(10 years, 9 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Mr Speaker
With the permission of the House, the motions on the draft Guaranteed Minimum Pensions Increase Order 2014 and on the draft Social Security Benefits Up-rating Order 2014 will be debated together.
The Minister of State, Department for Work and Pensions (Steve Webb)
I beg to move,
That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.
Mr Speaker
With this we shall discuss the following motion, on the draft Social Security Benefits Up-rating Order 2014:
That draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.
Steve Webb
Let me deal first with what is an entirely technical matter that we attend to each year, and not one that I imagine we shall need to dwell on today. The Guaranteed Minimum Pensions Increase Order 2014 provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.7%, in line with the increase in the consumer prices index to the previous September.
I should like to turn now to the Social Security Benefits Up-rating Order 2014. As part of his autumn statement, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2014-15, and today we are debating the order that will uprate those social security pensions and benefits for which my Department is responsible. As the House will be aware, we are not here to discuss the Welfare Benefits Up-rating 2014 Order, which was made on 24 January. Those rates increased by 1% under that order, and were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.
Turning to the benefits and pensions in the Social Security Benefits Up-rating Order 2014, I shall deal first with the basic state pension. Despite the current tough fiscal context, this Government remain committed to protecting those who have worked hard all their lives, which is why we have stood by our triple-lock commitment to uprate the basic state pension by whichever is the highest of earnings, prices or 2.5%. This year, as prices were greater than average earnings and greater than 2.5%, the basic state pension will increase by CPI at 2.7%. The new rate of basic state pension will therefore be £113.10 a week for a single person, an increase of £2.95 from last year. That means that the basic state pension is forecast to be around 18% of average earnings from April 2014, a higher share of average earnings than at any time since 1992. Our triple-lock commitment means that someone on a full basic state pension can expect to receive £440 a year more than if it had been uprated by earnings since the start of this Parliament.
On pension credit, we have continued to take steps to ensure that the poorest pensioners will benefit in full from the effect of our triple lock. Each year, the standard minimum guarantee must, by law, be increased at least in line with earnings. That means that the minimum increase this year would be 1.2%. However, to ensure that the poorest pensioners benefit from the full cash value of the increase in the basic state pension, we decided again to increase the value of the standard minimum guarantee credit, in this case by 2%, so that single people will receive an increase of £2.95 a week and couples will receive an increase of £4.45 a week. Again, consistent with our approach last year, the resources needed to pay this above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means those with higher levels of income will see less of an increase.
Let me now deal with additional state pensions. This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 2.7%, which means that the total state pension increase for someone with a full basic state pension and average additional pension will be about £3.75 a week, or just under £200 a year. Unlike under the Labour party, which froze SERPS in 2010, this will be the fourth year in a row that the coalition has uprated SERPS by the full value of CPI.
In these debates, we discuss the most appropriate measure of inflation by which to uprate benefits. I have had the pleasure of such exchanges with the right hon. Member for East Ham (Stephen Timms) several times, and I want to refer him back to something he said three years ago in the corresponding debate. We were using CPI rather than RPI—the retail prices index—and it is CPI which underlies these motions. He described the move to CPI as “ideological”; that is an interesting description of a choice of price index, but he regarded it as an ideological shift. He went further in expressing his distaste for this measure, saying:
“As for the view of my party, I simply refer the Secretary of State to what the leader of my party has said, which is that the suggestion that the change should be made for a period—perhaps up to three years—would be something that we could consider. If that proposition were on the table, we would be happy to consider it.”—[Official Report, 17 February 2011; Vol. 523, c. 1187.]
So his position three years ago was that, perhaps for three years, we might use CPI because it saves a bit of dosh but that the Labour party was committed to RPI.
I therefore hope that when the right hon. Gentleman responds and gives his party’s position on these motions he will clarify whether that is still his position. He will realise, first, that RPI has now been dropped by the Office for National Statistics as an official statistic because of methodological concerns. So I would be surprised if he remained committed to going back to RPI. Perhaps he thinks we should use CPIH, as he complained that we did not have owner-occupier housing costs in the measure that we are using. If that is his position, he would obviously be arguing for a lower increase in benefits this year, because at the moment the level of CPI is above that of CPIH. Given that he was opposed to a permanent switch to CPI, given that RPI has been dropped as an official statistic and given that some of the other measures are lower than the one we are using, I am slightly puzzled by his position—I am sure that by the time we have heard his speech we will no longer be puzzled.
On disability benefits, this year the coalition will ensure that those who face additional costs because of their disability, and who perhaps have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of CPI. So disability living allowance, attendance allowance, carer’s allowance, incapacity benefit and personal independence payment will all rise by the statutory minimum of 2.7% from April 2014. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also increase by 2.7%, as will the employment and support allowance support group, and the limited capability for work and work-related activity element of universal credit. Pensioner premiums paid with working-age benefits will increase in line with pension credit.
At a time when the nation’s finances remain under real pressure, this Government will be spending an extra £3.3 billion under these orders, and related orders, in 2014-15. We will thus continue to help support those who are not currently in work, first, by increasing the main rates of working-age benefits by 1%, and by ensuring that pensions, and benefits that are designed to help with the additional costs of disability, are protected against the cost of living. Of that, we will be spending about £2.7 billion extra on state pensions, including an above-inflation increase, and more than £600 million on people of working age. Nearly £600 million will be going to disabled people and their carers. Our decisive action to limit to 1% the increases in the main rates of most working-age benefits is part of our overall economic strategy, which has substantially brought down the deficit.
