Social Security Benefits Up-rating Order 2022

Debate between Lord Davies of Brixton and Lord Sikka

Wednesday 23rd March 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, this debate has been a little time coming but I make no apology for making sure it takes place. Unfortunately, I was unable to take part when the order came before Grand Committee as I was active in the Chamber at the same time. However, I was happy to adopt the Government Whips’ idea of this separate debate on the regret Motion.

In the event, this has the advantage that we now know a lot more about where we are with the increase in social security benefits that will take place in two weeks’ time. The new information is not good. Inflation in February was higher than expected, at 6.2%, and is certain to be even higher at the beginning of April when the benefit increase comes into effect. The effect is spelled out—this is why it is good to have the debate today—in today’s economic and fiscal outlook from the OBR. This states that, because of lags in the CPI uprating of welfare benefits, benefits will fall by almost 5% in real terms. To be clear, the poorest in our society are facing a 5% reduction in their income when they are already in poverty.

Further, the OBR report states that £12 billion is being taken away from poor people and that it will take up to 18 months fully to catch up with that reduction. I could speak at length about what this means for individuals in human terms, but I will simply refer the Minister to the heartfelt contributions made in the Opposition day debate in the Commons yesterday. I urge her to take the time to read that debate if she has not already done so. That is the human cost.

I want to make three additional points, to which I invite the Minister to respond. I shall not dwell too much on the Labour Party’s position on the uprating—I look forward to my noble friend’s contribution from the Front Bench.

First, does the Minister recognise that it is no consolation to people who are already in poverty and suffering a further cut in their real income to be told that it all averages out over time? We are told, in effect, that the loss of income they are facing, and from which they will suffer in the coming year, is not that important because at some point in the future—the OBR estimates it to be in 18 months’ time—they will receive an increase that will make good the shortfall. They are already in poverty, and they will have to endure 18 months of even greater poverty because of a defect in our benefits system. For people in poverty that is simply not good enough. Eighteen months is too late, as even in the subsequent better year they will remain in poverty. They have already suffered the effect of poverty on their lives and they simply lack the resources to even out their income over the years.

The question is what can be done about it. The Minister told the Grand Committee that

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


But she also told the Committee that

“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 recall discussing this with the relevant department back in the 1970s. I find this less than impressive. Seven months is too long when inflation can change so rapidly. Despite all the advances there have been in handling and processing data in the past 35 years, it appears that we still cannot do any better.

I quite understand the department’s resistance to making any change, but faced with the suffering caused for the poorest in our society, we must find some way to achieve a closer alignment of increases in prices and benefits. For sure the index we use could be more up to date, and I refuse to believe that this cannot be done through greater use of modern technology. The department simply needs to invest more in computerising its records. I also suggest, more radically, that where an increase falls short, an adjustment should be made during the course of the year when it becomes apparent, plus provision for back pay to cover the gap that has arisen because of the shortfall increase.

My second point is that the resources are there in the National Insurance Fund to pay higher pension increases. We have the advantage on this occasion of the welcome report by the Government Actuary that is attached to the draft order. This tells us that, for the next five fiscal years, the balance in the National Insurance Fund will increase from £53 billion at present to £76 billion in 2027. In percentage terms, that is an increase when expressed as a percentage of benefit outgo from 48% to 55%. It is worth comparing those figures with the 16.7% that the Government Actuary recommends as the minimum fund balance. It is also worth emphasising that that is without allowing for the possible Treasury grant, which is an integral part of national insurance as originally conceived. This can amount to 17% of benefit payments. It is simply untrue to say that the money is not available. It is not that the money is not there; it is that there is a political choice not to pay.

I had the benefit of a letter this morning from the Treasury Minister, the noble Baroness, Lady Scott of Bybrook—the other Baroness Scott—referring to the Government Actuary’s quinquennial review, which was presented to Parliament last week. In her letter, she states:

“Increasing spending on today’s pensioners would pass the costs onto future generations of taxpayers.”


Well, I would welcome an opportunity to discuss the quinquennial review, and perhaps the Government Whips would provide the time. However, given the limited time available this evening, I say simply that the review, while commendable, tells us only part of the story. Taking the figures from the OBR, along with those from the Government Actuary, there will be the resources available in 2085 for everyone to be better off, even if national insurance contributions reach the level suggested in the Government Actuary’s report.

My final point relates to the triple lock. How much credence can we give to the Government’s repeated promises to keep to the triple lock for the basic state pension and the new state pension? On Monday in the Commons, after some confusion on the part of the Secretary of State, she said:

“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 back in 2020, and subsequently broke the promise. The Minister here made a similar commitment in Grand Committee. The truth is that we already know that this Government are prepared to break their promise to maintain the triple lock, which was given voluntarily in the election manifesto and subsequently repeated by the Prime Minister.

