Pensions and Social Security

Thursday 23rd February 2012 Commons Chamber

[Madam Deputy Speaker (Dawn Primarolo)]

I understand that for the convenience of the House, motions 1 to 3 are to be taken together.

12:36

[The Minister of State, Department for Work and Pensions (Steve Webb)]

I beg to move,

That the draft Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) (Amendment) Order 2012, which was laid before this House on 30 January, be approved.

[Madam Deputy Speaker]

With this we shall take the following motions, on pensions and on social security:

That the draft Guaranteed Minimum Pensions Increase Order 2012, which was laid before this House on 30 January, be approved.

That the draft Social Security Benefits Up-rating Order 2012, which was laid before this House on 30 January, be approved.

[Steve Webb]

The draft Guaranteed Minimum Pensions Increase Order 2012 provides for contracted-out defined-benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3%. Increases are capped at that level when price inflation exceeds 3%. That, of course, is an entirely technical matter that we attend to on an annual basis, and not something that I imagine we shall need to dwell on today.

The second, smaller draft order comes about for a sequence of reasons. The Pensions Acts 2007 and 2008 gave the Government the power to abolish contracting out on a defined-contribution basis. A written ministerial statement set the point of abolition as 6 April 2012. In June 2011, the House debated and approved the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011, which makes consequential amendments to primary legislation, consistent with the abolition of defined-contribution contracting out. At the time of that debate, a minor defect in the operation of article 3 of the 2011 draft order came to light. I therefore made it clear to the House that I would return with a further amending order before the 2011 order came into force.

Accordingly, the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 will remove the exclusion of protected rights payments from what counts as income for the purposes of income payments orders made under section 310 of the Insolvency Act 1986, and from the scope of section 159 of the Pension Schemes Act 1993, which provides that guaranteed minimum pensions and protected rights payments cannot be assigned or charged. The draft order will bring consistency with our original policy intention, namely that the tracking of protected rights should cease after the abolition of defined-contribution contracting out.

[Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend not think that it is really rather a tribute to his work that the orders are so non-controversial that there is not a single Opposition Back Bencher in the Chamber to discuss the uprating of all the benefits that this country has? I pay tribute to him and congratulate him on that stunning achievement, which I do not think has ever been replicated.

[Steve Webb]

I am most grateful, although my initial oratory has already drawn one hon. Member into the Chamber. If I keep going for long enough, who knows? My hon. Friend is right to pay tribute to the coalition for finding the money to protect the most vulnerable households at a time of economic stringency. He can share in that credit.

On the principal order—the draft Social Security Benefits Up-rating Order 2012—despite that challenging economic landscape, the coalition is committed to protecting people who have worked hard all their lives, poorer pensioners, people who are not able to work through their disabilities, and people who, through no fault of their own, have lost their jobs and are trying to find work. Those are important aims for uprating 2012, which my right hon. Friend the Chancellor of the Exchequer made clear in his autumn statement on 29 November, Official Report, column 802.

[Mr David Ruffley (Bury St Edmunds) (Con)]

Has the Minister had any representations regarding the apparent iniquity of uprating by CPI on the basis of one month’s figures—those for September?

[Steve Webb]

My hon. Friend is right that when the uprating was considered, there was speculation that a different month, or a rolling average or something like that, might be used. It was decided to continue the practice of using the September CPI, but I would stress that that is not a one-month figure, but a figure published in one month about the past 12 months. Although as it happened 5.2% was the peak—I think I am right in saying that it was lower in the month before and the month after—each 12 months joins on to another 12 months, so in another year, the September figure could be the lowest. We took the view that that was the established practice, and that changing it could leave it open to manipulation. Although in a particular year it can stand out, when we take one year with the next, it will sometimes be lower and sometimes higher.

As hon. Members know, using the CPI measure of inflation was an important part of this Government’s plans for uprating pensions and benefits. I am delighted that we will have a debate on that very subject next Thursday afternoon—I look forward to being here at the same time and the same place next week. In addition to being the headline measure of inflation in the UK and the internationally recognised target measure of inflation used by the Bank of England, we believe the CPI is a superior measure of inflation when it comes to uprating benefits and pensions, first because the CPI basket of goods is a better match for the spending patterns of pensioners, and secondly because it takes better account of how households respond to price changes.

Last year, the High Court upheld the Government’s decision that the CPI can be used for pensions and benefits uprating and we have robustly defended our case in the Court of Appeal.

[Stephen Timms (East Ham) (Lab)]

As the Minister knows, the UK Statistics Authority has said that CPI should be used for that purpose only if it incorporates a measure of housing costs. I know some work is being done to incorporate such costs in the CPI measure, but is it the Government’s intention to use that modified measure when it is available?

[Steve Webb]

The right hon. Gentleman rightly says that the consumer prices advisory committee is looking at how owner-occupiers’ housing costs can be included in CPI—as he will appreciate, rent is already included in CPI. The committee has rejected the retail prices index approach in respect of mortgage interest and is looking at a range of alternatives. I understand that it is due to report in early 2013. I have said consistently that we will look at what it comes up with. Each year, as he knows, the Secretary of State must take a view on the general increase in prices, and will certainly have regard to the work of the committee in doing so.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I am grateful to the Minister for addressing one issue that I wanted to raise with him, but I am also concerned that pensioners’ and disabled people’s experience of inflation is dependent on their heating costs, which was one of the main drivers of inflation last year. My concern is that CPI is not a good measure of people’s experience of inflation, because those people experience higher inflation than the rest of us, who go out during the day.

[Steve Webb]

The hon. Lady is right that any single inflation measure will not capture the full diversity of circumstances. One of the main differences between RPI and CPI is that RPI includes mortgage interest, which is largely irrelevant to most pensioners. By excluding mortgage interest from its basket of goods, the CPI gives more weight to the things on which pensioners spend their money. Other things being equal, CPI will therefore tend to be a better fit with the spending patterns of pensioners.

The hon. Lady is right that rising fuel prices are an important issue. That is one reason why instead of simply doing our legal duty by the poorest pensioners, which was to uprate the pension credit by earnings only, which was 2.8%, we chose to do a full pass-through of the £5.30 basic state pension rise to the poorest pensioner on pension credit precisely because they have faced the pressures she describes. We are aware of that point and have sought to do something in this uprating measure to address it.

[Oliver Heald]

I am grateful to the Minister for being so generous with his time. Does he agree that some quite significant changes are taking place in the hierarchy of indexes that can be used for uprating? For example, earnings, which was always thought to be by far the highest measure, is at the moment the lowest measure. In addition, changes in the housing market have affected the CPI and RPI differential. It is therefore a moving picture. It is not as straightforward as saying, “History tells the whole story.”

[Steve Webb]

My hon. Friend is right. I noticed in the most recent figures that the gap between CPI and RPI was just 0.3%. That is historically low, but the numbers and relative values change a great deal. That is why our triple lock says of the basic state pension, “If it’s prices that give you the highest number, we’ll pay that; if it’s earnings, we’ll pay that; and if it’s 2.5%, we’ll pay that.” We were determined to ensure that pensioners got the best deal for the basic state pension whatever was happening to the relative value of those numbers.

As I made clear in my statement to the House at the end of last year, this Government will use the full value of the September CPI to uprate pensions and social security benefits from April 2012. At a time when the prevailing headline figure for CPI has already fallen to 3.6% and is forecast to fall further during this year, we shall be uprating the overwhelming majority of pensions and benefits by 5.2%.

[Glyn Davies (Montgomeryshire) (Con)]

Perhaps I should declare an interest, having reached an age at which I benefit personally from this uprating. Normally, a lot of constituents who are concerned about the increase will contact their MP. This year, none has contacted me, which demonstrates a general acceptance among the population that the Government’s decision is fair.

[Steve Webb]

The volume of my ministerial correspondence on this issue has been very light. Almost all of it was with people who were afraid because they had seen speculation that we might water down our promises. I have been able to write reassuring letters to them to say that we will honour our promises in full.

[Katy Clark (North Ayrshire and Arran) (Lab)]

I apologise for missing the beginning of the Minister’s opening remarks. Will not the change mean a reduction from 5.6%, which would have been the uprating had we used RPI? Is the Minister aware that we have a Back-Bench debate on the matter because more than 100,000 people have signed a petition against the changes, particularly as they affect pensions? It therefore surely cannot be the case that people are happy about the changes.

[Steve Webb]

The hon. Lady may not have been in the Chamber when I referred to next week’s debate, when we will debate such issues at greater length. I was not aware that it was Labour party policy to revert to RPI—its view for now is that CPI is appropriate. She might want to raise that with the right hon. Member for East Ham (Stephen Timms), who is on the Opposition Front Bench. For the reasons I have given, our judgment is that the CPI basket of goods matches the spending patterns of pensioners. The Institute for Fiscal Studies has confirmed that modelling and people’s response to price changes is better with CPI than in RPI. No index is perfect, but there is a good case for using CPI.

Funnily enough, when I attended a National Pensioners Convention event in the House a few months ago, the people there all demanded CPI, which shows how the debate has moved on. I am sure the hon. Lady has a press release saying that more is being demanded, but the tenor of the debate was that there was speculation that we would not honour our triple-lock promise. They said: “Minister, will you guarantee us the triple lock—prices, earnings or 2.5%? Will it be the 5.2% that we have just seen?” That was commendable realism on the part of the National Pensioners Convention—that is its role in life—but things may have moved on now it has banked the 5.2% in the current environment. In fact, 5.2% is the biggest cash increase ever and one of the biggest real-terms increases in a long time. I am proud to stand by that figure.

Restoring the earnings link for the basic state pension was an early action by this coalition Government, putting an end to 30 years of deterioration in the value of the foundation of retirement income relative to average earnings. Better than that, we went one further with our triple guarantee to pay the highest of the growth in earnings, prices or 2.5%, so that even in times of slow earnings growth, we will not see a repeat of the small rises, such as the 75p rise in 2000, presided over by the Labour party.

In line with the triple guarantee, the new rate for the basic state pension, received by more than 11 million people in this country, will be £107.45 a week for a single person, an increase of £5.30 a week. My hon. Friends in the coalition may be interested to know that that means that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, which is a higher share of average earnings than in any year of the previous Labour Government from 1997.

