Social Security and Pensions (Statutory Instruments)
(Limited Text - Ministerial Extracts only)
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The Minister for Pensions (Steve Webb)
I beg to move,
That the draft Social Security Benefits Up-rating Order 2015, which was laid before this House on 19 January, be approved.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this we shall discuss the following motion, on the guaranteed minimum pensions increase:
That the draft Guaranteed Minimum Pensions Increase Order 2015, which was laid before this House on 19 January, be approved.
Steve Webb
Let me first deal with what is an entirely technical matter that we attend to each year and that I imagine we will not need to dwell on today. The Guaranteed Minimum Pensions Increase Order 2015 provides for contracted-out defined-benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 1.2%.
I should like to turn now to the Social Security Benefits Up-rating Order 2015—and as we are about to spend nearly £3 billion of taxpayers’ money it is good to see that the Opposition Benches are packed. As you will be aware, Mr Deputy Speaker, we are not here to discuss the Welfare Benefits Up-rating 2015 Order, which was made on 14 January. The 1% increases in that order were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.
Let me begin with the basic state pension. Despite the difficult economic situation, this Government remain committed to protecting those who have worked hard all their lives. This is why we have stood by our triple lock commitment: to uprate the basic state pension by the highest of earnings, prices or 2.5%. This year, as the increase in average earnings and the increase in prices were less than 2.5%, the basic state pension will increase by the full 2.5%; that is twice the increase in prices and four times the increase in earnings, which is the minimum required by law. So the earnings increase is what we are required to do by law, and we are increasing the state pension by four times that amount. Occasionally we have had debates about the triple lock and Labour has queried whether it actually bites. In a year like this, it really bites. There is a substantial increase in the state pension—far more than inflation or the growth in the average wage.
Mr Robin Walker (Worcester) (Con)
I congratulate my right hon. Friend on the work he has done on this issue. Can he confirm that this approach means the average pensioner will be up to £560 better off during the lifetime of this Government as a result of not using earnings but using this triple lock?
Steve Webb
I can, indeed. It is unclear what the previous Government would have done if they had carried on. As far as we know, they would have used the retail prices index until 2012 and then earnings probably from 2012. That is our best guess as to what they would have done, and that would have resulted in a pension of, as my hon. Friend says, more than £10 a week less than we will be paying.
Stephen Timms (East Ham) (Lab)
Will the Minister also confirm the straightforward fact that if the previous arrangement of uprating by RPI had remained in place throughout this Parliament, the state pension would be higher now than the figure in this order before us?
Steve Webb
I will come on to the issue of the use of the RPI, because the right hon. Gentleman knows the RPI has fallen into disrepute and no credible Government would have continued with the RPI, so the question does not arise.
The new rate of the state pension will be £115.95 a week for a single person, an increase of £2.85 from last year. We estimate this means the basic state pension will be around 18% of average earnings, and my hon. Friends might be interested to know that, as a share of the national average wage, that is the highest rate of state pension for over two decades. Thanks to the coalition Government’s commitment to the triple lock, a person on a full basic state pension will, as my hon. Friend the Member for Worcester (Mr Walker) said, receive around £560 more in 2015-16 than if the basic state pension had been uprated only by earnings during this Parliament. That commitment means that, since coming into office, this coalition has increased the basic state pension by about £950 a year.
The triple lock applies to the basic state pension, and the question is: what should we do for the poorest pensioners on pension credit? Under the law left to us by the previous Government, we are required to uprate pension credit only in line with earnings. We could therefore have done the legal minimum and put the pension credit up by about 0.6%. However, we thought that that was too little for the poorest pensioners. We wanted to ensure that the very poorest pensioners, those who are dependent exclusively on the guaranteed credit, would benefit in full from the triple lock.
Each year, the standard minimum guarantee must be increased only in line with earnings, which would have equated to 0.6%, but to ensure that the poorest pensioners benefited from the full cash value of the increase in the basic state pension, we decided to increase the value of the standard minimum guarantee by 1.9%, so that single people would receive an increase of £2.85 a week and couples would receive an increase of £4.35 a week. Consistent with our approach last year, the resources needed to pay for this 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 may see less of an increase.
This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 1.2%. Labour froze SERPS pensions in 2010, but this will be the fifth year in a row that the coalition has uprated SERPS by the full value of the consumer prices index.
This year, the coalition will continue to ensure that those people who face additional costs because of their disability, and who may have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of the CPI. So disability living allowance, attendance allowance, carers allowance, incapacity benefit and personal independence payment will all rise by 1.2 % from April 2015. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also rise by 1.2%, as will the employment and support allowance support group rate 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.
