Social Security Benefits Up-rating Order 2018

Baroness Sherlock Excerpts

Tuesday 27th February 2018 Grand Committee

Lastly, in this Siberian winter spell, as the beast from the east makes itself known most forcefully, particularly in the north of my homeland, will the Minister say whether any component of these generally welcome upratings is a response to these terribly icy conditions? People on benefits have no spare money and, this week, tens of thousands of our fellow citizens on benefits are facing difficulties in heating their houses, which may well be old and not necessarily draft-proof. The choice may be to pay either the rent or the heating bill or to pay either for meat or for heat. These are troubling days for many people and the Minister might have a view on that when she gives her summation.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for introducing the orders and all noble Lords who have spoken today. It is a delight to be reunited with my noble friend Lady Lister and the noble Lord, Lord Kirkwood. I assure my noble friend that I was far from intending to name and shame her; I was in fact paying tribute to her years of service and those of the noble Lord, Lord Kirkwood, in coming back year after year to address these issues in defence of the poor in our society. I commend her for that.

It is also a delight to see my noble friend Lady Primarolo here. It is great to be reunited with her, in a different way. I had the privilege of being able to support her and other Ministers when she was doing such good work as Paymaster-General in developing tax credits, which have been so important in supporting working families and children in this country.

It is a delight also to hear my noble friend Lord Jones battling from the Back Benches. We are glad that he is here. He made a good point. I understand that, in the Commons, this order is always taken on the Floor of the House and not in a Delegated Legislation Committee. The order is of such importance to so many of our citizens that I commend that suggestion to the Government for next year.

I will deal first with the benefits uprating order. As we have heard, its purpose is to uprate those social security payments that are fortunate enough to have escaped the clutches of the Government’s damaging benefit freeze, of which we have heard so much. We will see them uprated by 3%, as that is the level of the CPI. That also applies to the new state pension, in accordance with the triple lock, and the pension credit. But the main means-tested working age benefits are not covered so, although I welcome the uprating of those elements that are being uprated, I am deeply concerned to see the value of the main means-tested working age benefits being cut yet again.

By way of background, the principle should be that all social security benefits should be uprated by the rate of inflation so that they retain the value that Parliament voted to set them at, unless Parliament decides to do something different. Anything other than that is undemocratic, as well as being unfair in its consequences to recipients. Of course, before 2011 they were tied to the RPI—or in fact to Rossi, a variant on RPI that excludes housing and council tax—then in 2011 it shifted to the CPI. That saved the Treasury a lot of money. Although that was contested, at least it retained the concept that benefits should retain their value year on year.

In 2013-14, the coalition limited most working-age benefits to a 1% annual increase. This Government then went further and froze them in cash terms at 2015-16 levels for four years, so they will not rise again in cash terms until 2020. That includes some of the benefits on which the poorest of our society depend, including JSA, ESA, income support, housing benefit for those under women’s state pension age, and LHA, as well as the benefits for children, a point made clearly by my noble friends Lady Lister and Lady Primarolo. While I welcome the uprating of disability premiums, the support group component of ESA and the limited capability for work and work-related activity element of UC, I express deep concern that nothing else has been included.

As we have heard, the freeze of payments and support is having a damaging impact on millions of people on low incomes across the UK. Inflation is now far higher than when the Welfare Reform and Work Bill was passed. I went back again to the impact assessment for that Bill, which cited the OBR’s forecasts for CPI inflation for each year of the freeze period. At the time, they varied between 0% and 1.9%. The forecast when Parliament passed the Bill was 1.7% for this year. In fact, the CPI 12-month rate was 3% last month. That difference is good news for the Exchequer, which is saving a lot of money, but that money is coming directly out of the pockets of those who would have got and depend on these benefits. David Finch of the Resolution Foundation points out that his team’s estimate is that by 2020 the freeze will save the Exchequer £4.7 billion. That is £1.2 billion more than previously forecast.