In this order, we continue: first, to maintain our commitment to the triple lock, meaning that the basic state pension will reach its highest level as a percentage of average earnings for two decades; secondly, to protect our poorest pensioners with an over-indexation of the standard minimum guarantee, so they too will feel the benefit of our triple lock; and, thirdly, to protect the benefits that reflect the additional costs that disabled people face as a result of their disability, through increases to disability living allowance and attendance allowance, carer’s allowance and the main rate of other disability benefits in line with CPI. I have set out our ongoing commitment to ensure that no one is left behind, and I commend these orders to the House.
Stephen Timms (East Ham) (Lab)
I thank the Minister for his explanation and confirm that I do not intend to express concerns about the draft Guaranteed Minimum Pensions Increase Order 2014. However, I do wish to make some comments about the draft Social Security Benefits Up-rating Order 2014. As he has said, this is a rather thinner debate than the corresponding ones he and I have enjoyed in previous years, because a big chunk of what we have debated previously is now covered by the Welfare Benefits Up-rating Act 2013, which imposed a 1% uprating this year and next, and so is outside the scope of these orders.
One thing I have not entirely understood—the Minister touched on this and I would be grateful if he explained it—is how the corresponding order for tax credits will be dealt with. Some elements of tax credits uprating are not covered by the 1% constraint. Clearly, with so few people in receipt of universal credit, he is not the Minister responsible for in-work benefits—that responsibility remains with the Treasury—but I wonder whether he could explain how the parliamentary process dealing with those tax credits is to be handled.
This is the fourth year since the announcement of the triple lock for the basic state pension. In rhetorical terms the triple lock has, no doubt, been successful, but, unfortunately, the reality has been rather different, because, once again, the increase in the state pension is less this year than it would have been if the uprating method previously used was still in place. In RPI terms, this is a real-terms cut for the third year in a row in the value of the basic state pension. The RPI last September was 3.2%, whereas the pension uprating delivered by this order is 2.7%. So in RPI terms, this is quite a big cut of 0.5%—a full half percentage point—in the value of the state pension, which is a bigger real-terms cut than last year. If the basic state pension had been uprated in line with RPI since 2010, the weekly rate for a single person would be more than a pound higher than the figure we are debating today, at £114.21.
Steve Webb
Clearly RPI is bigger than CPI—that is a statement of fact—but does the right hon. Gentleman think that RPI is a good measure of inflation?
Stephen Timms
I will come on to deal with that. The point I wish to make is that the triple lock is frequently presented to us, as the Minister did again today, as being extraordinarily generous to pensioners. It is presented as some great superlative, whereas in fact it has delivered a lower uprating than the previous formula—the one in place before the last election—in every one of the three years when it has been used, and in the first year it was due to be used it would have delivered such a low uprating that the Minister chose to override it. He was sensible to do so, but if he had used the triple lock in that first year, the gap between his uprating and the value of the basic state pension under the old method would now be almost £3 per week. So it is important in this debate to put on the record the extent to which the triple lock has delivered less than the long-established formula that was in place until the general election.
It is worth examining the history of the triple lock. In its first year, it was announced but not actually implemented, because it would have delivered a very small increase. So at its first outing, it failed.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
Was it not, however, the long-established formula, over the long run, that had put pensioners so far behind those earning?
Stephen Timms
I think the hon. Gentleman is referring to the change made by Mrs Thatcher when she was Prime Minister, and he makes an entirely fair point. However, the point I am putting to him is that he and his party, particularly the Minister, frequently present the triple lock to us as somehow being extraordinarily generous, whereas in practice it has provided less than the formula he has just criticised—the one introduced by the former Conservative Prime Minister. If that formula had continued after the 2010 general election, the state pension amount we would be debating today would be more than £1 a week more than the figure in this order.
Mr Alan Reid (Argyll and Bute) (LD)
The right hon. Gentleman will accept that the formula introduced by Mrs Thatcher was continued throughout the whole term of the previous Labour Government. As the economy is recovering, thanks to the coalition’s successful economic policies, will he not accept that linking pensions to earnings will mean higher pensions for people in the long run?
Stephen Timms
I certainly hope that that is the case, but in the short run, in the period since the general election, we are seeing a lower value for the basic state pension than if Mrs Thatcher’s formula had stayed in place. That point is not widely understood. I am sure that the hon. Gentleman understands it, but I want to put it on the record so that people are aware of the fact that the method that is currently in place has in fact delivered a lower value for the basic state pension than if Mrs Thatcher’s formula had continued to be used.
Stephen Timms
If the arrangements in place before the last election had been maintained, the increases would have been at RPI. If they had been at RPI, we would be debating today a higher value for the basic state pension than the one in the order in front of us.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
When we have debated such issues in the past, I have been quick to highlight the fact that both CPI and RPI are not particularly good methods of measuring inflation, especially its impact on low-income groups, including pensioners. Does the right hon. Gentleman agree that the real issue at stake here is that energy prices have increased by 37% in the past 10 years and that food inflation has grown ahead of inflation every year for the past eight years? We should be talking about the impact of inflation on low-income groups and not the technical measure. We should be finding technical measures that reflect that impact of inflation.
Stephen Timms
The hon. Lady makes an important point. I hope she will support Labour’s energy price freeze, which will have an important benefit for people on low incomes. She is also right to draw attention to the particular difficulties of pensioners on low incomes. It is for that reason that pension credit is so important. Pension credit, which is in the order in front of us—I believe that my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) will say more about that when he responds to the debate later—is being uprated at a significantly lower rate in percentage terms than the basic state pension.
