regulations must be implemented rapidly to achieve this objective.

Conclusion

All of the above considerations lead the General Council to believe that urgent action is needed to rebuild the UK’s pensions system on secure foundations.

It is very welcome that the Government will bring forward a Pensions Bill in the next parliamentary session but much more needs to be done than simply implementing the more positive of the Sandler and Pickering recommendations. An opportunity exists to tackle some of the historic weaknesses in pension provision in the UK. A new settlement can only be developed through partnership between government, employers and unions. It is welcome that both government and employers recognise the need for further action and that an informed debate is taking place. Over the next year the General Council will continue to promote and protect good final salary schemes and will campaign for a compulsory employer contribution to all pensions. Shared responsibility is the fundamental principle that must underpin the reconstruction of the system. Trade unions have accepted their role in the process and it is now time for employers and government to do the same.

5.3 Tackling Pensioner Poverty / TUC Budget Submission 2002

Motion 76 remitted at last year’s Congress called on the General Council to continue campaigning to end pensioner poverty and work in partnership with such organisations as the National Pensioners Convention and Age Concern. In the TUC’s 2002 Budget Submission the General Council called on the Government to restore the earnings link to ensure that pensioners shared in the nation’s rising prosperity. Furthermore, the General Council called for extra help for the poorest pensioners, who are also the oldest pensioners, by arguing for big increases in the age-related supplements for the over 75s. The General Council also strongly welcomed the commitment to continue to pay the Winter Fuel Allowance at the higher rate of £200 for the remainder of the Parliament (a recommendation made in the TUC 2001 Budget Submission).

5.4 Pension rights for part-time workers

It was reported to the 2001 Congress that the General Council had continued to provide assistance to the unions supporting 22 test cases over the backdating of part-time workers’ membership of their occupational pension schemes (Preston v Wolverhampton Health Care Trust). It was reported that the ECJ had ruled that the two-year limitation on retrospection was unlawful; that the six-month time limit for making a claim was lawful and that it was possible to aggregate successive short-term contracts with the same employer for the purposes of making a claim. The House of Lords had ruled in line with this judgement.

During the year the Employment Tribunals held directions hearings to decide how to handle outstanding points of law common to groups of claims. In the private sector some unions had settled cases with employers, those with the greatest coverage being settlements between HSBC and Barclays with Unifi. Public sector unions are continuing to attempt to reach settlements with government departments. It is likely that the tribunals will need to hear further test cases in order to resolve outstanding issues. The TUC held two meetings for unions with claims outstanding in the Employment Tribunals.

The Department of Work and Pensions has liased with the TUC in the production of an advice leaflet on options for part-time workers who have either benefited from negotiated settlements or who win in the tribunals, and also for those still in work and in doubt about whether to make claims for backdated benefits. Workers are advised to contact their union in the first instance. The General Council will continue to offer assistance to the unions with claims outstanding.

5.5 TUC Stakeholder Pension Scheme

The TUC Stakeholder Pension was launched at the 2000 Congress. In July 2000 after a lengthy selection process the Prudential was invited to become the TUC’s main commercial stakeholder partner and provide the administration and marketing services as well as most of the investment options. Standard Life Investment Managers (SLIM) provide two of the investment options, and Barclays Global Investors (BGI) provide two.

The TUC stakeholder scheme has been endorsed by 35 trade unions, representing over 70 per cent of union members in affiliated unions. Discussions continue with other unions aimed at generating further support for the scheme.

The most recent successes are the designation of the TUC Stakeholder Pension Scheme on a panel of providers for the new Civil Service Defined Contribution Scheme. The NHS has also appointed the TUC Stakeholder Pension Scheme for all eligible staff in England, Wales and Northern Ireland.

A TUC Stakeholder Pensions User Group has been established consisting of those unions who have endorsed the scheme. The group meets twice a year to review scheme progress and discuss ideas on improving scheme coverage.

During the Congress year the trustees of the TUC Stakeholder Scheme met to consider the range of investment options available to scheme members. On a number of occasions investment options had been criticised for being too limited and it was agreed to offer a more sophisticated choice of investments. The five original investment choices have now been increased to 12 and include the following options: in the low risk category - Prudential M&G Cash Fund, Pre-Retirement Fund, Index Linked and Corporate Bond. In the medium risk category is Prudential M&G Discretionary Managed Fund, Lifestyle (default option) and Property fund, and in the high-risk category we have Standard Life UK Equity Select and Ethical Fund, Prudential M&G Overseas Equity Passive fund and Smaller Companies Fund and finally two funds from BGI; Global Equity Passive and UK Equity Passive. The new funds have been chosen to complement those already available.