[Stephen Timms]

A minute or two ago, the Minister said that this was the highest ever real-terms increase to the state pension.

[Steve Webb]

No.

[Stephen Timms]

I thought that was what the Minister said. Perhaps he can clarify that point, because by definition it cannot be a real-terms increase.

[Steve Webb]

It is the highest cash increase ever and the highest real-terms increase for about 10 years.

[Stephen Timms]

Given that the increase is purely in line with inflation, how can the Minister describe it as a real-terms increase?

[Steve Webb]

Because the point at which the money is paid is not the point at which inflation is measured, so when people actually get the money it will be substantially more than the inflation since the last increase.

[Stephen Timms]

This takes us back to the point raised by the hon. Member for Bury St Edmunds (Mr Ruffley). The Minister is making a virtue out of a timing point rather than a substantial point. He is a modest man, and I am sure he will accept that the Government cannot claim credit for inflation being slightly lower now than it was last September.

[Steve Webb]

On the contrary, let us bear in mind what the Government have done: the Chancellor has taken action on the taxation of petrol, resulting in inflation being lower than it would have been, and we have successively frozen council tax in many parts of the country, which is of huge benefit to many pensioners. There are many things that Governments do that influence inflation. Some factors are global, which is one reason inflation peaked at 5.2%, but measures that the Government have taken have also been one reason prices have been falling. That is entirely to the Government’s credit.

[Stephen Lloyd (Eastbourne) (LD)]

Does my hon. Friend agree that the Government came under considerable pressure not to opt for 5.2% because informed opinion thought that inflation was falling, but with strong urging from the Liberal Democrats in the coalition, the Minister determinedly stuck to the 5.2%, which has made it a real-terms increase?

[Steve Webb]

Indeed. My hon. Friend is right that there were siren voices from some quarters suggesting that we could not afford, or that we should not go for, this inflation figure. He is absolutely right that the coalition parties decided that it was a priority. That is something that I am proud to be associated with.

[Oliver Heald]

Does the Minister agree that the Government have also gone further than they needed to on the pension credit? The requirement is to uprate by earnings but he has gone one better by increasing it by 3.9%. So not only were the siren calls resisted, but more generosity was shown to the poorest pensioners.

[Steve Webb]

There was indeed. My carefully structured speech is falling to ribbons. I was about to come to that achievement.

[Ian Paisley (North Antrim) (DUP)]

Although I understand the point about the real increase in the state pension from £102.15 to £107.45, I do not consider it something to be doing cartwheels about. In reality, it will not have a major impact on the lives of the elderly across this nation, especially given that just a few weeks ago, the House removed £100 from the winter fuel allowance. Effectively, the oldest pensioners are £50 a year worse off, not better off. I think that we have to get real. This is not enough.

[Steve Webb]

Let me address that issue directly. Any pensioner will say that the basic state pension is the most important thing to them: they like the winter fuel payment and they like the means-tested benefit—well, they do not always like it but it is valued by those who receive it—but a decent state pension has been the clarion cry of pensioners for decades. For 30 years, pensions have fallen, year on year, relative to earnings, and consequently the ability of the basic state pension to do its job of replacing earnings has been falling for 30 years. We have reversed that.

The pension will now rise at least in line with earnings, but in years such as this, when price rises are higher than earnings increases, it will rise by more. So the position of pensioners relative to people in work has been improved by this uprating statement. Can we go further? Yes. And we will, because under the triple lock, over a typical retirement, someone retiring this year will gain £13,000 of retirement pension over and above RPI. Can we fix 30 years of decline in a single year? No, of course not, but we can focus the money on the thing that pensioners value the most—the basic state pension.

As I have mentioned, with the triple guarantee protecting the value of the basic state pension in the longer term, the average pensioner retiring this year on a full—I should have said that—pension will gain about £13,000 compared to the old price link.

I shall turn to the additional state pensions, which are commonly referred to as SERPS—state earnings-related pension scheme. In April 2010, just before the start of this Parliament, the uprating was based on the year to September 2009, when RPI was negative. That means that in April 2010 the previous Government froze SERPS—I assume they thought that pensioners had not experienced inflation the preceding year. In April 2011, however, we increased SERPS by 3.1%, and this year SERPS, as well as the basic state pension, will rise by the full 5.2%. That means that the total state pension increase for someone with a full basic pension and average additional pension will be around £6.70 a week, or £348 a year.

When it comes to the standard minimum guarantee in pension credit, the legislation requires only that an increase be at least in line with the growth in average earnings, so that over the long term the poorest pensioners see their incomes rise in line with the income of the working-age population. As my hon. Friend the Member for North East Hertfordshire (Oliver Heald) said, however, this year the relevant earnings index stood at just 2.8%. We judged it unacceptable for the poorest pensioners on the guarantee credit to receive the smallest cash increase of all. Our aim was to ensure that the poorest pensioners received an increase in line with the cash increase to the basic state pension.

As a result, the order increases the single person’s rate of the standard minimum guarantee by £5.35, taking it to £142.70 per week from April 2012. To help manage expenditure, we have funded the above-earnings increase to the standard minimum guarantee by increasing the savings credit threshold, which means that those with higher levels of income could see less of an increase. However, given the increase to the basic state pension, no one should have a lower weekly income as a result of uprating. This approach enables us to target resources for the poorest pensioners on the guarantee credit.

I shall turn briefly to working-age benefits. The coalition will ensure that the value of other social security benefits is maintained, through a 5.2% rise, even in these tough economic times. That means, for disabled people above and below pension age, through disability living allowance and attendance allowance, an increase of 5.2%; for people of working age who are not fit for work, through employment and support allowance, an increase of 5.2%; and for people who have lost their job through no fault of their own, through jobseeker’s allowance, an increase of 5.2%. These increases will ensure that the most vulnerable people in society are protected and that those looking for work get the support they need to move into the labour market.

The order gives real support to protect people against price increases. At a time when the nation’s finances are under severe pressure, the Government will spend an extra £6.6 billion in 2012-13 to protect people against cost of living increases. I cannot help observing that, if someone spends too much time in the DWP, lots of zeros tend to make them glaze over, but this is £6.6 billion of help for some of the most vulnerable people in the country: £4.5 billion more on pensioners; over £1 billion more on disabled people and their carers; and over £1 billion more on people unable to work through sickness or unemployment.

We have protected the triple lock, thereby securing the largest ever cash rise in the basic state pension; we have uprated the pension credit so that the poorest pensioners benefit from the triple lock; and we have uprated working age benefits by 5.2%, thereby protecting the real incomes of the poorest. I have outlined the coalition Government’s firm commitment to ensuring that even in these difficult times no one is left behind, and I commend these orders to the House.

12:58

[Stephen Timms (East Ham) (Lab)]

The Minister has helpfully explained that we are dealing with three separate orders, aspects of which are welcome but others of which are decidedly unwelcome. I shall make it clear where we do not support the Government.

The Pensions Act 2008 (Amendment) Order—to give it a rather briefer title than the one the Minister used—makes minor amendments to protected rights over payments of defined contributions contracted-out pension schemes. As he said, the underpinning legislation is the Pensions Act 2008. I accept that the order is necessary to clarify a following order, and I have no objection to it.

The most substantial of the orders—the one that I am sure this debate will focus on—is the Social Security Benefits Up-rating Order 2012, which, as the Minister said, uprates most out-of-work benefits and the basic state pension in line with the consumer prices index. For most out-of-work benefits, this will be the second year that CPI has been used rather than RPI, but for the basic state pension it is the first year. Members might recall that, like this year, last year the Government trumpeted their triple lock on the basic state pension.

I recall that in the debate last year the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), who unfortunately is not with us today, congratulated his hon. Friend the Minister on his success in introducing the triple lock—only, the Government did not, in fact, apply it last year. Under the triple lock, the basic state pension would have been uprated by CPI, which was a long way below RPI last year, so the Minister—prudently, I think—decided to overrule his triple lock on its first outing and instead operate the old mechanism, uprating the basic state pension by the higher rate, RPI. In doing so, he exposed to public view the weakness of his triple lock. He had to override it in the first year it was due to be applied. Advertised as a safeguard for pensioners, the triple lock in fact undermines pensions uprating.

The Government have told us that the switch from RPI to CPI is not simply a deficit reduction measure. Instead, the justification for the switch is that, as the Minister said again today, CPI is a more accurate measure of changes in the cost of living for pensioners. Last year the Minister told us that he viewed CPI as

“the most appropriate measure of price inflation for this purpose,”

and that he saw

“no reason to change it in the future.”—[Official Report, 17 February 2011; Vol. 523, c. 1174-77.]

However, the view that RPI, let alone CPI, is an adequate measure of pensioner inflation is one on which many pensioners would take issue with him, as the hon. Member for Banff and Buchan (Dr Whiteford) suggested a few minutes ago. I was interested in the Minister’s view that the National Pensioners Convention is happy with CPI uprating. However, as the Civil Service Pensioners Alliance, among others, has pointed out in its briefing:

“The Royal Statistical Society…has said that CPI fails to reflect the spending patterns of pensioners and the rising costs they face. The Institute for Fiscal Studies”—

to which the Minister referred—

“has shown that most pensioner households are not shielded from many of the costs excluded from CPI. The UK Statistics Authority…has said that they do not believe the CPI should become the primary measure of data inflation until housing costs are included,”

which is a point that he touched on in response to my intervention.

The Minister has tried to paint the change as simply a sensible bureaucratic change, not one that is ideologically motivated or that represents a cut in the income of pensioners, but in reality that is not the case. As the UK Statistics Authority put it last year:

“Questions about compensation, who to compensate and what for, are straightforwardly political questions, not for statisticians.”

In other words, this is a matter for political decision. Let us be frank with people: the Government have chosen to uprate benefits and pensions permanently in a way that, in the case of benefits, will usually be meaner than the method used before and, in the case of pensions, was meaner this year and last year, which is why the Government overrode it last year and used the old method instead.

[George Hollingbery (Meon Valley) (Con)]

I seem to recall some embarrassment in the Labour party back in 2000 when the low rate of 1.1% was used to uprate pensions, the result of which was a 75p increase. Does the right hon. Gentleman agree that, under this Government, the triple lock will ensure that 2.5% is the minimum that can be paid?