I was talking about the history of the triple lock. In the first year, it was overridden, so it failed. In its second year, it was implemented and delivered an increase in line with CPI, along with working age benefits. Last year, it was applied again and, for the first time, it delivered something better than CPI, but that was only by 0.3 percentage points. This year, the Government propose to uprate the basic state pension by CPI, which, as of September last year, was 2.7%. That is only a 0.2 percentage point increase on the absolute bare minimum that would be possible under the triple lock. Had the previous uprating RPI mechanism been in place, there would have been a larger pension increase this year, and in the last two years, than has been delivered.
It was in 2011 that the Government first uprated pensions by CPI rather than RPI. In the debate then I pointed out that this was a direct hit on the income of pensioners, and it still is. In 2011, a contributory deal, understood and signed up to by pensioners, was broken. That was compounded last year, and the Government want to do it again this year. On the other side of the coin, it is worth noting that RPI will continue to be used for the uprating of a great many other things. The Minister has correctly quoted my comments on that in the past. There could well have been a case to uprate by CPI as a deficit reducing measure for a period. However, we do not accept that Ministers should have tied themselves to CPI indefinitely, and that remains our view.
As announced in 2010, the Government have also made a permanent switch to CPI uprating. Thanks to the Welfare Benefits Up-rating Act 2013, most working age benefits were capped at 1%, with provisions for them also to be capped at 1% for the following two years, and so are outside the scope of this order. As we have said in previous years, there would have been a reasonable case for the Government to make a temporary change to the methodology, but unfortunately they went further.
Steve Webb
Sometimes we ask for a one-word answer. I want a three or possibly four-letter answer. Were the right hon. Gentleman introducing these motions today, which index would he use?
Stephen Timms
Sadly, I am not in the happy position that the Minister describes. I hope that I will be before very long, in which case I will gladly give him the answer that he seeks. However, I am not in that position today.
Stephen Timms
I can well understand why the hon. Gentleman wants to know the answer to that question. If, as we have heard, he and his party are to be involved in the next Government, it will be in coalition with a party other than the one that they are in coalition with at the moment. I am afraid that he will have to be a little patient to get an answer to his question. None the less, I well understand why he wants to know the answer.
The Chancellor proudly told us in his autumn statement last year that the increase formula for regulated train fares was changing from RPI plus 1% to RPI plus 0%, which means that regulated rail fares would increase by no more than July 2013’s RPI of 3.1% . What is not clear is why the Government apply RPI in that case and CPI in this. The answer, as far as one can make sense of all this, is that the Government use CPI when it is useful to have a small number and RPI when they want a big number. That appears to be the principle that has been adopted. The result is that pensioners will see their state pension increased in line with CPI, but their train fares by RPI.
Part 7 of the order in front of us relates to universal credit. As the House well knows, this is becoming an appalling fiasco. The Secretary of State told us yesterday that he expected 6,000 people to be in receipt of universal credit during the current pathfinder. It was not clear by what date he expected that figure to be achieved. Will the Minister let us know? He will recall that I have been warning since November 2010 that the time scale announced by Ministers for universal credit was unachievable. Unfortunately I have been proved right. Indeed, the position is now a good deal worse than I feared when I wrote to the Secretary of State in November 2010. There is now a real danger that the entire project could collapse.
As I pointed out at the time, the time scale for the IT was always unachievable. That goes back to the July 2010 Green Paper, which included the absurd claim that the IT for universal credit would not amount to a major IT system. Replacing the whole of the benefit information technology can hardly amount to anything other than a major IT system. Ministers have failed to deliver any IT system. It now appears that, while they continue to develop late the IT system they started out with, they are also going to develop a second universal credit IT system, in the hope that they can get it right second time around. Goodness knows how many hundreds of millions of pounds that is going to end up costing. It is clear that the next Government will have a major job on their hands to salvage universal credit after May next year if, as all of us must hope, it can be salvaged.
Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)
Is the right hon. Gentleman at all reassured by the Secretary of State’s statement some time ago that universal credit would succeed because he believed that it would?
Stephen Timms
The hon. Gentleman correctly quotes the Secretary of State. He told us for a long time that universal credit was on track, then latterly he started to say that it was “essentially on track”. So one can be forgiven for not being entirely reassured.
I wonder whether the Minister can help us on another matter that has just come to light in connection with part 6 of the order on employment and support allowance. A freedom of information request by the advice service Benefits and Work revealed yesterday that the Department for Work and Pensions had issued an internal memo to staff on 20 January advising that, owing to a growing backlog at the assessment company Atos, all current ESA claimants would be left on the benefit without further medical checks until another company could be found to carry out repeat work capability assessments. The Minister of State, Department for Work and Pensions, the hon. Member for Hemel Hempstead (Mike Penning), frankly acknowledged in oral questions yesterday pressures and capacity problems at Atos and indicated that negotiations were taking place to find an alternative provider, but he made no mention of the suspension of repeat assessments in the meantime, which appears to have been introduced. The memo obtained by Benefits and Work suggests that DWP has deliberately chosen not to inform Members of the House or claimants about this change. Why has that been done? Can the Minister provide reassurances to the public about the scale of the difficulties—yet another emerging mess in his Department?
