Social Security Benefits Up-rating Order 2023

Debate between Lord Davies of Brixton and Baroness Lister of Burtersett

Wednesday 22nd February 2023 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I, too, welcome the noble Viscount to our deliberations. He was possibly here as a Whip last year. I took the opportunity to look again at what I said then and, in fact, it would be possible for me to repeat what I said for the benefit of the new Minister, but I have amended it slightly and added some detailed comments on GMPs, which I am sure the Minister will look forward to.

There is no doubt that because of the lag in carrying out a pension increase the poorest in our society lose out. A figure has been calculated, which I was given by the researchers who work for the parliamentary party, that it is of the order of £520. That is the cash loss that they have incurred this year because of last year’s inadequate increase.

The important point is that it is no consolation to those who have lost that money to be told, “Okay, you’ll catch up next year” or, in the Minister’s words, “the fluctuations even out”. We are talking about the poorest people here; they are in no position to even out their income, as they have no savings worth addressing. The year of plenty when they are nudged marginally higher within the range of poverty does not ameliorate in any way at all the loss they incurred in the year that they fell behind. We are talking about pensioners in poverty. Let us not pretend that there are not millions of pensioners still in poverty. For them, this is simply not good enough; they suffer the effects in the current year.

The question is: what can be done about it? Last year, the Minister said that

“it is not possible to undertake the uprating exercise any later than currently timetabled.”

But she gave the game away a bit by also telling the Grand Committee:

“All benefit uprating since April 1987 has been based on the increase in the relevant price inflation index in the 12 months to the previous September.”—[Official Report, 9/3/22; col. GC 484.]


In truth, the seven-month delay goes back even longer. I can recall being in discussions with officials in the relevant department on this topic in the early 1970s, so we are going back on a system that has existed for 50 years. I find that less than impressive. Seven months is too long when inflation can change so rapidly. Given all the changes there have been in handling and processing data in the past 35 or 40 years, it is amazing that we cannot do any better.

I quite understand why officials tell the Minister “It has to be that way” but, really, with modern systems of handling data, it is simply untrue to say that nothing can be done and that we cannot move to a system that more closely aligns increases in prices with increases in benefits. Even if it were not possible—which I do not accept—could we not move to a system where the increase allows some provision for back-payment to make good the shortfall that people have suffered in the seven-month interim? I really do not accept the department’s line that nothing can be done about the delay in the increase.

My second point is about the triple lock. Last year, I asked how much credence we could give the Government’s repeated promises to keep the triple lock for the basic state pension and new state pension. The Secretary of State said last year:

“I am again happy to put on record that the triple lock will be honoured in the future.”—[Official Report, Commons, 21/3/22; col. 99.]


but she said the same thing in 2020 when she went on to break the triple lock. We know that the Government are prepared to break the triple lock—that is a fact—but we do not know what they count as the exceptional circumstances in which they are prepared to break it. The important thing about the Government trying to justify it last year is that they quoted exceptional circumstances, but those are not unique circumstances.

I was very pleased that the Minister, in his introductory remarks, reaffirmed the commitment to the triple lock. It is perhaps unfortunate that the Minister in the Commons, when introducing the same order, failed to refer to the triple lock at all even though it was mentioned several times in the debate. I was going to ask the Minister to give a commitment, but he has already done so.

It is worth stressing again the importance of the triple lock in this current period. Views differ, I know that, but I am totally committed to it so long as and until the state pension reaches an adequate level. When we compare it with the figures quoted by the Joseph Rowntree Foundation about what constitutes an adequate retirement income, we still have some way to go. If and when we reach that sort of level, we can have a debate about the triple lock but, at the moment, it is important that people receive the benefit.

I will just explain the triple lock a bit more. People refer to pensioners’ incomes but it only partly affects those. Pensioners who depend on the state pension, who by definition are on very low incomes, get the full triple lock. The people a bit above that level, who are not on massive incomes but whose additional income is from a personal or an occupational pension, are not getting triple-lock increases on those pensions; their overall increase is somewhat less. So long as we have this unequal and inadequate benefit system, the triple lock retains its justification.

I will make two more points. First, this is about taxation. I am sorry that the noble Baroness, Lady Penn, has left because this is really a Treasury point. It is important for the department to understand the implications of the decision to freeze the personal allowance until 2028. People have not realised how significant that is in terms of running the social security system. The state pension is not subject to PAYE. That works as a system where almost everyone has a state pension below the personal allowance, so they pay the tax on any income they get over the state pension. But we are heading towards the personal allowance being the same as the new state pension in 2028. Any income a person receives from the state over that level—and many do, because of retained rights from the state earnings-related pension scheme—has to be taxed from their other income. They may not have any other income, so in the following year, they will start receiving the brown envelopes saying, “You owe the tax system and HMRC significant sums of money”, which will have to be paid as a lump sum.

