Social Security (Up-rating of Benefits) Bill

Baroness Stedman-Scott Excerpts

2nd reading
Wednesday 13th October 2021 Lords Chamber

Moved by

[Baroness Stedman-Scott]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, each year the Secretary of State is required by the Social Security Administration Act 1992 to undertake a review of social security and state pension rates to consider whether benefits have kept pace with inflation or, in some cases, the increase in earnings. This review is due to begin shortly, and the Secretary of State will report to Parliament in November.

The Bill before us suspends for one year the requirement to undertake a review of trends in earnings and to increase certain rates in line with those trends. This is because the effects of the Covid-19 pandemic have caused distortions in the labour market, which have been reflected over two years in highly atypical trends in earnings growth. Last year, they slumped by 1%; this year, we expect them to increase by over 8%.

The Bill therefore replaces the link with earnings, for one year only, with a requirement to increase these rates at least in line with the increase in prices, or by 2.5%, whichever is higher. The relevant rates are: the basic state pension; the full rate of the new state pension; the standard minimum guarantee in pension credit; and survivors’ benefits in industrial death benefit. Normally, the Secretary of State considers a specific reference period to measure earnings growth as part of her review. That same earnings reference period has been used for the past decade.

In preparing for the review last year, we saw an unprecedented fall in average earnings as a result of the Covid-19 restrictions we introduced to protect lives and the NHS. That is why we changed the law for one year to set aside the earnings link; otherwise, these state pensions would have remained frozen. The Secretary of State then decided to increase most of the relevant rates by 2.5%, once she had completed her assessment of the increase in prices, which was 0.5%, as measured by the consumer prices index.

As we prepare for this year’s review, the economic context is very different now that our economy and businesses have reopened. Figures published by the Office for National Statistics yesterday confirm an increase in earnings of 8.3%, which is over two percentage points higher than at any time over the last two decades. These growth figures have been distorted due to the slump in wages at the start of the Covid-19 pandemic, along with millions of people having moved off furlough and back into work. The Government do not believe that it would be fair to younger taxpayers to increase these rates by such a high percentage, on top of the 2.5% increase last year, when earnings slumped by 1% and inflation stood at 0.5%.

Therefore, I am seeking the agreement of noble Lords to set aside the earnings link once more in 2022-23. I stress that this is for 2022-23 only; after that, the link with earnings growth will be restored. As I mentioned earlier, in place of the earnings link, the Bill requires the Secretary of State to increase the relevant rates at least in line with inflation, or by 2.5%, whichever is higher. We will know what the relevant CPI figure is on 20 October, prior to Committee.

While we await the actual figure, I can give noble Lords an indication of the increases that will apply to these rates if inflation in the year to September 2021 were 3.3%. This is in the range expected by internal analysis. The full rate of the new state pension would increase by around £309 a year, or around £5.95 a week. The basic state pension and the higher rate of the industrial death benefit would increase by around £237 a year, or around £4.55 a week. The single rate of the standard minimum guarantee in pension credit would increase by around £304 a year, or around £5.85 a week, and the couple rate would increase by around £463 a year, or around £8.90 a week. The additional state pension is not included in the Bill, since the Social Security Administration Act 1992 already provides that it must be increased annually in payment, at least in line with the increases in prices.

I was pleased to meet several of your Lordships between First and Second Readings to discuss the Bill. We covered a number of important matters, including the future of the triple lock, different ways of measuring earnings growth in the economy, the take-up of pension credit, progress on reducing pensioner poverty, and the effects of state pension uprating on the National Insurance Fund. I am sure that these issues will arise in our discussions today, and I look forward to addressing them in more detail in my closing remarks. It is my sincere hope that we can continue to engage in this way as the Bill progresses through the House. Should any noble Lord wish to discuss any part of the Bill between its stages, my door is always open. I propose to hold a further all-Peers briefing in between Second Reading and Committee—details of this will be forthcoming.

In conclusion, the Government believe that it was right to legislate to protect the value of the state pension in 2021-22, despite the decline in earnings by younger taxpayers, who met the cost of doing so. The Government believe that it is right to protect the value of the state pension again in 2022-23, while also protecting the interests of younger taxpayers by suspending, for one year, the link with earnings growth in the unprecedented circumstances brought about by the Covid-19 pandemic. I beg to move.

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, I thank all noble Lords who have spoken today. Their contributions have been eloquent and focused. The House has great knowledge of and experience in pensions and social security, which has truly been demonstrated today.

The debate has been wide-ranging and has covered a number of topics. I want to address some of the key points that were raised. If I do not manage to cover them all, noble Lords have an undertaking that I will write after this Second Reading and we will meet again, when they will have further opportunity to drill down into the detail.

I reiterate that this Bill is not concerned, although noble Lords are, with benefits linked to prices, such as universal credit. Uprating decisions for those benefits will be made under the existing provisions in the Social Security Administration Act 1992 as part of the Secretary of State’s annual uprating review in the autumn. The UC points that noble Lords have made are out of scope of the Bill, but out of respect for those who have raised the issues, I will endeavour to respond to them all. They will then be brought before both Houses through the annual uprating order, which is subject to the affirmative statutory instrument procedure and it would not be right for me to pre-empt that review.

The Bill sets aside the link between earnings growth and the uprating of the basic state pension, the full rate of the new state pension, the standard minimum guarantee in pension credit and survivors’ benefits in industrial death benefit. It does this for 2022-23, and for 2022-23 only. In place of the earnings link, it requires the Secretary of State to increase the relevant pensions at least in line with price inflation, or by 2.5%, whichever is higher. We have discussed the reasons for this approach linked to the unique effects of the Covid-19 pandemic over the last two years of earnings growth.

The noble Baroness, Lady Drake, raised the 1979 pension level. It is difficult to make comparisons back to 1979, when price indexation was introduced—the pensions landscape has changed significantly since then. She also asked whether the state pension was fit for purpose. The new state pension forms a clear foundation for individuals’ private savings to provide for the retirement they want. Together, the new state pension and automatic enrolment to workplace pensions provide a robust system for retirement provision for decades to come. The overall trend in the percentage of pensioners living in poverty is a dramatic fall over recent decades: there are 200,000 fewer pensioners in absolute poverty, both before and after housing costs, than in 2009-10, and we want to maintain that achievement.

The phasing out of the triple lock was raised by the noble Baronesses, Lady Sherlock and Lady Drake, my noble friends Lady Altmann and Lady Stowell, and the noble Lord, Lord Davies. After that, the legislation will revert to the existing requirement to increase these rates at least in line with earnings growth. The noble Baroness, Lady Smith, suggests that this may change because of Brexit. No, the link with earnings will apply.

I pay tribute to the noble Baroness, Lady Greengross, for her commitment to the more mature in our society and her consistent efforts to represent them. The triple lock commitment was raised by the noble Baronesses, Lady Greengross, Lady Drake and Lady Smith, my noble friend Lady Stowell and the noble Lord, Lord Davies. The Bill needs to be seen in the context of the Covid-19 pandemic and the Government’s approach over the two years of the pandemic. After this year, the legislation will revert to the existing requirement to uprate at least by earnings growth, and the Government’s triple lock manifesto commitment remains in place—there is no turning back.

The noble Baronesses, Lady Sherlock, Lady Lister and Lady Smith, raised the possibility of a poverty impact assessment. They asked whether the department had produced an assessment of the effects on pensioner poverty of increasing these rates by 2.5% in 2021-22 and then by 2.5% or in line with inflation, whichever is higher, in 2022-23. The department collects and publishes a wide range of data on income and poverty, which are released annually in the reports on Households Below Average Incomes and a report with estimates of pensioner poverty covering 2021-22 and 2022-23 will be published in 2023 and 2024 respectively. In the absence of actual data, the only way to provide an assessment would be to forecast and model how many pensioners might have their income lifted above the various low-income levels under an earnings uprating versus an inflation uprating. Assumptions would need to made about how each individual pensioner’s income will change in the future under each scenario. This would require making assumptions about, for example, how each pensioner might change their behaviour around other sources of income, such as draw-down of income from investments or a change in earnings when faced with different amounts of state pension, which is virtually impossible to do with accuracy. These projected incomes would then need to be compared to projections of the various income thresholds, which are themselves extremely uncertain.