The decision by Ministers to take this action will confirm widespread scepticism about whether the system is fit for purpose. It certainly leaves an operational vacuum, apparently pending the appointment of a new provider. At this stage there is no indication of when such an appointment might be made. In the circumstances, it is surprising that the Minister did not take the opportunity to inform the House of the situation yesterday, when there was an extensive discussion on the matter and a number of questions were asked about the process for replacing Atos and the operation of the work capability assessment in the meantime. It appears that the operation has been significantly scaled back. Given that ESA is part of the order before us, I wonder whether the Minister can take this opportunity to provide us with the explanation that we were not provided with yesterday.
There is growing dismay in the country about the impact of the Government’s changes on growing numbers of people—with an extraordinary 750,000 people forced to go to food banks last year because they were unable to afford enough food for themselves and their families. The Cardinal Archbishop of Westminster expressed it powerfully last week when he said:
“Something is going seriously wrong when, in a country as affluent as ours people are left in that destitute situation and depend solely on the handouts of the charity of food banks”.
He is surely right. Something is going very badly wrong indeed, and it needs to be put right.
The increase of the state pension in line with the triple lock is worth having—I put it no stronger than that—but the Government have chosen to uprate state benefits and pensions permanently in a way that is meaner than the method used before. For that reason, we are unable to support the Government in the Lobby on the orders today.
Katy Clark (North Ayrshire and Arran) (Lab)
Thank you, Mr Speaker, for giving me the opportunity to say a few words. I will be speaking against the orders, but I am not suggesting that we should vote against them because of course, if we were to do so, the pitiful increases that some people will receive as a result of them would not be paid. I shall be arguing that the orders should be different.
The changes that the Government have introduced, some of which are in these orders, have huge significance for millions of the poorest in our country. Both motions are of vital importance, as restricting the uprating of benefits to these pitiful amounts, which in many cases represent a real-term cut, is one of the ways in which the coalition Government have attempted to balance the books on the back of the poor. The focus today is on the change from RPI to CPI and, as the Minister has said, other legislative methods have been used in relation to some of the other changes which yet again the Government are proceeding with this year.
Under the last Labour Government, most benefits were uprated every April in line with the RPI measure of inflation and based on the RPI of the previous September. Shortly after taking office, the coalition announced that it would be changing to CPI, which of course does not take into account housing costs and is almost always a lower measure than RPI. That is why I oppose it. The hon. Member for Banff and Buchan (Dr Whiteford) has already commented that another method of uprating should be found because neither CPI nor RPI is a good way of capturing the real cost of living for some of the groups affected by the orders. However, we do know that RPI is a more generous system than CPI and the Government should return to that way of looking at things unless a better way can be found.
Steve Webb
I am listening with care to the hon. Lady. Just to set the record straight, one of her objections to the use of CPI is that it does not include housing costs. In fact, it does. It includes rents. Were we also to include owner-occupiers’ housing costs—the CPIH measure—we would have a lower measure than the one we are using.
Katy Clark
Obviously the Minister is aware that the range of factors taken into account has been smaller every year since the change was brought in. I oppose the orders not necessarily because they do or do not include housing costs—I understand the point he makes; he has made it before and we have debated it previously—but because the method does not reflect the real cost of living that people who rely on these benefits experience.
Every year since 2010 RPI has been higher than CPI and the gap between those figures has made a real difference to pensions and benefits. The danger with the change is the cumulative impact over many years. In 2010 the RPI figure was 4.6%. That went up to 5.6% in 2011, down to 2.6% in 2012, and was 3.2% last year. But the equivalent CPI figures were 3.1%, 5.2%, 2.2% and 2.7%. Every year there has been a gap, which has meant that some of the poorest and most vulnerable in our society have ended up with less money in their pocket.
The Prime Minister has made much of his decision to introduce a triple lock guarantee for the basic state pension. He has already pledged to retain it throughout the next Parliament should he have any success at the next general election. The guarantee ensures that the basic state pension will always rise in line with whatever is the greatest as between inflation, wages or 2.5%. The uncomfortable truth, however, as the Minister must accept, is that the triple lock was introduced alongside the change from RPI to CPI, so the basic state pension increases in 2012 and 2013 were lower than they would have been if the previous system had been used. By 2015, the basic state pension will therefore be £1.11 a week lower than it would have been if it had risen in line with RPI, so pensioners will be £106.60 worse off as a result.
That is how just one group is affected. If we look at other groups, such as carers, the situation is even worse. Next year, carer’s allowance will be £1.69 per week lower than it would have been under RPI, with carers £255.84 worse off by April 2015 as a result. Those receiving both the higher rate mobility and care components of disability living allowance will be £571.48 worse off by the same date.
Mr Reid
Does the hon. Lady accept that, with the triple lock, pensioners will benefit from an economic recovery by their pension going up in line with earnings, whereas when the economy was doing well in the early years of the Labour Government, pensioners did not share in the increased benefits, because their pension only went up in line with inflation and not in line with earnings?
Katy Clark
As the hon. Gentleman will appreciate, I am focusing on the change from RPI to CPI. He will be aware that in the last Parliament I strongly advocated a return to the link with earnings. However the reality, as he well knows, was that even though Labour did not reinstate that link, the increases every year were far higher than they would have been if that reinstatement had taken place. Therefore, I frankly did not understand why my Front Bench at the time would not make that change.
I support the return to the link with earnings, but as I have said, the point I am making is about the change from RPI to CPI, which I understand is a long-term policy of this Government. Some of the poorest people in the hon. Gentleman’s constituency and mine will experience a cumulative long-term reduction in their incomes as a result of that change.
