Social Security Benefits Up-rating Order 2012

Lord Kirkwood of Kirkhope Excerpts

Monday 27th February 2012 Grand Committee

[Baroness Lister of Burtersett]

My Lords, I will focus on the Social Security Benefits Up-rating Order, particularly its implications for people of working age.

As someone who is always quick to criticise the Government when I think they are doing the wrong thing, it is only proper to acknowledge and applaud the Government when they are doing the right thing. As my noble friend Lord McKenzie said, they have ignored the siren voices calling on them to tamper with the normal uprating mechanism in order to save money simply because inflation happened to peak in the month on which the uprating is based.

One reason why it is so important that the uprating is maintained, as the Minister himself said in a Written Answer on 10 January, is that:

“The increase in the cost of living faced by those receiving benefits is likely to be higher than for other groups, as those on the lowest incomes spend a greater proportion of their incomes on food, fuel and energy, the prices of which are rising particularly rapidly”.—[Official Report, 10/1/12; col. WA 9.]

This was borne out by a recent Resolution Foundation report, which states:

“Because the costs of essential goods and services have been rising much faster than standard rates of inflation for some time, households on modest incomes have fared far worse than official data suggests … With the cost of an essential basket of goods now rising significantly faster than general inflation, more and more low to middle income households will not just fall behind those above them, but also behind what is widely considered to be a minimum acceptable standard of living”.

The report further states that,

“indices based on average spending, like the CPI or RPI, are much more appropriate for households at the average than for households on lower incomes”.

The Resolution Foundation suggests a new index based on the minimum income standard, which, as the Minister will remember, we discussed at some length in Grand Committee on the Welfare Reform Bill. It is an idea that is worth looking at. The Resolution Foundation report also points out how the switch from the RPI to the CPI aggravates the situation. This is where I have to part company with the Minister, as I am sure he would expect.

An Institute for Fiscal Studies press release on the September inflation rate points out that the adoption of the CPI means that many,

“benefit recipients will be worse off than they would otherwise have been … Over time this change will prove to be the biggest change to the welfare system so far implemented by the government”.

Although the impact so far is relatively small, it will compound indefinitely over time. Even a small impact is significant for people on very low incomes.

Like the Minister, I will not go into all the technical arguments that we had on the previous occasion about CPI. The Minister said something about economists being very supportive of this, but after our previous debate I received a letter from a retired economist who had written to the Minister challenging what he had said in the debate about the technical arguments. I will not bore the Committee with it now but I should just remind him that it is perhaps just as well that he did not repeat them today.

My noble friend Lord McKenzie referred briefly to my final point. Steve Webb in the House of Commons talked about the burdens on the low paid. He said:

“That is why we are keen to raise the tax-free personal allowance”.—[Official Report, Commons, 23/2/12; col. 1070.]

In that debate in the Commons, however, no one mentioned child benefit. I talked about this last year. I do not apologise for talking about it this year and I will talk about it again next year. As long as child benefit is frozen, it is crucial that we remind people of its significance and tell those who are too young to know that child benefit replaced personal tax allowances as well as family allowances. It therefore should be treated as the equivalent of personal tax allowances. It makes no sense to freeze child benefit when so much emphasis is being put on raising personal tax allowances as a way to help low income people in work, in particular those with children. Obviously, child benefit will help only those with children, but it helps those whose income from work is too low to pay tax. The more that the Government succeed in raising personal tax allowances, the more people will be in that situation every year and their child benefit will be frozen.

This message is perhaps as much for Liberal Democrat colleagues. I hope that they will take it back to the Deputy Prime Minister in the very public negotiations that are going on about the Budget at present.

[Lord Kirkwood of Kirkhope]

My Lords, I am happy to add that to my long list of things that I will be taking to the Deputy Prime Minister from time to time. I am pleased to make a short intervention in this debate. I, too, was massively relieved that the full uprating undertaking was delivered. It must have been very difficult for Ministers. I was frightened to death that the pressures on them would make them buckle and I am genuinely pleased, as well as massively relieved, that the commitment was held to. It is a very important signal. I do not care who gets the credit in the coalition. Ministers did well and I want to recognise that openly.

I have a couple of technical, almost philosophical matters with which to worry the Minister. We always have these arguments. I know that this is a pay-as-you-go system and that this is not money just lying in a bank. The thing that has changed for me is the table at item 6, where the Government Actuary is looking at projections beyond April 2013. The balance in the National Insurance Fund goes from 55 per cent in 2010-11 to 30 per cent in 2016-17. That is a dramatic drop. Can the Minister explain that? It may be a deliberate contribution to deficit reduction, but the balance in the National Insurance Fund has been quite high for some time. Perhaps that reflects the buoyancy of the economy. I am not an actuary, but perhaps the Minister could say a word about that. If he cannot, a letter would do. The Committee would like to hear a little more about going from 55 per cent to 30 per cent in that relatively short space of time, because we may want to return to it.