Social Security Benefits Up-rating Order 2026
(1 week, 1 day ago)
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Baroness Sherlock
That the Grand Committee do consider the Social Security Benefits Up-rating Order 2026.
Relevant document: 49th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, in moving this order I will speak also to the draft Guaranteed Minimum Pensions Increase Order 2026. In my view, the provisions in both instruments are compatible with the European Convention on Human Rights.
I will start with the draft Social Security Benefits Up-rating Order. This instrument will increase relevant state pension rates by 4.8%, in line with the growth in average earnings in the year to May/July 2025. It will increase most other benefit rates by 3.8%, in line with the rise in the consumer prices index in the year to September 2025. As such, the uprating order commits the Government to increased expenditure of £9 billion in 2026-27, of which £6 billion will be on state pensions and pensioner benefits, £2 billion on disability and carers’ benefits and £1 billion on working-age benefits. A further £2 billion of expenditure on working-age benefits will be incurred in 2026-27 as a result of uprating decisions made under separate legal powers in the Universal Credit Act 2025, which will set new rates for universal credit and income-related employment and support allowance.
I turn to state pensions in more detail. 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, prices or 2.5%. This will be 4.8% for 2026-27, in line with the conventional average earnings growth measure. As such, from April 2026, the basic state pension will increase from £176.45 a week to £184.90 a week, and the full rate of the new state pension will increase from £230.25 a week to £241.30 a week. From April, the full annual rate of the new state pension will increase by around £575, while the full annual rate of the basic state pension will increase by around £440.
Other components of people’s state pension awards, such as those previously built under earnings-related state pension schemes—including the additional state pension—will increase by 3.8% in line with the statutory minimum requirement of prices. The safety net provided by the pension credit standard minimum guarantee will increase by 4.8%. From April, it will be £238 a week for a single pensioner and £363.25 a week for a couple, ensuring that the incomes of poorest pensioners are protected.
I turn now to the support given to people below the state pension age. Most benefits will also increase by 3.8%, including statutory payments such as statutory sick pay and statutory maternity pay, and the personal allowances of income support, housing benefit, jobseeker’s allowance, and contributory employment and support allowance. This order will also increase the child amounts, carer amounts and transitional severe disability premiums in universal credit, as well as the pensioner and carer premiums in income-related employment and support allowance, by 3.8%.
The uprating order will also increase by 3.8% rates for those in England and Wales with additional disability needs and those who provide unpaid care for them. This commits the department to increased expenditure of £2 billion in 2026-27. This means that benefits such as the disability living allowance, attendance allowance, carer’s allowance and personal independence payment will rise in line with the rise in the consumer prices index in the year to September 2025.
I turn now to the Guaranteed Minimum Pensions Increase Order 2026—the GMP increase order. It sets out the amount by which the GMP part of an individual’s contracted-out occupational pension, earned between April 1988 and April 1997, must be increased when it is being paid. The increase is paid by occupational pension schemes. It provides a measure of inflation protection to people who are in receipt of GMPs earned between 1988 and 1997.
GMPs earned between April 1988 and April 1997 must, by law, be increased by the percentage increase in the general level of prices, as measured the previous September, which is capped at 3%. The September 2025 figure was 3.8%. Because of the cap, the increase for the 2026-27 financial year will therefore be 3%. Having the 3% cap gives schemes more certainty. It allows schemes to forecast their future liabilities better, which is clearly important when trustees are considering the scheme’s funding requirements. The GMP indexation requirements strike a balance between protecting members against the effects of inflation and not increasing scheme costs beyond a level that both schemes and sponsoring employers can reasonably afford.
In summary, the draft Social Security Benefits Up-rating Order implements the Government’s commitment to the triple lock, provides for a real-terms increase in the value of the safety net in pension credit, increases the rates of benefits for those in the labour market, and increases the rates of both carers’ benefits and benefits to help with additional costs arising from disability or health conditions. The draft Guaranteed Minimum Pensions Increase Order requires formerly contracted-out occupational pension schemes to pay an increase of 3% 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 thank my noble friend the Minister for introducing the uprating order so clearly, and I welcome the opportunity to discuss the social security that it provides. It is a shame that it is tucked away in Grand Committee, with only a few dogged noble Lords present, given how important social security is to our society. As the impact assessment for the removal of the two-child limit Bill notes:
“Social security is the Government’s most direct lever”
to reduce child poverty, including the shockingly high level of deep poverty. To quote the recent Joseph Rountree Foundation report:
“Our social security system is one of the surest routes to tackling poverty and destitution that the government has at its disposal”—
so that a well-resourced and effective social security system is
“the bedrock of a strong society”.