From April 2013, the coalition slashed the annual uplifts to a range of benefits to 1%; I appreciate that that issue is being dealt with in other legislation. Some of the disability benefits, such as carer’s allowance and disability living allowance, are exempt from that 1% cap, but employment and support allowance, which is the primary income replacement benefit for disabled people, is not. The Government have exempted from the cap the higher rate care component paid to the most severely disabled people, supposedly shielding the vulnerable from it. Unfortunately, however, this is a sleight of hand. ESA is paid in two parts—a basic rate, plus an additional component—and although the additional component of £35.75 is exempt from the 1% cap, the basic rate of £72.40 is not. Therefore, over-25s in receipt of the care component of ESA will receive £5.11 a week less than they would have received if it had increased in line with RPI. These cuts matter, because they are having a real impact on some of the poorest and most vulnerable people in our society.
Between 1997 and 2010, the Labour Government reduced the percentage of people living in absolute poverty from 28% of the population to 15%. During that time, 2.3 million children and 2 million pensioners were lifted out of poverty. Research from the Institute for Fiscal Studies suggests that investment in the social security system was the primary factor behind that reduction in poverty. By slashing social security benefits with these orders and the other legislation that we have considered previously, the Government risk putting some of the most vulnerable people in society back below the poverty line, and that is on top of the large number of people whose incomes have already been cut as a direct result of this Government’s policy. These orders are completely inadequate and the Government should come forward with something that protects the most vulnerable in our society.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I do not intend to detain the House for too long. I begin by thanking my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) for a powerful speech. The final point that she made is an important one, and it is worth the House’s reflecting on it, because often when we discuss these kinds of issues there is a tendency to caricature the record of the last Labour Government, but anyone who looks closely at their changes to and improvements in social security will see a record of quite substantial progress. Of course, social progress often comes slowly; it is measured in inches as well as feet, and in centimetres as well as metres. However, there was significant social progress and that is part of the context within which this debate should be understood.
Gregg McClymont
I am pleased that the hon. Gentleman made that point, because to some degree it illuminates the difference between him and Labour; because what he discounts entirely by asking that question is the impact of pension credit. I do not know how aware he is of pension credit, but it took 1.3 million pensioners out of poverty. Is that not something that he welcomes? It reduced pensioner poverty in Scotland by two thirds, taking 200,000 pensioners out of poverty.
Gregg McClymont
I will give way to the hon. Gentleman again, but I hope he will recognise that achievement.
Mr Reid
The defect of the pension credit arrangements, when compared with the new pension arrangements that my hon. Friend the Minister has introduced, was that people had to apply for pension credit, and a lot of people were unaware that they had to do that, whereas under the new pension arrangements everyone will get the single-tier pension.
Gregg McClymont
I am afraid to say to the hon. Gentleman that, although I understand where he is coming from, it is not the case that everyone will receive the single-tier pension; people must have made contributions for 35 years. He should speak to his colleague, the Minister, who everyone recognises is an expert on the state pension. There will be poor pensioners who will not receive the new pension, and they will depend on pension credit.
I asked the hon. Member for Argyll and Bute (Mr Reid) to reflect on the reality of the difference that pension credit made, particularly in a period after 1997 when there was genuine absolute pensioner poverty.
Sheila Gilmore (Edinburgh East) (Lab)
Is it not the case that if it had not been for the framework that was set up by the last Labour Government—particularly the introduction of pension credit, which is clearly already accounted for in budgets—it would have been far more difficult to move to the form of pension that the Minister has proposed?
Gregg McClymont
My hon. Friend makes an important point. The level at which the Minister appears set to place the new flat-rate state pension is just above pension credit. It is that framework, which was set for the poorest pensioners to ensure they would no longer live in poverty, that is so important. My argument is not that the hon. Member for Argyll and Bute is entirely wrong; it is that he must take account of the difference that pension credit made to the poorest pensioners in his constituency, my constituency and around the country.
That brings me to the question that I wanted to ask the Minister, which is about pension credit. Of course it is welcome that the basic state pension is rising by £2.95, and he was very clear that pension credit will also rise by £2.95, but of course as a percentage rise, the rise for pension credit is less. The danger is that those on pension credit will fall behind relative to those on the basic state pension.
The term that the Minister used was over-indexation. A little alarm goes off in my head when Ministers resort to using such terms. A more straightforward way to put things is to say that pension credit, which the poorest pensioners rely on, is not being uprated by the same percentage as the basic state pension. There may be an excellent reason for that, but I would like to hear it.
There is also a more fundamental point about the new pension system that the Minister and the Government are introducing, which relates to the point that my hon. Friend the Member for Edinburgh East (Sheila Gilmore) made. It is that, as the Pensions Bill proceeds, the new flat-rate state pension—as I understand it—is being set just above pension credit. If pension credit loses its value relative to the basic state pension in the run-up to the introduction of the new system, there is a danger that the flat-rate state pension will be pegged at a lower rate than would otherwise be the case. We must be clear not only about the implications for the poorest pensioners of a lag in the uprating of pension credit, but about the implications for the flat-rate state pension system for which the hon. Member for Argyll and Bute is such an enthusiast. We must ask these legitimate questions. If we are to have a reasonable debate, we need to recognise the progress that was made over the past decade—certainly until 2010—and consider how that will interact with the flat-rate state pension system that the Minister is so keen on creating.
Dame Anne Begg (Aberdeen South) (Lab)
Following its pre-legislative scrutiny of the draft Pensions Bill, my Work and Pensions Committee thought that there should be a larger gap between the flat-rate state pension and pension credit to ensure that there would be a cut in means-testing, which the Government claim will be the effect of the flat-rate pension’s introduction. However, that will not happen if the two are kept together, or if one is lower than the other.