[Stephen Timms]

Of course, that is indeed the effect of the mechanism that the Government have chosen. I would simply point out to the hon. Gentleman that if the previous method was still in place, there would be a higher increase in the basic state pension than the Minister has announced today.

[Ian Paisley]

The right hon. Gentleman has mentioned the triple lock, which interests me and which applies only to the basic state pension. A number of charities, such as Age Concern and others, have contacted me about this issue. They argue that the Government should apply the triple guarantee to other elements of the state pension, including the additional pension allowance. Does he agree that that would make good sense?

[Stephen Timms]

That is a matter that the Minister may well want to comment on in his response to this debate. In my view, the triple lock is certainly not the wonderful device that the Government maintain it is. As I have said, it is leading to a lower uprating of the basic state pension in the year ahead than if the RPI mechanism was still being used.

[Oliver Heald]

Does the right hon. Gentleman agree that we need to exercise judgment about what the increase should be? One of the faults of the last Government was to be too rigid. My hon. Friend the Member for Meon Valley (George Hollingbery) has already mentioned the 75p increase, but there was also the freezing of the additional pension, which, again, was considered a mean act. Is it not right for the Government to take a judgment and—on pension credit, for example—to make increases well above the rate that they have to use, which is earnings, and instead use a higher measure, in order to be fair?

[Stephen Timms]

The hon. Gentleman’s argument is a different one from the Minister’s. The Minister says that because of the triple lock, pensioners are safeguarded and need not worry about what future judgments Ministers will make. In a way, I am rather more with the hon. Gentleman on this than with the application of the formula. Again, however, I would point out that last year—the first year that this supposedly wonderful mechanism was in place—the Government overrode it. I am therefore not quite sure what certainty pensioners would have for the future about whether, in the event of siren voices being heard—we heard about those earlier—the triple lock might be overrode in the other direction, if someone judges that to be appropriate.

[Steve Webb]

Will the right hon. Gentleman confirm that the statutory position that his Government left—and which was the basis of the spending plans for 2012 that they published for us—was based not on the higher of either prices or earnings but on earnings alone, and that the pension rise that his party pencilled in for 2012 was not five-and-a-bit per cent., but more like 2.5%?

[Stephen Timms]

As the Minister well knows, the basic state pension was uprated over a long period in line with RPI. My point is simply that if that mechanism was still in place, there would be a greater increase in the current year than the Minister has incorporated in the order before us today.

[Steve Webb]

But if the right hon. Gentleman thought that in the event of prices being higher than earnings he would choose prices, why did he make it the statutory position that just earnings would be used, therefore pencilling in an earnings-only increase for 2012, which meant that we had to find extra money to do better than just earnings this year?

[Stephen Timms]

It is probably the case that the Government’s poor performance on inflation—to go back to a point the Minister made earlier—and the resulting high level of inflation have been a surprise. I do not think anyone expected inflation to rise so rapidly. However, I want to underline the point, which the Minister has not acknowledged yet, that if RPI was still in place for the coming year, the increase for pensioners would be higher than the order in question sets out.

The judgment to adopt this approach of using a permanently meaner version of uprating than was in place before is one that we oppose. Of course there is a pressing need to reduce the deficit. We know, as does the International Monetary Fund—and, it would seem, the credit rating agencies and, this week, the former Defence Secretary—that reducing the deficit requires economic growth, which is strikingly absent at the moment. With the economy not creating enough new jobs and so many people out of work, not paying taxes but instead claiming benefits, targets for reducing the deficit will just keep being pushed back further and further. We heard in the autumn statement that we will be borrowing £158 billion more over the lifetime of this Parliament than on the last estimate, because the Government’s economic policy has failed to deliver growth and the economy has flatlined. If, instead of the permanent switch to CPI uprating, a temporary switch had been proposed—with the aim of contributing to deficit reduction over a short period—that might, in our view, have been justified, but we do not support the Government’s policy of a permanent switch to meaner uprating.

In the debate last year, the Minister attempted to make something of the fact that, for five of the past 20 years, RPI had been lower than CPI. Well, it was not lower last year, and it is not lower this year. RPI has generally been higher. Since 1989, the gap between RPI and RPI minus X and the CPI measure has been 0.7% on average. The Office for Budget Responsibility’s November economic and fiscal outlook suggests that the long-run difference between RPI and CPI is likely to be a good deal more, at about 1.4 percentage points. That is twice as much as that historic average, so the OBR thinks that the gap between RPI uprating and the CPI uprating that the Government want to apply in perpetuity is going to get bigger, not narrower.

[George Hollingbery]

I think I understood the right hon. Gentleman to say that he has made a commitment that, had a Labour Government been in power now, they would have uprated pensions using RPI. Has he calculated how much that might cost, and is that a spending commitment that he is prepared to make here today? Secondly, if he is arguing for RPI uprating in future, does he have any idea of the long-term commitment that that might involve for the Government?

[Stephen Timms]

I shall deal with the last point immediately. I have said that if this Government had proposed a temporary switch to CPI uprating in order to contribute to deficit reduction, we would have looked seriously at that argument. It is the permanent downgrading of the uprating method for pensions and all other benefits that we think is wrong.

The DWP impact assessment from July last year told us that the impact on occupational pensions over the next 15 years would be more than £70 billion, and I think the Minister has said that it would be more than £80 billion. It will certainly involve a very large figure indeed. In this coming year, the gap between CPI and RPI—the figure that has been used refers back to last September—is relatively small, at 0.4%. I think the Minister is hoping that pensioners will not notice that his triple lock, which sounds so generous, is in fact delivering a lower increase than the long-established formula used by all Governments until this one. High inflation makes this a substantial cash increase, but, given what the Minister has said about the importance of keeping inflation low, it is not greatly to this Government’s credit that the cash increase is so large.

[Stephen Lloyd]

Does the right hon. Gentleman agree, however, that if the Labour Government had used the triple lock, there would never have been the scandalous scenario of a few years ago when Labour gave pensioners an increase of 75p?

[Stephen Timms]

The point I am making is that if the RPI method were in place for the coming year, the increase would be larger than the one in the order before us today.

[Sarah Newton (Truro and Falmouth) (Con)]

I acknowledge the right hon. Gentleman’s deep knowledge of this subject, but he is not giving the House an entirely accurate picture. For the longest period, the state pension was linked to average earnings, but it suits his argument today to make a comparison with RPI. The huge benefit of the triple lock is that it provides a choice. Average earnings could be taken into account, for example, and if they grew between 6% and 7%, so would pensions. Also, there is always the floor of 2.5%, which would prevent a repeat of the disgrace of giving pensioners 75p, as happened under the last Government.

[Stephen Timms]

I thank the hon. Lady for her generous remark. There is some merit in having an earnings underpin to the system, but I say again that, for the year ahead, RPI would give a higher increase than the triple lock has delivered. That was the case last year as well, which is why the Government set the triple lock aside in the first year it was supposed to be in place. This year, the difference is much smaller, at 0.4%, and the Government must be hoping that people will not notice that the triple lock is delivering less than an RPI uprating would have done. However, in principle, having an earnings underpin as well is entirely helpful.

[Sarah Newton]

But does the right hon. Gentleman not see the benefit for pensioners and the wider economy of the certainty provided by the triple lock? People can now plan for their retirement, and the Exchequer can plan for the economy.

[Stephen Timms]

It is not clear what the degree of certainty is. As I have said, the triple lock was overridden last year because it would have given such a low rate of uprating. This year, it has been applied because there is not much difference between RPI and the triple lock. So no, I do not think that any kind of rock-solid certainty has been introduced; the triple lock was waived the first time it was supposed to be put in place.

[Andrew Bingham (High Peak) (Con)]

The right hon. Gentleman talks about certainty, but will he acknowledge that the triple lock will give pensioners the certainty that they will no longer get the derisory 75p they got when his party was in government?

[Stephen Timms]

As I have said, in the first year that the triple lock was due to be put in place, it was overridden, so I am not sure about the certainty to which the hon. Gentleman refers.

[Oliver Heald]

The right hon. Gentleman is being a bit naughty. It is a general provision in many pension schemes that there is a method of indexation, and it is often permissible to exceed it. To exceed the triple lock is not to break it; it is simply to be more generous. I do not think that “overridden” is the right word to use.

[Stephen Timms]

I deny being naughty. I am simply making the point that the Government have been telling pensioners that they are now in a wonderful new era, thanks to the triple lock, yet it had to be overridden in the first year it was supposed to be in place because it was not delivering an adequate increase. I am not persuaded that the degree of confidence that Conservative Members believe to have been bestowed on pensioners is a reality.

[Ian Paisley]

Far be it from me to encourage the right hon. Gentleman to be naughty, but is there not a certainty that pensioners—those over 80 in particular—are now going to be £50 a year worse off because of the loss of the winter fuel allowance additional payment?

[Stephen Timms]

The hon. Gentleman is absolutely right. People will feel that loss to a significant extent.

Those big figures, £70 billion or £80 billion, are a direct hit on the incomes of pensioners. They have paid into a pension, in many cases throughout their entire working lives, on the understanding that it would be indexed in a particular way. The Civil Service Pensioners Alliance notes that many of them will have

“entered into particular financial arrangements such as the purchase of added years, the conversion of lump sums into pensions and acceptance of moves to other employers on TUPE terms on the basis that future indexation will be linked to RPI”.

That contributory deal, understood and signed up to by pensioners, is being broken for good—permanently. KPMG has estimated that the total cost of the move to CPI uprating across the pensions system to public sector and private sector pensioners over the next 40 years will be £250 billion. The Government tell us—Conservative Members have just attempted to make this point as well—that pensioners will appreciate the stability. I have to say that they would appreciate even more having an income that kept pace with their costs.

I want to ask the Minister one specific question. The UK Statistics Authority has made the case that

“CPI should become the primary measure of consumer price inflation, but only when the inclusion in the index of owner occupiers’ housing costs has been achieved.”