5.6 Trustees Network

The TUC Member Trustees Network is a unique service from the TUC, which provides services tailored especially for member-nominated trustees. Membership of the Trustees Network gives access to the following services:

· A copy of the TUC Trustee News, the TUC’s free newsletter for trustees with information about the latest developments;

· TUC Trustee training services, as well as mailings about TUC pensions conferences and seminars at Congress House;

· Information about pension fund investment and shareholder activism.

Regular contact with the TUC Trustees Network has restarted. Early in 2002 the trustees’ database was updated. All network members were contacted about the TUC's campaigning to defend good occupational pensions, with a number sending in examples of what was happening in their own schemes.

In addition the TUC Trustee News bulletin has been restarted as a quarterly newsletter for all members of the network. So far two issues have been produced. The TUC has been working to increase the membership level of the Trustees Network.

5.7 Trade Union Pensions Specialists Group

The Trade Union Pensions Specialists Group, which provides a forum for unions to exchange information, has continued to meet to discuss current pensions issues and consider government pensions policy.

Issues considered by the Group over the past year have included the Government’s consultation on future of the Minimum Funding Requirement (MFR) the Pickering Review of Pensions Simplification and the implementation of the recommendations of the Myners review of Institutional Investment.

A more detailed assessment of the Pickering recommendations can be found in the General Council statement at paragraph 5.2.

Bryan Freake, Pensions Officer at Amicus, has been representing the TUC on the government working party advising on the replacement of the Minimum Funding Requirement.

5.8 TUC Pensioners Committee

The TUC Pensioners Committee, whose membership is listed in appendix 2, has met twice during the Congress Year.

At the meeting in December the Chief Executive, Alexis Cleveland gave a presentation on the new Pension Service. The new service, will have 11 million Retirement Pension customers in 200 countries. The Committee also took the opportunity to re-state their commitment to earnings-linked indexing of pensions.

In May, the Committee commented on the TUC Budget Assessment 2002, and welcomed the call for the Basic State Pension to be up rated in line with the higher of earnings or prices.

The TUC Pensioners Committee continue to be represented on the European Federation of Elderly and Retired Persons (FERPA). Sylvia Green represents the TUC on the FERPA Executive.

5.9 Welfare reform: new agencies

The last 12 months have seen further reforms in the delivery of social security. Last year’s General Council Report noted the Government’s plans for establishing new delivery mechanisms. In April, the Benefits Agency (BA) and the Employment Service (ES) were replaced by three new agencies. The Pension Service is responsible for work with current and future pensioners, the Disability and Carers Service for benefits for these groups, and Jobcentre Plus brings together the services for people of working age formerly provided by ES and BA.

There is a strong policy case for these reforms, and it is a shame that the switch to the new agencies was marred by a difficult dispute over safety within JCP offices. During the dispute the TUC distributed PCS information materials to its network of contacts among social policy academics and voluntary organisations working with benefit claimants, and TUC Unemployed Workers’ Centres publicised their support for the union and its members. In April PCS signed an agreement ensuring that high risk transactions will continue to be delivered in a screened environment and that there will be a review of safety before any new JCP offices are built.

5.10 Unemployment and poverty

Fifty-six ‘Pathfinder’ Jobcentre Plus offices, providing an integrated service, were opened by April, and the Government has announced that a further 225 will be opened by April 2003. It is obviously important that these new offices should offer the best service possible, right from the start. The TUC has therefore made the most of its representation on Jobcentre Plus’ Stakeholder Forum (initially known as the ‘Key Partner Forum’, and thus described in last year’s Report) established by the new agency to provide advice on emerging issues. The TUC played a very active role on this Forum in producing a report welcoming the Government’s objective of providing 'work for those who can, support for those who cannot,' but arguing that it is equally important for Jobcentre Plus to ensure that it provides an efficient service to all its customers, including those people who are unable to work. In particular, Jobcentre Plus should aim (working where necessary in partnership with local organisations) to make sure that people are aware of all the benefits and other help available, and are helped to claim and receive them as quickly as possible.

