Social Security Benefits Up-rating Order 2014

Baroness Sherlock Excerpts

Monday 3rd March 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of the orders, and the noble Lords, Lord German and Lord Kirkwood, for their contributions. I would like to add myself to the circulation list for this exciting reply to the questions of the noble Lord, Lord German. Is the Minister willing to place a copy in the Library, given that it might be of interest in years to come? They are very good questions.

I share the hope of the noble Lord, Lord Kirkwood, that Parliament retains a sense of the importance of these orders. The decisions taken here by Parliament will affect the living standards of millions of people over the next year. They really matter, and if we ever get to the stage where we stop taking them seriously we will be failing in our duty. I pay tribute to the noble Lord, Lord Kirkwood, who turns out every year, come rain or shine, although I am disappointed that he had nothing to say about the GMP. I look forward to a year when I find something to say to it, but I am not going to ask any questions about it either.

Much has been made of the fact that the Government are uprating pensions by the triple lock. That is welcome as far as it goes. The comments about RPI notwithstanding, will the Minister acknowledge that the triple lock has so far been less generous than the RPI uprating it replaced? It was not used in the first year. I notice that my right honourable friend Stephen Timms pointed out, when this order was debated in another place, that the RPI last September was 3.2%, whereas the pension uprating delivered by the order, as the Minister said, is 2.7%. My right honourable friend said that the triple lock has delivered a lower uprating than the previous formula in each of the three years it has been used. The effect of that is that in RPI terms it is a real-terms cut for the third year in a row.

More concerning is that the standard minimum guarantee element of pension credit is to be increased by only 2%. This reduces both its real-terms value and its value relative to the basic state pension. One of the consequences must be that the poorest pensioners find their pension income falling in real terms. The Minister, I am sure, can confirm that. I would be very interested in the Minister’s answer to the question of the noble Lord, Lord Kirkwood, about cost. If the value of some of these benefits is falling, but the spend is rising, is caseload the reason? I would be interested to know.

The decision on pension credit is significant not just for those currently dependent on pension credit, but potentially for all those who will receive the new single-tier pension, which is due to be introduced in April 2016, if the Pensions Bill currently going through the House receives Royal Assent. The Government have signalled, during our deliberations on that Bill, that they propose to introduce the new single-tier pension at a rate above the prevailing rate of pension credit. By reducing the value of pension credit in real terms, are the Government not giving themselves the option of introducing the single-tier pension at a starting rate lower than might have been the case had pension credit maintained its value in real terms?

Can the Minister help me on another point? As the premiums payable to pensioners with working age benefits will be uprated in line with pension credit rates, does that also mean that they too will face a real-terms cut? Will the Minister confirm that? Also, what assessment has he made of the impact on pensioners with small savings of the Government’s decision to increase the savings credit thresholds by 4.4%, some way above inflation? I know that the Government are keen for people to do the right thing and to save, but the reason for introducing a savings credit was so that people who had put money aside would still find themselves better off than those who had not. Will the Minister explain the Government’s thinking on that?

I also have some questions about process. I am with the noble Lord, Lord Kirkwood: I fear that I may have lost track of some uprating that should have happened. If I tell the Minister what I think is happening, perhaps he will correct me where I go wrong. As I understand it, the Welfare Benefits Up-rating Order 2014 uprates by 1% those on benefits covered by the Welfare Benefits Up-rating Act. The protected benefits are covered by this order. So what happens to tax credits? Where did they get uprated? Where was the benefit cap uprated? I know that it has been, but I am not quite sure where that happened. Also, are all the elements of universal credit uprated in this order and, if so, where are the work allowances uprated? I could not see them.

I have two final questions. First, on childcare, it seems to me that the childcare element of universal credit is not being uprated at all. Can the Minister explain why not? If it is not being uprated at all, that is a significant real-terms cut. The last annual childcare cost survey in 2013 from the Family and Childcare Trust—what used to be the Daycare Trust—found that costs had risen by an average of 6% the previous year, more than double the rate of inflation. If the decision is made to cut that childcare element in real terms, coming on top of the Government’s decision to cut the proportion of childcare costs in universal credit to 70%, will that not have a significant impact on the ability of working parents to afford childcare? There was no impact assessment, and I was not able to work out what the effect of that was. Have the Government made any assessment of the impact on working parents of that decision on childcare and, if so, what is it?

Finally, I should be very interested to hear the answers to the questions from the noble Lord, Lord Kirkwood, on PIP, for example, where I have grave concerns about the implementation. The recent report is not encouraging in that respect. Also, I should like to understand to what extent, if at all, the Secretary of State is using discretion in making judgments about the appropriate levels of uprating, given the concern that abounds now about the use of food banks and the extent of poverty among people who are in receipt of benefits.

[Lord Bates]

I thank noble Lords for their questions. All Members who have spoken are renowned experts in the field. Until a few months ago, I was joining from the Back Benches in scrutiny of such orders, so I sense the expertise that lies behind the pertinent questions which have been asked. I was particularly struck by my noble friend Lord Kirkwood’s question about how small is the audience for a mere £3.3 billion of taxpayers’ money to go to the poorest in society. That is a worthy point to make, and it would be absolutely ungallant of me to point out the level of participation from the Liberal Democrat Benches and the absence of participation from the Opposition Benches.

[Baroness Sherlock]

And the Conservative Benches: are they packed?

[Lord Bates]

Of course I should not have mentioned that.

[Baroness Sherlock]

We were playing so nicely.

[Lord Bates]

We are a coalition—we share the point. The point is that I think that there is a genuine cross-party support. For example, the triple lock on pensions is welcome, it is working and it is delivering real-terms increases to pensioners.

