Social Security Benefits Up-rating Order 2014
(10 years, 8 months ago)
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Lord Bates
That the Grand Committee do consider the Social Security Benefits Up-rating Order 2014.
Relevant document: 20th Report from the Joint Committee on Statutory Instruments.
Lord Bates (Con)
My Lords, the Guaranteed Minimum Pensions Increase Order 2014 and the Social Security Benefits Up-rating Order 2014 were laid before the House on 27 January 2014 and I am satisfied that they are compatible with the European Convention on Human Rights.
I start by touching briefly on the Guaranteed Minimum Pensions Increase Order, which provides for contracted-out defined benefits schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.7%, which is in line with inflation as at September 2013. As noble Lords will be aware, we are not here to discuss the Welfare Benefits Up-rating Order 2014, which was made on 24 January. The rates increased by 1% in that order were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.
Turning to the Social Security Benefits Up-rating Order, I would like to start with the increase in the basic state pension. One of this Government’s first acts was to restore the earnings link to the basic state pension. Indeed, we went a step further and secured a triple lock for pensioners—a commitment from the Government to increase the basic state pension each year by earnings, prices or 2.5%, whichever is the highest. This year, as prices were greater than average earnings and 2.5%, the basic state pension will increase by CPI at 2.7%. The new rate of basic state pension will be £113.10 a week for a single person, an increase of £2.95 from last year. This means that from April 2014 the basic state pension is forecast to be around 18% of average earnings, 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 up-rated by earnings since the start of this Parliament.
On pension credit, we have taken an important decision to ensure that the poorest pensioners are able to benefit from the effects of our triple lock. That means that, rather than rising in line with earnings at 1.2%—the minimum required by legislation—the standard minimum guarantee credit in pension credit will be increased by 2% so that the poorest pensioners benefit from the full cash value of the increase in basic state pension. Single people will receive an increase of £2.95 a week while couples will receive an increase of £4.45 a week. Consistent with our approach last year, the resources needed to pay for that above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase.
I can confirm that additional state pensions will rise in line with inflation at 2.7% in 2014-15. That means that the total state pension increase for someone with a full basic pension and average additional pension will be around £196 a year. The decisions we have taken on pensioners reflect the Government’s belief that even in difficult economic times it is important to protect those who are less able to increase their spending power.
That belief is reflected in our decision to ensure that those benefits that reflect additional costs because of disability will be protected and will be increased by the full value of CPI at 2.7%. These include the personal independence payment, disability living allowance, attendance allowance, incapacity benefit, disability premiums in working-age benefits, the support component of the employment and support allowance, and the limited capability for work and work-related activity element of universal credit. That is also true of the carer’s allowance and the carer premium, both of which will be uprated in line with inflation.
In conclusion, I ask your Lordships to note that at a time when the nation’s finances remains under real pressure, the Government will be spending an extra £3.3 billion in 2014-15. Of that, about £2.7 billion is for the state pension and over £600 million will go to people of working age, with nearly £600 million of those increases going to disabled people and their carers.
The uprating commitment I have outlined today will give real support to the poorest and most vulnerable in society, ensuring that people who are least able to change their incomes are protected against increases in the cost of living. On that basis, I commend the orders to the Committee, and I beg to move.
Lord German (LD)
My Lords, I have a number of questions. First, I welcome the triple lock. This is the first time that we have seen prices as the lock that has come into play, which means that pensioners will always benefit from the best of the three options. This is the first time we have seen one of the three locks.
I will spend a few moments on the rationale behind the 1%, 2% and 0.7% for the pensions and other matters. This is really about what is contained in the Government Actuary’s report. For the first time, we see from the Government Actuary what the state of the fund is—the fund from which these benefits will be paid—not just for this year but through to 2018-19. I believe that this is the first time we have been able to have those projections. The report clearly shows that there are a number of difficult years to come, in particular 2015-16. Next year the actuary projects that the Government will have to put in £8 billion extra in order to keep the fund at its one-sixth level of what goes in and what comes out, and what is left in the fund. However, the last table of the Government Actuary’s report shows that the following year will be even more difficult. Can we have some comparison for benefits’ sake?