We have been debating the use of the CPI on a more or less annual basis for the past four years. When we first switched to using the CPI, the right hon. Member for East Ham (Stephen Timms) responded to the debate. He rather inventively accused us of being “ideologically driven” in our switch to the consumer prices index from the retail prices index. The choice of a price index for the uprating of benefits is not quite up there alongside the great battle between communism and capitalism, is it? At the time, however, he said:
“Changing permanently from RPI to CPI, other than in this year, and keeping things that way even after the deficit is long gone, is plainly not a deficit reduction measure—it is ideologically driven, and the Opposition do not support it.”—[Official Report, 17 February 2011; Vol. 523, c. 1182.]
Since then, there has been a great deal of analysis of the suitability of different price indices, and his view that we should somehow clear the deficit—I do not know when, under his plan—and then go back to the good old RPI is no longer credible. I hope that he will set out his position on uprating when he responds.
The right hon. Gentleman is sceptical of my views on these matters—he hides it well, but he probably is—so I want to bring forward two witnesses. My first witness is Tim Harford, who presents the BBC’s statistics programme “More or Less”.
Steve Webb
I know that my hon. Friend listens to nothing other than podcasts of “More or Less”. When Tim Harford was interviewed on the “Today” programme recently, he was asked what his favourite statistic was. The nation waited, agog to hear his reply. He said it was the CPI. So when the BBC’s go-to guy for statistical rigour and reliability was asked to choose from a multiplicity of official statistics, he homed in on the CPI as the epitome of a good statistic. We therefore make no apology for using it.
The national statistician, Sir Andrew Dilnot, commissioned Paul Johnson, the director of the Institute for Fiscal Studies, to carry out a review of price indices. This year, we had four to choose from: RPI, RPIJ, CPIH and CPI. We have opted for CPI. The right hon. Gentleman is seeking to imply that we should use RPI, perhaps because it is bigger, but it is interesting to note what Paul Johnson said about RPI, to which the Opposition are still wedded—or at least they were, the last time I heard. Paul Johnson’s recommendation was:
“ONS and the UK Statistics Authority should re-state its position that the RPI is a flawed statistical measure of inflation which should not be used for new purposes”.
He went on to state:
“Government and regulators should work towards ending the use of the RPI as soon as practicable.”
He made it absolutely clear that RPI was flawed and that we should restate that fact, which I am happy to do. He thought that RPIJ should probably be discontinued and that CPIH needed some methodological work to get it right. So CPI is the only credible index available to us. If the right hon. Gentleman implies in his response that we should use something else, I would like to know his basis. We believe the price index should be chosen on the basis not of whether it is high or low, but whether it is accurate. That has been the policy of this Government.
Sarah Newton (Truro and Falmouth) (Con)
Does the Minister agree that through these tough times it is important that carers and people with disabilities are given the maximum—the CPI—increase to their benefits? Is that not the fair thing to do?
Steve Webb
My hon. Friend is right; when we made difficult decisions about the general level of uprating, we made sure that the benefits for people with disabilities—the disability living allowance, personal independence payment and so on—were excluded from the 1% cap, and they will get 1.2% next April. It is worth saying, although I have not referred to it yet, that we base our April uprating on the previous September’s index, which was 1.2%. She will know that since then inflation has tumbled, with it being 0.5% in the latest figures published. I do not have a crystal ball and I have not seen the figures that will be published next week, but some are speculating that inflation could be closer to zero or even negative. In that context, making sure that people on disability benefits get last year’s inflation rate will, we hope, given that petrol and food prices are now falling, improve their real standard of living. So I am grateful to my hon. Friend for her intervention.
At a time when the nation’s finances remain under pressure, this Government will be spending an extra £2.5 billion in 2015-16; continuing to help support those who are not currently in work by increasing the main rates of working age benefits by 1%, and ensuring that pensions, and benefits designed to help with the additional costs of disability, are protected against the cost of living. Let me give the breakdown: about £2 billion more on state pensions, including an above-inflation increase for the basic state pension; £300 million more on disabled people and their carers; and nearly £200 million more on people unable to work because of sickness or unemployment.
In these orders, we continue to maintain our commitment to the triple lock—I would like that to be written into the law of the land in the new Parliament—meaning the basic state pension will be at its highest level as a percentage of average earnings for two decades; we continue to protect our poorest pensioners with an over-indexation of the standard minimum guarantee, so they too will feel the benefit of the triple lock; and we continue to protect the benefits that reflect the additional costs that disabled people face. On that basis, 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 plan to express concerns about the Guaranteed Minimum Pensions Increase Order 2015. I do, however, wish to comment on the Social Security Benefits Up-rating Order 2015, on which he spent most of his time.
