Julian Knight: At last, a true citizens' pension is on the cards

Make no mistake; the legacy of Gordon Brown's chancellorship is unravelling.

We still have tax credits (but for how long?) but the cornerstone Pension Credit is coming under pressure. Basically the credit was there to supplement the state pensions of Britain's poorest pensioners, ensuring that we would never have a situation again like that which occurred in the 1980s when the citizens of Denmark sent food and clothing parcels to Britain's cold and hungry elderly. As with a lot of Brown's chancellorship, the Pension Credit was a worthy ideal mixed with brutal politics. It had the deliberate knock-on effect of boosting his own powerbase in government (against his then neighbour Blair) and turning millions of pensioners into benefit claimants (thereby giving them reason to vote Labour). From day one, there was a major anomaly with the credit: people with relatively small savings found they were no better off than those who had put nothing away for retirement. The savings credit was introduced to ease this, but nevertheless the continued raising of the level of Pension Credit exacerbated the problem.

Last week the coalition said that it was considering doing away with the credit and simply raising the basic state pension to around £140 per week. We would be back to where we were before Brown, except that the basic state pension would be worth a lot more. And, the contributory principle would be scrapped – at present you need 30 years' National Insurance contributions to get the basic state pension. Although some like the idea of retaining the contributory principle, I don't. Not only has it adversely affected many women with patchy employment history, but it's an anachronism. Would anyone seriously say you must live on nothing in old age because you hadn't paid NI? That's the socio-economics of Gradgrind.

A true citizens' pension will give you a living base – just about – above which you are free to provide for yourself without the concern that by doing so you will be barred from benefits which automatically pay out to people who have saved nothing. At a stroke, saving for retirement is incentivised. It needs to be. The HMRC's figures released on Friday show that Britons are paying £1bn less into work and personal pensions than a year ago.

In a week when the coalition has been accused in the media of social cleansing and, most offensively, of undertaking the "final solution of the poor" – all for reforming the out-of-control housing benefit budget – let me offer my two pennies' worth. The fact that we have politicians having to compromise with one another, against the backdrop of a financial emergency, means there is a good deal of thinking the unthinkable going on. It's early days, but we may well be on the cusp of the most reforming period of government since Atlee. Nowhere is this burst of ideas more noticeable or more welcome – after years of wasted opportunities – than on pensions.

Banks' ill-gotten PPI gain

What a surprise, the banks are choosing to hide behind the British Bankers' Association's frivolous appeal against the FSA's positive action on mis-selling payment protection insurance. As we report on page 80, many banks are refusing to return customers' cash which they have diddled out of them by mis-selling often useless and expensive PPI cover. The BBA waited forever to lodge its case for a judicial review and you can expect more delaying tactics. Yet again, the consumer will have to wait for the slow wheels of the British legal system to turn while the banks continue to earn money from their estimated £5bn ill-gotten gain. Predictable and contemptible.