I will be quite happy if my noble friend wishes to send me information about this or to write to me about it. As we are projecting forward six years to 2018-19, can we have the figures showing how much has had to be contributed in the past 10 years, say, so that each year we can see what the graph or the direction of travel is? Quite clearly, it is not the usual case that the Government have to top up the fund to achieve that one-sixth balance. It might be useful to know how often that happens and what the projections are for the future.
I have just two short questions, one of which relates to the implementation dates in the order. I should probably know the answer to this question, but I would be very grateful if the Minister could answer it, although it is a question similar to, “Why do we always have elections on a Thursday?”. For the dates of implementation, which are contained within this order, we have 1, 7, 9 and 10 April. I know that it does not mean very much if someone has to wait a week longer for their benefit to come through, but why is it not possible to have a single implementation date at the beginning of the financial year, or is there some administrative reason for that?
My second and final question relates to the investments in the national insurance fund. I noticed that the projection from the Government Actuary is that they will fall from £127 million to £90 million. If the investments made £127 million last year, which obviously supported the amount of money that could be put into benefits without having to top them up from the Treasury, why do we see a lower projection in the coming year when all the signs are that investment opportunities are greater in the coming year than they were in the past year? I should be grateful for some explanation, but I will be perfectly happy if my noble friend wants to do that for me in writing.
Lord Kirkwood of Kirkhope (LD)
My Lords, I am pleased to follow my noble friend Lord German, who asked some pertinent questions. I want to take a slightly different approach and put these uprating orders into the context of a longer timescale. As I think we all know, changes to upratings will generate more savings for the department over the middle to longer term than any other single change, so it is important for Parliament to stay abreast of what is going on.
My first point is about process. In the old days—he says, reverting immediately to nostalgic mode—this used to be a huge debate. My noble friend the Minister will know, because he was there and was briefly a Minister, that the uprating order was a big event then, when we were spending millions, not billions as now. There was a full Chamber in the House of Commons and those numbers were keenly contested. It has now come to this, at the fag end of a late Monday, with the Minister and two or three lonely survivors discussing these very important matters. We must make sure that the parliamentary process is maintained because the scrutiny of these matters is important.
The process which we now have is a bit confusing to me. The Minister is absolutely right that the Welfare Benefits Up-rating Act 2013 basically takes out the working-age benefits from consideration this afternoon. I do not think that is for all time coming but I am not sure. I assume that the 2013 Act will render it nugatory to discuss working-age benefits until that Act falls away, after its third year. Presumably we will then go back to the uprating system as before. I am also a bit nervous about losing sight of tax credits and child credit Treasury-type benefits, which in the old days were also all subsumed into the one comprehensive debate.
I am even more confused about the annually managed expenditure proposals which the Chancellor has been talking about. I am always suspicious about Chancellors talking about social security department business as, in my experience, they invariably make a hash of it. I would stiffen the Minister’s resolve to resist these territorial ambitions from the Treasury, which are very hard to contain. I can see some heads nodding, so I am obviously on a strong point there.
The point that I am making is a simple one. In Parliament, we should insist on being able to have proper opportunities in good time to look at the comprehensive changes being made, even though they are getting more complicated, so that we can satisfy ourselves that at least we know what is going on and can make the best points to the Minister and his future heirs and successors. I am fearful that this is becoming so piecemeal that it is getting difficult to do. That is my first point and I suspect that the Minister will not disagree with it.
I would like to know what the additional costs of these orders are. They are basically pension-orientated. I have nothing whatever to say about the Guaranteed Minimum Pensions Increase Order. I have never had anything to say about that order; it goes on and it goes up, and that is fine. However, my impression is that there is £3 billion or so involved in increased spend and I would like to know to what extent, over the period of this order, that is derived from an increased caseload. In the middle to longer term, the demographics will obviously change regarding the proportion of the population. There will be more and more pensioners, so we will have more and more trouble paying for them, which is perhaps part of the answer to the important question that my noble friend Lord German asked. I would not mind being copied into any answer that he gets because it is a very important question. However, the caseload is bound to increase, so if that number increases, the costs will get bigger as the numbers get higher. I understand this, perhaps, more than most. As of the fiscal year 2014-15, we spend £211,000 million each year, every year, which is a serious sum of money. We really need to make sure that we understand how we are spending it and that we get control and make it as effective as we can. I should like to know the cost of these orders, just to keep track of the expenditure.
