Guaranteed Minimum Pensions Increase Order 2013

Baroness Stowell of Beeston Excerpts

Thursday 28th February 2013 Grand Committee

Moved by

[Baroness Stowell of Beeston]

That the Grand Committee do report to the House that it has considered the Guaranteed Minimum Pensions Increase Order 2013.

Relevant document: 18th Report from the Joint Committee on Statutory Instruments.

[Baroness Stowell of Beeston]

I shall also speak to the Social Security Benefits Up-rating Order 2013. These orders were laid before the House on 28 January 2013, and I am satisfied that they are compatible with the European Convention on Human Rights.

I will start by touching briefly on the Guaranteed Minimum Pensions Increase Order 2013. This order provides for contracted-out defined benefits schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.2%, in line with inflation as at September 2012.

On the Social Security Benefits Up-rating Order 2013, I shall 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, that third element of the triple lock will have an effect for the first time. The basic state pension will be uprated by 2.5%, a level above both earnings and prices. This means that millions of pensioners will see an above-inflation cash increase of £2.70 a week, taking the new level of the basic state pension to £110.15 a week; and that from April 2013 the basic state pension is forecast to be around 18% of average earnings, a higher share of average earnings than at any time in the past 20 years. I can confirm that additional state pensions will rise in line with inflation at 2.2% in 2013-14, which means that the total state pension increase for someone with a full basic pension and an average additional pension will be around £175 a year.

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 1.6%, the minimum required by legislation, the standard minimum guarantee credit in pension credit will be increased by 1.9% to ensure that the poorest pensioners benefit from the full £2.70 cash increase in the basic state pension.

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. The decisions that we have taken on pensioners reflect the Government’s belief that even in exceptional economic times it is important to protect those who are less able to increase their spending power.

However, noble Lords will also be aware that this order takes forward a number of decisions that are a lot harder to make. Some tough choices are necessary if we are to restore our public finances. The working-age welfare budget, which accounts for about £1 in every £8 that government spends, cannot be immune from these tough choices. That is why, having regard to the national economic situation, we have decided that the working-age personal allowances in jobseeker’s allowance, income support, housing benefit and employment and support allowance, along with the work-related activity component of employment and support allowance, will be uprated by 1% next year. On the same basis, this 1% uprating will also apply to statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory sick pay. This will save around £200 million in 2013-14, savings that are crucial as we continue to pay down the deficit.

We do not take such decisions lightly. Wherever we have been able to do so, we have sought to protect those who have the greatest difficulty increasing their spending power. The benefits that reflect the additional costs that disabled people face will be uprated in line with inflation. These include disability living allowance, attendance allowance, the disability premiums in working-age benefits, and the support component of the employment and support allowance. This is true of the carer’s allowance and the carer premium as well, both of which will be uprated in line with inflation.

In previous debates this week I have spoken of the need to strike a balance. At a time of great economic difficulty we have had to find savings, but we have sought to balance these with key protections wherever we can. This order is also about balancing our commitment to the here and now with our commitment to the long term. We have a responsibility to the next generation to secure a stable and growing economy, and I do not believe we can achieve that without taking these difficult decisions. Of course, we have a responsibility to those who will be affected by this order today, and we take that responsibility seriously.

It is worth noting that at a time when the nation’s finances remain under real pressure, through this order the Government will be spending an extra £2.8 billion in 2013-14 as part of our drive to ensure that the people who are least able to change their incomes are protected against increases in the cost of living. Of that £2.8 billion, about £2.1 billion is for the state pension, including an above-inflation increase for the basic pension. Nearly £500 million will go to disabled people and their carers, and nearly £300 million will go to people of working age. I believe that this is the right decision for families now and in the long term, and it is on that basis that I commend these orders to the House. I beg to move.

[Lord German]

My Lords, I start by saying that I hope we will not have a reprise of the Second Reading debate of the Welfare Benefits Up-rating Bill, because there would be many arguments to espouse.

I add my welcome to the triple-lock pensions increase that has been put into this measure again, and as the Minister has indicated, using 2.5% as the third trigger—the third lock that is being used for the first time—means once again that pensioners are benefiting from an increase that is above inflation.