The explanation given by the Minister here when this was discussed in Grand Committee was that

“setting aside the earnings link in the state pension triple lock for the year 2022-23 … was in response to exceptional circumstances”.—[Official Report, 9/3/22; col. GC 475.]

The problem is that we do not know what counts as the exceptional circumstances in which this Government will break their promise again. On this occasion, with the current uprating that we are talking about, we are told that the exceptional circumstances are the effect that coming out of the Covid measures has had on the earnings index.

So the question is not whether the Government will break their promise. We know that they are capable of breaking their promises. What we do not know about is the possibility that they will break their promise for further exceptional circumstances.

We simply cannot rule out the possibility that, come next November, when a decision is taken on next year’s uprating, it will be decided that this coming September’s CPI index is exceptional or anomalous. To be honest, with the prospect of it being more than 8%, according to the OBR, I hope that it is exceptional. I return to the OBR report and the nice graph—I cannot show it to noble Lords because that is against the conventions of the House—in which there is a leap up to the September figure, when it could be in excess of 9%, which is exceptional. What promise can the Government give that they will not say that these are again exceptional circumstances?

To conclude, can the Minister give us an unequivocal commitment, now, that whatever the CPI increase in September—8% or 9%—this will be applied to the 2023 increases?

[Lord Sikka (Lab)]

My Lords, it is a pleasure to follow my noble friend Lord Davies of Brixton, who spoke with great passion and eloquence to put the Government to shame for the plight of our senior citizens, who continue to be treated very badly.

The state pension is the main or only source of income for the majority of our senior citizens—they rely upon it. The Government introduced the triple lock but, despite it, pensioner poverty has actually increased; it has not decreased. The statistics show that many of our pensioners continue to suffer. From next month, the pension will rise by 3.1%. Pensioners and others face RPI, not CPI: try buying broadband and you will be told that the price will increase by RPI-plus, not CPI. People face increases in line with RPI, which is already about 8%. Last October’s Treasury Red Book showed that by suspending the triple lock the Government were denying retirees £30.5 billion over the next five years. That is a vast sum. They will never be able to catch up or make good the lost purchasing power.

The Government do not treat our senior citizens with any equity or respect. The winter fuel payment has been unchanged since 2011. Even before the current rises that are coming our way, the winter fuel payment would have had to double simply to cope with price rises and rates of inflation—the Government never increased it. A Christmas bonus was the grand sum of £10 in 1972. If it had kept pace with inflation, it be about £150; it is still exactly £10. The Government removed the free TV licence from the over-75s. It is no good saying that there are some who will still qualify for it if they negotiate the bureaucratic maze; many will simply not be able to and will either pay or volunteer to go to prison, because the Government want to criminalise avoidance of the TV licence fee. At least some of our senior citizens will get warmth and some food there, and some may well take up that particular option.

The Government still do not like people getting old. There are no prescription charges in Scotland, but the Government here are raising the free prescription age from 60 to 66. Why England has to be an outlier, I do not know.

In the last Budget, the Government handed £4 billion of tax cuts to banks. They took money away from pensioners and instead gave it to banks, which are absolutely awash with cash. Banks offer you a measly 1% interest on your savings and charge you 40% on your overdraft, but they are bailed out by the state, which acts as a lender of last resort. If that were not enough, it also handed £895 billion of quantitative easing to speculators, including banks, which made vast profits from that. But the Government do not want to pay our senior citizens a decent pension. That is a huge wealth transfer, which tells us something about the Government’s value system.

Social Security (Up-rating of Benefits) Bill

Debate between Lord Davies of Brixton and Lord Sikka

Consideration of Commons amendments
Tuesday 16th November 2021 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, it is a matter of real regret that the Commons has not accepted the amendments to the Bill proposed by your Lordships’ House, but it is worth taking this opportunity to stress that not only have the Government broken a freely given promise to the electorate but, as has been clearly explained, they have done so totally unnecessarily. They could have lessened, if not avoided, the concern caused by breaking their promise by taking this opportunity to reaffirm clearly their commitment to the earnings element of the triple lock. It baffles me why they failed to do so.

I will not repeat all the arguments, despite the importance of the issue, but I have one more question for the Minister. The problem is that the Government are trying to have it both ways. On the one hand, they say they remain committed to all three elements of the triple lock—prices as measured by the CPI, average earnings and the 2.5% minimum. They want us to believe that this was an exceptional case that justified special rules being applied, and that they still deserve the electoral kudos that comes from standing by their promises. On the other hand, they have in practice made it clear that there are exceptional circumstances in which they can break the commitment.