The Section 150 duty on the Secretary of State in the Social Security Administration Act 1992 is that he considers and reviews, and, in a kind of Delphic way, the answer comes out as CPI. I hope that the Minister would be able to give me some reassurances, after some of the evidence coming out from the archbishop, now cardinal, and the powerful intervention that he made about destitution. I do not think that he is right to say that the entire safety net has been withdrawn, but he is a serious man, and the Church of England and other churches are beginning to pick up the fact that some serious things are emerging in their localities. I think that they are correct about that, although I would not go as far as to say that the safety net was being removed. But that evidence is the kind of thing that I would hope somebody in Parliament would put in the box for the Secretary of State when he did the annual review.
There are other political issues as well. People like myself cannot understand why universal benefits for pensioners, in these circumstances when austerity is upon us, are not in the mix and being considered as possible savings. The fact that I get a winter fuel allowance is not appropriate to the financial circumstances that we are in. That is the kind of thing which I hoped the review would have looked at.
I was very struck by the Barnardo’s report just before last Christmas about the emergency food services now being used. The Minister and I have both watched these issues for a long time but I have never seen evidence as cogent as that—750,000 families. The emotional cost of rolling up and asking for food must be enormous. That is new and it cannot be ignored.
Finally—and I think that this is more hidden—the impact on local authorities’ service provision is beginning to be bigger than I have ever seen before in my past experience. That is characterised perhaps by the local welfare assistance fund, which I think the Local Government Association was right to complain that the Government seemed to be withdrawing funding from. These are the kinds of things which I hope the Minister will be able to tell me were thought through carefully in the department before the Secretary of State discharged his duty under the 1992 Act, because they are bits of evidence that are more cogent than I have seen in the recent past—and I have a longer list, but I shall spare him.
I am a member of the council of the Institute for Fiscal Studies, and I want to make a point about the 2.7% and CPI. I guess that the Government had no option but to go for CPI, because RPI is not appropriate any more—if discredited is too strong a word—and I can understand that. But there are problems with CPI in how it differentially impacts on low-income and high-income families. My speech will be a lot shorter, if the Minister says that he will read, or get somebody in his department to read, the IFS Green Budget of February 2014. Chapter 6 of that document says that,
“the average price level faced by households in the bottom quintile rose by 7.1 percentage points more than that faced by households in the top quintile between 2007-08 and 2013-14”.
That is a long stretch and 7.1% is a big figure. That is at page 126, in chapter 6 of the IFS Green Budget 2014. That figure struck me.
The other side of the question, looking at inflation, is on page 138 under the heading “Group specific inflation rates”. It states:
“Figure 6.10 shows that inflation rates since the recession have tended to be higher than average for low-income households … The average rate of inflation experienced by low-income households over the period 2008–09 to 2013–14 was 3.4%, compared with 2.4% for high-income households”.
These are snapshot quotes and you need to read the whole chapter to get the sense of the work that has been done by Oxford Economics, which did this work. This is very compelling evidence that it is dangerous just to go from mean average figures of inflation and prices because they impact differentially on different households and in different proportions of spend within family budgets, because lower-income people spend a lot more money on energy, food and the like than they do on mortgage interest payments. If I can have an agreement that somebody will read chapter 6, I will go on to my next point.
Although there is only a glancing reference in these regulations to universal credit and personal independence payments—it is the first time we have seen uprating orders for those two benefits and I wish them both well—the Minister and I both know that there is some controversy and uncertainty about the programmes and timetables for implementation for these benefits. I am sure that that will become clear during the period of the duration of these orders. Can the Minister say anything, even if it is in writing, about the timetable for it? The press comments and indeed the ministerial comments that have been made about the Atos origin contract for PIP understandably have caused a lot of uncertainty.
