Ministerial muddle leaves pension 'opt-outs' possible

THE GOVERNMENT's review of spending was yesterday thrown into confusion when the Department of Social Security retracted a denial that ministers are contemplating the privatisation of state pensions.

The apparent blunder fuelled the latest in a series of rows arising from a fundamental examination of spending initiated by Michael Portillo, Chief Secretary to the Treasury.

Indications that Peter Lilley, Secretary of State for Social Security, is examining ways of allowing workers under the age of 30 to 'opt out' of the state pension system, in exchange for Government payments, seemed to be confirmed in a letter from the minister to MPs. In it Mr Lilley said that 'there is no reason in principle why people should not opt to make provision for themselves privately rather than through the state system'.

Challenged by Gordon Brown, the Shadow Chancellor, the DSS initially denied the claims, but later used the formulation - used with other measures connected to the spending review - that the move could neither be ruled in nor out.

In its 'clarifying' statement the DSS said that Mr Lilley wanted a 'wide-ranging debate on the long-term future of the social security system' but had 'not made specific proposals at this early stage'. The statement added: 'Mr Lilley has made it clear that he does not intend to give a running commentary on every proposition that may emerge and to do so would preclude the very debate he wishes to encourage.' In Tokyo last week John Major also stressed his concern about the cost of pensions to the pounds 74bn social security budget.

Mr Brown said yesterday: 'I want the Prime Minister to explain why the department first issued a blanket denial and now Mr Lilley has issued this totally different statement - all within the space of one hour.

'Until recently ministers have talked of private pension provisions in addition to the state pension rather than in place of it.'

Harriet Harman, Shadow Chief Secretary to the Treasury, accused the Government of breaking manifesto commitments and arguing: 'The right wing of the Tory Party is using the Government's economic failure and the crisis in public borrowing as an excuse to do what it really wants to do, which is to dismantle the welfare state.'

Ms Harman will tomorrow publish a survey which shows that Tory councillors in nine councils have supported Labour resolutions condemning the imposition of VAT on fuel. In a move designed to bring pressure on Tory MPs to rebel during the Finance Bill's Report Stage tomorrow, she said the survey showed that 'the Government have failed to win the argument for VAT on gas and electricity even among their own grass roots.'

She said the Tory-supported resolutions had been passed in Sandwell (West Midlands), Bedfordshire, Glasgow, Dover, Bath, Darlington, Solihull, Devon and North Kesteven (Lincolnshire).

The bill is certain to pass its Report Stage despite the near- certainty that the Liberal Democrats will make VAT on fuel a central element of their campaign in the Christchurch by-election which takes place on 29 July.