At present, after a decade or so of cuts, our social security system is neither sufficiently well-resourced nor effective, but we are starting to turn the tide. Should anyone complain that doing so will contribute to the so-called ballooning welfare bill, I point out that spending on working-age social security is projected to flatline as a share of GDP over this Parliament. Although it is not part of the uprating, we cannot ignore the significant impact that the very welcome abolition of the “vicious”—to quote the noble Lord, Lord Freud —two-child limit will have on the numbers of children in poverty and on the depths of the poverty experienced by those who will remain below the poverty line.
I use this opportunity to ask the spokesperson for the Opposition, who is a decent lady, to dissociate the Opposition from the xenophobic Reform-echoing message of the Oral Question on this asked by one of their Back-Benchers last week, with its pejorative reference to foreign-born children receiving benefits, which I know disturbed a number of noble Lords across the House.
A particularly welcome aspect of the uprating itself, which I admit I did not realise until yesterday would be legislated for separately in a negative instrument just laid, mentioned by my noble friend, is the real increase in the value of the standard universal credit allowance, which will be repeated for the rest of this Parliament. I hope noble Lords will indulge me if I mention it now, given that we do not know whether or when the negative instrument will be debated. The uprating has to be understood in the context of the eight out of the 10 upratings between 2013-14 and 2022-23 that produced a reduction in its real value, leaving the basic level of support at a 40-year low, according to the JRF. A companion evidence pack of the child poverty strategy spells out how these cuts mean that basic benefit levels are worth “significantly less” than how the last Labour Government left them.
Nevertheless, as the Government themselves acknowledge, the real increase is only modest, especially when we bear in mind the differential inflation rate, which has hurt those on low incomes in recent years. The impact of this was emphasised at a Resolution Foundation conference on “Unsung Britain” this morning. There is a long way to go if universal credit is adequately to protect recipients against poverty and hardship. What this means was brought home to some of us by Jo, a member of Changing Realities, who spoke at a meeting here last autumn. She said:
“We are often exhausted parents trying hard to hide from our kids the mental gymnastics of managing tiny budgets in a big-cost world”.
She said that the effects are “immense and enduring”.
The JRF and Trussell, and also previously the then APPG on Poverty, of which I am co-chair, have recommended the establishment of an independent body to advise Governments on the benefit levels needed to meet essentials, as benefit levels have never been based on recipients’ actual needs. Of course, it would be for the Government and Parliament to decide on the actual levels, but they would do so on the basis of empirical evidence. Is this something my noble friend might take back for consideration? The need for benefit levels to reflect actual needs brings me to some buts—my noble friend the Minister knows me too well to think there would not be any.
First and perhaps foremost is the fact that retention of the overall benefit cap means that about one in 12 children who escape the frying pan of the two-child limit will be no better off, because they will be burned by the fire of the cap. Although the cap affects only a relatively small number, it is a key driver of deep poverty. According to the impact assessment for the removal of the two-child benefit limit Bill, 20,000 more households will be capped as a result.
One way that this effect could at least be mitigated would be if the threshold limits were uprated annually, in line with the UC standard allowance. As it is, they have only been uprated once since 2016, when they were cut. A Written Answer to me spelled out the effect on the threshold’s value: those for couples or lone parents would now be increased by £4,702—or £5,409 in Greater London—a year, had they been uprated in line with the UC standard allowance since 2016.
Secondly, it is disappointing that the local housing allowance freeze is being continued. IFS has criticised this approach to LHA as incoherent policy design. As the JRF has shown, one consequence is that four in 10 private renters in poverty are so only after housing costs are factored in, more than any other tenure group. Given that housing costs are identified as a key driver of poverty, there is no justification for a Government committed to reducing poverty and homelessness continuing the LHA freeze.
Although the PIP cuts were thankfully withdrawn, some cuts are still affecting those claiming social security for health or disability reasons. The health element of UC will be halved for new recipients from April. Although not yet confirmed, the proposal to replace the contributory new-style JSA and ESA with a new unemployment insurance scheme, while certainly improving the situation of the newly unemployed, would mean a new time limit after six or 12 months for those who currently qualify indefinitely for new-style ESA. This could have particularly serious implications for the autonomy and security of affected women in couples, for whom the new-style ESA represents an important source of income in their own right. Can my noble friend update us on the thinking on this, as there have been rather contradictory reports in the media?