For absolute poverty, the threshold is increased each year by inflation during that particular year. As demonstrated in recent months, inflation is currently extremely volatile and there is a high level of uncertainty about what its level is likely to be over the next year. For relative poverty, the threshold is determined by changes in median income across the whole population. Given the volatility in the economy and labour market, again this is impossible to do accurately. Therefore, there is a very high risk that any analysis seeking to forecast the number of pensioners moving above or below these projected poverty levels is likely to be misleading, due both to uncertainty about the economy and pensioners’ behavioural response to various levels of state pension.

I know that the noble Baroness, Lady Sherlock, has been waiting for this figure: drumroll—I am going to give it to her now. She asked specifically how many couples in receipt of universal credit include a partner in receipt of a state pension. We estimate this number to be around 50,000 mixed-age couples claiming universal credit in 2022-23.

The noble Baronesses, Lady Sherlock, Lady Janke, Lady Drake, Lady Greengross and Lady Lister, and my noble friend Lady Noakes, all raised the issue of pension credit take-up. We have had debates about this in the House and I promised to take action, which we have done. I know how passionate all noble Lords are about increasing pension credit take-up—I am in that club too. The Government are working with partners to raise awareness of pension credit and the department conducted a media day in June with support from Age UK and the BBC, in particular. We continue that engagement with the BBC, and I met the Minister for Pensions and the director-general of the BBC a few weeks ago to discuss how we can do even more to encourage people to claim what they are entitled to. I am no expert in social media, but I will take away the point made by the noble Baroness, Lady Greengross, and raise it. Furthermore, the Minister for Pensions and I held a stakeholder round table in May. Following that, the department established a working group involving organisations such as Age UK, Independent Age and British Telecom, as well as the BBC, to explore innovative ways to reach eligible pensioners. The group will meet again on 19 October.

We are also improving our direct communications. Earlier this year, more than 11 million pensioners in Great Britain received information about pension credit and this highlighted that an award of pension credit, as has already been said, can open the door to a range of other benefits, such as housing benefit, help with council tax and heating bills and help with NHS costs, as well as a free TV licence for the over-75s. We will continue to do this work and will be encouraging people in every way we can to claim their entitlements, building on some promising recent figures. According to the latest data, for the financial year ending in 2019, 77% of the total amount of the guarantee credit—the safety-net element of pension credit—that could have been claimed was claimed, up from 66% two years previously.

My noble friend Lady Altmann and the noble Baroness, Lady Lister, raised the possibility of a review of the triple lock. I must say that the Government have no plans to undertake a review; we are committed to the triple lock for the remainder of this Parliament.

An important issue raised by many noble Lords concerns a different measure of earnings. Several noble Lords asked why the Secretary of State does not use her discretion under the existing legislation to use an adjusted index of earnings growth to exclude the effects of the Covid-19 pandemic, or why the Government did not include such an adjusted index in th Bill. The answer is that there is no robust methodology for establishing such an adjusted index. The existence of such a methodology would be crucial in assessing the degree of legal risk attached to veering from the conventional index, which continues to provide an accurate reflection of growth in earnings.

 

The Office for National Statistics has not published official statistics for any alternative estimates of earnings growth; it has published just a range of estimates of the potential scale of base and compositional effects caused by the Covid-19 pandemic. However, it has concluded that there is no robust method for producing a single figure for a measure of underlying wage growth that accurately takes account of temporary effects due to the pandemic that all experts could reach agreement on. This lack of an agreed robust analytical basis for an alternative figure means that there is a legal risk in breaking with precedent in the measure of earnings used. I am quite sure that we will wish to discuss this further between the Bill’s stages—and we will.

My noble friend Lady Altmann has been a great advocate on the issue of pensioner poverty among women; in fact, she was referred to by the noble Lord, Lord Sikka. She asked about reforms to the state pension. These reforms have put measures in place to improve state pension outcomes for most women. More than 3 million women stand to receive an average of £550 more per year by 2030 as a result of the recent reforms. Women live longer than men on average and therefore receive pension payments for longer.

The noble Baroness, Lady Sherlock—she is a noble friend—was very animated in her contribution. Indeed, she was racing away; one of the things I have to work hard on is keeping up with her. We might have a chat about that another time. She asked whether wage increases are racing against inflation, am I correct? The response is that wages are increasing at 8.3% while inflation is at 3.3%, so wages are much higher. I am sure the noble Baroness will give me a list.

My noble friend Lady Noakes raised the issue of relative versus absolute poverty. The Government believe that absolute poverty is a better measure of living standards than relative poverty, which can provide counterintuitive results. The absolute poverty line moves with inflation so provides a better measure of how the income of pensioners compares with the actual cost of living.

My noble friends Lady Altmann and Lord Flight, and the noble Baronesses, Lady Drake and Lady Janke, asked about state pension comparisons with EU countries and others. This comparison is misleading due to differences in the pension systems. There are many factors to take into account, including different tax systems, different healthcare systems, different pension ages, the cost of living, access to occupational pensions and the availability of other social security benefits, as well as the provision of services and goods free to pensioners or at concessionary rates. In her contribution, the noble Baroness, Lady Janke, commented that other countries get them, so I suspect that this is another issue on the agenda for further discussion.

The noble Lord, Lord Davies, the noble Baroness, Lady Drake, and my noble friends Lady Altmann and Lady Stowell asked about the state pension versus the basic state pension. The new state pension system has been designed so that no more money is being spent now than under the previous one, and care has been taken to ensure fairness to both groups while delivering a sustainable system for the future.

The noble Baroness, Lady Janke, and my noble friends Lady Stowell and Lady Stroud raised the issue of the UC taper rate. All I can say at the moment is that no decision has been taken on it.

The noble Baroness, Lady Smith, asked why we needed a Bill last year. The Social Security Administration Act 1992 does not refer to 2.5% and, for the benefits in this Bill, refers specifically to earnings growth. Without suspending that link, the state pension would have been frozen.

My noble friend Lady Stowell referred to the state pension for over-75s. We are committed to supporting all pensioners, including those over 75. We spend more than £129 billion—5.7% of GDP—on benefits for pensioners, which includes spending on the state pension. It is also supported by further measures for older people, including the provision of a free bus pass, free prescriptions, winter fuel payments and cold weather payments.

My noble friend Lord Flight asked for clarification on the year. It is the CPI in the year to September 2021, so it will be 2021 data—the most up-to-date data we can use—for our hard IT deadline in November.

Now we come on to the £20 uplift. Virtually all noble Lords made reference to this. To start with, I must confess and confirm again—I know that this will rankle—that this was a temporary measure. People knew when it started that it would end. We extended it for six months, and it was an important measure to help people facing the greatest financial disruption to get the support they needed. In line with other emergency support that we rolled out at pace, the uplift helped protect livelihoods through the worst of the pandemic. The support we put in place did what it was intended to do, despite the biggest recession in 300 years. It is worth noting that unemployment is much lower than feared, at 4.6%, and for some, household savings are £197 billion higher. The poorest working households were supported the most.

I have been asked to make reference to something mentioned by the noble Baroness, Lady Smith. No money is being taken away because we budgeted to spend a certain amount. The increase of 2.5% or the rate of inflation, whichever is higher, will be applied. I just want to give a reminder that the Lib Dem Minister at the time, Steve Webb, supported this in legislation.

[Baroness Smith of Newnham (LD)]

The Minister said that I was wrong and that no money has been taken away. I meant that it has been taken away from the individuals who benefited from the £20-a-week uplift but will now receive £20 a week less.