Of course, inflation for the poor is always higher. Food prices are up 4.1% and transport costs up 4.5%. The Joseph Rowntree Foundation has shown that the price of essentials has risen three times faster than wages over the last 10 years. Of course, the context for this freeze has been a whole range of other cuts to social security benefits and tax credits. We have already seen the cuts in the work allowance for universal credit: the Government scrapped the severe disability premium in UC, cut help for the self-employed, limited benefits and tax credits for the first two children—I could go on. As a result, UC is already failing to make work pay. Instead of reducing poverty, as we were promised, it is exacerbating it. The final straw is the Government’s plans to change the way free school meals are provided to those on universal credit, which will introduce the mother of all cliff edges, but I will come back to that another day.

By continuing the freeze on social security payments not in this order, as my noble friend Lady Primarolo said, the Government are subjecting 10.5 million households to an average cut of £450 a year up to 2020. The order underscores the fact that, because the Government are choosing to uprate some discretionary payments, they recognise that some benefits need to increase because inflation is increasing. Yet we have not seen any such increase for the ones that are most needed by many people in our country. When the Minister replies, could she give us a reason why some of those need increasing and some do not? These are choices, as my noble friend Lady Lister clearly expressed. The point was well made because austerity, as she pointed out, as experienced by the poor is a choice made by the Government.

The noble Lord, Lord Kirkwood, raised the question of affordability. He is right. The best indicator of the affordability of our social security system is the spend we have on social security as a proportion of GDP. That has been broadly similar for decades now, but I have no doubt that the Minister will be aware of the work done by Ruth Lupton et al, who looked at the coalition’s social policy record. She found that overall on the decisions made the welfare cuts and more generous tax allowances balanced each other out, contributing nothing to deficit reduction.

The Welfare Trends Report from the OBI states that by 2021 social security support for children will be at the lowest share of GDP since 1990-91. I do not think that the affordability arguments work. These are choices and I suggest to the Minister that they are bad choices, so I would like to ask her some questions. I am very much with my noble friend Lady Primarolo in wanting to know what assessment the Government have made of the impact of the social security freeze on poverty levels. I would also like to know the Government’s latest estimate of the savings to the Exchequer of this four-year benefit freeze, over and above the amount originally scored and showed to Parliament in the impact assessment when we were asked to vote through these measures in the Welfare Reform and Work Bill. Do the Government have a view about how big that gap would have to get before they felt obliged to revisit the question?

In my final point on the Social Security Benefits Up-Rating Order, I am very much with the noble Lord, Lord Kirkwood, on the nature of the information that we now get. I have been doing this work for quite a long time, but we are now at a level of such complexity, where some benefits have to be uprated, some are discretionary and some are not being uprated, that just by reading the order and the Explanatory Memorandum it is not easy to find out what falls into what category, let alone its impact. Will the Minister be willing to go back and have a think about how that information is presented and about ways in which it will be more accessible? There are a fair few geeks on social security in this Room and, if we are struggling, I suspect that others may be finding it even less appealing. Perhaps she can dwell further on that.

Moving on to the pensions element, we welcome the uprating of the state pension by the triple lock, but I want to put on record concerns about levels of public understanding about the new single-tier pension. We know that there are winners and losers as a result of the Government’s changes and we also know that most new pensioners will not receive the full single-tier pension. Before its introduction, it was estimated that only around 22% of women and half of men reaching state pension age would be entitled to the full single-tier pension. Can the Minister update the Committee with any figures on this point?

I also note that, in addition to the various social security payments that are subject to the freezes and are not uprated in this order, there are other omissions in this area. While the state pension is being uprated, people with frozen pensions are excluded from the uprating and will not see an increase in their state pension in line with inflation. Also, the Government have still failed to address the injustice faced by many millions of women born in the 1950s. At the very least, they should bring forward retirement for women born in the 1950s and enable an early draw-down of their pension. If that were possible alongside our proposals to extend pension credit, they would at least have the option to retire early with some much needed financial support.

Turning to the specifics of the Guaranteed Minimum Pensions Increase Order 2018, we support the uprating of the guaranteed minimum pension in line with inflation as set out in this order, but I have some questions for the Minister. They were raised by my honourable friend Debbie Abrahams when this order was considered in another place but they received no reply. I am sure that the Minister can do better than that, not just because, obviously, the Lords is a marvellous place, but because, one hopes, she will have had an opportunity to read the exchanges in another place and so will know the questions that are coming.