The General Council have always supported an employment-based welfare strategy - indeed, the TUC argued the case for it long before welfare-to-work became a politicians’ mantra. But the need to have a care for the people who do not get jobs has always had an equal place in our policy, a concern that is now being reflected more widely by academics, community groups and other commentators.

This balanced approach is particularly important in the debate about the correct balance of rights and responsibilities for different groups of claimants. It is generally accepted that unemployed people have a duty to be available for employment, and that this duty cannot be met simply by waiting passively for a job turn up. It is equally widely accepted that many economically inactive people - such as disabled people and lone parents - would be better off if they got paid jobs, and many of them are keen to find employment. The Government seems to accept that it would not be fair to apply the same availability obligations to them as to unemployed people, but beyond this there is less consensus about the duties that should apply to them. As a contribution to the debate, over the summer the TUC produced briefings in the Welfare Reform series devoted to government labour market programmes; benefits for economically inactive people and women and poverty. A special report on lone parents, benefits and employment is also in preparation.

The General Council’s emphasis on the need to help every family living in poverty has been expressed through continuing support for the End Child Poverty (ECP) campaign. More than four million British children live in poverty, the highest level in the EU. The Government has promised to end child poverty within a generation, and ECP aims to keep this and every future government to this pledge. The TUC has been represented at ECP events and distributed the campaign’s briefing materials and newsletter to unions.

The TUC continues to comment on the full range of social security developments. One forum for these comments is the Social Security Advisory Committee (SSAC), where the TUC is represented by Richard Exell. Last year’s Congress remitted a motion condemning the Government’s decision to pilot the suspension of state benefits to people in breach of community sentences. When the SSAC discussed the relevant Government Regulations, the TUC representative argued that this measure penalised offenders’ dependents (who, given their receipt of means-tested benefits, were by definition poor) even though they had not committed crimes. Furthermore, employed offenders in breach of their orders were not subject to the extra penalty applied to unemployed ex-offenders, and this seemed unfair.

The TUC also comments on social security issues through its own publications. Further reports in the Welfare Reform series have been published in the past year, and in addition to those reported elsewhere in this chapter, there have been a new report on Employment And Ex Offenders, and new editions of the reports on the Children’s Tax Credit and Education Maintenance Allowances. Employment and Ex Offenders summarised a longer report of the same title, published in December, which argued that helping more unemployed people with criminal records to get jobs would reduce re-offending, and gave the TUC’s support for fair practice in relation to the employment of ex-offenders. The new edition of Education Maintenance Allowances reported the first results of the official studies of the EMA pilots, arguing that they were enabling many young people from poorer families to stay in full-time education, providing strong evidence for a nationwide extension of the initiative. In April, as in previous years, the TUC published a Budget Headlines factsheet, summarising the main news about tax rates, tax credits and National Insurance Contributions.

In February, the TUC published Social Protection and Units of Assessment, a comparative study of how different nations approach the question of whether to assess benefit eligibility using the family or the individual as the unit of assessment. This major study, specially commissioned from Prof Eithne McLaughlin and colleagues at Queen’s University Belfast, showed that the current use of the family as the unit of assessment is linked to discrimination against women, and that reforms to address this problem are a realistic possibility. A summary of the report was also published as part of the Welfare Reform series.

The TUC also responded to a number of government consultations. In October, the TUC welcomed proposed reforms of Invalid Care Allowance, including the enabling of people aged over 65 to claim the benefit and a change in the name to ‘Carer’s Allowance’. In the same month the TUC gave a broad welcome to plans to ease the eligibility rules for the Vaccine Damage Payments Scheme, but argued that the Government’s proposed new threshold of 60 per cent disablement was still too high, and should be replaced with a sliding scale. In February, the TUC welcomed the proposed establishment of a Child Trust Fund, but regretted the fact that State contributions to an individual’s fund were to be means-tested. The TUC’s comments on this rather complicated subject were also published as an edition of the Welfare Reform series.

5.11 Tax Credits

In the past year the design of the next generation of tax credits has become much clearer. Next year the Government plans to withdraw the Children’s, Working Family and Disabled Person's tax credits, and to replace them with two new tax credits. The Integrated Child Credit (ICC) is designed for families with children, and will be paid directly to the main carer. ICC will replace existing income-related support for families with children - the child elements in Income Support and means-tested Jobseeker’s Allowance, as well as in the tax credits - but will be paid in addition to Child Benefit. As with the current tax credits, families with incomes above a threshold will have their ICC ‘tapered’ away as their other income rises.