[Baroness Stedman-Scott (Con)]

I am sorry if I did not make that point clearly. I agree with the noble Baroness. People were told that it would be there for a period of time but was not for ever. We extended it because the pandemic went on; we have therefore paid up what we committed to pay. We did not say that we would give it for ever but then took it away.

[Baroness Janke (LD)]

I have a question. First, the Minister mentioned Sir Steve Webb, a former Minister. He too has pointed out that, since the Commons discussed this issue, the circumstances have changed and the indicators are that price rises will be much higher—something that the Minister did not address when she replied on that part of the Bill. Secondly, could the Minister write to me and tell me why exactly this Bill must have its Third Reading by November?

[Baroness Stedman-Scott (Con)]

I thank the noble Baroness for pointing out the clarification on her previous colleague, Steve Webb. I will certainly write to her and, later, I will come on to the issue of gaining Royal Assent by November.

Let me turn to my noble friends Lord Freud and Lady Stroud. I thank my noble friend Lord Freud for the passion and knowledge with which he speaks. I pay tribute to his achievements as Minister for Welfare Reform. I must, however, reiterate that the Bill does not concern benefits linked to prices, such as universal credit—but thank God we had universal credit when the pandemic came. We will be for ever in the noble Lord’s debt for making that happen. If I may say so, we will also be for ever in the debt of Baroness Hollis for the challenge that she provided in that; we all miss her.

In answer to my noble friend’s question, making the uplift payment permanent would cost £6 billion; this is the equivalent of adding 1p to the basic rate of income tax, in addition to an increase of 3p in fuel duty.

I have been really pleased to engage with my noble friend Lady Stroud. We have worked together on many projects, and I have found our conversations really useful and helpful. I know that she has strong views on the universal credit uplift, and that dialogue will continue. As I said, the Bill is very short and not concerned with benefits—I do not say that to annoy people—so the Government would not encourage her to try to draw a false link between the two separate matters. Again, the universal credit uplift was always intended to be temporary.

Lastly, I remind noble Lords of the need for Royal Assent by 22 November. This will allow the Secretary of State to conduct a statutory review using the new powers in time for the DWP to meet its hard deadline of 26 November for reprogramming its computer systems, to ensure that the new rates of benefit and pensions are payable from April 2022. Any delay to this Royal Assent deadline will result in the review being completed under existing legislation committing the Government to uprate by at least 8.3%, which would not be fair to the current and future generations of taxpayers.

[Baroness Altmann (Con)]

Can my noble friend clarify that the existing legislation permits the use of an alternative measure to 8.3%, and that the Secretary of State has discretion to choose to use a figure from the ONS that reflects the adjustment to earnings that the Bill is trying to ex out?

[Baroness Stedman-Scott (Con)]

My noble friend has made this point on a number of occasions; other noble Baronesses and noble Lords have too. Before I bang a nail in, I think it is best that I write to noble Lords about that to make sure it is absolutely clear on that basis. I hope they will accept that.

My noble friends Lord Shinkwin and Lady Stroud raised the issue of a UC uplift impact assessment. The legislation enacting the temporary uplift, including its eventual removal, was approved by both Houses. No impact assessment was conducted when the uplift was introduced, as it was by law a temporary measure, as I have already said. No assessment was conducted on the reversion to the underlying rates of universal credit.

Do I have only 20 minutes for this? No? Okay, I am in charge. We will not be here for another half an hour. I want to pay respect to everybody, but I certainly do not want to abuse the House’s good will.

I hope the noble Lord, Lord Sikka, will take this in the spirit in which it is meant: I thank him for the master class in economics. I hope the Chancellor will read Hansard, and I am sure he will be in touch if he wants to take it further.

[Lord Sikka (Lab)]

I thank the Minister. I do not know what the tuition fee would be or whether it would have gone up by then. Can she please explain why the £37 billion surplus on the National Insurance Fund account is not being used to pay even £8 billion or £10 billion in extra pensions?

[Baroness Stedman-Scott (Con)]

This is a pretty challenging question, and I do not know. I will go away and find out, write to the noble Lord and place a copy in the Library.

I will stop soon, but I want to come back to my noble friend Lord Shinkwin and the disability Green Paper. This issue is not in the scope of the Bill, as he will know. I assure him that I will raise his concerns with my ministerial colleagues. We have been blessed with the appointment of Chloe Smith. I have talked to her about my noble friend and I know she will meet him—because there will be trouble if she does not.

Without being disrespectful to anybody else, I would like to hold a further briefing and answer all the unanswered questions. I hugely appreciate the time and intent of all noble Lords, and I commend the Bill to the House.

Bill read a second time and committed to a Committee of the Whole House.

Social Security (Up-rating of Benefits) Bill

Baroness Stedman-Scott Excerpts

Committee stage
Tuesday 26th October 2021 Lords Chamber

We understand the difficult situation with the anomaly in earnings, but I hope the Minister is able to hear and address the nervousness that removing the earnings link underpin has caused and give the Committee some reassurances. I look forward to her reply.

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, I thank noble Lords for their amendments and my noble friend Lady Altmann for her courteous note explaining her reasons for tabling her amendments.

Amendment 1 in the name of my noble friend Lady Altmann, would increase the benefits in this Bill by an adjusted earnings figure of 3.8%. My comments are also highly relevant to Amendments 2 and 3, also in the name of my noble friend Lady Altmann, which retrospectively increase the benefits in this Bill in line with an adjusted earnings figure and excludes the standard minimum guarantee from the Bill, increasing it by existing legislation instead.

The principal difficulty with these amendments is that they rely on a commentary from the Office for National Statistics, which, by its own admission, is intended to give a sense of the context in which the current earnings growth figures have arisen. The highly caveated range of figures in this commentary is, I am afraid, simply not robust enough to form the basis for an uprating decision. It does not have official status but features in a blog, already referred to, that the ONS published alongside its usual earnings statistics, starting in July this year. The blog explains:

“There are a number of ways you can try to strip out these base effects, but no single method everyone would agree on. We have tried a couple of simple approaches … Neither approach is perfect … Our calculations of an underlying rate are there to help users understand base and compositional effects, but … there remains a lot of uncertainty about how best to control for these effects”


so they need to be treated with caution. I submit to noble Lords that decisions affecting billions of pounds of public expenditure should not be grounded in a range of possible estimates in an environment where it is acknowledged that no single method can be agreed on.

A further point is that the ONS has calculated its range of adjusted underlying earnings growth for a measure of regular pay. The usual measure of earnings used for uprating is total pay, which is regular pay plus bonuses, because this gives a more complex picture of earnings, in which bonuses can play an important part. There are no such problems with CPI, which is a robust national statistic and provides a clear and sound basis for this year’s uprating with no need for any adjustments.

In the light of this, the Government decided that the most transparent and robust way to proceed in this exceptional second year of the pandemic is to suspend the link between earnings for one year and instead uprate the relevant state pensions by at least 2.5% or in line with CPI, whichever is the higher. Noble Lords will recall that we also suspended the earnings link last year because otherwise the relevant state pensions would have been frozen. I accept that the circumstances in the two years are different, with a slump in wages followed by a spike, but the Government consider an unrepresented spike in state pensions to be unfair to younger taxpayers this year, just as last year they considered the slump or freeze in state pensions to be unfair on pensioners, even though the cost of uprating was borne by younger taxpayers.

Under this Bill, the Secretary of State must increase the relevant pension rates by at least 3.1%, assuming a 3.1% increase is applied to the current rate of the basic state pension in 2022-23. This would mean that the full yearly rate would have increased since 2010 by £570 more than if it had been uprated with earnings and £720 more than if it been uprated with prices. That is over £2,300 more in cash terms than in 2010.

Finally, I remind the Committee that this Bill applies for one year only. From 2023-24, the legislation will revert to the existing requirement to uprate at least by earnings growth. The Government’s triple lock manifesto commitment remains in place.