We know they are prepared to break the triple lock, but we do not know under what conditions. We know what they were in this case; Ministers in this House and in the Commons have explained on several occasions the special circumstances which they believe applied. The noble Baroness the Minister said at Second Reading that

“the effects of the Covid-19 pandemic have caused distortions in the labour market, which have been reflected over two years in highly atypical trends in earnings growth.”—[Official Report, 13/10/21; col. 1847.]

We know the Government believe that highly atypical trends in earnings growth are sufficient justification for breaking the earnings link. We do not know how atypical earnings growth needs to be in future before they decide again to break the link. Can the Minister tell us more about what counts as atypical earnings growth? How atypical does it need to be to justify breaking the promise?

However, it is not just earnings growth that might be considered atypical. What counts as atypical growth in prices? This is not a hypothetical issue. Most of us here have become familiar with what many in this House might regard as consistently low rates of inflation, but who knows what is to come, with the unwinding of quantitative easing and other pressures on the economy? How do we know that the Government, when faced with a significantly higher rate of inflation than we have experienced in the last 25 years, will not decide that this too is atypical?

As I say, this is not hypothetical. Based on the OBR forecast for the Budget, it looks likely that the state pension increase in April 2023, which we will discuss next November, will be based on price increases rather than earnings or the fixed 2.5%. The latest Bank of England forecast, released earlier this month, suggests that next September—the relevant month for measuring the CPI—the increase will nudge 5%. Perhaps it will be higher, given this Government’s lack of economic competence. We do not know. In any event, an increase of this order would be significantly higher than the experience of the last few years. Earlier this year, not long ago, the September 2022 increase was expected to be only around 2%—it could be argued that this is more typical. I do not want to put ideas in the Minister’s mind, but I must ask how atypical the CPI increase next September has to be before it too will be considered atypical enough for the Government to decide that it justifies breaking the Conservative Party’s manifesto commitment to the triple lock?

The Minister needs to tell us that this year’s broken promise is truly a one-off and that the commitment to the CPI-linked increase will be adhered to, whatever next September’s increase. If we are not given such a commitment—which I suspect we will not be—then, in truth, we must conclude that we have a return to decisions about increases in the state pension being made on an ad hoc annual basis. History tells us that the inevitable outcome is that pensioners will suffer.

[Lord Sikka (Lab)]

My Lords, the outcome of the vote in the Commons is immensely disappointing. It condemns millions of retirees to a life of poverty and misery. At around 25% of average earnings, the UK state pension is already the worst in the industrialised world. It is the main or only source of income for the majority of retirees, and their lives will be even harder, especially those of women. Women never got pension equality: the retirement age was increased but their pension was never equalised with that of men. Thousands will die this winter because people will have to make the harsh choice between eating and heating, and the first statistics will be emerging fairly soon. Our retirees are being hammered from every corner, whether it is on pensions or winter fuel payments, which are unchanged since 2011, or the Christmas bonus, which is unchanged since 1972, or the loss of the free TV licence for the over-75s.

In 2021-22, the state pension increased by 2.5%, and the rate of inflation, we are now told, turned out to be 3.1%—that is the way it works. For 2023, the Government are proposing an increase in the state pension of 3.1%, and the rate of inflation is, as my noble friend Lord Davies of Brixton said, likely to be 5%. That means that there is a real erosion of the purchasing power of the state pension. Pensioners are not catching up; they are being left even further behind, and all that awaits them is a life of poverty.

The Government’s arguments about affordability were comprehensively debunked in this House. It was shown that there are numerous ways—not least a £37 billion surplus in the national insurance account. A Government which claimed not to be able to afford the triple lock two weeks ago gave away £54 billion in tax cuts, including a £4 billion tax cut to the banks, which are already awash with money and do not know what to do with the £895 billion of quantitative easing either.

The Government have really skewed priorities. Personally, I would have liked to see the state pension increase by 8.3%, which would have enabled a bit of a catch-up, but I was happy to support the amendments of the noble Baroness, Lady Altmann. Yesterday, the Minister in the other place said—and the noble Baroness the Minister referred to this again—that the figure for wage growth is not “robust”. The Minister has never told us what the characteristics of a robust statistic are. In social sciences, there is no such thing which cannot be refuted. What characteristics does she assign to the word “robust”? Is the government data on unemployment robust? Is it not contestable? Is the government data on inflation not contestable? Are the Government’s claims about levelling up not contestable? I do not know what she means by that.

We were told that wage growth data were not really reliable. Lots of resources are available to the ONS and it has come up with a number between 3.6% and 5%. It says that underlying wage growth is in that range. Why is that number not considered to be robust? If the ONS is deemed to be incapable of producing a robust number for wages, why should we trust any of its other numbers which inform government policies?