Social Security Benefits Up-rating Order 2025
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Baroness Sherlock
That the Grand Committee do consider the Social Security Benefits Up-rating Order 2025.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
In speaking to this order, I will also speak to the draft Guaranteed Minimum Pensions Increase Order 2025. In my view, the provisions in both instruments are compatible with the European Convention on Human Rights.
Let us begin with the draft Social Security Benefits Up-rating Order. This instrument will increase relevant state pension rates by 4.1%, in line with the growth in average earnings in the year to May to July 2024. It will increase most other benefit rates by 1.7%, in line with the rise in the consumer prices index in the year to September 2024. As such, the up-rating order commits the Government to increased expenditure of £6.9 billion in 2025-26. In so doing, it maintains the triple lock, benefiting pensioners in receipt of both the basic and the new state pensions; raises the level of the pension credit safety net beyond the increase in prices; increases the rates of benefits for those of working age; and increases the rates of benefits to help with additional costs arising from a disability or health condition, as well as carers’ benefits.
I turn now in more detail to the issue of state pensions. The Government’s commitment to the triple lock means that the basic and full rate of the new state pension will be uprated by the highest of the growth in earnings or prices, or 2.5%. This will therefore be 4.1% for 2025-26, in line with the conventional average earnings growth measure. As such, from April 2025 the basic state pension will increase from £169.50 to £176.45 a week, and the full rate of the new state pension will increase from £221.20 to £230.25 a week. The basic and new state pensions will increase by 4.1% in April of this year, benefiting 12 million pensioners by up to £470 next year. That is up to £275 more than if pensions had been uprated simply by inflation. Other components of state pension awards, such as those previously built under earnings-related state pension schemes, including the additional state pension, will increase by 1.7%, in line with the statutory minimum requirement of prices.
The safety net provided by the pension credit standard minimum guarantee will increase by 4.1%. For single pensioners it will increase from £218.15 to £227.10 a week, and for couples it will increase from £332.95 to £346.60 a week. The Government are committed to supporting pensioners on the lowest incomes and want everyone entitled to this support to receive it. That is why we launched the national pension credit campaign.
I turn now to the support given to those in the labour market, such as universal credit and the legacy means-tested benefits it replaces. The up-rating order increases the personal and standard allowances of working-age benefits, including universal credit, by 1.7%, in line with the increase in prices in the year to September 2024. Around 5.7 million families are forecast to benefit from the uprating of universal credit, with an average annual gain for a family estimated to be £150. Additionally, this order increases statutory payments by 1.7%, including statutory maternity pay, statutory paternity pay, statutory shared parental pay and statutory sick pay.
The up-rating order will also increase rates by 1.7% for those with additional disability needs and for those who provide unpaid care for them. This commits the department to increased expenditure of £0.9 billion in 2025-26. This means that benefits such as disability living allowance, attendance allowance and personal independence payment, intended for those who have additional costs as a result of disability or health conditions, will rise in line with the rise in CPI in the year to September 2024.
This order will also increase carer’s allowance by 1.7% from April 2025, from £81.90 to £83.30 per week. Recognising the vital role played by unpaid carers, the Government have also announced that from April, the weekly carer’s allowance earnings limit will be tied to the level of 16 hours’ work at the national living wage.
I turn now to the draft Guaranteed Minimum Pensions Increase Order 2025—the GMP order—which is a routine, technical matter we attend to each year. I shall therefore be brief.
The GMP order was laid before the House on 16 January 2025. It sets out the annual percentage increase that must be applied to the GMP part of an individual’s contracted-out occupational pension earned between 1988 and 1997. Occupational pension schemes that provide GMPs are required to increase GMPs earned during that period, and which are in payment, by 1.7% for the tax year 2025-26.
The 1.7% figure is taken from the CPI inflation rate for the year to September 2024. That approach is broadly consistent with other uprating approaches, and it balances the need to provide members with a measure of inflation protection while giving schemes greater certainty about their ongoing liabilities.
In summary, the draft Social Security Benefits Up-rating Order implements the Government’s commitment to the triple lock; it provides for a real-terms increase in the value of the safety net in pension credit; and it increases the rates of benefits for those in the labour market, as well as those with additional disability needs, and those providing unpaid care to people with those needs.
The draft GMP order requires formerly contracted-out occupational pension schemes to pay an increase of 1.7% on GMPs in payment earned between April 1988 and April 1997. This provides people with a measure of protection against inflation, paid for by their scheme. I beg to move.