Amendment 3, tabled by my noble friend Lady Altmann, seeks to exclude the pension credit standard minimum guarantee from the provisions of the Bill so that the underlying legislation would apply. This would mean uprating the standard minimum guarantee in line with the growth in earnings rather than, as provided by the Bill, not less than the higher rate of 2.5% or inflation, which we now know is 3.1% for the reference period used for uprating.

In structural terms, the standard minimum guarantee is linked to earnings so that pensioners on the lowest income share in rising national prosperity. However, as we have discussed, the earnings growth figures for this year have been inflated by the temporary slump in wages last year, followed by an unprecedented rebound as the economy and businesses have reopened and millions have moved off furlough and returned to work. The reasons for suspending the earnings link just for 2022-23 therefore apply as much to pension credit as they do to the state pension.

The Government recognise that the standard minimum guarantee in pension credit is the safety net for pensioners on the lowest incomes. I accept that that is therefore different from the contributory state pension, which provides a foundation for private saving, notably through auto-enrolment. However, the measures the Government took last year, together with those in this Bill, will ensure that the safety net for pensioners on the lowest incomes more than keeps pace with inflation. Over the two years of the pandemic, it will have increased by more than the increase in prices. It was increased by 1.9% in April 2021, when the CPI for the relevant uprating review period was 0.5%, and will be increased by 3.1% from April 2022, in line with the relevant rate of CPI this year. We believe this strikes a fair balance over the two years between the interests of pensioners and those of younger taxpayers.

I should also point out that this amendment would undermine one of the key aims of the 2016 reforms that introduced the new state pension. From the outset, the full rate of the new state pension has been set above the basic means test, which is the single rate of standard minimum guarantee, in order to provide a clear foundation for private saving. Currently, the full rate of the new state pension is £2.50 a week higher than the standard minimum guarantee in pension credit. This amendment would lift the single rate of the standard minimum guarantee above the rate of the new state pension and so bring more pensioners into the scope of means testing. If the standard minimum guarantee was increased in line with earnings growth of 8.3%, the single rate would increase by £14.70 to £191.80 a week. That is £6.65 a week more than the full rate of the new state pension if that rate increases by 3.1% in line with the provisions of this Bill.

I know my noble friend Lady Altmann does not agree that we would need to increase the standard minimum guarantee by as much as 8.3%, but we have discussed the reasons why the Government do not consider there is a robust alternative measure of earnings that could be relied on instead. As we have made clear, the Bill is for one tax year only. After that, the standard minimum guarantee in pension credit would continue to increase at least in line with earnings from 2023-24.

On Amendment 4, in the name of the noble Baroness, Lady Janke, which would uprate the benefits included in the Bill by April 2022 CPI figures, I understand the noble Baroness’s concerns over trends in price inflation and welcome the discussion we have had on the issue. I of course sympathise with the thinking behind this amendment. The Government would like to use the most up-to-date indices when it comes to the annual uprating process, but this is bound by a number of practical concerns which mean that the most up-to-date index we can use is the one for the year to September, which is published in October each year.

The Secretary of State’s uprating review needs to be completed by late November due to IT deadlines and the need to commence inputting the new rates into the department’s numerous computer systems. There are also interdependencies with HMRC and local authorities, which require the rates before Christmas. Additionally, there is a requirement to follow the correct legislative process. The new rates are included in the uprating order, which needs to be debated in Parliament before they come into force in the new tax year.

Finally, on average, September’s CPI is higher than in the following April half the time, and lower half the time. This has a long-term smoothing effect, provided the same index is used each year, as it is for benefits ordinarily linked to prices, such as attendance allowance and the additional state pension. The CPI for September 2020 was 0.5%, but in April 2021 it was 1.5% However, in each of the previous three years, the September CPI used for uprating was higher than the CPI figure for the following April. In these years, pensions saw a slightly higher increase than they would have done if it had been possible to wait and use the April CPI figure.

The Government’s intention with the Bill is to suspend the earnings link for one year but retain the price limb of the triple lock. This is to ensure that the purchasing power of state pensions is preserved, while protecting younger taxpayers from funding an increase that would otherwise be exaggerated by the statistical anomaly thrown up by the second year of the Covid-19 pandemic.

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[Baroness Sherlock (Lab)]

My Lords, I have two quick questions. I am not advocating smoothing, but the Minister’s argument against it was that there would be a compositional effect. From memory, the base effect was many times more than the compositional effect, in terms of the impact on earnings data. The composition effect was less than 1% and the base effect was 3% or 4%, so is that really an argument?

The second question is something I have always wondered. The argument she gave to noble Lords who asked about timing was that two of the reasons why it had to be decided now were that the computers must be programmed in November and that the order usually has to be put through in January. What would happen if the computers had been programmed and the order was rejected by Parliament?

[Baroness Stedman-Scott (Con)]

I will have to come back to the noble Baroness on her latter point, as I do not know at the moment.

[Baroness Sherlock (Lab)]

On base and compositional effects, is not the compositional effect on which she was relying as a defence against smoothing very small? Does not the base effect account for most of the difference in earnings data?

[Baroness Stedman-Scott (Con)]

That is another technical point that, rather than give an incorrect answer, I will come back to the noble Baroness on.

[Baroness Altmann (Con)]

My Lords, I thank my noble friend for her detailed response and clear efforts to address the issues that have been raised, and I thank all noble Lords who have spoken on this important group of amendments.

I am still struggling to understand the rationale for not retaining the earnings link. Noble Lords are being asked to accept that, because estimating the pandemic’s distorting impact on earnings is rather difficult, the Department for Work and Pensions, the Office for National Statistics, the OBR and the legions of statistical experts we have at our disposal could not come up with a figure that the Secretary of State could use to allow for such adjustments without being at risk of being considered irrational. I really struggle with that concept.

Nobody is suggesting that the Secretary of State knows an answer that everybody would agree to. However, in the face of rising pensioner poverty, rising inflation, the lowest state pension in the developed world and the problems we can foresee coming next year, with the poorest pensioners being unable to afford the basic costs of living, it is concerning that we are deciding to remove a critical part of their protection which was promised in our manifesto, and which is not unaffordable, on the premise that it is too difficult to adjust the numbers.

I accept that the figure of 3.8% in Amendment 1 was based on an ONS blog; it was the only figure available that was a remotely official statistic. However, Amendments 2 and 3 contain important provisions that would allow the Secretary of State to use all the resources at her disposal to come up with a number that adjusts average earnings correctly and fairly, in a way on which maybe not everyone would agree but that would at least retain the vital principle of the earnings protection that pensioners have always been promised and, in the case of pension credit, that the poorest pensioners have always relied upon.

I shall withdraw my amendment, but I hope we can have further discussions between now and Report and perhaps work out a way forward based on the important principles of social security policy that we have always stuck to in the past. I beg leave to withdraw the amendment.

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[Baroness Janke (LD)]

My Lords, I thank the noble Baroness, Lady Sherlock, for her amendments and for the information she has drawn to our attention. I share her concern at the lack of impact assessments of the proposed uplift on the most affected groups. The increasing pensioner poverty that we are all aware of and the poor take-up of pension credits, which are important as a passport to other benefits, are matters we are all extremely concerned about. I agree that pension increases are fast outstripped by rising costs, and I certainly fear a winter crisis, with increased energy prices and their effect on those who most need heat to keep their homes healthy and warm.

We heard from the noble Baroness, Lady Boycott, about how poor pensioners do not want to claim food —they do not want free food, they would rather starve than do that—and I believe that that is certainly an element in the uptake of pension credit. Again, we all worry that we are going to see more and more food banks and people unable to feed themselves as costs rise. The noble Baroness, Lady Drake, raised the whole issue of regional poverty and inequality. Certainly, when you look at the statistics across the regions, they are quite breath-taking. I believe we need much more information, as the noble Lord, Lord Davies, said, particularly about regional inequality. I wonder why we do not have this information when the Government have such a strong levelling-up agenda. How will they address these issues without adequate information on which to base decisions?