What is interesting from the information that has been presented to us, and from my noble friend’s introductory comments, is that from April 2013 the basic state pension will be about 18% of average earnings. I have two points to make about that. First, it is a higher percentage than at any time in the past 20 years; and, secondly, it is only 18%. Recent research conducted by the pensions industry indicates that many people approaching retirement say that they need 50% of their average earnings—that is the rough figure they say they need—and they believe that they will get 50%, which in the nature of these things is obviously not true at present. It demonstrates the importance of the new flat-rate pension and that auto-enrolment will be decisive in helping people to meet their own aspirations for retirement. However, in the interim, the pension credit increase in line with the triple lock, as opposed to average earnings, goes a little way to helping Britain’s poorest pensioners.

I turn now to the uprating by 1% of all benefits apart from those protected because of disability or age. I still find that the issue of personal allowances indicates that there is an underpinning rationale, which has not yet been fully demonstrated to me, in having the personal allowance element of the employment support allowance being the same personal allowance that applies for housing benefit and anything else. Can my noble friend the Minister first outline why those personal allowances have to be the same for each allowance? It interests me to know what the rationale is behind that.

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I conclude by reiterating our opposition to these measures that will largely hit poor people in work, disproportionately affect women, push many more children into poverty and fail adequately to protect disabled people. We would be very happy to engage in the sort of process suggested by the noble Lord, Lord Kirkwood, to try to look at these issues for the longer term. I am bound to say that I am not innately attracted by the concept that we have lower levels of benefit because the very poor and disadvantaged can have some supplementary cash to help. In a sense that has been the Government’s approach when they have hacked away at things such as the benefit cap or housing benefit, and with the underoccupation provision and putting aside a bit of money or discretionary housing payments to placate and help a few who were disadvantaged. As a process or a basis for a sensible system of support, that is not the route that we should adopt. There is a danger of straying into the debates that we will return to in our consideration of the Welfare Benefits Up-rating Bill, when we will debate the issue of poverty time and again in the upcoming months.

[Baroness Stowell of Beeston]

My Lords, I am grateful to all noble Lords who have contributed to today’s debate. I shall get straight into responding to some of the important points raised. I note that there was broad support in the Committee for the first order. I am grateful for that, but there was one small question from the noble Lord, Lord McKenzie, which I will dispense with straight away so that I can get rid of one piece of paper that I am grappling with. He asked about the costs of the Guaranteed Minimum Pensions Increase Order 2013 and whether they would fall on the private or public sector. No new costs will be incurred; the costs will be the ones that would usually be incurred as there is no policy change.

I move to some of the points raised in the wider debate. My noble friend Lord German talked at some length about pensions and welcomed the triple lock and its effect this year. He noted that it would now be 18% of average earnings—the highest for 20 years—but that there was evidence to suggest that some people would need more as they neared retirement age, and worryingly thought they would get it. I do not have an immediate response to that, but as he acknowledged, it is one of the reasons why it is important that we are taking steps towards the single tier and auto-enrolment. While these measures will not benefit people who are already at or about to enter pension age, we are seized of this issue and are tackling it as a longer-term issue.

While we are on the pensions issue, the noble Lord, Lord McKenzie, referred to the triple lock. He was trying to question whether it was really as beneficial as we believe. I am surprised that he raised that question. It has delivered this year. As I said, it has come into effect for the first time and is above inflation and earnings. As he knows, it has been the policy of successive Governments to use the inflation figures of the previous September to determine the rates for the following year. We have done nothing other than what all Governments do, which is to use the September figures. The September figures were 2.2% inflation, and that is why we introduced the triple lock this year: so pensioners have benefited. That is a good thing and we are pleased about it.

My noble friend Lord German asked a question that he said he had asked earlier this week, when we were debating the Bill, about the consistency of personal allowances across the various benefits. That was echoed by the noble Lord, Lord McKenzie. I can do no more than restate what I said when were debating this then. Personal allowances across income-related benefits for working-age people create the basis for the way our current benefits form a consistent means test across the income-related benefits. If we were to treat different benefits differently in terms of their personal allowances, there would be no clear level of income at which state support via income-related benefits is set and at which access to other help, such as prescription charges or free school meals, would be available across a wide range of services. At a time when we are trying to simplify the welfare system, it would seem strange to introduce an additional layer of complexity for those who are seeking to use the benefit system and for the way we operate it because that would attract additional costs.

My noble friend Lord German also asked about guidance and leaflets that are issued to pensioners. Benefit recipients and pensioners are notified of their new provisional rates following the announcement of those rates by the Minister for Pensions in his Oral Statement. That needs to happen over a number of months because of the volume of notifications and because we need to make an advance claim to basic state pension. It is useful for recipients to have early notification of provisional rates, and it has been the practice for some time.