Gregg McClymont
My hon. Friend is widely acknowledged as an expert in this area, and questions arise when pension credit is not uprated by the same percentage as the basic state pension. As I said, I start to get worried when I hear the phrase “over-indexation” because the Minister is actually saying, “We have decided that pension credit will be uprated by earnings unless we decide otherwise, and we have decided otherwise, so it will be uprated by the cash equivalent of the uprating to the basic state pension.” However, that represents a smaller percentage increase, so we need to be aware of the wider implications of that.
I made it clear that I would not detain the House for too long. My right hon. Friend the Member for East Ham (Stephen Timms) asked the Minister a number of important questions, to which I shall add my own. First, does the Minister agree that pension credit made a real difference to millions of poor pensioners in this country? Secondly, does he agree that it provides the basis on which the flat-rate state pension will be pegged under his new system? If that is the case, it is important that we debate the lesser uprating of pension credit, and I hope that the Minister accepts that I ask my questions in the spirit of co-operation and inquiry.
Steve Webb
With the leave of the House, I shall be grateful for the chance to respond to the three speeches that we have heard. I cannot help reflecting on the fact that we cannot manage to talk for even an hour about spending £3.3 billion, but I take it from that that the House thinks that we are doing a good job.
Before I respond to the detailed points that have been raised, I want to be clear about what we mean by above inflation, real terms and all the rest of it. The April increase in the basic state pension will be in line with inflation at 2.7%. Of course, we now know that CPI is below 2%, so despite the population experiencing inflation at that rate, we are putting up the pension by 2.7%—
Steve Webb
In a second.
That explains the reference at the end of my speech to an above-inflation increase although, as we have discussed, there will be years in which the trend goes in the opposite direction.
Sheila Gilmore
The Minister anticipates the point I was about to make. The situation to which he refers could apply in any year. People suffered greatly in previous years because the uprating was set at a low point for inflation, yet they experienced real rising prices, so the increase is hardly a great virtue on the part of the Government.
Steve Webb
It is interesting to look at what has happened to benefit rates over the long run. In the seven years since the 2008 crash, the rate of jobseeker’s allowance has increased by more than the growth in earnings. While people with jobs—people would obviously far rather have jobs than not—have seen their wages grow over that period, the rate of JSA, which I still quaintly think of as unemployment benefit, has risen by more than that growth.
The hon. Member for North Ayrshire and Arran (Katy Clark) talked about pitiful increases and slashing benefits, but I can tell her that the Labour Government spent £181 billion on tax credits, benefits and pensions in their final year in office, yet in the first year of the next Parliament, we envisage spending not £181 billion, but £211 billion. Spending £30 billion more than six years previously is an odd definition of “slashing”, so we need to keep a bit of perspective in the debate. I respect the hon. Lady’s sincerity and clearly she wishes that the increases were greater but, as she well knows, her Front-Bench colleagues will not vote against the orders, and that is not because of a technicality, but because they would not allocate money for larger increases. I know that she disagrees with her Front Benchers. If she ruled the world, she would put in place greater increases—she would tax people more and spend more—but that is not her party’s position.
Stephen Timms
What is the Minister’s response to last week’s comments by the Cardinal Archbishop of Westminster about the significant number of people who find themselves in destitution as a result of the changes that have been made?
Steve Webb
I have great respect for the Cardinal Archbishop, whom I met some years ago, and I do not doubt his compassion for those in need, which is shared by Members on both sides of the House. However, I do not think that anyone believes that people were not in severe and urgent financial crisis before we saw the current network of food banks; they simply went somewhere else. The idea of urgent financial need has not suddenly arisen. As the right hon. Gentleman will know, people turned to charitable sources and churches. It was not uncommon for people to knock on a vicarage door to ask for a sandwich, and that is not very different from a food bank—it is a precursor to that. There were always people in urgent financial need, and we can debate the impact of a global economic downturn on the level of need. Church leaders who comment on such matters are sometimes briefed with partial information. It is sometimes suggested to them that there is a mad slash and burn on the welfare state, but I think that they would be surprised to learn that, at the start of the next Parliament, we will be spending £30 billion a year more on benefits, pensions and tax credits than in the final year of the previous Labour Government.
Stephen Timms
Surely the Minister accepts that comments such as those made by the Cardinal Archbishop of Westminster and in last week’s letter signed by 27 bishops are based on actual experience of what is happening in communities. Surely he cannot maintain, as he appeared to do, that nothing has changed and that things are carrying on as they were before—clearly that is not true.
Steve Webb
No one is suggesting that nothing has changed. The global economic downturn was far deeper than was originally thought, and we have had to recover from that. We had to make changes to the benefits system to try to balance the books, which the previous Government failed to do.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said that he felt uncomfortable when I talked about over-indexation. Let me make it clear that under the pensions legislation that the Labour Government put in force, there is a legal duty to uprate pension credit by earnings, but we are doing more than that. The hon. Gentleman implied that we were doing less and that we were somehow putting in place a worse increase, but we are paying a £2.95 increase on the basic state pension, and we do not want to follow Labour’s approach of making an earnings increase to the guarantee credit because that would give the poorest pensioners less than £2.95. In our jargon, we are passing through the full £2.95. Far from paying less than the law requires, we are paying more, because we put the biggest priority on the poorest pensioners.