My amendment in this group highlights the unfairness experienced by many women as result of the pension gender gap. I will point out the current situation. The average pension pot for a woman aged 65 is one-fifth of that of a 65 year-old man. Women receive £29,000 less state pension than men over 20 years and this deficit is set to continue, closing by only 3% by 2060. Many women are wholly dependent on the state pension and as a result of this situation, we should take a particular interest in conducting impact assessments on the uprating of pensions on poverty. I support the measures proposed in this group and look forward to the Minister’s response.

[Baroness Stedman-Scott (Con)]

My Lords, I thank the noble Baronesses, Lady Sherlock, Lady Drake, Lady Boycott, Lady Altmann and Lady Janke, for raising important issues through these amendments and I reassure the Committee that we are committed to ensuring economic security at every stage of life, including when one reaches retirement.

On Amendments 5 and 8, tabled by the noble Baronesses, Lady Sherlock and Lady Janke, on publishing a poverty impact assessment, the department collects and publishes a wide range of data on income and poverty which are released annually in the reports in the households below average income series. Noble Lords raised the issue of pension credit take-up. Time does not allow me to go into the detail, but I undertake to have a further pension credit update when we can have more time to discuss and answer the questions that noble Lords wish to have answered.

In the absence of actual data, the only way to provide an assessment in advance of those dates would be to forecast and model how many pensioners might have their income lifted above the various low-income levels under an earnings uprating versus an inflation uprating. Assumptions would need to be made about how each individual pensioner’s income would change in future under each scenario. This would require making assumptions about, for example, how each pensioner might change their behaviour around other sources of income, such as drawdown of income from investments or a change in earnings, when faced with different amounts of state pension, which is virtually impossible to do.

Those projected incomes would then need to be compared with projections of the various income thresholds, which are themselves extremely uncertain. For absolute poverty, the threshold is increased each year by inflation; and for relative poverty, the threshold is determined by changes in median income across the whole population. Given the volatility in the economy and labour market, this is impossible to do accurately. There is a very high risk that any analysis seeking to forecast the number of pensioners moving above or below these projected poverty thresholds would be misleading due to uncertainty about both the economy and pensioners’ behaviour in response to various levels of state pension.

I turn to Amendment 6 and the specific request of the noble Baroness, Lady Sherlock, for a review of the impact of the Bill on mixed-age couples, and point to some practical concerns. Mixed-age couples in receipt of universal credit are a very small group, and data sources are limited. It is therefore not possible to identify these couples and analyse changes in health inequalities and homelessness for this group.

Further, the Government believe it is important for both individuals and wider society that people below state pension age remain in the labour market and continue saving for their own retirement. That is why, where a member of a couple is below state pension age and the couple are on a low income, support is provided through universal credit rather than pension credit. Providing support where it is needed through universal credit ensures that the same incentives to work and save for retirement apply to the younger partner in a mixed-age couple as apply to other people of the same age. Where the younger partner is unable to work because of disability or caring requirements, they may qualify for additional amounts and will not be subject to any work-related conditionality.

This approach is based on clear evidence about the importance of employment, particularly where it is full-time, in substantially reducing the risks of poverty and in improving long-term outcomes for families and children. In 2019-20, adults below state pension age in households where all adults were in work were six times less likely to be in absolute poverty, after housing costs, than adults in a household where nobody works.

As our economic recovery gathers pace and with vacancies at record levels, the focus of our expanded multi-billion-pound Plan for Jobs is helping people who can work to move into and to progress in work wherever possible. However, recognising that some people continue to require extra support this winter, we have announced the new household support fund.

On Amendment 7, tabled by the noble Baroness, Lady Sherlock, to publish an assessment of the impact of the Bill on those receiving the state pension, with reference to their ability to pay energy bills, energy prices are one of the factors built into the CPI measure, which is used in the assessment of annual uprating of benefits not covered by this Bill, such as personal independence payments and jobseeker’s allowance. In aggregate, where benefit rates are increased in line with CPI, the increases in those prices are reflected over time in the increases in benefit rates. The energy price cap will continue to protect millions of customers this winter, saving 15 million households up to £100 a year. Additionally, suppliers are prohibited from disconnecting customers of pensionable age between October and March, ensuring that pensioners have continuous supply during the coldest months.

I ask the noble Baroness, taking account of the points I have made, to withdraw her amendment.

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[Baroness Janke (LD)]

My Lords, I support the triple lock and its effect of keeping the value of the state pension, which has been lost over very many years and has not yet recovered. I share the point made by the noble Baroness, Lady Sherlock, that we accept that these are special circumstances. The Minister has assured us that this is just for one year, so we take her at her word and will judge her on future actions next year.

[Baroness Stedman-Scott (Con)]

I assure the noble Baroness, Lady Sherlock, and the whole Committee, that the Government take the issues of living conditions and the standards of pensioners seriously. As I have relayed in previous contributions to this debate, we have done an enormous amount to try to help, but I have no doubt that that will not be enough for some. It is a work in progress, and we will see where that goes.

This clause requires the Secretary of State to review the rates of the basic state pension, the new state pension up to the full rate, the standard minimum guarantee in pension credit, and survivors’ benefits in industrial death benefit, by reference to the general level of prices in Great Britain. Under this clause, if the relevant benefit rates have not kept pace with the increase in prices, then the Secretary of State is required to increase them at least in line with that increase or by 2.5%—whichever is the higher.

This is a two-clause Bill. If the noble Lords, Lord Sikka and Lord Davies, and the noble Baroness, Lady Bennett, successfully oppose Clause 1, the Bill will fall and, as a result, these pension rates will be increased by 8.3%, which is the average weekly earnings index for the year May to July 2021. This means that, if the Bill does not achieve Royal Assent in good time, there will be an increased cost to the Exchequer of between £4 billion and £5 billion.

Taking into account the points raised, I ask the noble Lords to withdraw their opposition to the question that Clause 1 stand part of the Bill.

[Lord Sikka (Lab)]

My Lords, I am very grateful to all the participants in this debate, which has been very interesting. I am particularly grateful to the Minister for her comments, but the issues remain. Many of our senior citizens are condemned to poverty and, by breaking this link with earnings, we will be condemning more to poverty, not only the current generation but future generations too. Nevertheless, for the time being I would like to withdraw this amendment, but I reserve the right to bring it back.

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[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Stroud, for introducing Amendment 9 and speaking so passionately on its content. We tried everything to get an amendment on universal credit into scope, so I am not surprised that, despite all her ingenuity and application, the noble Baroness was unable to get anything past the clerks. I have some sympathy for the efforts that must have gone into that; the nearest I could get was Amendment 6 in my name on mixed-age couples—“close but no cigar” is, I think, the technical term for it.

I understand that these issues are complex and sensitive. I have learned a lot today, in fact, about what happens in practice. Having listened to both the Leader and the noble Baroness, Lady Stroud, I now understand that, in effect, the House will decide the admissibility of an amendment only at the point at which it decides whether or not to accept or vote for it. So basically, we will not find out tonight at all. Given that, I will take the opportunity to talk yet again about universal credit; I have been banging on about it for quite a long time. I will do so briefly.

I have been talking about this £20 for a boringly long time. I cannot tell noble Lords how happy I am to have such an illustrious array of support coming in behind the issue—what a delight that is. It has been very interesting to listen to some of the contributions, which I passionately agree with. I am grateful to the noble Lord, Lord Crisp, for pointing out the impact of this cut on health, to the noble Baroness, Lady Boycott, for pointing out the impact on food, people’s poverty, and the quality of their lifestyles, and to the noble Lord, Lord Shinkwin, for pointing out the impact on disabled people.