As with the existing tax credits, the Employment Tax Credit (ETC) will be paid through the wage packet to low-income workers with children and/or disabilities. In a new development, the ETC will also be paid to some non-disabled workers without children. The ETC will replace the adult elements of the existing tax credits, and will include an equivalent provision to help low-paid families with childcare costs.

The General Council have expressed strong support for the tax credits and for the forthcoming reforms, but also made a number of proposals about the detail of the plans. These comments have been reported to unions in a special edition of the Welfare Reform series, and a special briefing for union officers was arranged at HM Treasury in April.

The TUC’s views were presented to the Government in a written submission and in interventions at several consultation meetings. The General Council have argued that tax credits have been a success, delivering support to more than 300,000 extra families. More than two million children live in families being helped to escape from poverty by tax credits and low-paid families with childcare costs have benefited most. Unfortunately, while the current tax credits have transferred resources to poor families, there has also been a transfer from women to men. The ICC will reverse this, and has therefore received particularly enthusiastic TUC support.

The General Council have been very supportive of the ICC. Unfortunately, at the same time as it introduced the new tax credit the Government announced the abolition of the extra element of National Insurance benefits paid to claimants with children. This will reduce the incomes of families who rely on non-means-tested benefits, and represents a further cut in the value of National Insurance.

5.12 New Deal

The General Council have continued to offer the Government strong support for its active labour market policies, especially the various New Deal programmes. In evidence to an inquiry by the House of Commons Work and Pensions Select Committee into labour market policy during the economic slowdown, the TUC argued that the New Deal was the most successful active labour market programme ever introduced in Britain.

TUC support was re-emphasised in May, when the Government announced the pilot areas for the new ‘Step Up’ programme. The TUC has consistently argued for a job creation supplement to the New Deal, and Step Up very closely resembles the intermediate labour market programme proposed by the General Council more than two years ago - recruitment concentrated on people with the most severe problems, work paid at the national minimum wage, at least time off for jobsearch and help throughout from a support worker. The Government also guaranteed, directly in response to TUC lobbying, that no-one recruited through Step Up will be paid lower wages than other workers for the same organisation engaged in the same tasks, and no existing workers are to be made redundant to recruit long-term unemployed people through the new programme.

Although the General Council have offered strong support to the Government, it has not shied away from raising difficult issues when the need has arisen. In a Welfare Reform briefing on the Government’s active labour market programmes, the TUC pointed out that the results for black and ethnic minority participants in several of these programmes are below average. There are also problems in achieving equal results for unemployed women and disabled participants.

Another Welfare Reform briefing looked at the performance of the New Deal for 18 - 24 year olds, and expressed concern that young people on the programme’s least popular and effective options were disproportionately likely to face benefit sanctions. It would be a very serious matter if this was happening to those participants who faced the most severe obstacles to obtaining jobs. This issue was raised in a meeting with officials from the Department for Work and Pensions (DWP), who insisted that the Department took this possibility as seriously as the TUC: if monitoring revealed that young people with severe disadvantages were being let down in this way the Department would take action.

This briefing also expressed concern at the fact that only a fifth of those New Deal participants on an option are in the subsidised employment option - half the proportion originally planned for. This is particularly worrying, as this is the most successful option at moving participants into sustained employment. The number of subsidised employment openings with public sector employers is particularly inadequate and the TUC arranged a special meeting with DWP officials to see how unions could help to open up more opportunities for unemployed young people.

Last year the New Deal Task Force was wound up, and replaced by the National Employment Panel (NEP), with the wider remit of advising the Government on its full range of employment programmes. The TUC’s representatives on the Task Force, John Edmonds and Marge Carey, were appointed as members of the NEP, and have continued to press the General Council’s policies and concerns.

New Deal, the TUC electronic bulletin, has now reached its 68th edition. In addition to summarising the programme’s monthly performance data, New Deal has reported on the progress of Employment Zones, studies showing the impact of trade unions in reducing employment inequality and data from the National Audit Office showing that tax fraud costs Britain roughly twice as much as the highest estimates of benefit fraud.

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