I am grateful to the Minister for explaining the timetable he envisages for a change to the CPI mechanism possibly being introduced. He has not committed the Government to introducing such a change, but he has indicated when they expect to be in a position to do so. However, does he acknowledge the UK Statistics Authority’s point that, as things stand, the CPI is not an adequate measure, because of the exclusion from it of important elements of housing costs?

[Dr Whiteford]

The right hon. Gentleman has advocated a temporary use of CPI, but will he clarify whether he is advocating a return to the use of RPI at some future date? If so, when that would be?

[Stephen Timms]

I am simply making the point that if the Government had proposed a temporary switch to CPI uprating, perhaps for three years, that would have been a reasonable proposition for us to consider. As it is, we have this permanent switch, which we oppose. As to what we will do when elected to government, I will have to ask the hon. Lady to wait until the publication of our manifesto ahead of the next election, which she and many others will be eagerly awaiting.

Will the Minister say more about what will happen once this revised formula for CPI has been drawn up and published by the UK Statistics Authority? Can he provide any encouragement that the Government will in fact use what will almost certainly be a higher rate resulting from that, or will they wish to stick with the current, lower CPI figure—the one being used for the coming year?

This order also provides for an increase in the standard minimum guarantee element of the pension credit—3.9%, as the Minister said, which is above the increase in earnings to which it would be statutorily tied. It is not clear to me how the 3.9% figure has been arrived at; can the Minister shed some light on that? I do not intend to object to it. As the Minister also said, to pay for the increase, the threshold for the savings credit element, which rewards those who have made their own provision for retirement, has been increased by 8.4%—quite a large amount. The maximum savings credit payable has been reduced by about £2 a week. The reduction in eligibility was made clear when this policy was announced, but the reduction in the maximum amount was not announced at that time.

How many people does the Minister expect to be affected by those changes, and what financial savings will each of them realise for the Exchequer towards the cost of the slightly higher uprating of the minimum guarantee element of the pension credit? We need to recognise that what is happening here is that money is being taken away from slightly better-off pensioners who are still receiving pension credit in order to give to those who are dependent on the guarantee element.

Let me press the Minister on one specific question about CPI uprating. The Government are freezing local housing allowance rates from April in preparation for the linking of the benefit to CPI. To put it politely, that has not been well publicised. One might almost think that the Government would prefer it if people were not made aware of it. When the policy was originally announced, the impact assessment said:

“Some savings are assumed in 2012/13, on the assumption that LHA rates will be fixed at some point ahead of the first uprating.”

It did not say that it would be fixed for the entire year, which is what the Government are now saying. What is the Minister’s justification for doing that?

Local housing allowance rates will be calculated annually as either the lower of the rent at the 30th percentile of local rents or the previous year’s allowance uprated by CPI. That is my understanding; perhaps the Minister will confirm whether I am right. What that means, of course, is that LHA rates will fall over time below the 30th percentile of local rents. Surely Ministers should commit to ensuring, as they seem to have indicated, that at least 30% of local rented housing supply will be affordable to tenants on LHA; otherwise, there is no clear definition of what Ministers expect the LHA to deliver in each local area. Let me ask the Minister directly: what proportion of the local housing market do Ministers think should be affordable for tenants on housing benefit? When will they step in, and how far does the proportion have to fall before they will step in to uprate the LHA level back up to, hopefully, the 30th percentile point?

I have another query about housing benefit. In paragraph 4 of part 20 on page 14 of the order, the maximum deductions from benefit in respect of heating, cooking, hot water and lighting, when those costs are included in the rent and paid to the landlord, are being raised substantially by 18%. Will the Minister say a few words about why those deductions from benefit have been increased so much?

The Guaranteed Minimum Pensions Increase Order requires occupational pension schemes to uprate their guaranteed minimum pensions by their 3% share of CPI, with the state meeting the remainder of the costs. These provide an important floor to defined benefit schemes so that individuals do not get less than they would if they had remained on the state second pension. The 3% increase would have occurred under either CPI or RPI uprating, so it is not objectionable in itself.

This year we are debating these orders as proceedings on the Welfare Reform Bill seem to be drawing to a close.

[Stephen Lloyd]

I have enjoyed listening to the right hon. Gentleman. In my time in Parliament, I have always appreciated his fairness when he debates various issues. I would like to press him on one matter. He said at the beginning of his speech that he agreed with the Government on some aspects of the uprating. Thus far, however, I have mainly heard about where he disagrees with the Government about the uprating, so I would be grateful if he clarified what he thinks is good about it.

[Stephen Timms]

I am grateful to the hon. Gentleman for not accusing me of being naughty—indeed, rather the reverse. I have drawn attention to a number of points of agreement with the Government. For example, I do not object at all to the Guaranteed Minimum Pensions Increase Order. On its own, the increase in the pension credit guarantee level is welcome. We need to know a little more about how it is going to be funded, but it is a good thing in principle, as I said. I also made it clear that I had no objection to the first order I commented on. I thus hope that I will manage to maintain my reputation for fairness—at least in the hon. Gentleman’s mind.

As the debates on the Welfare Reform Bill come to an end, it is important to place this measure in the context of the Government’s wider changes, which will penalise pensioners and in some cases make it impossible for people of working age to save. Couples with one member drawing near to the state pension age are unaware that, as a result of the Welfare Reform Bill, if the other member is younger they will not qualify for pension credit, so the household will not benefit from the increase in the pension credit guarantee level to which the Minister drew attention—I understand why he did so. Couples who live in council or housing association accommodation and claim housing benefit will face the under-occupation penalty; if one of them is below the age of entitlement for pension credit, it will be applied to them as well.

Families on tax credits do not yet know that they will be punished for saving. If they are trying to save up for a deposit on a house or for a child’s university education, and have managed to save more than £16,000—such people have been and are currently entitled to tax credits—they will not get any universal credit at all. For some, universal credit will make it impossible to save. The Minister made a virtue—again, I understand why he did so—of the 5.2% increase in the level of contributory employment and support allowance in the order. What he did not mention was that 100,000 people will lose out when the time limit on contributory employment support allowance comes into effect. If, against all our efforts, the Welfare Reform Bill achieves Royal Assent in time, those 100,000 people will lose out at the beginning of April and another 100,000 will lose out in the following year as they hit the one-year limit. That is the world that the Welfare Reform Bill is ushering in.

We recognise that there are elements in these orders that are acceptable—some, let me say again for the hon. Member for Eastbourne (Stephen Lloyd), are even welcome. Other elements, however, and in particular the permanent adoption of a lower rate of inflation uprating for pensions and other benefits, we cannot support. For that reason, we will be unable to support the Government in the Lobby.

13:29

[Sarah Newton (Truro and Falmouth) (Con)]

It is a great pleasure to be able to speak in the debate, and it saddens me that I to have to begin my speech with the comments that I am about to make.

During yesterday’s debate—I sat through most of it, and have read the Hansard report—we were subjected to hours and hours of party political point scoring, with barely a mention of patients. Today, too, we have heard very partisan comments. Rather than constructive opposition or suggestions of what the Opposition might do to help the Government tackle the difficult issues that we face, we have simply heard opposition for opposition’s sake. A great many criticisms and partisan points have been made, but we have been given no real indication of what the Opposition would do.

That is not just saddening for me, but very annoying and upsetting for the hundreds of thousands of people who sent us here, and sent us here at a time when our great nation is in great peril. We have inherited a dreadful economic legacy, and we are facing huge changes in the way the world is operating. All that requires a Government with terrific purpose, who are able to govern for the common good and deliver the huge changes that we need now and in the future.

The fact that our two parties have come together in a coalition has prompted many sneers and giggles from the very few Opposition Members who are present to take part in this important debate; but we have come together, and we are facing up to those challenges. It is true that we must make some very difficult decisions, but I believe that those decisions are underpinned by exactly the right principles of fairness. We as a Government are trying to live within our means, and not to spend more public money than we take in taxes. It is necessary for us to make decisions about who is to receive the money that we have, and we are clear about the fact that we want the most vulnerable people in our society—those who need it most—to receive that money.

Like every other Member in the Chamber, I know that many hard-working families in both the public and the private sector are suffering a terrific squeeze in their incomes. There are people who have experienced pay freezes, if not pay cuts, and people who are losing benefits. I know that the difficult decisions that we have had to make will affect a large number of those hard-working families, but I also know that they have elderly relatives and neighbours and want to see a Government who will do the right thing for the elderly people in our society. Tough choices are having to be made—awful decisions about child benefit, child tax credit and working tax credit—but I believe that those families will be pleased that we are standing up for our principles, and ensuring that people living with disabilities and that elderly relatives are given a decent rise in their pensions.

I agree with some of the comments that have been made. I am not doing cartwheels. People living on a state pension, even those receiving pension tax credits, are not living in the lap of luxury; that is a modest income for many people. However, I am proud to be part of a Government who are increasing benefits in a way that will enable people to enjoy a decent standard of living.

We have discussed changes relating to the cost of heating homes. I have a great deal of sympathy with the Members representing parts of Northern Ireland who have spoken today. Like Cornwall and other rural parts of the United Kingdom, Northern Ireland contains a huge number of people who are off grid. Nevertheless, there is a constant and very upsetting misrepresentation of the Government’s policies on dealing with the important issue of fuel poverty and the excess winter deaths that go with it. With your indulgence, Madam Deputy Speaker, I will tackle that, because such comments—which have been made persistently today—engender a huge amount of fear among the many pensioners and their families who listen to our debates.

It is true that there have been changes in the winter fuel allowance, but there is also the warm home bonus of £120. The Government have made money available for innovative projects, and I want to spend a bit of time telling the House about a project in Cornwall, the healthy living programme, for which the Department of Health has provided money this winter. Members of housing authorities, Cornwall council and social services departments, GPs, Age UK and a range of other charities are working in partnership, targeting the families—many of them elderly—who are at the greatest risk of suffering badly as a result of the cold weather this winter, and making sure that all available help is provided.

As we all know from our constituency work, hundreds of millions of pounds of benefits are out there for the most vulnerable people, but those are often the people who are least likely to avail themselves of benefits, whether they take the form of actual cash benefits from the Department for Work and Pensions, free insulation, or advice and information. The members of that group in Cornwall are doing highly effective work to ensure that now, this winter, the help that is available is reaching those who need it. I am very pleased that Ministers from the Department are coming down to Cornwall to meet them, and to observe at first hand the way in which, with the assistance of relatively modest sums—our grant was £140,000—team work, thinking outside the box and doing things differently is saving people’s lives and contributing to the quality of life this winter.