I still believe that it is not just bad but one of the most shocking decisions to remove £20 a week from universal credit at the point at which we are dealing with the effects of a pandemic which, as the noble Lord, Lord Porter, pointed out, has decimated communities, and is still having that effect. People have lost jobs and hours. We are in a cost-of-living crisis. To proceed at this point with what the Economist called

“the biggest single cut to social security since the foundation of the modern welfare state”,

frankly, beggars belief.

I warn the Minister that, the next time she tries to defend this cut by pointing to the £500 million discretionary fund, I am going to get up and quote the noble Lord, Lord Freud, at her. I may even look at a combination of the noble Lord, Lord Freud, and my noble friend Lady Lister—if I am honest, not an alliance I have seen a lot of in the past, but I shall be quoting them at her together. Frankly, at that point, she should just put up her hands and give up; if the two of them are agreed, she may be on to a loser.

The other defence that will be used—indeed, it is already starting to be—is about what is happening with the rise in the national living wage. Obviously, it is good that the Government have accepted the Low Pay Commission recommendation and that the minimum national living wage will rise, but this simply does not make up for the universal credit cut, for three basic reasons.

First, there are well over 5 million adults on universal credit, but only 2 million people get the national living wage and many of those do not get universal credit. Secondly, it is not enough. The Resolution Foundation has done the sums and a full-time worker on universal credit who gets the national living wage would see their pre-tax pay rise by just over £1,000 as a result of this increase. However, their take-home pay would go up by only £265 because of the UC taper, because they pay more tax and will be paying more national insurance come April. Losing £1,040 and gaining £265 is not a win. That is in cash terms. In fact, most of that increase will have to go to cover the cost of inflation in any case.

The noble Baroness, Lady Stowell of Beeston, may be right and the Chancellor may be doing something in the Budget. None of us knows what is going to happen. Maybe he will knock a couple of percentage points off the taper rate. I really hope he cuts the taper rate but that will not be enough to make up for the damage that this cut has wrought.

The third point is that improvements in the living wage and the taper rate help only those in work. Just 38% of adults in families on universal credit are employed. What happens to the rest? What about the sick and disabled people who are not able to work? What about those with caring responsibilities? How are they meant to feed their kids and heat their home? What happens to them? Let us not forget the hit to local economies when families who have to spend every penny they get suddenly have £1,000 less to spend a year in local shops and businesses because it has been taken away from them.

That is enough for one day. We have had a very interesting debate. I shall read Hansard with care. Perhaps the Chancellor will take the advice of the noble Lord, Lord Shinkwin. Perhaps the best favour he could do for the Leader of the House and the Minister is to take this problem away from them by acting tomorrow. We look forward to seeing that. I hope the Minister can give us some hints.

[Baroness Stedman-Scott (Con)]

My Lords, we will have to wait until the Chancellor gets up to speak to find out what he has to say in his Statement. I thank my noble friends Lady Stroud and Lord Freud, and the noble Baronesses, Lady Janke and Lady Boycott, for their amendment. My noble friends Lady Stroud and Lord Freud were, of course, prominent architects of universal credit and noble Lords will, I am sure, join me in appreciating their depth of knowledge and strength of feeling on the issue. I know from all that has been said that others in this House share many of their concerns. I will not take time to repeat them now.

I must inform your Lordships that this amendment, if passed, would challenge the broader constitutional balance between the two Houses of Parliament. I am sure it is not the intention of noble Lords to open such a Pandora’s box, but I would be failing in my duty to your Lordships’ House if I did not clearly spell out the unintended effects.

Since the other place has already approved the Bill, I urge your Lordships not to risk its effects being negated by ping-pong between the Houses that takes us beyond the hard deadline for reprogramming the relevant DWP IT systems. This amendment deals with matters of public expenditure which are the province of the elected Chamber. It also effectively asks this House to decide how that Chamber should conduct its business, what it should debate, what it should choose to vote on and when that should be done—in this case, within one month of Royal Assent.

Taking into account all the constitutional points I have raised, I invite my noble friend to withdraw her amendment and, if she feels unable to do so, I strongly urge noble Lords not to vote in its favour.

[Baroness Stroud (Con)]

My Lords, I thank all noble Lords for their contributions this evening, particularly at this late hour. Who would have thought that such a gentle amendment on an issue so close the public’s heart could have generated quite so much debate?

I have listened carefully to the words of the Leader of the House and I commit myself to keep listening. It has been really helpful to have everybody’s feedback tonight. It is, however, as we all know, the eve of the Budget and I am still hopeful that inside No. 11 there may be ears to hear what we are saying tonight. It would cause me great sadness to divide the House on an issue on which we should all be so firmly united—the protection of the poorest in our society—and to do so under such contentious circumstances.

I will step back and beg leave to withdraw this amendment. But the care of the most vulnerable in our society is the rightful concern of this House. For if we stand for anything, it is to check and challenge the work of the Government, and that is all I am seeking to do today. I beg leave to withdraw my amendment.

Social Security (Up-rating of Benefits) Bill

Baroness Stedman-Scott Excerpts

Report stage
Tuesday 2nd November 2021 Lords Chamber

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, I thank the noble Baronesses, Lady Altmann, Lady Janke and Lady Wheatcroft, and the noble Lord, Lord Hain, for their amendments. These amendments aim to ensure that the standard minimum guarantee is uprated by earnings rather than by CPI inflation. In order to address the Government’s concern that this would entail an increase of 8.3%, they would instead require the Secretary of State to review the rate by reference to a rate of earnings growth, adjusted to take account of the distorting impacts of the pandemic.

As I said in Committee, the Government recognise that the standard minimum guarantee in pension credit is the safety net for pensioners on the lowest incomes. I therefore also understand the concern that the incomes of pensioners in this group should continue to be supported. As has been said, the standard minimum guarantee has always been linked to earnings, originally as a non-legislative commitment and, since 2008, by law. However, it is still the Government’s view that there is no alternative earnings measure upon which uprating can be based that is sufficiently robust. If there were, there would be no reason not to apply it to all the earnings-linked pensions and benefits. There is no adjusted measure of earnings growth that has the status of an official statistic. Instead, the ONS has published a range of possible estimates, which it advises should be treated with caution.

The noble Baroness, Lady Altmann, has suggested that the Government could adopt 5% as a reliable measure of earnings growth. This is the increase in average earnings in 2021 compared to 2020, as forecast by the OBR in its economic and fiscal report. There are two issues with this measure. First, the ONS has, to date, published data only up to August 2021, so the 5% is partially based on forecast earnings for the period September to December; and forecast data, as opposed to historical data, is inherently uncertain and liable to change. Secondly, if we were to take this approach, we would also be changing the reference period for the review from May to July, year-on-year, to the calendar year. This would mean that, for next year’s review, if we reverted to using earnings growth for the year to the period May to July 2022, as we would already have accounted for May to December 2021 in the April 2022 uprating, we would be double counting. To avoid this would mean using a calendar-year measure, partially based on a forecast beyond the current review.

However, the measures that the Government took last year, together with those in this Bill, will ensure that the safety net for pensioners on the lowest incomes more than keeps pace with inflation. Over the two years of the pandemic, it will have increased by more than the increase in prices. It was increased by 1.9% in April 2021, when the CPI for the relevant uprating review period was 0.5%, and it will be increased by 3.1% from April 2022, in line with the relevant rate of the CPI this year. We believe that this strikes a fair balance over the two years between the interests of pensioners and those of younger taxpayers.

On the relationship between the full rate of the new state pension and the single rate of the standard minimum guarantee, which the noble Baroness, Lady Drake, raised in Committee, the Government believe it is right that the contributory state pension should deliver a foundation income above the level of the basic means test. This is not only so that future pensioners know that they will see the full benefit from any additional retirement saving but because, unlike pension credit, there is not the problem of take-up, which, despite the efforts of Governments of all persuasions, has persisted over time and is unlikely ever to match that of the state pension.