I have always believed that we have a problem in this country with the capacity of professional occupational health specialists. The Government are suffering from that, and any Government suffer from it. If you do not have the professionals—and it is a very skilled thing to do properly—any company, Atos or otherwise, will struggle to carry the weight of these hugely important and very onerous contracts. Can the Minister give us any comfort about the upratings contained in these orders as it relates to the personal independence payment and the timetable for dealing with Atos? Similarly, there are uprating elements in these orders about universal credit. If the Minister could give us any comfort on the timetable for universal credit and the ICT contract, that would be very welcome.
Finally, I noticed in the Explanatory Memorandum—they are always very instructive and helpful for these things, and I pay tribute to the poor people who have to write them—that the deductions for service charges on housing benefits for energy charges is 7.7% in the year to September 2013. I understand what service charges are and what rental agreement deductions are in housing benefit, and that they are not new. However, 7.7% is a big percentage. It might not be much—a couple of pounds—but that is a big change. I was grateful that the Explanatory Memorandum took the trouble to point it out to us. I hope that the Minister will take that back and satisfy himself that that is not an outlier figure as regards 2.7% increases here and there. Particularly when energy costs have gone up so dramatically over the recent past—there have been some quite significant increases—7.7% is striking. If the Minister can go away and satisfy himself that that is not a relative punitive increase in a deduction, I would be very grateful.
My main concern is that Parliament, over the distance, is able to track low-income households in particular. As we go into fiscal consolidation—I am sure we will and I hope we do, the sooner the better—differentially, as incomes go up the thrust in controlling the benefits spend keeps benefits down. Incomes go up and the difference gets too great. As parliamentarians—and I know that my noble friend takes an interest in these things—we are bound to make sure that we do everything we can to protect the poor.
Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of the orders, and the noble Lords, Lord German and Lord Kirkwood, for their contributions. I would like to add myself to the circulation list for this exciting reply to the questions of the noble Lord, Lord German. Is the Minister willing to place a copy in the Library, given that it might be of interest in years to come? They are very good questions.
I share the hope of the noble Lord, Lord Kirkwood, that Parliament retains a sense of the importance of these orders. The decisions taken here by Parliament will affect the living standards of millions of people over the next year. They really matter, and if we ever get to the stage where we stop taking them seriously we will be failing in our duty. I pay tribute to the noble Lord, Lord Kirkwood, who turns out every year, come rain or shine, although I am disappointed that he had nothing to say about the GMP. I look forward to a year when I find something to say to it, but I am not going to ask any questions about it either.
Much has been made of the fact that the Government are uprating pensions by the triple lock. That is welcome as far as it goes. The comments about RPI notwithstanding, will the Minister acknowledge that the triple lock has so far been less generous than the RPI uprating it replaced? It was not used in the first year. I notice that my right honourable friend Stephen Timms pointed out, when this order was debated in another place, that the RPI last September was 3.2%, whereas the pension uprating delivered by the order, as the Minister said, is 2.7%. My right honourable friend said that the triple lock has delivered a lower uprating than the previous formula in each of the three years it has been used. The effect of that is that in RPI terms it is a real-terms cut for the third year in a row.
More concerning is that the standard minimum guarantee element of pension credit is to be increased by only 2%. This reduces both its real-terms value and its value relative to the basic state pension. One of the consequences must be that the poorest pensioners find their pension income falling in real terms. The Minister, I am sure, can confirm that. I would be very interested in the Minister’s answer to the question of the noble Lord, Lord Kirkwood, about cost. If the value of some of these benefits is falling, but the spend is rising, is caseload the reason? I would be interested to know.
The decision on pension credit is significant not just for those currently dependent on pension credit, but potentially for all those who will receive the new single-tier pension, which is due to be introduced in April 2016, if the Pensions Bill currently going through the House receives Royal Assent. The Government have signalled, during our deliberations on that Bill, that they propose to introduce the new single-tier pension at a rate above the prevailing rate of pension credit. By reducing the value of pension credit in real terms, are the Government not giving themselves the option of introducing the single-tier pension at a starting rate lower than might have been the case had pension credit maintained its value in real terms?