As we noted last year, this is a rather thinner debate than the corresponding ones prior to 2014. Much of what we used to consider in these debates is now covered by the Welfare Benefits Up-rating Act 2013, which imposed a 1% uprating for this year, and so is outside the scope of these orders. Uprating this year is notable for one element at least: for the first time since its introduction, the so-called “triple lock”, which the Minister referred to on a number of occasions, has delivered a higher rise in the state pension than the formula in use up to 2010 would have done.
The term “triple lock” was intended to convey the impression of great generosity towards pensioners, but it is worth just reflecting again on the history of its use. In its first year it was announced but not actually used, because it would have delivered a pension rise that was too small and so the Minister overrode it and adopted RPI. He told us a few minutes ago that he did not think much of RPI, but he used it in the first year in place of the triple lock, because the triple lock would have delivered a small rise. He was sensible to override the triple lock, because clearly it would have been unwise to use it in that first year. In the following three years, the triple lock was applied and in each year it delivered a pension increase that was lower than the increase that would have been delivered under the formula in use previously—uprating in line with the increase in RPI.
This year, for the first time, the increase will be slightly greater than would have been delivered under the previous formula. The increase in this order is 2.5%—the minimum allowed under the current arrangements—whereas the increase in RPI is slightly lower at 2.3%. It remains the case that the basic state pension for 2015-16 would be higher than the figure in the order, under paragraph 4(3)(b), if the formula in use before the general election had been applied each year since then, instead of the triple lock. Contrary to the impression that is frequently given, the triple lock has in fact delivered a lower state pension in each year that it has been applied than the previous arrangement would have done. We are often told that the triple lock is this extraordinarily generous arrangement, when, in fact, it is less generous and delivers less to pensioners than the previous arrangement would have done.
Steve Webb
Just for the avoidance of doubt, let me say that we are paying a pension increase this April that is four times the rate of earnings growth and double the rate of headline inflation. Is the right hon. Gentleman saying that that is not enough?
Stephen Timms
I am merely pointing out to the Minister that the increase is 0.2 percentage points higher than the increase in the RPI. Before the last election, the state pension was raised in line with the RPI. If that arrangement had continued each year since 2010, the state pension would be higher for the coming year than the figure in the order in front of us. I simply think that, in listening to his frequent protestations about how generous the Government have been to pensioners, the House should be aware that in every single year since 2010 the level of the state pension is lower than it would have been if the previous arrangement had stayed in place—except for the first year when they matched what the arrangement would have been before the election. That is surprising, especially in the light of the fact that Ministers keep on telling us about their generosity towards pensioners.
As well as the state pension, the order contains uprating details for universal credit. Those are currently largely of academic interest, because so few people are in receipt of universal credit. The Government announced in November 2011 that a million people would be claiming universal credit by April 2014. That was an absurd boast, as we pointed out at the time. The Government have consistently failed to grasp the scale of what would be required to implement universal credit. The latest figure for universal credit claimants is 27,000. At the present glacial rate of progress, it will be 1,571 years before the transition to universal credit is complete.
In 2011, Ministers said that transition to universal credit would be complete by 2017, a date that was then six years ahead. Now we are told that the transition to universal credit will be complete by 2021 at the earliest, which is six years away. Expected completion has slipped by four years in four years. The National Audit Office reports that £344 million had been invested in universal credit IT up to 31 October 2014, but that the value of the assets created by that date was £125 million—little more than a third of the sum invested. Waste on such a large scale reflects just how much trouble this project is now in, and the problems continue. Last October, the Department predicted that there would be 100,000 people claiming universal credit by May of this year. I recently tabled a written question to inquire whether Ministers still thought that that would be achieved. The Minister for Disabled People, whom I am delighted to see in his place, answered the question on 26 January. He said:
“The latest forecast agreed with OBR still rounds to 0.1 million cases”.
So the figure has clearly already slipped again, and that is only since October.
This debate is the last of its kind before the election, so it gives us an opportunity to reflect on the cumulative impact of the Government's changes to benefits in this order and the previous ones. That task has been greatly assisted by the publication last month of the report from the Institute for Fiscal Studies—the former employer of the Minister for Pensions—on “The effect of the coalition's tax and benefit changes on household incomes and work incentives.” It is a very revealing analysis. Let me quote the opening couple of sentences, which say:
“Tax and benefit changes introduced by the coalition have reduced household incomes by £1,127 a year or 3.3% on average...These involve an average loss to households of £489 per year, comprising an average gain of £321 a year from cuts to direct taxes, an average loss of £333 a year from increases in indirect taxes and a £477 a year average loss from benefit cuts.”