In Committee, the noble Baroness, Lady Drake, also made the point that, at other times, the Government have applied cash increases to the standard minimum guarantee which exceeded the statutory minimum earnings. This Bill gives the Secretary of State the same flexibility to go beyond the minimum—in this case, CPI. The “overindexation” of the standard minimum guarantee on earlier occasions was done solely to ensure that those on pension credit did not have the triple lock increase on their state pension clawed back in the means test. That is not the position we are in this year. As we have made clear, this Bill is for one tax year only. After that, the standard minimum guarantee in pension credit will continue to increase at least in line with earnings from 2023-24.

Several noble Lords referred to pension credit take-up, I have written on this to outline the action we are taking with partners and stakeholders to address this very important issue. We are particularly concerned to ensure that people are aware of the guarantee credit, which is the safety net in the pension system and our most crucial lever for bearing down on poverty levels among today’s pensioners.

Of course, pension credit is a gateway to other valuable entitlements for pensioners on low incomes, such as discounts on energy bills, cold weather payments and free TV licences for those over 75. We can make much of these advantages by encouraging people to claim what they are entitled to.

On Amendment 5, I thank the noble Baronesses, Lady Sherlock and Lady Janke, for raising these important issues. I share their concerns about pensioner poverty and about older women in poverty. I assure the House that we are committed to ensuring economic security at every stage of people’s lives, including when they reach retirement.

However, I have to inform the noble Baronesses that their amendment, as it stands, is inoperable. As the Bill takes effect only from April 2022, the data required for a review six months after the Bill’s passing will not be available. In the absence of actual data, the only way to provide an assessment would be to forecast and model how many pensioners might have their income lifted above the various low-income levels under an earnings uprating versus an inflation uprating. Assumptions would need to be made about how an individual pensioner’s income would change in the future under each scenario. This would require making assumptions about, for example, how each pensioner might change their behaviour around other sources of income, such as drawdown of income from investments or a change in earnings when faced with different amounts of state pension, which is virtually impossible to do with accuracy. These projected incomes would then need to be compared to projections of the various income thresholds, which are themselves extremely uncertain. Therefore, there is a very high risk that any analysis seeking to forecast the number of pensioners moving above or below these projected poverty thresholds would be misleading due to uncertainty about the economy and pensioners’ behavioural responses to various levels of state pension.

The department collects and publishes a wide range of data on income and poverty, which are released annually in the households below average income report series. Reports with estimates of pensioner poverty covering 2021-22 and 2022-23 will be published in 2023 and 2024 respectively.

I can, however, announce today that we will publish the impact assessment for the Bill. This sets out information such as key characteristics of state pension and pension credit recipients and impact on protected groups. The Government have been convinced by the arguments made by noble Lords that this document should be made available. I congratulate the noble Baronesses and other noble Peers on their successful persistence in raising the issue. We are now in a position to provide the document in a version that incorporates the measures outlined in last week’s Budget. I will write to noble Peers after this debate with a copy of the document, which we will also place in the Libraries of both Houses.

My noble friend Lady Altmann raised the issue of CPI figures. September CPI was 3.1%; the OBR is forecasting CPI to rise and peak at 4.4% in quarter 2 next year. However, from April to August this year, CPI averaged 2.3%, so the September figure of 3.1% is halfway between the forecast peak and what CPI actually was for the first five months of this financial year.

The noble Baroness, Lady Wheatcroft, spoke about food, fuel and housing costs. Although we are expecting inflation to rise—and clearly a substantial part of this rise will be driven by the temporary rises in fuel costs —it is important to note the facts about what has actually happened to inflation over the last 12 months. Average CPI over the last 12 months has been 1.3%, but food prices actually fell by 0.6% and household fuels increased by only 0.1%. The biggest rises were in transport, at 3.9%, and communication, at 2.4%.

The noble Baroness, Lady Lister, challenged why we use absolute poverty measures. This Government prefers to look at absolute poverty over relative poverty, as relative poverty can provide counterintuitive results. Relative poverty is likely to fall during recessions, due to falling median incomes. Under this measure, poverty can decrease even if people are getting poorer. For example, some think tanks have projected that relative poverty will have fallen sharply in 2020-21 during the pandemic. The absolute poverty line is fixed in real terms, so will only ever worsen if people get poorer and only ever improve if people are getting richer.

My noble friends Lord Freud and Lady Stroud talked about the changes to universal credit, which are more than welcome. I thank my noble friends for their interventions on universal credit and I am sure that their points—and others—will have been heard clearly. In view of my remarks today, I ask the noble Baroness to withdraw her amendment.

[Baroness Altmann (Con)]

My Lords, I thank my noble friend for her response and all noble Lords who have spoken in this important debate. I pay tribute to the noble Baroness, Lady Sherlock, for the way in which she introduced her amendment, and I support Amendment 5 in her name and those of other colleagues.

I would like to put on record that I did not mention any figure in my remarks. That was deliberate: it is not up to me to tell the Government what figure to use to uprate. Is my noble friend saying that the Government are unable to produce an adjusted earnings measure that is rational? A judicial review would have to be based on a figure being irrational. I am sure that my noble friend is deeply uncomfortable about this debate, and I have huge sympathy for her: I know that she cares about the poorest pensioners, as she cares about so many others in our society. But I am really disappointed in the Government’s response and the rationale that they are using.

I will withdraw Amendment 1, but I might return on Amendment 7 in my name. In the meantime, I beg leave to withdraw this amendment and, again, thank my noble friend for her response and all other noble Lords for their supportive remarks.

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[Lord Sikka (Lab)]

My Lords, I support my noble friend Lord Davies of Brixton and his detailed remedy for future problems, and the call for an 8.1% increase in the state pension. DWP has not given us the median numbers, but the pre-2016 average or mean state pension is £155.08 while the post-2016 figure is £164. 23. It seems that the older you are, the lower the pension you actually get.

Discrimination against senior citizens is built into the system itself, which is wrong: 8.1% of that tiny amount is very small. A correspondent who contacted me from New Zealand said, “In New Zealand Super, there is a phrase that at 65, you get 65—at 65 you retire and you get 65% of average wage.” That is at least two and a half times more as a fraction of average wage than it is in the UK, where it is impossible for anyone really to live on it.

We have heard from many Members of your Lordships’ House that the state pension is the only or main source of income for many, many people. I do not know whether Ministers speak to ordinary people to hear their experiences of trying to manage poverty. I will read out just one message that I have received from a senior person: “I am struggling to pay my rent, buy food and pay for gas, electricity and water. TV is my only source of company and the government is now taking that away too. I can’t afford to buy a TV licence. It would be better for me to go to prison. At least I will be warm and I will also be fed.”

Earlier, the Minister rattled off a whole range of pension benefits that people can collect. Will she tell the House how a 75 year-old with no TV for company, with one heating bar in a room, with no access to the internet and with her local library shut, gets access to those benefits and asks for help? I should be very grateful if she can describe to the House how that person can make ends meet on this meagre state pension.

We have institutionalised poverty in this country and the voice of the poor is not being heard, so I fully support my noble friend’s call for a pensions commission. However, people cannot wait for that. We need an 8.1% increase now.

[Baroness Stedman-Scott (Con)]

My Lords—

[Baroness Sherlock (Lab)]

My Lords, my apologies: I was too slow to leap up. I thank my noble friend Lord Davies for introducing his Motion and thank all noble Lords who have spoken. As I said in Committee, I think we all share an underlying concern, which is about the living conditions of pensioners—particularly poorer pensioners—in our society. I will not rehearse our debates on pensioner poverty, but I am grateful to my noble friend Lord Davies for opening up the question of a strategic approach to the state pension.

The assumption had been that the state pension, old or new, was the basis, or the foundation, of developing retirement income and that any private provision would be on top. Given that we have rising levels of pensioner poverty now, and looking across the landscape of current saving rates on auto-enrolment, are the Government confident that this strategy is working and that people will have adequate income in retirement on the basis of the figures that she is seeing? I should be interested to hear her response to that.