Can the Minister help me on another point? As the premiums payable to pensioners with working age benefits will be uprated in line with pension credit rates, does that also mean that they too will face a real-terms cut? Will the Minister confirm that? Also, what assessment has he made of the impact on pensioners with small savings of the Government’s decision to increase the savings credit thresholds by 4.4%, some way above inflation? I know that the Government are keen for people to do the right thing and to save, but the reason for introducing a savings credit was so that people who had put money aside would still find themselves better off than those who had not. Will the Minister explain the Government’s thinking on that?
I also have some questions about process. I am with the noble Lord, Lord Kirkwood: I fear that I may have lost track of some uprating that should have happened. If I tell the Minister what I think is happening, perhaps he will correct me where I go wrong. As I understand it, the Welfare Benefits Up-rating Order 2014 uprates by 1% those on benefits covered by the Welfare Benefits Up-rating Act. The protected benefits are covered by this order. So what happens to tax credits? Where did they get uprated? Where was the benefit cap uprated? I know that it has been, but I am not quite sure where that happened. Also, are all the elements of universal credit uprated in this order and, if so, where are the work allowances uprated? I could not see them.
I have two final questions. First, on childcare, it seems to me that the childcare element of universal credit is not being uprated at all. Can the Minister explain why not? If it is not being uprated at all, that is a significant real-terms cut. The last annual childcare cost survey in 2013 from the Family and Childcare Trust—what used to be the Daycare Trust—found that costs had risen by an average of 6% the previous year, more than double the rate of inflation. If the decision is made to cut that childcare element in real terms, coming on top of the Government’s decision to cut the proportion of childcare costs in universal credit to 70%, will that not have a significant impact on the ability of working parents to afford childcare? There was no impact assessment, and I was not able to work out what the effect of that was. Have the Government made any assessment of the impact on working parents of that decision on childcare and, if so, what is it?
Finally, I should be very interested to hear the answers to the questions from the noble Lord, Lord Kirkwood, on PIP, for example, where I have grave concerns about the implementation. The recent report is not encouraging in that respect. Also, I should like to understand to what extent, if at all, the Secretary of State is using discretion in making judgments about the appropriate levels of uprating, given the concern that abounds now about the use of food banks and the extent of poverty among people who are in receipt of benefits.
Lord Bates
I thank noble Lords for their questions. All Members who have spoken are renowned experts in the field. Until a few months ago, I was joining from the Back Benches in scrutiny of such orders, so I sense the expertise that lies behind the pertinent questions which have been asked. I was particularly struck by my noble friend Lord Kirkwood’s question about how small is the audience for a mere £3.3 billion of taxpayers’ money to go to the poorest in society. That is a worthy point to make, and it would be absolutely ungallant of me to point out the level of participation from the Liberal Democrat Benches and the absence of participation from the Opposition Benches.
Lord Bates
We are a coalition—we share the point. The point is that I think that there is a genuine cross-party support. For example, the triple lock on pensions is welcome, it is working and it is delivering real-terms increases to pensioners.
If I may, I will go through the points raised in the order in which they were raised. My noble friend Lord German raised the question of the Treasury grant to the National Insurance Fund. It is not a question of the National Insurance Fund running out of money. Making provision for such grant has no overall impact on the Government’s finances. It is done primarily for accounting purposes to ensure that the National Insurance Fund complies with the Government Actuary’s recommendation of maintaining a working balance of one-sixth of the expected benefit expenditure in 2014-15. My noble friend was absolutely correct to point out that at least now the information in the forecast is being made available in the Government Actuary’s report. He asked me a specific point about whether we will look at that historically over the 10-year period. I should say that we think that the grant has not been required over that period but, as one of the paragraphs in the probably lengthy letter that I shall be sending to noble Lords, I shall cover that important point and I thank him for raising it.
There was a smart observation asking: why the different dates. They are in place for good administrative reasons, including taking into account the prescribed payment days of different benefits. I know that there might be a follow-up question asking why there are different payment days but perhaps we can just say that that is the answer. However, the noble Lord puts his finger on an interesting point.