This situation needs to be addressed at some stage but I have seen no indication by the Government that they understand this problem coming down the tracks. The most appropriate way would be to include PAYE to cover the state pension. It is a historic anomaly that it does not. I hope that the Minister, who may not accept all my arguments, will agree that this needs to be looked at now, and that we do not need to wait until 2028 before it is resolved.

Finally, I come to my point on the GMP. I think I have said previously in this Room that if I was ever on “Mastermind”, my specialist subject would be the GMP.

[Baroness Lister of Burtersett (Lab)]

There would not be much competition for that.

[Lord Davies of Brixton (Lab)]

Yes, I agree. In the Commons, the Pensions Minister said:

“Under the Guaranteed Minimum Pensions Increase Order 2023, there will be an increase of 3% paid by occupational pension schemes, which means that that part of the GMP will increase by 3% from April 2023.”


The important bit is this:

“The 3% cap strikes a balance, I suggest, between providing members with some protection against inflation and not increasing scheme costs beyond what can be afforded.”—[Official Report, Commons, 6/2/23; col. 681.]


This is rewriting history. That is not in any way, shape or form why that 3% is there. It is to relieve strain not on the pension schemes but on the state pension, because it was the state pension scheme that was meant to be paying for any increases required over that 3%. I listened carefully to what the Minister said in his speech today, and it was a bit more nuanced than what the Minister said in the Commons the week before last.

This fiction is given a bit of support in the Explanatory Memorandum on the GMP increase order which says, in words very similar to those of the Minister:

“Guaranteed Minimum Pensions are increased yearly to help ensure that the value of a member’s pension has some protection against the effects of inflation”.


It is only “some protection” because the state was meant to be paying the excess over the 3%. The issue is complicated because, in some ways, people with GMPs got favourable treatment from the new state pension. That was reflected in some of the Minister’s words, but we need to be clear that we should not let the Government get away with the idea that it is only 3% because we do not want to put the burden on the schemes. It is only 3% because the Government previously promised to pay that excess, so perhaps the Minister could clarify that and tell me that I have got all the points from my “Mastermind” entry.

Social Security (Up-rating of Benefits) Bill

Debate between Lord Davies of Brixton and Baroness Lister of Burtersett

Committee stage
Tuesday 26th October 2021 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, there are two issues being discussed in Committee that I particularly want to address. First, what should be the provisions to determine the operation of the triple lock? Secondly—a distinct issue—what is the desirable level of the fixed-rate state pension, and how can we get there? These are clearly linked but distinct issues, which is why I sought to have them grouped apart. In this group, Amendments 1 to 4, we are dealing with the first issue. The question is: how should the triple lock work? We need to thank the noble Baroness, Lady Altmann, for her work in producing these amendments, as well as the Minister, for the immense amount of time and effort she has put into explaining the Government’s position.

On the clause stand part debate, I will say that I am in favour of the 8% increase; I will explain why at that stage. However, as I said at Second Reading, given the Government’s clear and unambiguous commitment in their election manifesto to sticking by the triple lock, I do not understand why they are not prepared to adopt one of the approaches proposed by the cross-party group of noble Baronesses before us today. Unfortunately, of course, we have a Government who are now in the habit of breaking their promises; in this case in a relatively blatant fashion and, as has been explained, unnecessarily.

The Minister should understand that her Government’s refusal to give any consideration to any of these proposals is why there is so much fear—in this House and more generally—that this is not a one-off, that a precedent will be set that will be attractive to austerity-minded Chancellors in future, and that other excuses for breaking the link will be found. This is clearly not a party-political point. No one could accuse Age UK of being partisan, but it has said that

“it’s asking a lot for older people to believe that any scaling back of the triple lock would only be temporary, rather than permanent.”

The organisation goes on to point out that

“some of the prominent voices arguing for a suspension of the triple lock in response to the pandemic, are the same people who have called for its abolition in the past.”

The only way for the Government to mitigate these widespread concerns is to demonstrate commitment, either by sticking to the current legislation or, more likely in practice, through an appropriate amendment to this Bill. Such an amendment is now necessary to demonstrate the Government’s continued commitment —in practice and not just in fine words—to the key earnings element of the triple lock.

We must thank the Minister for her letter—which eventually reached me—and her explanation of why the Government believe that it is so difficult to adopt another definition of the earnings increase that would satisfy Section 150A of the Social Security Administration Act 1992. I am also glad to have had meetings with the Minister, at her instigation, to discuss the issue in detail. I thank her. But the case essentially comes down to “legal risk”. Unfortunately, I still find the argument less than compelling. On the face of it, the choice of the index is a decision for the Secretary of State. Subsection (8) could not be more definitive:

“The Secretary of State shall estimate the general level of earnings in such manner as he thinks fit.”