Even the gain through direct taxes is outweighed by the loss through indirect taxes, never mind the bigger loss from benefit cuts as a result of this order and its predecessors.
The report goes on to state:
“Low-income working-age households have lost the most as a percentage of their income from tax and benefit changes introduced by the coalition…Middle-income working-age households without children have gained the most”.
That is what the Government have achieved. Low-income households have lost and middle-income households have gained. That is not what the Minister and his hon. Friends used to argue for when they were in opposition, but it is what they have delivered in office.
The IFS found that households with children have been hit hardest by tax and benefit changes. The poorest households with children have lost more than 6% of their incomes and those without children in the middle of the income distribution have seen their incomes rise as a result of tax and benefit changes, as they have benefited from personal allowance increases and have not been affected by social security changes such as those to tax credits. Families out of work or with only one parent in work lost almost £2,000 a year as a result of the changes, while families with both parents in work lost between £1,000 and £1,500 a year.
The shadow Secretary of State, my hon. Friend the Member for Leeds West (Rachel Reeves), published new analysis from the House of Commons Library last week that shows that five more years of failure to make work pay of the kind we have seen in the past five years, with wages today on average £1,600 less in real terms than at the general election, and wages falling short of expectations to the same extent in the next Parliament as they have in this, would mean another £10 billion in social security spending on top of the figure already projected.
The Government’s own Social Mobility and Child Poverty Commission, in its second annual assessment of progress towards the 2020 child poverty targets, was scathing. It states:
“The impact of welfare cuts and entrenched low pay will bite between now and 2020. Poverty is set to rise, not fall. We share the view of those experts who predict that 2020 will mark not the eradication of child poverty but the end of the first decade in recent history in which absolute child poverty increased…We have come to the reluctant conclusion that, without radical changes to the tax and benefit system to boost the incomes of poor families, there is no realistic hope of the statutory child poverty targets being met in 2020.”
The Minister served, as I did, on the Public Bill Committee on the Child Poverty Act 2010. He argued then that the targets should be more demanding, but his legacy, and that of his colleagues, will be that there is no realistic hope of achieving those targets by 2020.
Should we be elected in May, our approach will be different. We will balance the books and get the national debt falling in a fair way. We also want the Office for Budget Responsibility to monitor and report on the Government’s progress in reducing child poverty. That is something that the OBR should do. We plan to restrict the growth of benefit spending through stronger, more balanced economic growth and more good jobs paying decent wages. We will tackle low pay and insecurity, raise the minimum wage and improve its enforcement, tackle the abuse of zero-hours contracts and expand free child care for working parents. We will incentivise payment of the living wage by employers by offering a 12-month tax break employers who raise their employees’ wages to that level. We will introduce our compulsory jobs guarantee to get more young and long-term unemployed people off benefits and into work.
We will reform the banks and end the dither on big decisions, such as airport expansion, with an independent infrastructure commission, and we will back British firms by cutting business rates for small firms and unashamedly arguing for Britain to stay in a reformed European Union. We have a radical plan for spreading power and prosperity across the country, including giving England’s city and county regions more power over their public transport networks and devolving £30 billion-worth of funding over five years to the English regions. We will tackle the housing crisis with a commitment to build 200,000 homes a year by 2020.
We could have recognised the case for a temporary use of CPI for benefit uprating as an element of a balanced programme of deficit reduction. We do not, though, support the Government’s decision to adopt CPI permanently. We do support the increase in the state pension in line with the triple lock, and as voting against this measure would have the effect of delivering no increase at all, I will not be asking my hon. Friends to vote against the orders.
When we look at the impact on poverty and on middle income households of the policies that have been adopted over the past five years, it is clear that it is urgently time for a change.
Steve Webb
With the leave of the House, I shall respond briefly. The right hon. Member for East Ham (Stephen Timms) will not be asking his hon. Friends to vote against the orders because he has sent them all home, as far as I can tell.
Let me try to deal with a few of the points that were raised. There were lots of comparisons between the rate we are paying and what would otherwise have happened, so to be clear about the £560 statistic, the comparison is as follows: the basic state pension—the £520 comparison—is the triple lock against earnings. That is what would have happened, compared with uprating in line with earnings, but there are several different benchmarks.
On the state pension, we cannot have these debates without refreshing our memory. One of the reasons that we have the triple lock and that 2.5% floor is that the Opposition, when in government, once raised the pension by a paltry 75p. They were so embarrassed by that that they had to have a £5 increase the next year. We do not think that is good policy, so we say that there should be a worthwhile increase each year, which is where the triple lock comes in.
