Pensions and Social Security

Alan Reid Excerpts

Wednesday 13th February 2013 Commons Chamber

[Steve Webb]

The guaranteed minimum pensions order is a routine and technical order which provides for contracted-out defined benefits schemes to increase their members’ GMPs that accrued between 1988 and 1997 by 2.2%, in line with inflation. I assume that this will be uncontentious. The order paired with this is the Social Security Benefits Up-rating Order 2013.

I shall begin with the basic state pension. Despite the tough fiscal context, the Government remain committed to protecting those who have worked hard all their lives, which is why we have stood by our triple lock commitment to uprate the basic state pension by the highest of earnings, prices or 2.5%. This year the third element of our triple lock comes into play for the first time—our 2.5% minimum commitment. That means that we shall be increasing the basic state pension by more than inflation for millions of pensioners.

[Mr Alan Reid (Argyll and Bute) (LD)]

I congratulate my hon. Friend on the work he has done as pensions Minister to drive through the triple lock, which means that pensioners will get an above-inflation increase this year. The days of 75p increases, which happened under the previous Government, are long gone.

[Steve Webb]

I am grateful to my hon. Friend for pointing that out. He will know that we have set a minimum increase of 2.5%, which is what we are having this year. Under that policy, it would now be impossible for us ever to go back to the days of 75p increases.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

I thank the Minister for his explanation of the measures, albeit that it was brief. He reminded us, correctly, that this is the third year since the announcement of the triple lock for the basic state pension. There is absolutely no doubt that the triple lock has been a great success as a rhetorical device. The term has entered the lexicon, and I note that the Minister’s right hon. Friend the Secretary of State for Culture, Media and Sport has gone one better and announced a quadruple lock for the Bill that she recently placed before the House.

While in rhetorical terms the triple lock has undoubtedly been successful, I am afraid that the reality has been rather different, because once again the increase in the state pension is less this year than it would have been if the uprating method previously used was still in place. In retail prices index terms, for the second year this is a real-terms cut in the value of the basic state pension, as well as—I made this point earlier—a real-terms cut in today’s consumer prices index rate.

[Mr Reid]

Will the right hon. Gentleman clarify what his party’s current policy is on uprating? Should it be CPI or RPI?

[Stephen Timms]

We have made it plain, in all the three uprating debates since the election, that in our view there would have been a case for a temporary move from RPI to CPI uprating, as a contribution to reducing the deficit. Unfortunately, the Government decided that this should not be a temporary move, but a permanent move—or so we thought. Now it turns out that they are not even uprating in line with CPI for a large part of the benefits, but the position is the one that I have set out.

--- Later in debate ---

[Stephen Timms]

The hon. Gentleman is absolutely right, but what was clear from that contributor was the despair at the prospect of a rise of only 70p a week. At a time when inflation is running at more than 2% and is likely to increase, according to the Bank of England inflation report published today, that is a very alarming prospect indeed.

[Mr Reid]

The right hon. Gentleman is being generous in taking interventions. I have been sitting listening and wondering what the Labour party’s policy is. If my memory is correct, he said earlier that CPI was currently 2.7%. Will he tell the House by how much all these benefits would have been increased if a Labour Government were in power?

[Stephen Timms]

I answered that point earlier. I was hoping the hon. Gentleman was going to tell us why, after he attacked us a few moments ago for the 75p pension rise of many years ago, he is this evening supporting a 70p increase for people such as those who are dependent on employment and support allowance in the work-related activity group. If he explained the conflict between the two positions he has taken, I would be very grateful to him.

[Mr Reid]

I am sure the right hon. Gentleman will recall that I spoke in debate in support of an amendment to the Welfare Benefits Up-rating Bill to increase benefits in line with average earnings, and that is still my view. As he knows, the order is not amendable, so either we vote for the whole thing, including the triple lock for pensioners, or we vote against it, but my views are on the record.

[Stephen Timms]

I am grateful to the hon. Gentleman for clarifying that he opposes what the Government are doing in this order.

I was talking about the impact on child poverty. We are expecting the revised projections from the Institute for Fiscal Studies ahead of the Budget. On the basis of the numbers that Ministers have reluctantly given us for the impact of this measure on child poverty, we will see a projected increase in child poverty of more than 500,000 by the expected date of the next election and 1 million by 2010. That is a shameful record indeed, undoing so many years of progress made in reducing child poverty by the previous Government, as my hon. Friend the Member for Walsall North (Mr Winnick) pointed out.

[Mr Reid]

I have put my views on the record, but the right hon. Gentleman has not answered the question I asked in my second intervention. What percentage increase does he think should be in the order this evening?

[Stephen Timms]

I will give the hon. Gentleman the answer I gave a few moments ago. We think there would have been a reasonable case for the Government to make a temporary change to the uprating methodology, from RPI—the previous methodology—to CPI, but unfortunately they did not do that. They came up with a proposal for a permanent change to the methodology, using CPI only, but now they are not even sticking to that and have reduced the figure further to 1%.