Gregg McClymont
The Minister is well aware that earnings have been in decline, so setting out the Government’s approach as some sort of virtue is a bit like the argument that was made when he had to override the triple lock on its first day because it would have produced so little. However, does the Minister not accept that the situation has implications for the level at which the flat-rate state pension will be set?
Steve Webb
I would like to suggest that the colleague who just whispered in my ear was saying how much he was enjoying our debate on welfare and urging me to keep it going, but that may not have been the tenor of his remarks. What we are trying to do is ensure that we do the right thing by the poorest pensioners. Had we simply done what Labour required us to do by law, which was to index in line with the growth in average earnings—it was Labour’s law, not ours—the poorest pensioners would now be getting less. I assume that the hon. Gentleman is not suggesting that we should do that. We have therefore overridden Labour’s law and been more generous to the poorest pensioners. I do not know whether that is socialist enough for him, but it is what I think is the right thing to do.
Gregg McClymont
Let us be very clear that pension credit has been uprated by less than the basic state pension. That is a judgment the Minister can make, but let us be clear about what it means for the poorest pensioners: they are not getting the same increase as other pensioners. That is a judgment the Government can make, but they should at least be clear about what is happening.
Steve Webb
The hon. Gentleman is completely wrong, because they are getting exactly the same increase—£2.95—as in the basic state pension. He seems to want it both ways. If he is saying that the increase in pension credit should have been the 2.7% on the basic state pension, can he tell us where he would get the money from?
Gregg McClymont
The Minister is an intelligent man, and my point is a simple one: an increase of 2% is less than an increase of 2.7%. I think that we can all agree on that.
Steve Webb
I did not hear the hon. Gentleman say where the extra cash would come from—the bankers’ bonus tax, perhaps? Is he saying that it should be 2.7% or not? As a debating point he is saying that it should, but he has no idea where the money would come from. [Interruption.] He says from a sedentary position that he wants me to be straight about this. Being straight with the electorate means that if he stands up in Parliament and says that the increase should be bigger, which he has every right to do, he must say where the money would come from. That is the nature of choice in government.
The right hon. Member for East Ham (Stephen Timms) asked about tax credit. Tax credit rates will be set out in affirmative statutory instruments in the usual way and debated in the usual way, so there is no difference there. He talked about the triple lock, which we are very proud of. In fact, we understand that the Opposition are going to copy it. On one level he was mocking and deriding it, but when the Prime Minister said that he would continue it in the next Parliament if re-elected, the leader of the Labour party said that
“nobody should be in any doubt about our commitment to the triple lock”.
The right hon. Gentleman ought to have a word with his leader, who thinks that the triple lock is really a rather good thing.
I want to respond to the right hon. Gentleman’s attempted demolition job on the triple lock that is now his policy. He implied that had Labour been in office, pensions would have gone up by more. There are two possible ways that could have happened. One is if Labour had continued the RPI link. We all know that the statisticians do not think that RPI is a particularly good measure of inflation, and I refer to what the hon. Member for North Ayrshire and Arran said earlier. I entirely accept that RPI is generally, although not always, bigger than CPI, but we are not trying simply to pick a bigger or smaller number. In having these annual debates, we are trying to compensate for average inflation. If society thinks that benefit rates are too low, we can do something about benefit rates. What we do not do is just pick an inflation measure because it is bigger or smaller.
We chose CPI because it is a robust and internationally standard definition. The statisticians have dropped RPI as a national statistic because they do not think that it is a good measure of inflation. When the Secretary of State looked at the increase in the general price level this year, CPI was the only number he could realistically have used because RPI is no longer regarded as an official statistic and the other new measures have not even been properly implemented yet. It is entirely open to the hon. Member for North Ayrshire and Arran to persuade her Front Benchers that we should tax people more and increase benefits, but that should be done by making a decision, not by using a measure of inflation that even the statisticians no longer think works.
Sheila Gilmore
I suspect that the Minister will therefore be disappointed to learn that landlords appear to think that RPI is an appropriate measure for calculating their tenants’ rent increases.
Steve Webb
Clearly a whole raft of decisions are made about increases. The right hon. Member for East Ham mentioned rail fares, for example, and the train operators’ revenues and some of their costs are determined by RPI. The task that the Department for Work and Pensions has once a year is to look at what has happened to the general price level, and I have not heard a single argument in this debate that CPI is not the best single measure to use for that purpose.
Katy Clark
Surely the Minister accepts that benefit increases are at least in part about social justice. Since 2010 we have seen this Government take a range of steps that have increased inequality in this country. Surely he must accept that choosing CPI simply because it seems to be a smaller amount will push the poorest people even further below the poverty line.
Steve Webb
I fundamentally do not accept that. The hon. Lady says that we chose CPI simply because it is lower. As of the year to last September, we had only two possible measures to choose from—CPI and RPI—because the other variants of CPI and RPI were not established at that point. RPI has been discontinued as an official statistic, so how could we use it as the measure for the general increase in the price level? CPI is the target of the Bank of England and an internationally standard and accepted measure. If she thinks from a social justice point of view that benefits should be higher, which is an entirely legitimate thing to think, she should do that by setting them at whatever level she thinks is right, not by trying to pretend that inflation is something other than what the statisticians tell us it is. Those are two separate questions.
Katy Clark
Does the Minister not accept the point that has been made in a number of debates in recent years, which is that the inflation that the poorest experience, and indeed that pensioners experience, is far higher than CPI?