Baroness Lister of Burtersett (Lab)
My Lords, I have lost count of the number of these debates I have participated in while in opposition on the Benches opposite. This is the first debate I have participated in while knowing that there is a commitment to tackle child poverty and a serious government taskforce drawing up a strategy to do so. So I can applaud that, and the welcome improvements in benefits announced in the Budget. But I am afraid I have to concur with the Joseph Rowntree Foundation, which in its recent poverty review described the improvements as “timid” and falling
“a long way short of what is required to deliver the scale of changes needed.”
So this speech is less supportive than I would have liked.
As already noted, the uprating of working-age and children’s benefits by 1.7% follows the convention of increasing them in line with inflation the previous September. But as JRF points out:
“According to OBR and Bank of England forecasts, this may well be the low point of inflation in the near term, with inflation in 2025/26 likely to be higher, meaning benefits will lose a little value next year”.
Indeed, inflation is already at 3%, and just today we heard of a higher than expected energy price cap increase. Losing a little value may not sound very significant, but when benefits are so low to begin with, as I will come back to, it can make a real difference for families struggling to get by.
My noble friend the Minister previously raised the long reference period for the uprating, as did the Work and Pensions Committee in last year’s report on benefit levels. Disappointingly, the DWP told the committee that even in the longer term, when the migration to universal credit is completed, it has no plans to shorten the reference period. Can my noble friend say whether this might be looked at again under the new Administration?
The Work and Pensions Committee also recommended that limits on benefit entitlements such as the benefits cap be uprated annually. Again, it is disappointing that no such increase was announced for this year. As a recent report by the IPPR, supported by Save the Children, notes, the effect of the near constant freeze is to make the policy
“considerably more punitive than at the point of introduction”.
The stock response from the DWP—that the legislation requires the level of the cap to be reviewed every five years only, and that therefore, following the 2022 review, another review is not required until November 2027 —simply is not good enough. It may not be required but it is permitted, and so long as the cap continues, it should be reviewed annually so that, at the very least, those hit by it, mostly families with children, can benefit in full from the annual uprating.
Together with the two-child limit—also ignored in the Budget—the cap is a key driver of child poverty, as well as contributing to homelessness and disproportionately affecting survivors of domestic abuse. Research has shown that it is not achieving its aims. I know that my noble friend will say that we have to await the outcome of the child poverty review for any decision on the cap and the two-child limit, but every day they continue spells misery for many thousands of parents and children.
The other serious omission in this year’s uprating is the local housing allowance. As the IPPR report points out, this is tantamount to a benefit freeze for housing support and breaks the principle that support should be tied to changing rents in a local area. The result is that, for those with housing costs at or above the current LHA, the real value of their uprated UC will in effect be cut.
The impact of all this has to be understood in the context of benefit levels that, in the words of JRF, fall a
“long way short of what is needed to enable recipients to escape poverty”,
and that mean that many continue to “struggle needlessly”. Paid work may be the best route out of poverty, but it is not a route open to all. For too many, it proves a cul-de-sac, as they swap out-of-work poverty for in-work poverty. Inquiries by the All-Party Parliamentary Group on Poverty, of which I am co-chair, and the Work and Pensions Committee received
“a wealth of evidence that benefit levels are not meeting need”.
Benefit levels were never generous, but the effect of years of freezes, cuts and restrictions imposed by the Conservatives have meant that, in the words of the Financial Fairness Trust,
“we do not have a safety net worth its name”.
As a result, claimants are denied access to the most fundamental material resources needed to function day to day and to have healthy lives. The Work and Pensions Committee’s recommendations concerning the establishment of a benchmark for assessing benefits adequacy and the review of the extent to which current benefit levels are meeting this benchmark were rejected by the previous Administration. I urge my noble friend and her colleagues to look at them again. I ask her whether any consideration has been given to Trussell’s and JRF’s proposals for a protected minimum floor in UC, as a first step towards an essentials guarantee. For anyone who believes that poverty is relative, this is a pretty minimalist demand.
The Work and Pensions Committee also recommended that the local authority household support fund should be made permanent, so that local authorities can better plan the support they provide. This is not the place to go into detail but, if my noble friend has not already done so, I urge her to read the recent proposal from Trussell for a permanent and effective system of discretionary cash-first local crisis support, with broad statutory duties and ring-fenced funding that would incorporate both the household support fund and welfare assistance schemes where they still exist. It sees such a scheme as a crucial element in meeting our manifesto pledge to try to end mass dependence on emergency food parcels, which is a moral scar on society. At a recent meeting of the APPG on Ending the Need for Food Banks, the Minister for Employment assured us that the reform of local crisis support is definitely under review. It would be good if my noble friend could confirm this on the record in Hansard. As welcome as the extension of the fund for another year is—and it is welcome—those working on the ground need to be given some hope for the future. We heard reports at the meeting that food bank workers on the front line are scared and are burning out.