[Dr Whiteford]

Obviously I cannot speak for the Northern Ireland Member who raised the issue pertaining to his constituents, but as I represent a rural constituency in which people pay excess prices for their fuel and often have no access to social tariffs, I am very concerned about that as well.

The underlying issue, which I raised with the Minister, is that older people and people with disabilities who spend a lot of time in their houses are increasingly more affected by inflation than those of us who spend most of our day outside our homes. Both the Office for National Statistics and the Institute for Fiscal Studies have pointed out that older people experience inflation at a higher rate than the rest of us, as do people on low incomes. The evidence is there. What concerns me is that CPI does not measure accurately the actual experience of people’s costs, which are higher than either CPI or RPI—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I remind the hon. Lady that she is making an intervention, not a speech—yet.

Before the hon. Member for Truro and Falmouth (Sarah Newton) resumes her own speech, may I point out to her that we are discussing uprating orders, not projects in Cornwall, however fantastic they are. She must make her speech relevant to the uprating orders, not to future grant applications for very worthy projects in her constituency.

[Sarah Newton]

I entirely take those points on board, Madam Deputy Speaker. I hope that the House will forgive my enthusiasm for the excellent work that is being done in my constituency. I will now confine my comments to the subject of the debate, but I beg your indulgence, Madam Deputy Speaker: I should like to respond to the comments made by the hon. Member for Banff and Buchan (Dr Whiteford) by touching slightly on the issue of the costs of heating a home. They are part of the cost of inflation, which obviously has something to do with the pension upratings.

As the Minister has acknowledged, it is difficult to come up with a measure that truly reflects the costs of individual households. People with disabilities and pensioners will often be at home for many more hours in the day than other people, and will also need to keep their homes warmer, because as people age their bodies are less able to regulate temperature. That is a well-known fact. However, I feel that the efforts that the Government are making, and especially the move towards flat-rate pensions of £140 a week, will start to provide people with a reliable amount of income with which they will be able to afford to heat their homes.

A huge problem at present is that people do not claim benefits that could make a real difference to them. Pensioners are the people who most need the benefits, but they are also least likely to claim them. That applies particularly to the group to whom the hon. Member for Banff and Buchan referred—people in their eighties. Theirs is a proud generation, a generation that has fought and lived through the war and we owe them a great deal. They are very stoic and very proud, and they find it difficult to apply for the benefits to which they are entitled. I think we all have an important job to do in speaking with one voice and saying to people of that generation that they have earned the right to claim those benefits. There should be no stigma, and we must make it as easy as possible for them to claim. I urge anybody who knows an older person whom they feel may be struggling to make sure they are claiming the benefits to which they are entitled. The Government have been doing a lot to simplify the application process and to make information more widely available, and there are also wonderful charities and organisations, including the National Association of Citizens Advice Bureaux, that are doing just that.

I am very proud to support the Government on these measures. There has long been great uncertainty about what will happen to the state pension. With the upratings and the triple lock, there is now certainty. There is a commitment to making the state pension the cornerstone of planning for retirement. As the Minister said, we cannot right the wrongs of the last decade in one fell swoop, especially as we are facing the most difficult financial situation in a generation, but the message that today’s measures and commitment send out is that people can plan for the future as they can have confidence in respect of their pension. That is very important.

The right hon. Member for East Ham (Stephen Timms) rightly said that we should consider the upratings in a broader context. I had the great privilege of serving on the Welfare Reform Bill Committee, and I think his description of the broader context of how we are supporting pensioners was not sufficiently generous. What is of most importance for pensioners and their families is both having enough income to live on and the safe knowledge that there will be an NHS for them when they need it. Elderly people are far and away the largest users of the NHS, and it is hugely helpful to them that this Government committed not to cut NHS expenditure—whereas the Labour party said it would do that, and would have done so in this Parliament. The fact that we are finally linking social care and the whole range of other services that elderly people and their families need to be able to have the quality of life and independence they want—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. We are talking about pensions and benefits uprating. We are not having a wider debate on all the Government’s policies. The hon. Lady must refer specifically to the measures discussed by the Minister when introducing this debate.

[Sarah Newton]

The shadow Minister, the right hon. Member for East Ham, referred to the wider context of these measures, and I was merely responding to his comments. I shall, however, now desist from referring to the range of policies that the Government are putting in place to support elderly people and their families.

I support the Government’s measures. They constitute a huge step in the right direction and I am very proud that my Government are honouring their commitment and delivering a decent level of income for pensioners and people living with disabilities in retirement. I urge Opposition Members to desist from misrepresenting what the Government are doing, especially for people with disabilities and pensions, as that is creating fear and anxiety. That is why there are 100,000 signatories to the petition. If the people who signed it knew the truth, they would not have done so. It makes me very angry that people are contacting me because they have been needlessly frightened by Opposition scaremongering that, somehow, the Government are going to take away the benefits for disabled people and slash the benefits for pensioners. As the Minister has made clear today, nothing is further from the truth.

Let us have a constructive Opposition. The people of this country want a constructive Opposition who join the Government in tackling the difficult decisions of the day. They want the Opposition to stop this dangerous party political point scoring.

13:44

[Katy Clark (North Ayrshire and Arran) (Lab)]

I apologise for not being in the Chamber at the start of the Minister’s speech. I always find his comments most informative, as he is very knowledgeable about the issues under discussion—although I do not agree with many aspects of Government policy in this area. I had not intended to speak in the debate, but have been spurred to do so by the assertion that these proposals are uncontroversial, particularly in relation to the retail prices index and consumer prices index change. That is certainly not uncontroversial.

I shall restrict what I say to the issue of RPI and CPI. We have already had the biggest public sector strikes—indeed, the biggest strikes—for generations because of the change from RPI to CPI. I believe the Minister is shaking his head, but union members are very concerned about the cumulative impact of this change over many years.

Today’s debate has focused more on pensioners than on social security benefits. It is unfortunate that the Chair of the Work and Pensions Committee, my hon. Friend the Member for Aberdeen South (Dame Anne Begg), is unable to be present as she had a fall earlier this week. She has a huge amount of expertise in these subjects and her contribution will be greatly missed. I am sure all Members will want to send her best wishes for a speedy recovery.

The social security ramifications of these changes are less spoken about because there is less lobbying on social security issues. Although those in receipt of benefits contact their MPs about the issues affecting them, there are not many well-funded organisations representing them and lobbying MPs. There are more pensioner organisations and the National Pensioners Convention has been mentioned. It and other organisations, including Age UK, have contacted MPs about the issues under discussion today. They are calling on Members to vote against the proposals and, in particular, against the social security benefits uprating order, especially because of the RPI and CPI change. That highlights how controversial this issue is, and we will return to it again next Thursday when we debate the petition.

There is much controversy because the change will result in pensioners and those in receipt of social security benefits receiving smaller increases in most years. The switch from RPI to CPI will greatly affect the living standards of both pensioners and those in receipt of benefits cumulatively over a long period of time. CPI inflation is usually about 0.7% lower than RPI inflation. That is because of how the rates are calculated. As a result, the increase in public sector pensions this year will be 5.2%, whereas under RPI it would have been 5.6%. I am sure the Minister will challenge that finding if he disputes it.

The Labour party does not necessarily oppose the change in the short term—over a period of four years. However, I do not support that position. This change is dangerous because of the impact it will have year on year. Organisations including Age UK say that someone who retired on 1 April 2009 with a £10,000 state pension or public service pension will now have a pension of £10,846, whereas if the RPI link had been retained the sum would have been £11,046. The cumulative loss to such people is already £350, therefore.

The real concern is the cumulative effect that this change will have over a long time, particularly for someone who is retired for a lengthy period, and that is why I am speaking today. For example, someone who had a 25-year pension—of course not everybody will be lucky enough to have one of those—would lose £35,000 over the lifetime of that pension. The cumulative effect is substantial. Indeed, the Office for Budget Responsibility has recently spoken about the long-term difference between the two measures, and the significant change and reduction in living standards that will take place over time.

In the short term, this is the wrong measure. I say to Government Members that their policies of austerity are not working.

[Sarah Newton]

indicated dissent.

[Katy Clark]

The hon. Lady may shake her head, and she has spoken about many aspects of Government policy, but she must be aware that the cumulative effect of the policies that her Government are pursuing is to take money out of the pockets of some of the poorest and the most vulnerable in this country, and out of some of the most deprived communities. That is the wrong economic policy, it will not lead to growth and it clearly is not the policy we need for social justice. It is one reason why the gap between rich and poor is increasing so greatly at the moment.

The hon. Lady spoke about Labour manifesto policies, but the Conservative party gave assurances before the election that it had no plans to change the current index-linking of pensions. The Liberal Democrats also said that they regarded index-linking rights as protected. No doubt they will say, “We opened the books and everything was very different”, but the point I am making is that these measures will have long-term cumulative impacts that will hurt the poorest and most vulnerable in society.

[Sarah Newton]

I completely disagree with the suggestion that we are targeting the most vulnerable people, but my question to you is: can you remind the House what happened to the gap between the richest and poorest people in this society under Labour?

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I would love to answer that question, but I am prevented from doing so. The hon. Lady knows that she is not supposed to address the Chair in that way. In responding to her point, I hope that the hon. Member for North Ayrshire and Arran (Katy Clark) will come back to discussion of the uprating order.

[Katy Clark]

I am very grateful for that, Madam Deputy Speaker.

The impact of the changes to benefits and pensions uprating will be similar to the impact on wages that is being seen at the moment, whereby the incomes of the lowest paid are decreasing in real terms; the change from RPI to CPI means, as I have said, that the rate of increase in the incomes of those on the lowest incomes will reduce. I am sure that many of the hon. Lady’s constituents will come to see her to discuss benefit issues over the forthcoming period, and the impact of all this will become clear over a long period of time. It will have an impact on the communities we represent.