Steve Webb
There are clearly differences in inflation over time and between different groups. We use one number across the board. There will be years when pensioner inflation is higher than the figure we use and years when it is lower. At the moment, there are particular pensioner price indices, but they do not include all pensioners. We simply use one number that, on average and over time, captures inflation, but spending patterns differ. This Government have clearly taken steps to help people at the bottom of the pile. To counter what the hon. Lady said, inequality rose under the previous Labour Government and has fallen under this Government. [Interruption.] She shakes her head because the statistics and the evidence do not fit her presumptions, but the fact is that Labour presided over growing inequality in this country.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East seemed to imply that pensions would be higher if Labour had remained in government, but he knows perfectly well that before the general election the previous Government mooted moving to earnings indexation from 2012. Had they done so, we would now have a lower state pension than we have now. Would they have carried on with a prices index that nobody really thinks is a good measure of inflation? Where would they have found the billions of pounds to do that? He has implied that they would not have done that and that they would have accepted use of CPI for three years, in which case the state pension would not now be higher. There are lots of “what ifs”, but it is fairly clear.
My right hon. Friend the Deputy Prime Minister has suggested that Labour has started to get it on the public finances, but I am afraid that the right hon. Member for East Ham is still in the Brownite mode from when he was in charge of the nation’s spending. People always ask me whether the triple lock is affordable, but it is just not good enough for him. He wants something more generous. I think that we need a dose of realism in this debate. He asked some specific questions, and my right hon. Friend the Secretary of State responded to his questions on universal credit yesterday. Practically every benefit that exists is listed in these orders and we could debate them all, but that is not the focus of this debate. Suffice it to say, universal credit will lift people out of poverty, which is why I am proud to support my right hon. Friend’s plans.
The right hon. Gentleman asked about ESA. I will not comment on documents that he said have been leaked, but I can say that we are taking action to tackle the backlog in the system. I would have thought that he, when wearing his constituency hat, would want us to do that, but he is welcome to table questions to the Minister of State, my hon. Friend the Member for Wirral West (Esther McVey), for further information.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked about the role of pension credit. He hails pensions credit as some sort of salvation. Let us be clear that pension credit was, primarily, a rebranding. We had national assistance, then we had supplementary benefit, then we had income support, then we had the minimum income guarantee, and then we had guarantee credit. They were all basically the same thing—a line below which people were not meant to fall. Therefore, the guarantee credit bit was, in essence, a Brownite rebranding. The new bit of pension credit was savings credit—one of the most tortuous, complicated and obscure benefits ever created.
Steve Webb
In a second; I have not finished my rant yet.
Savings credit is such a lottery that of those entitled to savings credit only, half get it and half do not. I am afraid that I do not regard a system where one tosses a coin and half the people get it and half do not as a firm foundation for security and dignity in retirement. That is why we have introduced the single-tier state pension.
Gregg McClymont
I have a simple question for the Minister: is it or is it not the case that pension credit took 1.3 million pensioners out of poverty?
Steve Webb
I do not believe that for a minute, because at the same time as pension credit was implemented, other changes were happening. For example, SERPS—the state earnings-related pension scheme—was maturing, so each successive generation of retiring pensioners was getting higher levels of state pension, thereby reducing pensioner poverty, and people had longer service in final-salary pension schemes. A whole raft of long-term trends will lead to a reduction in pensioner poverty, so to say that it was due to pension credit on its own, one would need to know what else would have happened even without it.
Clearly, savings credit is extra money, and I am sure it is very welcome to those who receive it. We have gone on indexing—in fact, as I have said, rebalancing—pension credit to give more to guaranteed credit and less to savings credit, because people claim guaranteed credit. That is why we have focused on the very poorest pensioners.
Gregg McClymont
Let me reframe my question. Does the Minister agree that 1.3 million pensioners were taken out of poverty during the time of the previous Labour Government?
Steve Webb
The hon. Gentleman will know that the level of pensioner poverty has fallen in the long run because of the factors that I have described. [Interruption.] He says that it has happened since 1997. Had the previous Labour Government done precisely nothing, the level of pensioner poverty might well have fallen anyway because SERPS was maturing. SERPS came in in 1978 and had been running for only 19 years by ’97. In each succeeding year, more and more people have got more and more state pension under SERPS as it matures, so as the oldest pensioners with no SERPS die off, the newly retired pensioners come in with bigger and bigger SERPS. That would be a long-term reason for the change, and real earnings growth would have been another factor. It is complete nonsense to say that it was due solely to pension credit, and he ought to know that.
Gregg McClymont
The Minister appears to get tense under questioning and uses the words “complete nonsense”. Is he really standing at the Dispatch Box and saying that pension credit did not make a significant difference to pensioner poverty in the UK?
Steve Webb
As ever, the hon. Gentleman tries to misrepresent what the record will show that I said. I am not saying that pension credit was irrelevant; I am saying that his claim that pension credit reduced the level of pensioner poverty by 1.3 million is patently false.
Where does that leave us at the end of this debate? We have a set of orders that spend an extra £3.3 billion on benefits and pensions, overwhelmingly on pensioners. This Government will deliver a state pension that represents a bigger share of average earnings than in any year under the previous Labour Government. The point of pensions is to replace lost earnings, so they cannot do their job if they have fallen relative to earnings, as they did in almost every year of the previous Labour Government, most notoriously when they thought that 75p was enough for pensioners. We do not; we think that a £2.95 increase this year is fair and appropriate. We are proud of our record in protecting the most vulnerable and, in particular, in focusing additional spending on pensioners. I commend the orders to the House.
Question put and agreed to.
Resolved,
That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.
Social Security
Resolved,
That the draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.—(Steve Webb.)