Scared, too, are many in receipt of disability benefits, in the face of mounting speculation about cuts to their benefits. It is worth remembering that disabled people are at disproportionate risk of poverty, in part because of the additional costs associated with disability. A recent report by Pro Bono Economics for Z2K warned that cutting the benefits that go some way toward meeting these costs could have a seriously damaging impact on the health and well-being of disabled people.
Also looking ahead, the Minister for Social Security and Disability advised, in the Commons debate on this order, that the Government would “set out shortly” how they plan to fulfil the manifesto commitment to a review of UC. Is my noble friend able to say any more at this stage about, for example, whether it will follow the example of the child poverty review in taking evidence from stakeholders, including those with lived experience of UC?
Baroness Sherlock (Lab)
My Lords, I thank all noble Lords who contributed to this afternoon’s debate. In opposition, the presence of lots of well-informed Peers asking great questions seemed like a good thing, but in government its appeal has waned very slightly. It turns out that it is rather harder to answer questions than to ask them—who knew? I will do my best, and if I do not provide answers, I will be in touch afterwards.
It is worth beginning by briefly touching on the context in which today’s uprating decisions are being made. These decisions are being taken against the very difficult backdrop of a challenging fiscal inheritance and a seriously uncertain global economic outlook. I think we all know the situation we face. Despite those challenges, today’s orders commit the Government to an increased expenditure of £6.9 billion on social security in 2025-26. I just want to note that as a starting point. That said, I very much hear the challenges referred to by the Committee, and I will try to work my way through them.
I thank the noble Viscount, Lord Younger, for his support for the approach taken by the Government and the traditions here. I also thank the noble Baroness, Lady Janke, for her support for our position on the triple lock; it is helpful to know that. I wish to address the noble Viscount’s question head on. This order demonstrates the Government’s commitment to pensioners by maintaining the triple lock, even in the current economic climate. The commitment was made very clear in our manifesto: we committed to the triple lock for this Parliament. This will mean spending on the state pension being forecast to rise by more than £31 billion across this Parliament.
The noble Viscount raised a specific point about pensioners waiting for their first uprated payment of the state pension. I think he will know from his time doing the job I now do that the state pension is paid in arrears, so the date on which somebody is first paid the higher rate—their pay date, essentially—will depend on where their cycle is. I understand that that means two things. For example, if somebody were paid on 2 May, in practice, roughly three weeks of that payment would be at the higher rate and the rest would be at the earlier rate, so there would be another month before they got their first full payment. But, crucially, this means that people receive the same rates of state pension for an equal number of weeks across the year, regardless of their pay day. I hope that helps to clear the matter up, but if I have made it more confusing, the noble Viscount can let me know afterwards and I promise to write to him.
The noble Viscount referenced the change to the winter fuel payment eligibility. Without relitigating that yet another time, I should just say that, as I have said before, the decision to target winter fuel payments on the poorest pensioners was difficult, but I believe it was right given the challenging public finances. But we are determined to get help to those who need it most, which is why the winter fuel payment is still available to those on pension credit. It is why the Government have done so much to promote pension credit and have seen such significant increases in applications for it.
A number of noble Lords mentioned the challenges of the cost of living, particularly energy. It is maybe worth reminding the Committee that additional financial help is available for low-income pensioners, first through the cold weather payments in England and Wales but also through the warm home discount scheme. Committee Members may know that this provides a £150 rebate on winter energy bills to eligible low-income households across Great Britain. We expect over 3 million households to benefit from that this winter, including over 1 million pensioners. I do not know whether noble Lords have heard the news that, just today, the Government published a consultation on an expansion of the warm home discount, which would bring another 2.7 million households into it. This means that up to 6 million households could benefit from that rebate by next winter. I hope that that will be welcomed.
The Government are also working closely with Ofgem to accelerate proposals for a debt relief scheme—something previously consulted on. The idea is that it would target the unsustainable debt built up during the energy crisis, which has led to some of the deductions that have been mentioned and challenges elsewhere.