[Nick de Bois (Enfield North) (Con)]

Has the hon. Lady considered putting this in context? People on low incomes are nevertheless receiving a relatively high increase here, whereas many who are working and are on low incomes are receiving no increases at all. Although I think she is very genuine, her appeals need to be put in context and she needs to consider the situation of those in work.

[Katy Clark]

I am grateful for the hon. Gentleman’s contribution, and I agree fully with what he is saying; we do need to take into account the public sector freezes and the fact that many on modest and low pay in the private sector have had their salaries reduced—they have definitely not received substantial increases. That is exactly the point I am making: measures such as this, which keep down and restrain the incomes of those on modest and low incomes, are not the policies that are needed. Of course, executive pay and the incomes of the highest paid are increasing at the same time, but I shall not dwell on that today because it is not the subject of this debate. However, I hope that we will continue to discuss it in the House and that action will be taken by the Government.

In conclusion, we will be focusing, yet again, on these issues next week, and of course court proceedings are taking place, but I felt that I had to put my deep concern about this change on the record. My concern arises not just because of the annual change this year, which will have a detrimental impact on people’s pockets now, but because of the cumulative effect that this policy will have over many generations. The impact will be an increase in the gap between rich and poor in this country, and I believe that that should not be the policy of this or any Government.

13:55

[Mr David Ruffley (Bury St Edmunds) (Con)]

I wish to say something about the public spending implications of using the September 2011 CPI figure for uprating and about the fairness of doing so. Using that September figure for the following April-to-April fiscal year means that it will be 18 months out of date by the end of 2012-13. If the Government had not used the September figure and had instead used the six-month average to the end of 2011 of 4.7%, the Treasury would have been able to save a remarkable £780 million compared with the 5.2% uprating.

Alternatively, the Government could have decided to take an average figure from April 2011 to April 2012, using a forecast for the current quarter. Had they done so, the figure would have been not 5.2% or 4.7%, but 4.4%, which would have saved Her Majesty’s Treasury £1 billion from the uprating—and there is more. Let us just ask ourselves what this uprating is really about. It is done to compensate benefit recipients for the cost of living increases from April 2012 to April 2013—it is about the actual cost of living. The Bank of England forecast for what inflation will average during that period is 2.8%, rather than the 5.2% that we are being invited to sign up to. If that 2.8% figure were used, the welfare bill saving to Her Majesty’s Treasury would be more than £3 billion.

Times are tough and we need to look after the most vulnerable in society, but I am also a public spending hawk. The Chancellor of the Exchequer is doing very good work in setting out an austerity programme, but it is not nearly austere enough for me. The public spending implications of this uprating are terribly important, and I hope that the Minister will explain in a little more detail than he did in reply to my earlier intervention what the Government’s thinking was at the time of the very public discussion in September and October, in the run-up to the pre-Budget report, about what we should do about this September figure.

I repeat that that figure does not begin to reflect the actual cost of living for the 12 months from April 2012, which this uprating is meant to cover. The figure being used will be 18 months out of date by the end of that uprating year, which is about to commence. The forecast is for 2.8% and if we had followed that, rather than the 5.2% figure, £3 billion would go to Her Majesty’s Exchequer.

Now, for those who will say, “Ah—he wants to be beastly to pensioners,” I have that one covered, too. Pensioners, as distinct from non-pensioner benefit recipients, should have the benefit of the triple lock using not the September 2011 figure but that for the year before the uprating year—that is, from the fiscal year we are in now, from April 2011 to April 2012. As I said, that would be 4.4% rather than 5.2%. If we gave pensioners that benefit, as we would differentiate the uprating for pensioner and non-pensioner benefit recipients, non-pensioner recipients would get 2.8%. We could, nevertheless, save the Exchequer £1.7 billion. Using a more rational and economically literate uprating figure, rather than the figure from the September prior to the fiscal year that is being uprated, would mean that we could save the Treasury money.

Let me make one point about the idea of basing calculations on Bank of England inflation forecasts from April of this year to April 2013. I know that some people are very sceptical about Bank of England forecasts. At least one of them is present in the Chamber—or two including me—and that is my right hon. Friend the Member for Wokingham (Mr Redwood), who is very distinguished and hugely learned. Even if one were to say that 2.8% for the fiscal year 2012-13 is a bit on the low side and that the Bank might be wrong, inflation is still very likely to fall to 3%. There are three reasons for that: first, the VAT increase is falling out of the calculation; secondly, the inflationary effects of the massive decline and depreciation in sterling are being unwound; and, thirdly, world commodity prices, particularly as regards energy products, fuel and so on, are coming down, too. So there are at least three reasons—probably more—for believing that the next 12 to 18 months will see a declining trajectory in price inflation.

Let me say a few words about the practicality of using forecasts as I have suggested. The flexibility that I am seeking as an alternative to sticking to a rigid September forecast for a full six months before the year of uprating begins can be seen in New Zealand, where they distinguish between pension benefits, which are not allowed to fall below 65% of average earnings in that year or rise above more than 72%, and non-pension benefits, where the Government have discretion. That would be much more sensible and the discretion could be used on the basis of the forecasts, which are more relevant and relate to the year in which one is trying to compensate benefit recipients rather than using an out-of-date September number.

There is a key point, which was raised in the press and media last autumn, about whether it can be right—my hon. Friend the Member for Enfield North (Nick de Bois) touched on this—for non-pensioner benefit recipients who are receiving a 5.2% increase to receive it at a time when those who are working on very low incomes are not receiving any kind of uplift at all and have to cope with the ravages of the rising cost of living. We know that that is something that not only right-of-centre Conservative Members of Parliament like me will say. My point is not a million miles removed from the excellent Government policy of a benefit cap of £26,000 for any family that does not have anyone in their household in work. Why should people who do not work get a better deal than those who try to do work of some description, whether it is part time or otherwise?

I find it difficult to justify to my constituents how this Government have doggedly stuck to a September CPI uprating. The thrust of my remarks is based on the grounds of fairness to those who are working, poor and on low incomes and of affordability to Her Majesty’s Treasury at a time when we are trying to squeeze every possible pound of taxpayers’ money spent in the public interest to make it work more effectively and to get the deficit down. Some of the figures amount to billions—not just millions—and that money could be used to do good things. We could reduce the deficit faster than projected or target tax cuts. There is money to be squeezed out of the budget of the Department for Work and Pensions.

In that spirit of honest inquiry and with a desire to squeeze public spending harder and to see a better deal for those who are not benefit recipients but nevertheless work hard at the bottom end of the labour market so that they have justice, too, I believe that a 5.2% uprating sends entirely the wrong message. It also sends the wrong message to me as a believer in introducing serious incentives to work rather than incentives to receive benefits.

14:06

[Stephen Lloyd (Eastbourne) (LD)]

It is a pleasure to speak in this debate because, unlike my hon. Friend the Member for Bury St Edmunds (Mr Ruffley), I am extremely proud that despite the chronic economic challenges that we face, the Government have uprated by 5.2%. I am what is termed an orange book Liberal, so I am fairly hawkish on the budget, but clearly not as hawkish as my hon. Friend. To me, when things are so difficult and so many people are being squeezed, including those in work, and when people in the public sector, because of the austerity measures, are not getting their salaries uprated, it is even more important that the coalition Government should stick to their guns and uprate pensions by 5.2%. That is laudable. To me, personally, it is even more important that they uprated the disability living allowance and jobseeker’s allowance by 5.2%. I am utterly supportive of the Work programme to get people back into work, but I am bullish about the fact that it is terribly important that people who receive DLA, JSA and so on should receive the additional uprating. It demonstrates the coalition Government’s commitment, which I believe to be genuinely profound, to try to make this as fair as possible, irrespective of the economic challenges.

To be in a position in which we can say that we have uprated pensions by the highest ever figure in, frankly, the worst economic crisis since the great depression, let alone the second world war, is something of which I am very proud and of which the coalition Government should be very proud.

[Mr Ruffley]

Let me be clear: although we all welcome the generous uprating for pensioners, does my hon. Friend, like me, draw a distinction between the uplift for pensioners, which we welcome, and the fact that there has also been a commensurate over-compensation for non-pension benefit recipients relative to the working poor?

[Stephen Lloyd]

I thank my hon. Friend for that question, but I disagree as I think that it is even more important that people in receipt of JSA and DLA at this time, when things are so difficult, are seen, shown and proven by the Government to be in a difficult position through no fault of their own. We want to show that they are entitled to that extra uprate. I appreciate that my hon. Friend and I might differ ideologically on that, but I hope that he accepts that my belief, although it is different, is profound.

On pensions and the £5.30, I remember canvassing in Eastbourne a few years ago when the then Chancellor of the Exchequer had just introduced the 75p rise. Not only were the pensioners I spoke to absolutely incandescent with rage but they did not understand. A lot of the people I spoke to genuinely believed, rightly or wrongly, that the then Chancellor was on their side—I respect that totally—and that is what shocked them. They just could not believe that such a derisory payment could be made. It is therefore very encouraging that at this time, in such an economic crisis, we are sticking to the triple lock and CPI, and doing it at an uprate of £5.30, which is about £21.80 or whatever a month, compared with what it was before.

However, I have some frustrations, which are shared by the hon. Member for Truro and Falmouth (Sarah Newton). It is very hard for the coalition Government to get the information out there about the uprate on disability living allowance. My hon. Friend the Minister knows that I have lobbied fiercely to him personally that that uprate should happen, but as hon. Friends have mentioned today, one would not think from the overwhelming response we have had in our inboxes that we had stuck to our guns on that. I pay tribute to the coalition Government on this issue: they have done the right thing.

On CPI and RPI, I have a lot of time for the right hon. Member for East Ham (Stephen Timms) on pensions generally. He brings a very good and forensic brain to this whole area, and I listened carefully to what he said. To be honest, I think he made some good points. There will be years when the challenge concerning the swapping from RPI to CPI will be greater, but equally there will be years when it is lesser. I know that the Government’s figures are for a 20-year period and that, for the average pensioner, the figure will be equal to £13,000 more, over and above what it would have been with RPI. I am getting so many conflicting details and reports on this, and I have sort of decided that, even though I understand where the Government are coming from with CPI change, we should stand back a wee bit and see how the figures develop over the next few years. Certainly, in the Minister’s wind-up I would be grateful for a little more detail about the pluses of CPI and about the £13,000 figure. I would find that very helpful, as, I am sure, would many of my colleagues on the Liberal Democrat Benches. What I do accept about CPI is that it strips out the mortgage side of things. I totally understand that because, certainly in my constituency, most elderly constituents tend to own their own homes, it is a more accurate and stable indicator. However, I would be grateful for a bit more detail on that.