Returning to child poverty, the latest projections produced by the DWP suggest that, despite the welcome reduction of half a million children in poverty as a result of the abolition of the two-child limit, the largest reduction in a single Parliament since records began, there will still be around four million children—29% of all children—in poverty at the end of this Parliament. This depressing fact is a measure of how dire the situation inherited from the previous Government was.
However, it must also act as a spur for further action now, including the setting of targets and milestones in the baseline report promised for this summer, and a prioritisation of further action to improve social security in future Budgets. The child poverty strategy document itself described it as just
“the first step on our road to ending child poverty”.
Who better to quote than the Chancellor of the Exchequer, who, while expressing her pride in abolishing the two-child limit, last week wrote:
“I know that our work cannot stop here. We must keep building a country where every child has a fair start in life and where every parent is treated with dignity, respect, and the support they deserve”.
We still have some way to go before that country is built.
Lord Davies of Brixton (Lab)
I thank my noble friend the Minister for presenting the regulations. I will make a brief grouse that one of the sets of regulations we are debating was not on the table, and it was not even in the Royal Gallery. I know it is only three pages, but it should have been there, so I hope some action will be taken to make sure that it does not become a habit.
I have a couple of questions for my noble friend the Minister. One of the things that annoys me about current debates on pensions is when people fail to clarify or acknowledge that the triple lock applies only to part of the state pension.
Although the basic pension, or the new state pension, has increased by 4.8%, almost all of the rest of the other elements that go towards the total amount that people receive is being increased by 3.8%, so the average increase across the board will be somewhere between 3.8% and 4.8%. I feel it particularly personally because my own state pension will be going up by 4.2%; those of you who are any good at algebra will be able to work out what my state pension is from that simple fact. My question for my noble friend the Minister is: what is the average increase in the state pension across the board for all recipients? It is certainly not 4.8%, and it will not be 3.8%. It will be somewhere in the middle. I have not given notification of this question, so I would be quite happy to receive an answer in writing, but it is a very relevant figure that we should make sure people understand.
My second question arises from the accompanying document: the report from the Government Actuary on the uprating. On page 16 of the report, there are projections for the fund up to 2030-31. We see here that the balance in the fund at the end of the year is increasing from £89.6 billion in the current year and more than doubles over a period of five years to £163.7 billion. This is a relevant figure when we are told that state pensions are too expensive and at a time when the fund from which those pensions are paid is building up increasing balances.
Another relevant comparison is that, in the coming year, the balance at the end of the year as a percentage of benefit payments is 59% and, by the end of this five-year period, will have increased to 89%. This compares with the expectation—or a sort of target, though not a statutory target—that the balance should more typically be something like 17%. We are building up very substantial balances in the National Insurance Fund. Many people nowadays do not take the National Insurance Fund seriously at all, but I believe that it is a real fund; it is accounted for separately. I really want to know this: do the Government have a long-term plan for the balance to be held in the National Insurance Fund?
This has arisen, of course, because successive Governments have come to regard national insurance contributions as simply a way of raising additional revenue; I have made this point when we have discussed contribution rates in the past. This is the only figure we get that actually shows how contributions are affecting the National Insurance Fund. The Government need to explain it in a bit more detail to us again. I would be interested in what my noble friend the Minister says initially, but, again, a written explanation of the Government’s policy in relation to the size of the balance in the National Insurance Fund would be a relevant factor to take into account when discussing the affordability of national insurance benefits.
Baroness Stedman-Scott (Con)
My Lords, I thank the Minister for introducing these orders in her usual detail. I will speak to both: the draft Social Security Benefits Up-rating Order 2026 and the draft Guaranteed Minimum Pensions Increase Order 2026. Although they are being debated together today, they are fundamentally different instruments raising distinct policy issues. It is therefore right that they are addressed separately, so I will begin with the draft Guaranteed Minimum Pensions Increase Order.
Lord Davies of Brixton (Lab)
This is neither the opportunity nor the time to have a debate on the Pensions Act 2011, but the cap on GMPs was limited to 3% because the state took over the responsibility for paying increases on private pensions in excess of 3%. However, under the coalition Government’s legislation amending pensions, those increases were, in effect, lost. The noble Baroness expresses surprise, but we have to go back to the legislation introducing the new state pension, which was introduced by the coalition Government. In doing so, they took away the state’s obligation to pay increases in excess of 3%, so any obligation to pay anything more than 3% is solely on the state, not the employer. It would not be appropriate to suggest that the employer should pay increases over the 3% level because it was the state’s responsibility, but the coalition Government took it away.
