Guaranteed Minimum Pensions Increase Order 2013

Lord McKenzie of Luton Excerpts

Thursday 28th February 2013 Grand Committee

[Lord Kirkwood of Kirkhope]

My Lords, I am pleased to follow my noble friend and concur with everything that he said. I have been doing uprating statements since 1984, I think, and I am here this afternoon really because I did not want to miss one. I have the boxed set, so I would feel that I was in the wrong place if I was not here. However, and this is me in my moaning mood, in the old days when men were men and women were women these debates were really big parliamentary occasions. These are huge sums of public money that we are considering this afternoon. This is no reflection on the Government at all, because while it is a question for the whole House I do not think that if we held this debate on the Floor of the Chamber there would be many more people here. I cannot help but say that it is a shame that we do not have more concern or attention from other colleagues albeit on what I accept is a ritual.

This is a very important annual debate, but this year it is different. My noble friend explained some of the differences, and I want to explore them a little more deeply, because, both qualitatively and quantitatively, these orders are different from any I have seen before. I make it clear that the Government are absolutely entitled, under the rules of the game as I understand them, to make these reductions against an economic background that we can all see. I am obviously not going to move against these orders, particularly in the context of the uprating Bill, which is in front of the House, but we are in exceptional circumstances. There is therefore a case for the Government to say, “For the next 12 months, Britain is a poorer nation and we all have to make a contribution towards getting back on to a steady state”. My point is that I am not confident that we will get back to a steady state for a number of years. I am not an economist and I do not know, but I really believe that the paradigm has changed and that we will all be forced to face up to the circumstances. That may be supporting the Government’s case more than I am accustomed to do, as the Minister might say.

The point I want to make on the back of that is that if we are in different circumstances if I can use the analogy of discretionary housing payments and if the Government are saying that the housing benefit changes are so profound that there have to be mitigating short-term, time-limited emergency procedures to take the sting out of them for low-income families, we may be forced to think about an equivalent emergency package for low-income households if year after year we find that we do not get back to trend levels of growth. I think that in future uprating debates we are going to be forced to look very carefully not only at adjusting the levels down but in addition at ways of getting behind people who are really at the end of the financial road. They have no scope.

The Government have recognised the plight of pensioners, and the rationale for that is understandable. My noble friend mentioned it: they have limited ways of increasing their earnings. The Government’s suggestion is that working-age households always have the option of work, but I wonder how realistic that is. If we are seeing food banks develop to the extent to which I fear they may develop in future in local communities, I think as legislators we will have to reflect that rather than just assuming that we are in a steady state and that the Government can take those savings out year after year. We might all need to think about how we tackle this. Part of that might be exceptional measures for low-income households.

The evidence comes at me every day from every source. This morning, I picked up a very interesting piece of evidence from the Money Advice Trust, which is a very important institution that I watch because I am interested in the development of payday loans. There are problems about some of the administration and regulation of payday loans. The statement from the Money Advice Trust demonstrates the changes that are happening underneath us and that are affected by this uprating statement. It reports that:

“its National Debtline service took over 20,000 calls for help with payday loans in 2012 … The figure represents a 94 per cent year on year increase, and an increase of 4,200 per cent since the onset of the financial crisis in 2007”.

I know a little about payday loans. Working families take advantage of them. I am not against payday loans. Short-term unsecured credit has a role to play. I do not think it is regulated properly, but that is a different argument. These are working-age families. In my estimation, these levels of increase are not going to get any less any time soon. I recognise that something has to be done with the deficit reduction, but we may need to have a grown-up discussion about this across the parties and across Parliament to make sure that we are not ignoring what is happening in a lot of our challenged communities, particularly in the old social-rented council estates of my native Glasgow, for example, where I know that some these changes that we are introducing on top of everything else that is happening will produce levels of financial challenge for particular groups. Lone-parent families are one group that I particularly care about, and I know that colleagues know even more about that than I do.

I am concurring with this order on the basis that we need to think about other ways of providing some sort of emergency relief—hopefully only short-term—as well as what we are doing in these orders. If we do not start thinking about that now, we will suddenly find that we will be hit by levels of malnutrition and child poverty that will be found completely unacceptable by the population at large. We have to avoid that at all costs.

Finally, I apologise for this because I should have checked before I came, but I do not know what the Government Actuary has to say about the National Insurance Fund, which is appearing in not the means-tested but the contributory dimensions of these orders. Presumably, no Treasury grant is being requested, although I would be surprised if that was the case. Can we have a statement from the Minister to the effect that the department and ministerial team are comfortable with the Government Actuary’s view of the orders as they stand? That is important for the Grand Committee in its consideration of these important orders this afternoon.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for her introduction to these two orders. We do not have much to raise on the first order. The GMP is a promised income for those who contracted out before 1997, so the order is a routine process, which we support.

I have just one question. The Explanatory Note refers to there being no new costs on the private or public sector as a result of these orders, but an uprating cost clearly has to be borne by someone: the pensions providers. Is that not the case?

We have covered much of the ground on the Social Security Benefits Up-rating Order, as the noble Lords, Lord German and Lord Kirkwood, have said. I do not mind having a rerun of this, although much has already been said and we still have more Committee proceedings to go, let alone Report, so I shall resist the wholesale revisiting of our debates, although if provoked I might withdraw that assurance.

The noble Lord, Lord Kirkwood, as ever, made an incredibly valuable contribution on where all this is heading. We all know that the deficit has to be dealt with, although we might argue with how that is being done. But we have not seen as part of an impact assessment—and it is something I would ask about—the impact of this uprating order on child poverty. What assessment, if any, have the Government made of this uprating order’s impact on things such as personal debt and poverty more generally? What do they think about the food banks, which are growing up in our country at the moment? One opened in Lewisham, but unfortunately it was on the day of the universal credit regulation, so I could not go. It is just one of just hundreds that are growing up in a country that we know could by any standards be classified as rich.

We have heard about the basic state pension and the much lauded triple lock—the highest of earnings, prices or 2.5%, in this case. We have no difficulty with the basic state pension having been a higher share of average earnings for some time, although is that not largely because average earnings are so depressed because of the state of the economy? My right honourable friend Stephen Timms in the other place dug away at the triple lock, saying that it is certainly a success in terms of rhetoric but that its practical implications have been much more limited. He knew of one that was not operated because RPI gave a better result, and in year 2 inflation was used. It was only in year 3 that the 2.5% kicked in, in excess of inflation. On the old basis of uprating by RPI in those latter two years, the award would have been higher. Perhaps the Minister can confirm that 1.5 million pensioner households are missing out compared with what would have been the position had the standard minimum guarantee been uprated by earnings and the savings credit threshold frozen.

--- Later in debate ---

My noble friend Lord Kirkwood raised the issue of child poverty, as did the noble Lord, Lord McKenzie, and I shall make a couple of points in response. My noble friend asked how we are keeping these issues under review in the context of the long-term effects of some of these changes. In addition to the measures within the Child Poverty Act, Alan Milburn and his Social Mobility and Child Poverty Commission will carry out an annual review of the Government’s activities in regard to the requirements set out in that Act. The first review will happen this year and will ensure that we are subject to proper scrutiny. We want to ensure that we protect people, and if anything we are doing puts anyone at risk we need to know about it. Those are the kind of arrangements that we are putting in place.

[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.