My noble friend Lord Kirkwood asked whether we would ensure that working-age benefits will be debated once the Bill is finished. Working-age benefits will be debated again from 2016-17. I will turn to the IFS Green Budget in a minute. My noble friend and the noble Baroness, Lady Sherlock, asked about the uprating of tax credits. The Tax Credits Up-rating Regulations 2014 will uprate certain elements of tax credits by CPI from 6 April. These were laid in draft form on 12 February and are due to be debated later in March. The Child Benefit and Tax Credits Up-rating Order 2014 will increase certain elements of tax credits and the rate of child benefit by 1% from 6 April and 7 April respectively. That was made on 24 February.
My noble friend Lord Kirkwood also asked about how much of the increase in expenditure is in relation to caseload increases. Clearly, caseload is an important factor in the overall expenditure, which is why it is important to make pension spending more affordable over the longer term, including, for example, the changes we are making through increasing the state retirement age. As regards the delay in implementation of the personal independence payment, PIP has been successfully introduced using a controlled approach to learning lessons as we go along in a live environment. We have been very clear that PIP will be introduced in a gradual way. Disabled people have wanted us to take time to get it right, which is what we are doing. Natural reassessment is under way in several areas and we will continue to monitor and evaluate it before making any further decision on widening the reassessment rollout.
My noble friend also asked whether we are going to introduce new eligibility criteria for winter fuel payments. Winter fuel payments are non-contributory and were designed to give older people in the UK reassurance that they can keep warm during the cold weather. The Government intend to bring in an eligibility criterion based on country of residence with payments going to only eligible people living in EEA countries with colder climates. Legislation will be needed to pass this before any changes are made.
On the UC rollout, our current planning assumption is that the universal credit service will be fully available in each part of Great Britain during 2016, having closed down new claims to the legacy benefits it replaced with the majority of the remaining legacy caseload moving to universal credit during 2016-17. Final decisions on these elements of the programme will be informed by the development of the enhanced digital solution.
My noble friend Lord Kirkwood also asked about the Green Budget report written by Paul Johnson and the excellent organisation, Oxford Economics, for the Institute for Fiscal Studies. He suggested that we read the report—it says here that I will do so. I think that I will apply the collective and say that I assure my noble friend that we will do so. It is a very important contribution. We have all said that we want these changes to be evidence based. When serious organisations such as the IFS produce serious research, of course we should take it seriously. We will monitor future developments. I am grateful to my noble friend for drawing that to our attention.
Baroness Sherlock
My Lords, I am very grateful to the Minister for explaining the process and what happens to the different benefits, but I am still chewing over the information that neither the childcare allowances nor the work allowances in universal credit will be increased at all and are therefore facing a real-terms cut. I might have let that go, but I am afraid that I will have to push back on his comment that all sides of the House agree that people will be much better off under universal credit than under the present system. Universal credit is simply a delivery vehicle. Whether or not people will be better off will depend on how generous the benefits are, the taper rates applied, the levels of work allowance or disregard applied and the interaction with other sources of support. In other words, unless the calculations done previously about the gains to work and participation rates in work are redone using these figures, we do not know whether people getting universal credit are going to be better off than they are now.
If the Minister cannot tell me now, could he please write to me later and place a copy in the Library on what assessment the Government have done about the effect on incentives to move into work and gains to work as a result of these real-terms cuts to components of universal credit?
Lord Bates
I appreciate the point which the noble Baroness has made and I was not suggesting that everybody would be better off under this provision. The question is one of removing perceived barriers to go back into work—to encourage people to move seamlessly off benefits and into work—without creating disincentives. That principle, I think I am correct in saying, is one that is widely shared on all sides of the House. How it actually applies and is worked out for individuals and individual families is clearly a crucial matter. On that point, I will add that to the list of issues about which I will write to noble Lords immediately following this debate.
I have already explained that we are spending an extra £3.3 billion on uprating pensions and benefits in 2014-15, enabling us to protect key benefits and vulnerable groups. This order protects pensioners, many of whom have worked hard all their lives and are no longer in a position to increase their income through work, and benefits, which reflect the additional costs faced by disabled people, again reflecting our commitment to protect those least able to increase their spending power. Those are principles which I hope all noble Lords can support and on that basis I commend these orders to the Committee.