Pensions and Social Security

Baroness Clark of Kilwinning Excerpts

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

The volume of my ministerial correspondence on this issue has been very light. Almost all of it was with people who were afraid because they had seen speculation that we might water down our promises. I have been able to write reassuring letters to them to say that we will honour our promises in full.

[Katy Clark (North Ayrshire and Arran) (Lab)]

I apologise for missing the beginning of the Minister’s opening remarks. Will not the change mean a reduction from 5.6%, which would have been the uprating had we used RPI? Is the Minister aware that we have a Back-Bench debate on the matter because more than 100,000 people have signed a petition against the changes, particularly as they affect pensions? It therefore surely cannot be the case that people are happy about the changes.

[Steve Webb]

The hon. Lady may not have been in the Chamber when I referred to next week’s debate, when we will debate such issues at greater length. I was not aware that it was Labour party policy to revert to RPI—its view for now is that CPI is appropriate. She might want to raise that with the right hon. Member for East Ham (Stephen Timms), who is on the Opposition Front Bench. For the reasons I have given, our judgment is that the CPI basket of goods matches the spending patterns of pensioners. The Institute for Fiscal Studies has confirmed that modelling and people’s response to price changes is better with CPI than in RPI. No index is perfect, but there is a good case for using CPI.

Funnily enough, when I attended a National Pensioners Convention event in the House a few months ago, the people there all demanded CPI, which shows how the debate has moved on. I am sure the hon. Lady has a press release saying that more is being demanded, but the tenor of the debate was that there was speculation that we would not honour our triple-lock promise. They said: “Minister, will you guarantee us the triple lock—prices, earnings or 2.5%? Will it be the 5.2% that we have just seen?” That was commendable realism on the part of the National Pensioners Convention—that is its role in life—but things may have moved on now it has banked the 5.2% in the current environment. In fact, 5.2% is the biggest cash increase ever and one of the biggest real-terms increases in a long time. I am proud to stand by that figure.

Restoring the earnings link for the basic state pension was an early action by this coalition Government, putting an end to 30 years of deterioration in the value of the foundation of retirement income relative to average earnings. Better than that, we went one further with our triple guarantee to pay the highest of the growth in earnings, prices or 2.5%, so that even in times of slow earnings growth, we will not see a repeat of the small rises, such as the 75p rise in 2000, presided over by the Labour party.

In line with the triple guarantee, the new rate for the basic state pension, received by more than 11 million people in this country, will be £107.45 a week for a single person, an increase of £5.30 a week. My hon. Friends in the coalition may be interested to know that that means that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, which is a higher share of average earnings than in any year of the previous Labour Government from 1997.

--- Later in debate ---

[Katy Clark (North Ayrshire and Arran) (Lab)]

I apologise for not being in the Chamber at the start of the Minister’s speech. I always find his comments most informative, as he is very knowledgeable about the issues under discussion—although I do not agree with many aspects of Government policy in this area. I had not intended to speak in the debate, but have been spurred to do so by the assertion that these proposals are uncontroversial, particularly in relation to the retail prices index and consumer prices index change. That is certainly not uncontroversial.

I shall restrict what I say to the issue of RPI and CPI. We have already had the biggest public sector strikes—indeed, the biggest strikes—for generations because of the change from RPI to CPI. I believe the Minister is shaking his head, but union members are very concerned about the cumulative impact of this change over many years.

Today’s debate has focused more on pensioners than on social security benefits. It is unfortunate that the Chair of the Work and Pensions Committee, my hon. Friend the Member for Aberdeen South (Dame Anne Begg), is unable to be present as she had a fall earlier this week. She has a huge amount of expertise in these subjects and her contribution will be greatly missed. I am sure all Members will want to send her best wishes for a speedy recovery.

The social security ramifications of these changes are less spoken about because there is less lobbying on social security issues. Although those in receipt of benefits contact their MPs about the issues affecting them, there are not many well-funded organisations representing them and lobbying MPs. There are more pensioner organisations and the National Pensioners Convention has been mentioned. It and other organisations, including Age UK, have contacted MPs about the issues under discussion today. They are calling on Members to vote against the proposals and, in particular, against the social security benefits uprating order, especially because of the RPI and CPI change. That highlights how controversial this issue is, and we will return to it again next Thursday when we debate the petition.

