Social Security (Up-rating of Benefits) Bill

Baroness Drake Excerpts

2nd reading
Tuesday 13th October 2020 Grand Committee

[Baroness Drake (Lab) [V]]

My Lords, I congratulate the noble Lord, Lord Field, on his excellent maiden speech. He has made an outstanding contribution to the public debate on social security and pensions. His interrogation of the players on the funding of the BHS pension scheme is the stuff of legend. I am so glad that he is now such an asset to this House. I also look forward to hearing from the noble Baroness, Lady Stuart.

I support this Bill because it allows the Government to increase the rate of particular pension benefits from 2021-22, if average earnings do not increase. References to uprating benefits in the 1992 Act are to prices or earnings, depending on the benefit. The triple lock is a Government manifesto commitment and, therefore, subject wholly to their discretion. But that the Bill is needed is a stark reminder of what is happening to earnings, particularly in the private sector. The Office for Budget Responsibility predicts average earnings will fall by 7% this year, which is not surprising, and that earnings could see an 18% increase next year which, if correct, would put the triple lock under an intense spotlight.

Covid-19 has undoubtedly weakened the economy and Brexit will present further profound changes for business. Yet 10 years after the financial crisis in 2008, median real earnings were still 3% below their 2008 level and there was record low productivity growth. Either way, such outcomes will raise the heat of the debate on the uprating of benefits. Is it now the Government’s view that their commitment to the triple lock and uprating of state pensions in its current form may not hold, year on year, over the next few years?

Recent pension debates have focused on auto-enrolment. I warmly welcome the Chancellor’s commitment to maintaining workplace pension contributions throughout the different job support measures that he has introduced, including in Kickstart, which is targeted on the young unemployed. That shows real commitment. But the reality is that the state pension will remain the dominant source of retirement income for millions of pensioners now and long into the future. It is important that the uprating of the state pensions does not become a political football and that its very long-term strategic role is not lost: that of setting a firm foundation on which ordinary people can rely—I stress ordinary people—when saving from their wages into a workplace pension to build a better retirement income.

DWP statistics revealed that in 2018-19 benefit income, including state pension, was the largest component of the total gross income for pensioners, and that increases considerably as pensioners age. Average incomes of single pensioners were slightly lower in 2018-19 than in 2009-10. Pensions Policy Institute figures reveal that those with below median retirement income receive on average half their income from the state pension alone, excluding other benefits. The new state pension is currently worth 24% of national average earnings, 2% less than the basic state pension peak of 26% in 1979. Those eligible for state pension prior to the 2016 introduction of the new state pension do not benefit from the triple lock applied to their full state retirement.

I give that setting because a cohort of retired people are clearly better off, and that has to be addressed, but it should not affect the perceptions of the financial position of pensioners as a whole. For the top fifth of pensioners, the largest source of income was their occupational pension and they received a larger percentage of their income from earnings. Intergenerational concerns may in many cases be better addressed through the tax regime and the national insurance rules for those working over the state pension age, rather than weakening the state pension as a firm foundation for saving by millions of ordinary workers. That could be regressive, hurting those on lower and moderate incomes the most and having the least impact on those who rely so little on it because they have such a large alternative source of income.

The DWP Secretary of State said that the Bill would allow

“potential increases for the poorest pensioners who are in receipt of pension credit”.—[Official Report, Commons, 1/10/2020; col. 559.]

There are some 1.5 million claiming pension credit; many women do so but many poor pensioners, sadly, do not even claim. Many will be feeling isolated and vulnerable and the winter months are still to come. In my view, the Government should significantly uprate pension credit, which is wholly targeted on the poorest pensioners. There are precedents for applying higher cash increases to the guaranteed pension credit, and I hope that the Government will set another such positive precedent. What are the Government’s thoughts on the uprating of pension credit?

Can the Minister also give some indication of the Government’s timeline and intentions for the annual uprating of other social security benefits, given that people have economic anxieties and there is rising unemployment—we have just heard the figures today—along with falling earnings and hours of work? The Government temporarily boosted universal credit for families during the crisis, but they risk undoing this protection for the poorest families at the time when they need that boost the most. The benefit cap meant that 124,000 families on universal credit did not receive the full £20 per week benefits increase; now thousands will see a fall in their benefit as the grace period runs out. The Resolution Foundation’s forecast is that the poorest families will suffer a huge 7% fall in income if the £20 per week increase is removed in April. The Government simply cannot go on claiming that we are all in this together when retaining the benefit cap in these dire circumstances. A review of taxes for the wealthy was taken off the table but removing the £20 from April was nailed to the floor. That certainly is not “all in this together”, so it would be of value if the Minister could give some indication of the intentions on the uprating of other benefits.