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Last Updated: Friday, 15 October, 2004, 13:26 GMT 14:26 UK
Benefit cuts 'to boost pensions'
Tony Blair
Mr Blair is under pressure to spell out pensions policy
Labour may attempt to plug the pensions shortfall by slashing incapacity benefit spending, Tony Blair has said.

He admitted spending on pensions would have to rise, but he said this could be partly offset by making people "languishing on benefits" get jobs.

The Prime Minister is under pressure to explain how he would solve the pensions crisis if Labour wins a third term.

More than 12 million people are not saving enough for their retirement, the Pensions Commission found this week.

'Spend more'

The Commission's report, by chairman Adair Turner, said a mix of higher taxes, more saving and a higher average retirement age was needed to plug the gap.

The government's pensions policy is literally falling apart at the seams
George Osborne, shadow chief secretary to the Treasury
In a speech to centre left leaders in Budapest, Mr Blair indicated incapacity benefit money would be diverted into the pensions pot.

"In the UK today we have a big debate about how we can provide pensions for people for the future.

"And we will probably have to spend more as a government supporting pensions in the future.

"But that will mean we will have to spend less, particularly in areas where there are people who could work but who presently languish on benefits."

'Reasonable aspiration'

Commenting later, Mr Blair said there were a lot of people on incapacity benefit "who want to work, who could work" and the government had to give them "the same help" it gave other people to get jobs.

It was particularly important to "reconfigure" the welfare system in this way, Mr Blair added, "if we are going to spend money in areas like pensions or for universal affordable childcare, which is something we also want to give people."

Incapacity benefit is claimed by more than 2.7 million people and is worth up to 74.15 a week, although only 1.5 million people actually receive the full amount.

The Treasury has never really understood why companies provided occupational pensions
John Denham, Labour former minister

Professor Steve Fothergill, of Sheffield Hallam University's Centre for Regional Economic and Social Research (CRESR), said this was costing the country about 10bn a year.

Prof Fothergill said that in a "fully-employed" economy up to 1.2 million of those currently on incapacity benefit would be in work.

But although this was a "reasonable aspiration" it would take a "very long time" to happen, he added, because of the number of jobs that would have to be created.

"It has taken us 25 years to quadruple the numbers on incapacity related benefits.

"I suspect it will take at least as long to get the numbers down to the sort of levels they were before we entered the 1980s," he told BBC Radio 4's The World at One

Tax rises

Former social security minister John Denham called on the government to come clean about its plans for pensions before the next election.

Mr Denham, who quit the government last year in protest at the Iraq war, launched an attack on Gordon Brown's handling of the pensions issue.

He said the chancellor was wrong to rule out tax increases to tackle the shortfall.

And the former minister, who remains close to Number 10, said Treasury initiatives had undermined occupational pensions by making them less attractive to employers.

Despite "dominating" the issue, the Treasury did not properly understand pensions, he added.

"I think the evidence is there in Turner's report that the Treasury has never really understood why companies provided occupational pensions.

"The Treasury has always done the sort of things that would reduce the provision of occupational pensions and now we have ended up with a real problem of occupational pensions."

He said Labour could not go into the next election without a "convincing" pensions policy.

'Falling apart'

Mr Denham's words were seized on by the Conservatives as evidence of government divisions over the pensions issue.

Shadow Chief Secretary to the Treasury George Osborne told Channel 4 News: "I think John Denham has given an extraordinary interview in which he has once again exposed that the government's pensions policy is literally falling apart at the seams.

"Yesterday we had the Pensions Secretary (Alan Johnson) basically admitting that the government's policy of Pension Credit - a means-tested benefit - was only a temporary stop-gap measure.

"Now, we have got the former pensions minister John Denham, who is very close to Number 10, saying that Gordon Brown's policies are all wrong."

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