Baroness Stedman-Scott (Con)
I appreciate the noble Lord’s intervention. I will read Hansard. We will write to the noble Lord and start some correspondence on that issue. I appreciate the points made by the noble Lord. Everybody knows that he knows what he is talking about and that he is well versed in pensions legislation. If he is happy for me to do so, I will pick that point up with my colleagues.
I turn to the draft Social Security Benefits Up-rating Order 2026. The shadow Secretary of State for Work and Pensions, Helen Whately, has rightly led calls for the Government to move more quickly and clearly in setting out their plans for welfare reform. Sickness and disability benefits alone are forecast to cost the taxpayer £100 billion by 2030. The shadow work and pensions team has consistently argued that the Government are failing to confront the structural drivers behind rising welfare expenditure. Delays in doing so carry a cost not only to the public finances but in missed opportunities to redirect spending towards other pressing government priorities.
It is extraordinary that the Timms review has only just agreed the names of the committee members appointed for a review that Stephen Timms is leading into sickness benefits, including with group members representing the disabled. The work has not yet begun. It is nearly two years after the general election, so can the Minister confirm that his committee is on track to give an interim review this spring? Can she also confirm that it will indeed be 2027 before his committee reports and that, by then, no progress will have been made in this Parliament, allowing for likely legislation following a government response?
These concerns sit alongside the wider economic impact of Labour’s jobs tax. The Autumn Budget 2024, in particular the increase in employer national insurance contributions, has been associated with the loss of an estimated 50,000 full-time equivalent jobs. This has implications for not only employment levels but the long-term health of the National Insurance Fund. The difficulty with this draft order is one not purely of substance but of process. The instrument uprates pensions and working-age benefits together, leaving no scope to consider the appropriateness of each element independently or to debate the Government’s policy intentions for each in detail.
Rather than dwell further on the procedural constraint, it is worth noting that the issues raised by this uprating instrument sit alongside the Government’s announcement yesterday on universal credit reform and the legislation now laid before Parliament. Taken together, they speak to the direction of travel in welfare policy and the assumptions underpinning the current uplift. The Government argue that these reforms are intended to rebalance the benefits system, to address perverse incentives and to support more people into work. We are told that the current gap between health-related universal credit payments and the standard allowance discourages labour market participation, and that narrowing this gap for new claimants is necessary to restore fairness and sustainability.
I therefore have a number of questions for the Minister. First, what assessment has been made of the behavioural impact of introducing a significantly lower health element for new claimants? Secondly, although existing claimants and those with severe or lifelong conditions are protected, how confident are the Government that the criteria used to determine severity are sufficiently robust, consistent and fair across the system? Thirdly, the Government have announced £3.5 billion in employment support alongside the expansion of pathways to work advisers. How will success be measured? Will outcomes be judged by sustained employment, earnings progression or reductions in case loads, and over what period?
Finally, the Government expect these reforms to deliver savings of £950 million by 2030-31. Do those projections assume stable labour market conditions? What sensitivity analysis has been undertaken should employer demand weaken further? I hope that the Minister sees the link and will be happy to answer these questions.
Baroness Sherlock (Lab)
My Lords, I shall get through as many points as I can, and if I cannot, I will check Hansard and write to noble Lords. I am delighted to find that writing to members of the Committee is now a bipartisan activity, rather than just on the government side, so it is all very interesting.
I will start with the overall critique from the noble Baroness, Lady Stedman-Scott. As she said, this is what the shadow social security team throw at the Government on a regular basis: that they are not doing enough to bring down welfare spending, and that everything is terrible. I start by saying that the system the Opposition critique is of course a system that we inherited from them. All the things we are often told are wrong with it are things that were entirely in the gift of the previous Government. They did not address any of those problems. The only attempts they made were struck down by the High Court for being illegal, whereas this Government have actually taken action.
As the noble Baroness alluded to, we have already taken action to make the health and disability system more sustainable by rebalancing rates of universal credit from this April to tackle some of those inappropriate incentives in it. Our investment in pathways to work will help many more people with health conditions back into meaningful work. We have started the Timms review to make sure that we find a sustainable way forward. On timing, I can say to the noble Baroness that we anticipate that the review will report in autumn of this year. I have no reason to believe that it is not on track to do that.