The right hon. Gentleman says that the benchmark is lower than it would have been if we had linked the pension to an index of inflation which the Office for National Statistics report says is discredited, so why is that an interesting comparison? He says that the Labour party rejects the move to CPI, but presumably he is not committing to RPI as he is not allowed to make any spending commitments because the shadow Chancellor will not let him. “Vacuous posturing” is a rude phrase and I would not use it. The Opposition do not like what we are doing, but to imply that in a year when we are increasing the benefit by four times the average wage and twice the rate of inflation that that is still not enough is extraordinary.
If the right hon. Gentleman wants to stand up and say, “We’d pay a higher pension,” fine. He is entitled to say that, but he has not said that Labour would pay a higher pension. He wants us to think that, but there is no money to pay a higher pension. He simply wants to imply that Labour would do so. He says that the Opposition reject CPI as the main measure, but he has not told us what it would be. How can people vote for the Labour party in anticipation of what it would do on the pension when it has not said what it would do on the pension? I hope that before the election Labour say what it would do. There was an opportunity to do so this afternoon and the right hon. Gentleman failed to take it.
The right hon. Gentleman raised the issue of universal credit, a matter which is regularly debated in the House. He referred to the current rate of progress and said that it will go on for ever. He understands the importance of an accelerating process—the need to get a benefit right and to start with a limited group before applying it to a broader group, and that is exactly what has been happening with universal credit. It is worth saying that our projections for the numbers on universal credit are affected to some extent by the jobs revolution that is going on. As fewer people are unemployed, fewer people will be within the scope of universal credit. Every time we look at the numbers, falling unemployment is one of the factors that reduce the number of people on universal credit.
The right hon. Gentleman asked about the IFS report. It was quite candid about a number of limitations. For example, it acknowledged that the figures it uses assume that everybody takes up their benefits, which we know is not the case, so that is an unrealistic assumption. Crucially, the report does not include spending on public services. We know that the poorest 20% of households get five times as much value in kind from public spending as they contribute in tax, so the fact that we have ring-fenced the key public services, such as health and schools, is of huge benefit to those at the bottom of the pile, but that is not something that the report takes into account.
The right hon. Gentleman also mentioned work incentives. The IFS report states:
“By cutting benefits for non-working families and increasing the personal allowance, the coalition has significantly strengthened average financial incentives to work for most groups.”
He says that there is a challenge, and of course there has been over the past four or five years. On one hand the Opposition say that we have not cut the deficit enough, but on the other hand they have voted against practically every measure we have brought forward to tackle it.
Steve Webb
The Opposition voted against the Welfare Reform Act 2012, which made the principal changes necessary for reducing the deficit. They recognise that, had they been in office, there would have been substantial cuts in public spending, and no doubt that would have included social security, which is one of the biggest single areas of public spending, but they have had the luxury of never having to say where the cuts would have been made. The right hon. Gentleman knows in his heart of hearts that, had his party been in office, there would have been significant reductions in spending on social security, so he cannot compare the situation with some blank sheet of paper against some benign economic backdrop. In the last year of the previous Labour Government we saw record borrowing—£150 billion, which is an extraordinary amount of money—so the idea that they could somehow have closed the deficit without having any impact on people’s living standards is extraordinary and unrealistic.
Let us be absolutely clear about the comparison figures. On the issue of the level of the pension, compared with what it might have been, £560 is the key figure we should be using. What we have done through the triple lock, and through each successive measure, means that the pension is higher than it would have been under the policy that the Labour party told us it would implement—RPI to 2012 on earnings, which was in its manifesto—and higher than it would have been had we gone for earnings throughout. Obviously, the figures depend on which baseline one assumes. The idea that the Labour party, had it been in office, would have carried on with RPI, ignoring the statisticians telling them that it should not be used and ignoring the fiscal position, is simply implausible, because it is not a relevant benchmark.
These regulations are important because they pave the way for the next step in our efforts to restore the state pension to where it should have been—a decent amount that provides security and dignity for people in old age. What matters is what people get in retirement, relative to what they used to earn, and on that measure the state pension as a share of the national average wage, and the pension as a result of these regulations, will be at their highest level for more than two decades. That is something of which this Government can be proud. I commend the regulations to the House.
Question put and agreed to.
Pensions
Resolved,
That the draft Guaranteed Minimum Pensions Increase Order 2015, which was laid before this House on 19 January, be approved.—(Steve Webb.)