Finally, and I have to be a bit partisan here, I find extraordinary the Opposition’s blanket opposition to CPI, with no caveats at all, because I know that the Labour party is introducing CPI for all its own staff’s pensions. I am a little confused about some of the rationale there. I know that others want to speak, so let me conclude by saying that I am delighted by the move on pensions regarding the triple lock, which the Minister will know was one of the Liberal Democrats’ key manifesto promises at the election. I am equally delighted that we stuck to our guns on that issue. There was quite a lot of battling and lobbying inside Government, as one would expect in a coalition, but it was all done with great courtesy. I am delighted that the 5.2% is not only in relation to pensions but is also for some other benefits, such as DLA, jobseeker’s allowance, carer’s allowance and attendance allowance, as I have already discussed.

We in the coalition are determined to get through this mess with the robust austerity programme. I entirely concur with my hon. Friend the Member for Bury St Edmunds on this. It is the only way we can get through this; otherwise, the bond markets would kill us—we both know that—and that would ramp up interest rates. I am delighted that despite all the challenges, we are trying profoundly, and well and as fairly as we can, to ensure that everyone in the country has to step up to the plate. That means that, yes, we have the Work programme for people who are out of work, but it is also about trying to ensure that people in that situation get a good uprate. That demonstrates that when it comes to the facts, by contrast with the hyperbole one sees in the media, the coalition Government are determined to do things right and fairly.

Thanks to the decision on these upratings, this is one of the times since I have been elected that I have felt genuinely proud to be a Member on the coalition Government side. I really mean that. That decision is entirely commendable and I look forward to hearing the Minister’s response.

14:15

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

I shall not detain the House for long, I hope. We have had an interesting debate, which was begun by the Minister and my right hon. Friend the Member for East Ham (Stephen Timms), who discussed some of the technicalities and complexities of uprating. I shall confine my remarks largely to the most controversial of the motions—the motion on the draft Social Security Benefits Up-rating Order 2012.

The contributions from Back Benchers have illuminated some of the issues at hand. The hon. Member for Truro and Falmouth (Sarah Newton), who is no longer in her place, made a heartfelt defence of what she described as the coalition’s sense of national mission. “Our great nation is in great peril,” she declared, although I am glad she cautioned that she is not doing cartwheels. I would never have made such a claim. She suggested that there has been a constant and very upsetting misrepresentation of the Government’s wider policy in this area, which she sought to correct by sharing the experience in her constituency. Not content with her party being in government, she was also keen to give the Opposition the benefit of her wisdom on how they should proceed on these and other matters.

My hon. Friend the Member for North Ayrshire and Arran (Katy Clark) emphasised the great concern there is outside the House regarding the permanent switch from RPI to CPI and declared her support for an immediate return to RPI indexing. She emphasised that CPI indexing means a smaller rise for pensioners and out-of-work citizens over time. My right hon. Friend the Member for East Ham referred to the 0.7% average difference between an RPI and a CPI measure and my hon. Friend the Member for North Ayrshire and Arran emphasised from the Back Benches that if we had been using the RPI measure this year, the increase would have been 5.6% rather than 5.2%. She set out the real cumulative impact that the switch in indexing will have over time on the pensions and benefits of some of the more vulnerable members of our society.

The hon. Member for Bury St Edmunds (Mr Ruffley), in what he described as a spirit of honest inquiry, set out some challenges for those on the Government Front Bench. He emphasised the public spending implications of a 5.2% rise based on a CPI measure in September. If I understood his argument correctly, he would have preferred to use either a six month figure, which he calculates would save the Treasury £780 million, or an average over 12 months until April 2012 using a forecast for this current quarter. That would have created an overall indexing figure of 4.4% and saved £1 billion, according to him. He put that in context by explaining that the real cost of living increase in the coming year will be 2.8%, which, if applied, would save the Treasury £3 billion, based on his calculations.

[Mr Ruffley]

The hon. Gentleman is reciting the argument brilliantly, but those are not my figures; they are my figures checked with the House of Commons Library.

[Gregg McClymont]

I thank the hon. Gentleman for that clarification. As a public spending hawk, as he described himself, he would much prefer one of those figures to be used, although he indicated that pensioners should receive 4.4% and those out of work should receive 2.8%, which would lead to an overall saving of £1.7 billion, based on the figures he cites. I am sure that the Minister will be happy to deal with this matter. The hon. Gentleman also emphasises the overall issue of work incentives. If people are in work but seeing a real squeeze on their incomes and living standards, in his view there is an issue of work incentives.

The hon. Member for Eastbourne (Stephen Lloyd), from the Back Benches of the second coalition party, described himself as hawkish, but not as hawkish as the hon. Member for Bury St Edmunds. He was particularly pleased that DLA, GSA and other out-of-work benefits are receiving the full uprating and described the pension increase as the highest ever—perhaps I can come back to that later. He praised the shadow Minister in particular for his work on pensions. Alas, I suspect that he was referring to my right hon. Friend the Member for East Ham, rather than me. My right hon. Friend is indeed an impressive parliamentarian, and I join the hon. Gentleman in his praise. The hon. Gentleman also said that he had sympathy with Labour’s position on RPI but was prepared to reflect over the coming years on how CPI operates and is keen for the Minister to give a little more detail on how CPI will operate.

The Minister set out the Government’s position clearly: they are spending money via this uprating to protect some of the most vulnerable in society. There will be a CPI increase of 5.2% on the basic state pension and the additional state pension—SERPS—and a 5.2% increase in most out-of-work benefits. They will also raise the pension credit minimum income guarantee above earnings to 3.9%, rather than 2.8%, to be paid for, as was discussed earlier, by raising the threshold for those eligible for savings credit by 8.4% and reducing the maximum savings credit payable per week from £20.52 to £18.54.

The Minister also set out his view that CPI is a better measure of pensioners’ cost of living. That is contestable, as the debate so far has suggested. In particular, my right hon. Friend the Member for East Ham raised the issue of housing costs, among other things, and the Minister has undertaken to look at the work of the Consumer Prices Advisory Committee on integrating housing costs into the CPI index.

The hon. Members for Banff and Buchan (Dr Whiteford) and for North Antrim (Ian Paisley) contributed to the debate in interventions. They noted that, if we are looking at the cost of living for pensioners, we must emphasise the cut in winter fuel allowance in the round and heating costs more widely. Those are things that the Minister will be aware of as he goes forward.

The Minister and the hon. Member for Eastbourne emphasised that this was the largest real-terms increase in the pension for about 10 years. There was an interesting exchange between the Minister and my right hon. Friend the Member for East Ham on what exactly that amounted to. The Minister’s explanation, as I understood it, was that by the time the increases work through the system to the recipients, inflation will have fallen. My right hon. Friend rightly suggested that the Government should perhaps not take too much credit for inflation being so high and then falling—perhaps that was a quirk of timing, rather than the result of Government policy.

However, it is clear that, with a Backbench Business Committee debate on the switch from RPI to CPI scheduled for next week, this remains a live issue, and I am sure that it will be articulated in greater detail next week. As my right hon. Friend the Member for East Ham indicated, the official Opposition could have looked closely at a temporary switch to CPI, but we cannot support a permanent switch from RPI when there is so much doubt about CPI as an accurate measure of the cost of living. There is merit in an earnings underpinning, but it has been noted more than once that in the first year of its existence the Minister picked his own lock, so to speak, and there was a greater increase in the state pension than there would have been with the triple lock. Although there is merit in an earnings underpinning, the fact remains that if RPI had been used last year and this year the increase would have been greater.

That said, and given that we cannot support a permanent switch from RPI, we support certain things in these uprating orders, but we cannot support the Government today.

14:25

[Steve Webb]

I am grateful to all hon. Members who have taken part in this debate. The hon. Member for Banff and Buchan (Dr Whiteford) deserves particular credit for being here throughout and not making a speech, but we are grateful to her for her interventions. I shall respond to the key points that have been made. I was going to respond first to the right hon. Member for East Ham (Stephen Timms), but I shall do so at the end if he has time to come back and join us.

My hon. Friend the Member for Truro and Falmouth (Sarah Newton) has also been surprised by the timing of the winding-up speeches. I am grateful for her contribution and her important point about the significance of the take-up of these benefits. It is all very well our sitting here debating the rates, but if people do not claim the benefits, it is a slightly academic exercise. My hon. Friend was right to highlight the importance of our making sure that the benefits are taken up— [Interruption.] I am delighted that she is rejoining us. I was welcoming her comments about benefit take-up, and today we have published the latest take-up figures for income-related benefits in the final year of the previous Government. They demonstrate that in the benefits under discussion many billions of pounds go unclaimed, so she is absolutely right that we should do all we can to encourage people to claim them.

My hon. Friend will have seen in these uprating orders that we are trying to shift the balance towards the benefits that people really do claim, such as the state pension, and even within pension credit we have loaded the balance towards the guarantee credit, which is more likely than the savings credit to be taken up. On today’s figures, for those who are entitled to savings credit only, the take-up rate is less than 50%, so it is vital that when we set benefit rates we ensure that people claim them. I was grateful to her for her insight on that point, on the certainty that the triple lock gives pensioners and on the fact that we have stuck to it despite difficult economic times, and I can assure her that we will continue to do so.

The hon. Member for North Ayrshire and Arran (Katy Clark) was entirely straight with the House, saying that she does not agree with the CPI measure or with her Front Benchers. On the issue of whether that is controversial, of course it is, but all I was saying is that I last joined the National Pensioners Convention at a time when no decision had been made, so it is worth winding the House back to that point.