If I may, I will go through the points raised in the order in which they were raised. My noble friend Lord German raised the question of the Treasury grant to the National Insurance Fund. It is not a question of the National Insurance Fund running out of money. Making provision for such grant has no overall impact on the Government’s finances. It is done primarily for accounting purposes to ensure that the National Insurance Fund complies with the Government Actuary’s recommendation of maintaining a working balance of one-sixth of the expected benefit expenditure in 2014-15. My noble friend was absolutely correct to point out that at least now the information in the forecast is being made available in the Government Actuary’s report. He asked me a specific point about whether we will look at that historically over the 10-year period. I should say that we think that the grant has not been required over that period but, as one of the paragraphs in the probably lengthy letter that I shall be sending to noble Lords, I shall cover that important point and I thank him for raising it.

There was a smart observation asking: why the different dates. They are in place for good administrative reasons, including taking into account the prescribed payment days of different benefits. I know that there might be a follow-up question asking why there are different payment days but perhaps we can just say that that is the answer. However, the noble Lord puts his finger on an interesting point.

My noble friend Lord Kirkwood asked whether we would ensure that working-age benefits will be debated once the Bill is finished. Working-age benefits will be debated again from 2016-17. I will turn to the IFS Green Budget in a minute. My noble friend and the noble Baroness, Lady Sherlock, asked about the uprating of tax credits. The Tax Credits Up-rating Regulations 2014 will uprate certain elements of tax credits by CPI from 6 April. These were laid in draft form on 12 February and are due to be debated later in March. The Child Benefit and Tax Credits Up-rating Order 2014 will increase certain elements of tax credits and the rate of child benefit by 1% from 6 April and 7 April respectively. That was made on 24 February.

My noble friend Lord Kirkwood also asked about how much of the increase in expenditure is in relation to caseload increases. Clearly, caseload is an important factor in the overall expenditure, which is why it is important to make pension spending more affordable over the longer term, including, for example, the changes we are making through increasing the state retirement age. As regards the delay in implementation of the personal independence payment, PIP has been successfully introduced using a controlled approach to learning lessons as we go along in a live environment. We have been very clear that PIP will be introduced in a gradual way. Disabled people have wanted us to take time to get it right, which is what we are doing. Natural reassessment is under way in several areas and we will continue to monitor and evaluate it before making any further decision on widening the reassessment rollout.

My noble friend also asked whether we are going to introduce new eligibility criteria for winter fuel payments. Winter fuel payments are non-contributory and were designed to give older people in the UK reassurance that they can keep warm during the cold weather. The Government intend to bring in an eligibility criterion based on country of residence with payments going to only eligible people living in EEA countries with colder climates. Legislation will be needed to pass this before any changes are made.

On the UC rollout, our current planning assumption is that the universal credit service will be fully available in each part of Great Britain during 2016, having closed down new claims to the legacy benefits it replaced with the majority of the remaining legacy caseload moving to universal credit during 2016-17. Final decisions on these elements of the programme will be informed by the development of the enhanced digital solution.

My noble friend Lord Kirkwood also asked about the Green Budget report written by Paul Johnson and the excellent organisation, Oxford Economics, for the Institute for Fiscal Studies. He suggested that we read the report—it says here that I will do so. I think that I will apply the collective and say that I assure my noble friend that we will do so. It is a very important contribution. We have all said that we want these changes to be evidence based. When serious organisations such as the IFS produce serious research, of course we should take it seriously. We will monitor future developments. I am grateful to my noble friend for drawing that to our attention.

--- Later in debate ---

The noble Baroness asked about the uprating of pension credit. Reflecting what we have done in previous years, we have passed through the cash increase in the basic state pension to the pension credit standard minimum guarantee, increasing the standard minimum guarantee by 2% rather than a statutory minimum of earnings at 1.2%. That ensures that the poorest pensioners benefit from the triple lock increase in the basic state pension. This is funded by an increase in the savings credit threshold and an associated reduction in the maximum savings credit, which means that those pensioners with slightly higher levels of income will see less of an increase than the increase in the basic state pension.

[Baroness Sherlock]

My Lords, I am very grateful to the Minister for explaining the process and what happens to the different benefits, but I am still chewing over the information that neither the childcare allowances nor the work allowances in universal credit will be increased at all and are therefore facing a real-terms cut. I might have let that go, but I am afraid that I will have to push back on his comment that all sides of the House agree that people will be much better off under universal credit than under the present system. Universal credit is simply a delivery vehicle. Whether or not people will be better off will depend on how generous the benefits are, the taper rates applied, the levels of work allowance or disregard applied and the interaction with other sources of support. In other words, unless the calculations done previously about the gains to work and participation rates in work are redone using these figures, we do not know whether people getting universal credit are going to be better off than they are now.

If the Minister cannot tell me now, could he please write to me later and place a copy in the Library on what assessment the Government have done about the effect on incentives to move into work and gains to work as a result of these real-terms cuts to components of universal credit?

[Lord Bates]

I appreciate the point which the noble Baroness has made and I was not suggesting that everybody would be better off under this provision. The question is one of removing perceived barriers to go back into work—to encourage people to move seamlessly off benefits and into work—without creating disincentives. That principle, I think I am correct in saying, is one that is widely shared on all sides of the House. How it actually applies and is worked out for individuals and individual families is clearly a crucial matter. On that point, I will add that to the list of issues about which I will write to noble Lords immediately following this debate.

I have already explained that we are spending an extra £3.3 billion on uprating pensions and benefits in 2014-15, enabling us to protect key benefits and vulnerable groups. This order protects pensioners, many of whom have worked hard all their lives and are no longer in a position to increase their income through work, and benefits, which reflect the additional costs faced by disabled people, again reflecting our commitment to protect those least able to increase their spending power. Those are principles which I hope all noble Lords can support and on that basis I commend these orders to the Committee.