A couple of noble Lords mentioned the household support fund in England, which is there to provide discretionary support to those most in need with the cost of essentials such as food, energy and water. I am grateful to my noble friend Lady Lister for welcoming the household support fund. It was pretty challenging. It was one of the very first things my department had to do: six weeks after the election, it had to find £0.5 billion to continue the household support fund for the rest of the last financial year. The Government have now found the money to extend the fund by a further year from 1 April 2025 until 31 March next year, with funding of £742 million plus Barnett consequentials for the devolved Administrations.
On the longer question, I regret to say to my noble friend that all I can say at the moment is that no decision has been made at this stage on the funding beyond the end of March 2026, and all the problems will be considered in the round. But we hope at least that, by giving notice ahead, we have enabled local authorities to plan much further ahead than in the slightly hand-to-mouth situation of previous times. But we will keep this under review and, if there is any change, we will obviously share any news as soon as possible.
My noble friend Lady Lister, the right reverend Prelate the Bishop of Chelmsford and the noble Baroness, Lady Janke, raised the levels of benefits and the need to tackle poverty. The Government are committed to tackling poverty and making work pay, and they have already taken some steps. I really appreciate the right reverend Prelate the Bishop of Chelmsford welcoming the decision to fund what we call the fair repayment rate. I am so grateful that my boss, Liz Kendall, wanted to spend a significant sum of money on that, even though most people will have no idea what it is. It genuinely targets those most in need by helping them to keep more of their money. But we know we have more to do on this.
The Child Poverty Taskforce is continuing its work and will explore all levers, although I am not in a position to say anything today about changes to matters such as the two-child limit. The Child Poverty Taskforce will look to span the key themes of increasing incomes, which will include social security reforms and reducing essential costs, and increasing financial resilience and better local support, especially in the early years. We will continue to watch this space as best we can.
The noble Viscount, Lord Younger, and the right reverend Prelate, among others, asked about the Government’s review of universal credit. We have now started the review, and the idea is to make sure that universal credit does its job in tackling poverty, helping people manage their money, making work pay and improving work incentives. We want to maximise the potential of universal credit, looking at its impact on customers. I say to the noble Viscount that there are things that universal credit does well, but aspects of its design have caused significant challenges to the people using it. This is an opportunity to look at how it is designed, to listen to those with experience of it and to look at whether there are ways we can better achieve the objectives I have outlined.
Baroness Janke (LD)
Can I ask about the record levels of deductions in universal credit that have been made in half of last year, which hit record numbers? I have been reading reports about them. Could we have some insight into that?
Baroness Sherlock (Lab)
I do not have an insight on that at the moment. It is something I have asked about and have not yet got clear data on, but we are hoping that the changes we will make around things such as the fair repayment rate will help to rebalance that at the bottom, but I will have a look and, if I have any more data, I will write to the noble Baroness, if that is okay.
I turn briefly to the guaranteed minimum pensions increase order. I am grateful for the support for it. It simply aims to ensure that members who have a guaranteed minimum pension earned between 1988 and 1997 receive a measure of protection against inflation.
My noble friend Lady Drake asked a good question, as ever—in this case, about whether all buyout contract providers have to take on GMP liabilities in full when they accept the original transfer from the defined benefit pension scheme. I am happy to say that the Pension Schemes Act 1993 and associated regulations require all bulk annuity contracts to provide GMP benefits where applicable. From the point of view of scheme trustees, if a scheme was contracted out and still contains GMPs, both its trust deed and rules, and the legislation, will require the trustees to make sure that the bulk annuity contract provides those GMPs. From the point of view of the buyout contract provider, if a buyout contract includes GMPs, the provider is under a contractual obligation to provide those benefits. If the correct benefits somehow are not properly reflected in the bulk annuity contract, the scheme trustees, I am afraid, will remain liable for any additional liability, and that would include any GMPs. A question has been raised about whether there should be additional guidance, but the schemes and providers already have a clear legal duty or requirement that they have to follow and that they should be familiar with before they consider a buyout.
To conclude, through these orders, the Government are increasing the basic state pension and new state pension in line with earnings growth by 4.1%, meeting our commitment to the triple lock. We are increasing the pension credit standard minimum guarantee in line with earnings growth by 4.1% to support pensioners on the lowest incomes, increasing benefits to meet additional disability needs, and increasing carers benefits and working-age benefits in line with prices by 1%, and we are ensuring indexation on guaranteed minimum pensions earned between 1988 and 1997 that are in payment. I commend these orders to the Committee.