This puts it in the hands of the Secretary of State, so long as, that is, she does it in a way that is not irrational.

In truth, it is the decision to drop any link to earnings that is irrational—and, anyway, if it were correct that the Secretary of State’s choice is so open to challenge, it would be surprising that it has not been challenged in the past. For example, the prices index is based on a single month, September, whereas earnings are based on the three-month average from May to July. What sense does that make and why has one or other choice not been challenged? Earnings indices, along with those for prices, are inherently a matter of judgment and interpretation. It is not as though there is one true earnings index buried under the data that might ultimately be revealed in the course of legal action. Is any court really going to substitute its judgment for that of the Secretary of State? I am afraid that the excuses being offered for why the Government are unwilling to accept the approach suggested in these amendments bear all the hallmarks of post hoc-ism, the sort of clutching-at-straws justification that is commonly introduced to justify a decision that has already been made. The Minister has to understand that this is exactly why so many people continue to doubt the Government’s protestations that this is simply a one-off.

For these reasons, I shall support Amendments 2 and 3, in the spirit of helping the Government out of a hole that they have dug for themselves. Unfortunately, although I often agree with the noble Baroness, I am against Amendment 4. Just to give a brief history lesson, the idea of predicting prices figures is fatally flawed. I criticised it back in 1975 when my pensions hero, Barbara Castle, tried it, and I am against it now. Unfortunately, we are not allowed to use visual aids in this Chamber, but those noble Lords who have to hand the House of Commons briefing document can turn to page 22 and see a graph of the real value of the basic pension against earnings. Noble Lords will see that in 1975, when Barbara Castle was Secretary of State, there was a sharp downward dip, which is when they decided to adopt a projected rather than a hard figure. I am against it—I am sorry, because I am sure that the intentions are the best, but it gives too much scope for the Government to adjust the figures.

[Baroness Lister of Burtersett (Lab)]

My Lords, at Second Reading I accepted the Government’s case for not increasing pensions by 8% or so, and I called for a review of the triple lock, because of the arbitrary nature of the triple element of the lock—that is, the 2.5%—while emphasising the importance of maintaining pensions and related benefits relative to average earnings as a general principle. I therefore support Amendments 1 and 2, which are consistent with that argument.

At Second Reading, as we have heard, the Minister argued that there was no robust methodology for establishing what the underlying increase in earnings had been this last year. But surely the ONS range of estimates, on which these amendments are based, is at least based on some kind of methodology, which is more than one can say about 2.5%, which can be used to increase pensions should it exceed earnings and prices. As it is, the jettisoning of earnings this year has given rise to understandable fears that the earnings link might be abandoned altogether in the longer term, just as it was by the Conservative Government in 1980, leading to a steady deterioration in the position of pensions relative to average earnings during the following two decades.

Moreover, the case for basing pensions on the underlying increase in earnings is the stronger, given what is happening to inflation, which is addressed by Amendment 4. All the indications are that inflation is going to rise above the 3.1% on which the uprating will be based. The Bank of England’s chief economist has warned that it could go as high as 5% in the next few months. For pensioners and others reliant on social security, the effective rate of inflation is likely to be higher still, given the differential impact of inflation when the increase in basics such as fuel and food, which constitute a disproportionate part of low-income budgets, is a key driver of inflation, as already mentioned. I raised this issue at Second Reading and asked the Minister whether she would undertake to look at how the problem might be addressed, but she did not respond then or in her subsequent letter.

The other day, the Chancellor said:

“I know that families here at home are feeling the pinch of higher prices and are worried about the months ahead. But I want you to know, we will continue to do whatever it takes, we will continue to have your backs—”


whatever that means—

“just like we did during the pandemic.”

The amendments we are debating here today would be one way of doing whatever it takes. I hope, therefore, that the Minister will take them seriously and, if she does not accept any of them, explain how the Government will do whatever it takes to protect those reliant on social security in the face of rising inflation.

Finally, on pension credit, the subject of Amendment 3, I believe that the uprating should be protected legally. But I would like to return briefly to the issue of take-up raised at Second Reading by the noble Baroness, Lady Bennett of Manor Castle, which also has implications for later amendments on pensioner poverty. I welcome the willingness of Ministers—and our Minister in particular—to discuss with Peers ways of improving the lamentably low take-up rate. I had understood that it had been agreed that one way of doing so was to include a suitably arresting and well-designed leaflet or similar in communications with pensioners. I have received a couple of communications from the DWP since then, neither of which has drawn my attention to pension credit. Just last week, the letter I received about the winter fuel allowance made no mention at all of pension credit. Could the Minister tell us whether the idea of such a leaflet has been abandoned and, if so, why?