What if inflation rises sharply in the next few years? The Governor-designate of the Bank of England has suggested that there should be greater flexibility in the inflation target used by the Monetary Policy Committee. If inflation rises sharply, the consequences for working families—for strivers, struggling to get by at the moment and lumbered with a 1% rise hard-wired into law for next year and the following two years—do not bear thinking about. The Bank of England inflation report published today places a probability of 39% on inflation being over 3% before the end of this year. The fan chart shows possible figures of 5%. What would the consequences be for people who will see a 1% rise in their incomes for the next three years if inflation rose in that way?

Why are the Government doing this? Why have the siren voices won this year? It is because the Government’s economic policy has failed. Let us look at the three years covered by this order and the Welfare Benefits Up-rating Bill. Compare the spending on unemployment benefits over those three years, which was predicted in the Budget last year, with the spending predicted in the autumn statement, just a few months later. The forecast spending on unemployment benefits over those three years went up, just between the Budget and the autumn statement, by the same amount that this order and the Bill will save over those three years. That is what is happening—the Government are clawing back the increase in unemployment benefits resulting from the failure of their policies from those who receive those benefits.

--- Later in debate ---

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

There are two major issues at hand in these orders. The second order is uncontroversial, as the Minister explained at the outset, but inside the controversial order on social security benefits uprating are two issues in particular. First, there is the nature and extent of the uprating of pensioner incomes; and, secondly, there is the Government’s decision to cut in-work and out-of-work benefits. It would be better if those two things had been separated to allow for a proper debate on both, but the Government have taken the decision to place one inside the other.

The debate began with the Minister taking the Floor, and he was followed by my right hon. Friend the Member for East Ham (Stephen Timms), who forensically dissected the impact of the Government’s policy on hard-working families, strivers and the most vulnerable. Further contributions came from only one side of the House—the Opposition side. We heard from my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Edinburgh East (Sheila Gilmore), the hon. Member for Banff and Buchan (Dr Whiteford), and my hon. Friend the Member for Dumfries and Galloway (Mr Brown). All their contributions were characterised by an emphasis on and an interest in how the Government’s decision to cut in-work and out-of-work benefits will affect families—not only families in what we might call the squeezed middle but families who are looking for work. I will return to the issue of what we might call the strivers tax, but let me first deal with the nature and extent of the uprating of pensioner incomes.

We have heard much from the Minister about the triple lock. I do not know if he is aware, but the original triple lock was a handgun produced by Smith & Wesson in 1908. Like the Minister, it had such high hopes for its triple lock. It claimed it was the best gun it had ever made and yet, just eight years later, the triple lock was redundant: it was a triumph of rhetoric over reality. The same might be said of the Government’s triple lock. This is the third year it has been in operation, and we know that the increase in the state pension is less than it would have been if the uprating method used by the previous Government was still in place. My right hon. Friend the Member for East Ham eloquently dissected that aspect of the case.

It is worse than that, however. The triple lock this year has produced a real-terms cut in the value of the basic state pension. The Minister shakes his head, but listening to his exchange with my right hon. Friend, one could only feel that the Minister wants to have his proverbial cake and eat it. Last year, the Minister trumpeted that he had delivered the highest real-terms increase in the state pension for about 10 years. Having in all seriousness claimed that credit, it is difficult for him now to avoid the blame for the very same mechanism that is producing a real-terms cut in the state pension.

I took a look at the Minister’s website this evening, just to see whether there was any further evidence of his liking to have his cake and eat it. What did I find? The Minister is calling and campaigning for his local citizens advice bureau to be protected from council cuts. Earlier in the debate, however, he defended strongly the council tax freeze as an important contribution to improving family income. I will let the House make its mind up on this second case of having cake and eating it.

[Mr Reid]

The pension increase is higher than both the rate of inflation and the increase in earnings. The hon. Gentleman seems to disagree with the 2.5% figure that the Government are putting forward. Will he tell us what the percentage increase in the pension would be if Labour were in power?

[Gregg McClymont]

Is the hon. Gentleman aware that inflation is now 2.7%, and that the pension is to be uprated by 2.5%? I do not have my abacus with me—maybe the hon. Gentleman should have one—but that seems like a real-terms cut to me.

--- Later in debate ---

[Mr Reid]

I am grateful to the hon. Gentleman for being generous in giving way. He knows perfectly well that under the previous Government and under this Government the rate of inflation in the previous September is used to calculate the pension increase for the following year. That has not changed, and this pension increase is higher than the rate of inflation at the standard time at which it is calculated.

[Gregg McClymont]

As far as I could take from that further intervention, the hon. Gentleman still maintains that inflation is less than 2.5%, when in fact it is 2.7%. [Interruption.] The Minister makes a comment from a sedentary position. If he wants to intervene I will be happy to let him, but before he does so let me deal with the hon. Member for Argyll and Bute (Mr Reid). It is clear that CPI inflation is currently 2.7%. The basic state pension is to be uprated by 2.5%. Is that, or is that not, a real-terms cut? It obviously is. Would the hon. Gentleman like to intervene again?

[Mr Reid]

I still have not got the answer to the question I asked the right hon. Member for East Ham (Stephen Timms), and I am now asking the hon. Gentleman. If Labour was in power, what would the pension increase be?

[Gregg McClymont]

I am still waiting for the hon. Gentleman to confess that he was absolutely wrong to suggest that this is an above-inflation increase. That leads to some questions about the ability of the Liberal Democrats to devise economic and financial policy when they do not know the current rate of inflation and how it relates to the basic state pension.