I will come on to some of the critique from the other side. Noble Lords have said that we are either not doing enough to reduce social security spending or not doing enough to increase it, so let me try and lean in the other direction to be balanced. My noble friend Lady Lister is absolutely right: we are in Grand Committee, and many of us have been in Grand Committee on a regular basis—annually—to do this. Some of us have moved positions from one side to the other, but now we are here. This point is that this debate is heard, it goes on the record, and I always look very carefully, whether in government or opposition, at the comments made by noble Lords. I am grateful for them; it is a debate well worth having.
I understand the point my noble friend is making about the adequacy of benefits, but from April, this Government are delivering the first ever sustained above-inflation rise in the basic rate of universal credit since it was introduced. Just under 4 million households will benefit overall from that change, which is estimated to be worth £760 a year by 2029-30 in cash terms for a single parent aged 25 or over, or around £250 above inflation. We have also done other things. We introduced the fair repayment rate from April last year, reducing overall universal credit deductions from 25% to 15%, which again benefited approximately 1.2 million of the poorest households. I respect my noble friend for constantly pushing us to go further, but I put on record that the Government have done something significant, and I thank her for acknowledging this.
In terms of the rebalancing, my noble friend Lady Lister is right that, unusually this year, the personal allowance rates of universal credit are not covered by these because the Universal Credit Act, which did the rebalancing, took them out for the relevant period. They will therefore be made by regulations but when we discussed the primary legislation, the Universal Credit Bill, the formula was made really clear. The only reason the numbers were not in there is because they relate to CPI, so the actual numbers depend on what CPI turned out to be. The percentage relationship to CPI was made clear and there was the opportunity to debate that in the Bill. Hopefully, that reassures her on that front.
I understand my noble friend’s concerns on the local housing allowance point, but we have to step quite carefully in this area. DWP currently supports renters by spending around £34 billion a year on housing support for low-income renters, including £12 billion in the private rented sector. The April 2024 one-year LHA increase cost an extra £1.2 billion in 2024-25. It will be approximately £7 billion over the next five years. This is an area where the changes cost a lot of money. We know that LHA rates will not meet all rents in all areas, but it has always been acknowledged that they would never be able to do that.
This Government are trying to address the underlying problems driving some of these issues by prioritising the fundamental issue of the lack of housing supply, through the £39 billion investment in the social and affordable homes programme, which is still the biggest boost to social and affordable housing in a generation. For those who need additional support and have a shortfall to meet their rent costs, our new crisis and resilience fund replaces discretionary housing payments in the household support fund from this April, supported by £1 billion a year, including Barnett impact, through the spending review period. Importantly, we have been able to give a multi-year reassurance to local authorities that the money is coming through.
On the benefit cap, I know that my noble friend will never be a fan of it, and I understand her concerns, but this Government believe that entering or returning to employment is best for individuals and the economy; we have taken significant steps to help them do so. The benefit cap encourages personal responsibility while maintaining a strong safety net. On uprating, this has to be reviewed every five years, and 2027 is the next time it will definitely have to be done. It is up to the Secretary of State when it is reviewed, and that is the latest it can be.
Lord Davies of Brixton (Lab)
If it helps my noble friend, I will put down some Written Questions to deal with this question. I probably should have done that in the past.
Baroness Sherlock (Lab)
If all my noble friend wants to know is what he has asked me, I can write to him—this would save him the trouble of writing and save me the trouble of writing back to him—but, obviously, he is always entitled to do that.
Finally, the National Insurance Fund is financed on a collective basis, with receipts collected in one year used to pay for certain benefit payments, including the state pension, paid out in the same year. I need to make it clear that, obviously, it is not accurate to suggest that there is a surplus in the fund that can be drawn on. The balance of the National Insurance Fund is managed as part of the Government’s overall management of public finances and reduces the need for them to borrow from elsewhere. Any additional spending from the National Insurance Fund would represent an increase in overall government spending. Without cuts in other areas of spend or additional taxes, it would therefore lead to an increase in government borrowing.
I think I have answered most of the questions asked by noble Lords. The noble Baroness asked some specific questions about metrics. I am not sure that I have an answer to hand; if I have anything, I will certainly write to her. I am grateful, once again, for what is always an interesting debate. I love the fact that this Committee takes these matters so seriously; they truly affect the lives of so many people. I am grateful to noble Lords for their time and expertise.