The noble Lord, Lord Kirkwood, raised a few points that were echoed in slightly different terms by the noble Lord, Lord McKenzie. My noble friend Lord Kirkwood said that he came today because he does not like to miss uprating statements and has been to every one for the past however many years. I hope I do not disappoint him. This is my first, so I have a lot of catching up to do. He made the point that these orders are different from anything that he had seen before, but he acknowledged the economic conditions that we are in and that they are an important reason why we are in a different situation from that of previous uprating statements that he has contributed to. He asked what might happen for people who are exceptionally poor or who might over time be affected in ways that at this stage we may not be able to anticipate. The noble Lord, Lord McKenzie, echoed some of that in his remarks.

I shall make a number of points on this. It is important for me to restate that some of the measures that we are taking today will have an immediate impact on people in a way that we would not want them to have, but we think that all the measures that we are taking both here in the order today and in the Bill contribute to the longer-term plan and strategy to make sure that we deliver a better economy for everyone.

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[Lord McKenzie of Luton]

What is the Government’s assessment of the effect that the measures in this order, let alone those in the uprating Bill, will have on vulnerable people? Have the Government concluded that it will have no effect or an adverse effect? If it is as the Minister has said and the Government are mindful, as I am sure the noble Baroness is, of not pushing people into poverty, what will be the effect of this order?

[Baroness Stowell of Beeston]

I was about to remind noble Lords that we have carried out an impact assessment of both the order and the Bill on child poverty. That is in the public domain. However, we cannot consider only the impact of these welfare changes; other dynamic changes are being made that will have an effect on child poverty. For example, the introduction of universal credit is expected to lift up to 250,000 children out of poverty. There are varying ways of looking at its impact on child poverty. We want to make sure that it is done in the round and that it is not considered in a one-dimensional way. We are very much seized of this issue and take it seriously.

My noble friend Lord Kirkwood asked about the GAD report. GAD has said that the balance of the national insurance fund at 31 March 2014 is expected to be greater than one-sixth of the amount of benefit payments in 2013-14 and that there is no immediate need to address the fund balance. We welcome this statement. GAD has also said that there is no immediate need to do anything to address the risk of the fund falling below the one-sixth threshold. It will review the situation again in a year’s time.

There were other points that the noble Lord, Lord McKenzie, made which I have not covered already. He asked about various costings. I think that he asked about statutory maternity pay and the WRAG component. I will have to write to the noble Lord with the details of that. He also asked for information on the average time that people are on ESA—the work-related activity group. Fewer than half of new ESA claimants are on the benefit for a year, but perhaps that is something else on which I could write to the noble Lord with a little more background.

The noble Lord, Lord McKenzie, also asked me—I may not have had an answer through on this; sorry, I have it here—which benefits are not covered by this order but are in the Bill. I think he was asking whether there was any inconsistency. He is right that this does not include tax credits; there will be a separate order on them, which should be coming soon. I think the only other significant difference between the order and the Bill is on child benefit.

[Lord McKenzie of Luton]

I also asked the related question of whether there is anything that is not uprated by only 1% for a CPI amount.

[Baroness Stowell of Beeston]

That would include child dependency increases and capital limits, but I think I will have to write with a full list on that one.

The noble Lord, Lord McKenzie, asked about the 1.5 million pensioners who will see a loss from the savings credit measures. The pass through to the triple lock is a cost-neutral measure: 1 million people gain an average of 50 pence. They are the poorest pensioners, but as this is cost neutral some will obviously see a smaller cash increase. One-and-a-half million pension credit claimants will see this smaller cash increase, which is on average about 35 pence. We have done this to provide protection for the poorest pensioners and ensure that they see the cash increase from the triple lock. As I said at the beginning, my main point here is that this order ensures that the poorest pensioners receive the proper entitlement to that triple lock and get its full benefit. As I have said, I will respond to any outstanding questions that I have not covered in writing.

In conclusion, my main point is that this uprating order is one for the long term, but it is critical to have regard to those who will be affected by the order today, and we have done that. I have already explained that we are spending an extra £2.8 billion on uprating pensions and benefits in 2013-14, enabling us to protect key benefits and vulnerable groups, but we are also taking decisions that will matter to all families in the years to come. Those decisions will help us to secure a better economy and a better future for everyone. That is something which I hope all noble Lords can support and it is on that basis that I commend these orders to the Committee.

Motion Agreed.