Under the old state pension, there were two main components: the basic state pension and SERPS. People who paid national insurance contributions at the full rate built up a basic state pension, but an option was created in 1978 in which somebody could contract out into another pension scheme if the scheme met certain criteria. Schemes taking on such new members were required to provide a guaranteed minimum pension, but the scheme was discontinued by the Government in 1997. In 2016, the Government’s introduction of the new state pension ended contracting out by replacing the additional state pension with a single pension. Working-age people now have their existing state pension entitlement adjusted for previous periods of contracting out and transferred to the new state pension scheme. For people who have guaranteed minimum pension rights under an old scheme but who reach retirement age after April 2016, when the new system kicked in, the Government no longer take account of inflation increases to guaranteed minimum pensions when uprating their new state pension. That means that any guaranteed minimum pensions accrued between 1978 and 1988 will not be uprated and the scheme provider will uprate guaranteed minimum pensions built up between 1988 and 1997 only, up to a maximum of 3% each year.

The National Audit Office investigated the impact of the changes in a report in 2016 and concluded that there would be winners and losers under the new arrangements depending on the amount of time that people were contracted into a scheme. Those whose state pension has been pushed back because of the rise in state pension age will lose out on the guaranteed minimum pensions inflation-linked increases that they would have received under the old rules. But it noted that those who lose out under the new rules might be able to build up additional entitlement to the state pension. The issue was one about lack of information. The NAO said in its report:

“Some people are likely to lose out and they have not been able to find the information they need”.


How did that come about? The NAO concluded:

“We are concerned that the Department has limited information about who is affected by the impact of pension reforms on Guaranteed Minimum Pensions … It … will need to help people identify how they are affected and provide them with accurate and more complete information so that they can make informed decisions about their future pension arrangements”.


In the light of that, I ask the Government two questions. Can the Minister provide an update on the numbers of people affected since the new legislation came into effect? Secondly, what help is currently available to support people in their understanding of the changes? I hope that the Minister will take the opportunity to address those issues and I look forward to her reply.

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[Baroness Buscombe]

I thank the noble Lord. I have just found the answers in my array of papers. He asked about different benefits, particularly disability and carer benefits. We now spend over £50 billion a year on benefits to support disabled people and people with health conditions, which is over £7 billion more than in 2010. The noble Lord asked about disability living allowance and benefits for carers. We are increasing benefits for the additional costs of disability and for carers in line with inflation. Recipients of carer’s allowance will now get £550 more per year than in 2010, while the monthly rate of disability living allowance paid to the most disabled children will have risen by more than £104. On a before-housing-cost basis, the absolute poverty rate among people living in a family where someone is disabled has fallen to a record low.

I am sorry that I have not been able to respond to noble Lords’ questions, particularly those of the noble Lord, Lord Jones, in relation to cold weather payments. That was discussed in the department yesterday, but I will write to the noble Lord.

[Baroness Sherlock]

I am grateful to the Minister for giving me quite a lot of information about the way the GMP system will work. The specific questions that I raised were raised by the NAO—whether the department had enough information about who would be affected in terms of the GMP and what it was doing to tell people about that. I am happy for the noble Baroness to write to me, but perhaps she could have a look at the specific questions in the record and write to me on those. I do not know whether I missed it, but will she confirm that she told the Committee what the latest estimate is of the savings to the Exchequer of the four-year benefit freeze over and above the amount originally scored? I apologise if I missed that.

[Baroness Buscombe]

I apologise to the noble Baroness; I had hoped that I would be able to reply to those questions today but, given the time as well, it is much better that I write to her and copy in others.

To conclude my closing remarks, the Government are maintaining their commitment to the triple lock for both the basic state pension and full rate of the new state pension, increasing the pension credit standard minimum guarantee so that the poorest pensioners see the full benefit of the increase in their basic state pension and increasing benefits to meet additional disability needs and carer benefits in line with inflation. I commend these orders to the Committee.