Social Security Benefits Up-rating Order 2012

Lord German Excerpts

Monday 27th February 2012 Grand Committee

As I say, the Minister brings a fresh approach to some of this and he has not been daunted by taking on universal credit. I hope he will not be daunted when he turns his attention to the importance of simplification so that we have a debate that ordinary people can understand. That is now the important thing we can do beyond looking at the facts of benefit levels, pressures on the squeezed middle and so on. I am confident that, if the Minister can find the time, he could do a lot of technical work on these, and I will support him. It might be hard territory because there will be winners and losers, but we should be brave about it so that the debate becomes more intelligent and future policy-makers can make rational choices. I support these orders and, again, I am relieved beyond belief that we have managed to get the full uprating delivered. That is a massive accolade to the work of Ministers and I am pleased to acknowledge it.

[Lord German]

My Lords, I shall take up the point on which my noble friend concluded, and that is about the certainty which the Government have provided for those with pensions. The Government have done what they said they intended to do in terms of providing the triple lock, to which I shall come back in a moment. I am a little sorry that we have not been able to engage the Minister on geometric means. We had a very interesting discussion about that. He may want to refer, of course, to the ratio of averages or the average of relatives. These are important matters in relation to the CPI and the RPI. However, I will say this. For those who are advocates of one firm RPI framework, we need to look carefully at what makes up the CPI framework because we can derive a lot of benefit from it.

By way of illustration, the weighting that is given for food and clothing, which are the staples that underpin the prices index for poorer families, is 16.4 per cent for the CPI and 16.2 per cent for RPI. There is not a great deal of difference, but those are the staples. However, if you look at it carefully, you can see that, strangely, alcohol and tobacco are weighted at 9.1 per cent under RPI, yet only 4 per cent under CPI. I think that these are factors which we need to consider carefully when we try to come down heavily on RPI. It is the case, of course, that the CPI includes rent and the RPI includes mortgage interest payments. The Government have acknowledged that the discussion about the whole issue of housing costs is moving on and that there will be further debate as evidence comes forward from the various bodies that the Government are consulting on this matter. What we should celebrate, however, is the fact that we are providing certainty and that we have included the full 5.2 per cent in uprating both pensions and benefits.

I worry that those who seek a single lock rather than a triple lock do not get the real message that seems to come out of the triple lock, which is that in some years it is costs, in other years it is wages, and in others it is the increase in prices. The triple lock itself means that it will be the highest of those three which is provided. For those who advocate only the RPI, if you do not have a lock with those three mechanisms, you will not do well for people in the future. The actuary’s analysis provided under table 3 of the key assumptions looks at the CPI increase from year to year, and for the year we are currently looking at, it is 5.2 per cent, which falls to 2 per cent by 2014, and in fact to 2.1 per cent by 2013. If you were to take only that as the prices figure, no matter what measure you choose you would not fulfil the obligation which you get from a triple lock, which gives the highest of the three measures—wages, prices and costs. All three form part of what the Government are providing as a measure for the future. Those on pensions will know that in future years, whatever geometric means or factors relating to housing are improved or changed within the CPI, there will always be a firm basis on which those pensions will be increased. Uncertainty was a factor in the past as reliance on a single lock produced increases for pensioners in the early 2000s that amounted to pence. At the same time, we did not get the benefit of being able to keep up with those factors which influence most people’s lives. Therefore, we need to celebrate the triple lock and ensure that it is a permanent—not temporary—feature, and that it is built into any discussion on CPI.

I understand that two factors are involved in the switch from the savings credit to the guarantee credit, one of which is the need to provide support for poorer pensioners. The savings credit involves switching provision from pensioners with more income to those with less. The challenge was to provide a higher figure than the £5.30 pensions increase. As I understand it, the relevant figure would be about £5.35. Was the figure chosen to ensure that it was higher than the pensions increase? If it was, that was an admirable thing to do.

Do the Government expect there to be a much broader debate about spending a further £4.5 billion or £5 billion in the 12 months after April? Sometimes our debates focus on small amounts of money, but this is a substantial amount of money. We should celebrate the fact that we are able to provide that money to those who need it most.

I will gladly take messages to the Deputy Prime Minister, but as regards the working poor, whom my noble friend mentioned, I would like to raise the tax-free threshold as rapidly as possible. That is the message I would like to take to the Deputy Prime Minister.