There is much controversy because the change will result in pensioners and those in receipt of social security benefits receiving smaller increases in most years. The switch from RPI to CPI will greatly affect the living standards of both pensioners and those in receipt of benefits cumulatively over a long period of time. CPI inflation is usually about 0.7% lower than RPI inflation. That is because of how the rates are calculated. As a result, the increase in public sector pensions this year will be 5.2%, whereas under RPI it would have been 5.6%. I am sure the Minister will challenge that finding if he disputes it.

The Labour party does not necessarily oppose the change in the short term—over a period of four years. However, I do not support that position. This change is dangerous because of the impact it will have year on year. Organisations including Age UK say that someone who retired on 1 April 2009 with a £10,000 state pension or public service pension will now have a pension of £10,846, whereas if the RPI link had been retained the sum would have been £11,046. The cumulative loss to such people is already £350, therefore.

The real concern is the cumulative effect that this change will have over a long time, particularly for someone who is retired for a lengthy period, and that is why I am speaking today. For example, someone who had a 25-year pension—of course not everybody will be lucky enough to have one of those—would lose £35,000 over the lifetime of that pension. The cumulative effect is substantial. Indeed, the Office for Budget Responsibility has recently spoken about the long-term difference between the two measures, and the significant change and reduction in living standards that will take place over time.

In the short term, this is the wrong measure. I say to Government Members that their policies of austerity are not working.

[Sarah Newton]

indicated dissent.

[Katy Clark]

The hon. Lady may shake her head, and she has spoken about many aspects of Government policy, but she must be aware that the cumulative effect of the policies that her Government are pursuing is to take money out of the pockets of some of the poorest and the most vulnerable in this country, and out of some of the most deprived communities. That is the wrong economic policy, it will not lead to growth and it clearly is not the policy we need for social justice. It is one reason why the gap between rich and poor is increasing so greatly at the moment.

The hon. Lady spoke about Labour manifesto policies, but the Conservative party gave assurances before the election that it had no plans to change the current index-linking of pensions. The Liberal Democrats also said that they regarded index-linking rights as protected. No doubt they will say, “We opened the books and everything was very different”, but the point I am making is that these measures will have long-term cumulative impacts that will hurt the poorest and most vulnerable in society.

[Sarah Newton]

I completely disagree with the suggestion that we are targeting the most vulnerable people, but my question to you is: can you remind the House what happened to the gap between the richest and poorest people in this society under Labour?

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I would love to answer that question, but I am prevented from doing so. The hon. Lady knows that she is not supposed to address the Chair in that way. In responding to her point, I hope that the hon. Member for North Ayrshire and Arran (Katy Clark) will come back to discussion of the uprating order.

[Katy Clark]

I am very grateful for that, Madam Deputy Speaker.

The impact of the changes to benefits and pensions uprating will be similar to the impact on wages that is being seen at the moment, whereby the incomes of the lowest paid are decreasing in real terms; the change from RPI to CPI means, as I have said, that the rate of increase in the incomes of those on the lowest incomes will reduce. I am sure that many of the hon. Lady’s constituents will come to see her to discuss benefit issues over the forthcoming period, and the impact of all this will become clear over a long period of time. It will have an impact on the communities we represent.

[Nick de Bois (Enfield North) (Con)]

Has the hon. Lady considered putting this in context? People on low incomes are nevertheless receiving a relatively high increase here, whereas many who are working and are on low incomes are receiving no increases at all. Although I think she is very genuine, her appeals need to be put in context and she needs to consider the situation of those in work.

[Katy Clark]

I am grateful for the hon. Gentleman’s contribution, and I agree fully with what he is saying; we do need to take into account the public sector freezes and the fact that many on modest and low pay in the private sector have had their salaries reduced—they have definitely not received substantial increases. That is exactly the point I am making: measures such as this, which keep down and restrain the incomes of those on modest and low incomes, are not the policies that are needed. Of course, executive pay and the incomes of the highest paid are increasing at the same time, but I shall not dwell on that today because it is not the subject of this debate. However, I hope that we will continue to discuss it in the House and that action will be taken by the Government.

In conclusion, we will be focusing, yet again, on these issues next week, and of course court proceedings are taking place, but I felt that I had to put my deep concern about this change on the record. My concern arises not just because of the annual change this year, which will have a detrimental impact on people’s pockets now, but because of the cumulative effect that this policy will have over many generations. The impact will be an increase in the gap between rich and poor in this country, and I believe that that should not be the policy of this or any Government.