In the press there was speculation that we might introduce a freeze—I shall return in a second to the points made by the hon. Member for Bury St Edmunds (Mr Ruffley)—or use a forecast, a moving average or anything to get the number down. At that point, I was staggered to go to an NPC event and be—“harangued” would be uncharitable—forcefully encouraged to deliver 5.2%. Having seen that delivered, I would, if I were the NPC, then demand 5.6%. I understand that, but it is worth reminding ourselves of the pressure that the Government were under to do less, so 5.2% was an entirely decent settlement in the current economic climate.

The hon. Member for North Ayrshire and Arran made an important point about the cumulative effect, which was her key theme. She made an important point also about working age, but to focus on pensioners I note that there are two cumulative effects going on at the same time: one is the triple lock and the other is CPI, which applies to additional pensions. The question is, which is the greater?

The hon. Lady mentioned someone with an occupational pension of £10,000 a year, but from memory—this is only from memory—the average occupational pension in payment is about £4,000 a year, so her example is more than double the typical sum, and our estimate, looking just at the cumulative impact over a retirement of the basic pension, is where the £13,000 figure comes from. Looking purely and cumulatively at the triple lock, because the earnings figure is normally more than RPI, we find that people will get more through that. CPI is on average less than RPI, so on the additional pension they will get less.

The cumulative effect of the two is beneficial to those with lower occupational pensions, but less beneficial—indeed, there are net losses—to those with higher occupational pensions. So the hon. Lady is probably right: someone on a £10,000 occupational pension will get smaller net increases and someone on a £3,000 occupational pension will get bigger net increases overall. That is taking account of the two policies. She is right that these policies have a cumulative effect. For example, on the CPI link for local housing allowance, the Government have said that they will continue with that for two years and review the position having done so. I am grateful to the hon. Lady for drawing the House’s attention to the Chair of the Select Committee’s unfortunate accident. I am sure that we all wish her our very best for a speedy recovery.

My hon. Friend the Member for Bury St Edmunds observed that the September 2011 figure was a peak. He said that by the time we get to April 2012 it will already be a bit out of date and that by the end of 2012-13 it will be 18 months out of date. This involves two separate questions: first, whether we should use forecasts or historical figures; and, secondly, what we should have done this year. The VAT increase in January 2011 was a significant driver of the 5.2% figure. Had we, for example, chosen to look at inflation only over certain months, or chosen to switch to the future just at the precise point when something quite big happened historically, people might have queried our sincerity. At times in the late 1970s and ’80s, some Governments switched to and fro between forecasts and historical figures, and there was a sense that that had nothing to do with compensating for inflation but was merely trying to find a low number. It is important that we have a system for compensating for inflation that we stick to and a separate system of judgments on what the country can afford, whereby if we cannot afford 5.2%, we should say so. We should not try to think of a period that will give us a lower number. My hon. Friend is right that if we had used a lower inflation measure we could have saved a lot of money, but that is the answer to a different question.

[Mr Ruffley]

The burden of my argument did not relate especially to last autumn’s figure but to the principle of whether, for a 12-month period in which one is seeking by an uprating to compensate benefit recipients for the cost of living, one should use a figure, whatever it is, that is six months prior—that is, the September figure.

[Steve Webb]

Indeed. If one could obtain pretty robust and independently accepted forecasts—although that prompts at least two questions—there would have to be a decision about whether one used “forecast, forecast, forecast” or “history, history, history”. In terms of the orders, I am concerned with the decision that we had to make about this year. Had we switched from history to forecast just at the point when forecast was helping us, I think that we would have been criticised. With an historian sitting opposite me, I hesitate to say that no one can argue about history, but at least there is some certainty in the past. We now have the Office for Budget Responsibility, and we have the Bank of England, so we could get an objective future figure. However, if we did that and the future started to turn out differently, there would be a lot of pressure with people saying, “You forecast this figure but it is turning out to be more”. There would also be pressure to make in-year corrections, whereas nobody can argue about history, and that gives us a certain amount of certainty. Having said that, I understand my hon. Friend’s comment about the point of indexation being to match the inflation experience.

My hon. Friend talked about in-work and out-of-work benefits and the relative position of pensioners, as did my hon. Friend the Member for Eastbourne (Stephen Lloyd). I remind him that we have different approaches for pensioners and for non-pensioners. The statutory position for non-pensioners is generally CPI or, in some cases, discretionary, while our policy for pensioners is triple lock. We are in very strange times, with CPI, RPI and earnings going all over the place. In more normal times, when earnings rise faster than prices, pensioners will generally get bigger increases.

I entirely agree with my hon. Friend about the burdens on the low-paid. That is why we are keen to raise the tax-free personal allowance, among other measures. Nobody would say that being in a low-paid job is a comfortable place to be, especially with pay freezes. On average, people affected by the tax credits changes are on incomes of some £17,000 a year, but someone who is drawing employment and support allowance is on an income of about £3,500 a year. It is a question of how much scope the person has to accommodate and absorb these inflation shocks, and that was the judgment that we made. Most of the time, earnings rise faster than prices, and the gap between jobseeker’s allowance and low-paid people’s wages is increasing year after year. In the past 20 years, it has probably increased 17 or 18 times. In general, that will be the sort of outcome that we get. Of course, as soon as we introduce universal credit, that will institutionalise the gap between out-of-work and in-work benefits in the way that I think he wants to see.

My hon. Friend the Member for Eastbourne welcomed the 5.2% increase, particularly for working-age disabled people. I am grateful for his representations on that. He is right that we need to protect people who are not able to work. He asked about the evolution of CPI and RPI. Just to be clear, the £13,000 figure was reached by comparing our triple lock, based on OBR-type assumptions, with the RPI policy of the past 30 years. We asked what somebody retiring on a full pension this year would have got had RPI been rolled forward and what they would get under the triple lock according to realistic assumptions about earnings and prices. The difference between the two is a cumulative £13,000. That figure has changed. I used to say that it was £15,000, then the OBR changed its numbers and I said that it was £10,000. We now say that it is £13,000. The figure will change, but over time earnings tend to grow faster than RPI, so the basic pension will tend to grow faster than it would have done. That is something that we need to communicate over the coming years.

I wrote down a bizarre phrase that was used by the right hon. Member for East Ham (Stephen Timms). He said that the triple lock “undermines pensions uprating”. People can check his speech, but that is what I thought he said. That is nonsense. The triple lock reinforces pensions uprating because it always gives pensioners the best deal between CPI, earnings and 2.5%.

[Stephen Timms]

Will the Minister give way?

[Steve Webb]

I will in a second. Clearly, those numbers all fluctuate relative to each other. Perhaps the right hon. Gentleman can confirm whether he disputes the fact that £13,000 extra compared with the policy that his Government adopted for 13 years is the result of the triple lock?

[Stephen Timms]

I want to focus on the year ahead. Will the Minister confirm that the triple lock will deliver a lower uprating than would RPI?

[Steve Webb]

It is interesting that the Labour party has said that it does not support the orders, which include a CPI increase, and yet is not going to vote against them. I assume that it will not vote against them as there are only about four Labour Members here.

It is unclear what the right hon. Gentleman is saying. He does not think that there should be an RPI increase. Whether RPI is higher than CPI this year could be a debating point. Of course RPI is higher, as he well knows and as we all know. However, he is not in favour of using RPI this year, but favours a temporary move to CPI. I am not sure what debating point he is trying to make.

The right hon. Gentleman and the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) asked about CPIH, which is CPI including the housing costs of owner-occupiers. We are entirely open to looking at that. We are not going to say that we will definitely use it, because we do not know what it is, what it will include or what its properties will be. It would be premature of us to sign up to a prices index that we have not seen and that has not even been invented yet. We are entirely open to considering whether that is the right measure to use when the Secretary of State decides the general increase in the cost of living for September 2013, which is when it will presumably happen. I have said that consistently.

The right hon. Member for East Ham asked why we had increased the standard minimum guarantee by 3.9%. That is the cash pass-through. We have given the basic state pension £5.30. We wanted people on the minimum guarantee to get at least £5.30. It turns out that it will be £5.35. That is 3.9%.

The right hon. Gentleman asked about the savings from the savings credit change. We over-indexed the guarantee credit compared with statute, so it is 3.9% rather than 2.8%. That cost us £200 million, which we have to find by cutting back the savings credit. There is therefore no net saving on pension credit as a whole, but rather redistribution from the savings credit to the guarantee credit. I hope that that answers his question.

The right hon. Gentleman said that the Government had been secretive about the link between the local housing allowance and CPI, and about the freeze in April 2012. I accept that not many people listen to our debates in the House, but I announced that measure from the Dispatch Box on 6 December 2011. I think that he might even have been here. I said:

“As part of the preparation for this change, we need to fix LHA rates, to establish a baseline… As the new cycle for uprating LHA will be annual, we have decided that the baseline should be one year ahead of the first uprating event. Therefore, LHA rates will be fixed from April 2012.”—[Official Report, 6 December 2011; Vol. 537, c. 164.]

The measure was therefore announced before Christmas. Perhaps the right hon. Gentleman had his mind on other things at the time.

The right hon. Gentleman asked why the deductions from heating and so on in the social security order are relatively high. The deductions are linked to the component indices of CPI. Those things have gone up by more than inflation. Each year, we link them to what has actually happened to the cost of those items. Therefore, had the costs been lower, we would have used a lower figure. That is just for consistency.

I stand before the House having just announced £6.6 billion of spending. With due respect to the hon. Members who have attended the debate, it has not received a huge amount of scrutiny, but as was said during the debate, that is because people overwhelmingly think we have done the right thing. We have recognised that pensioners, who will get two thirds of the money, should benefit from the triple lock, that the poorest pensioners should be protected, that disabled people should be protected from inflation and that people who are out of work through no fault of their own should not suffer a cut in their real living standards. It is therefore my great pleasure to commend the orders to the House.

Question put and agreed to.

Resolved,

That the draft Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) (Amendment) Order 2012, which was laid before this House on 30 January, be approved.

Pensions

Resolved,

That the draft Guaranteed Minimum Pensions Increase Order 2012, which was laid before this House on 30 January, be approved.—(Steve Webb.)

Social Security

Resolved,

That the draft Social Security Benefits Up-rating Order 2012, which was laid before this House on 30 January, be approved.—(Steve Webb.)