My noble friend Lord Sikka again mentioned the question of people who are struggling. We are very anxious about the cost of living facing pensioners in the difficult months ahead, which is why I very much hope that the Government are tackling pensioner poverty in the ways that we have discussed.

Taking my noble friend Lord Davies at his word, he did not in fact raise this with the intention of pressing the Government for 8.1% now but to raise the broader questions. I hope the Minister will take him on that basis and give him a response that will help to answer the kind of questions he has raised.

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[Baroness Stedman-Scott (Con)]

My Lords, I thank the noble Lord, Lord Davies, for his amendment. I understand his passion for retaining the link between state pension uprating and earnings growth. This passion applies even in the exceptional circumstances generated by the Covid-19 pandemic, when earnings declined by 1% one year then rebounded by 8.3% the next. By contrast, the Government increased the state pension by 2.5% last year and intend to do so by 3.1% this year. This is in view of protecting the value of the state pension despite a decline in earnings last year, protecting its purchasing power next year and having due regard to the current fiscal situation and the effects on younger taxpayers. The Bill, therefore, replaces the link with earnings for one year only with a requirement to increase these rates at least in line with the increase in prices or by 2.5%, whichever is higher.

It has been agreed by many in this House and the other place that 8.3% is an anomalous figure distorted by the slump of wages at the start of the Covid-19 pandemic and by the effects of millions of people moving off furlough back into work. The noble Lord’s suggestion of 8.1% would generate a cost of more than £4.25 billion in the year April 2022-23, relative to increasing the state pension in line with the provisions in the Bill. The Government do not believe it would be fair to younger taxpayers to increase these rates by such a high percentage on top of the 2.5% increase last year, when earnings slumped by 1% and inflation stood at 0.5%. After this year, the legislation will revert to the existing requirement to uprate at least by earnings growth, as per the Government’s triple lock manifesto commitment, and it still remains in place.

The noble Lord, Lord Sikka, raised the issue of how pensioners can access their entitlements. Noble Lords will see with the letter that has gone out today that we are committed to making sure that pensioners can access their full entitlement under pension credit. The difficulty seems to be persuading them to make a claim. We offer various ways of accruing benefits, including by telephone and post. Where necessary, the department can offer home visits. We also work with partners and stakeholders such as Age UK to help people claim, and we will continue to do so. I therefore ask the noble Lord, Lord Davies, to withdraw his amendment.

[Lord Davies of Brixton (Lab)]

I do not think the Minister really responded to my request to initiate a debate about the structure of pension provision. But I am not going away. I will raise this issue at every opportunity, and I hope that at some stage we will be able to have a productive discussion about what to me is the key issue. The technical details of the uprating basis are important but the structure is crucial. With the leave of the House I will withdraw my amendment, but the issue is not withdrawn.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Altmann, for explaining her amendments, and all noble Lords who have spoken. I welcome my noble friend Lady Ritchie to the debate and thank her for sharing her perspective on Northern Ireland with us and the position of women. That was very helpful.

We had a good discussion at earlier stages of the Bill about the way the Government have gone about finding an alternative to the triple lock which will deal in some way with the impact of the pandemic on earnings data. As the noble Baroness, Lady Janke, has just indicated, I do not think many of us are very happy with where the Government have landed; I think that is safe to say. I will not rehearse all the arguments from Committee, but I am going to summarise them because noble Lords have made some very important points about poverty. There is an additional dimension to this amendment about the question of principle.

The Government came to power on the back of a manifesto commitment to the triple lock. Labour also supported the triple lock at the last election. Therefore, for all of us, the starting point is that the triple lock should apply. We on these Benches accept that the earnings growth data have been distorted by the effects of the pandemic directly, and the effects of the furlough scheme and changes in hours. But that does not mean the Government should just ditch their manifesto promises.

As my Commons colleague, the shadow Pensions Minister Matt Rodda MP put it at Second Reading:

“At the very least, Ministers should maintain an earnings link, explain their decisions, offer binding commitments to protect the triple lock and protect the incomes of less well-off pensioners.”—[Official Report, Commons, 20/0/21; col 63.]


Well, quite. Both in the Commons and in this House, Labour has made clear its view that the Government should have found a way to deal with this that maintained the earnings link. The importance of the earnings link has been very well explained by the noble Baronesses, Lady Wheatcroft and Lady Greengross, my noble friend Lady Lister, and others.

But how should that be done? In the Commons, Labour suggested using an average rise in earnings over a longer period of time. In this House, I first suggested that to the Minister not in this Bill but in the passage of the Social Security (Up-rating of Benefits) Act 2020. That was the emergency Bill designed to deal with the fact that earnings were negative last year, therefore something had to be done to uprate it. This year in Committee, again I raised the question of why the Government did not smooth the effects over two years, but I got no satisfactory answer and I accept that time has moved on. So where does that leave us?

The Government will say that we cannot pin down precisely the size of the pandemic effect on earnings growth. That is true, but the best we have is the work that the ONS has done. Its modelling stripped out the two main things: the base effects and the compositional effects. If noble Lords will forgive me for “nerding” for a moment, I will explain them.

The base effect is essentially that, a year earlier, people were on furlough and worked fewer hours; when you measure earnings a year later, more of them have gone back to work and are on full hours, so earnings appear to have jumped a lot. That is one effect. The compositional effect is a change in the composition of the workforce—people on lower incomes were more likely to lose their jobs in the pandemic.

The ONS modelled stripping both of those effects out to try to get a figure for real underlying earnings growth across the year to use as a reference point. It came up with a range for that underlying growth. The Government do not like it because they think it is not robust enough to use as a measure for uprating earnings. If they do not like those figures, I suggest that it is up to the Government to go away and find some other way to show that the earnings link is being maintained. Amendment 3 does not specify any figure, and Amendment 4 merely says that the Government should use a figure for earnings chosen

“in the light of reasonable adjustments to take account of the impact of the COVID-19 pandemic based on the Office for National Statistics reported earnings figure.”

In the Commons, my colleague, the shadow Work and Pensions Secretary, Jonny Reynolds, said:

“I do believe there is a need to maintain the value of the state pension and the objectives of the triple lock are ones we should keep to”.—[Official Report, Commons, 20/9/21; col. 84.]


That is the problem with the Government’s approach in a nutshell. Their proposals in the Bill mean stepping away from the fundamental principle that pensions should keep up with earnings. They also breach the manifesto commitment to the triple lock, which, as my noble friend Lord Davies said, is a breach of trust with the electorate—that is the third, coming after the cut in overseas aid and the national insurance rise. There must be a better way than this, and this amendment directs the Government to find it. If they do not like this wording, they can bring back an amendment in lieu.

I realise that the Bill needs to be on the statute book by 26 November, for reasons to do with IT, but that is more than three weeks away. The Government managed to get the whole Bill, in all its stages, through the Commons in a few hours, so I do not believe it is beyond their wit to be able to come up with an alternative and come back to the House in due course.

For us, this is a matter of principle. It is not just about the amounts of money. That is why we are supporting this amendment, specifically on the earnings link for the state pension. The Government should find a way to keep their manifesto promise and maintain the earnings link, and to do so in an appropriate way. I hope the Minister will accept it.

[Baroness Stedman-Scott (Con)]

My Lords, I thank the noble Baronesses, Lady Altmann, Lady Janke and Lady Wheatcroft, and the noble Lord, Lord Hain, for their amendment. The Government’s reasons for not adopting an altered measure of earnings have not changed. That includes the unacceptable level of risk that would be attached to changing the definition of earnings using the current legislation. I remind your Lordships again that the cost of failing to secure Royal Assent to this Bill by mid-November would be in the range of £4 billion to £5 billion.

I very much understand my noble friend Lady Altmann’s concern about a temporary suspension of the earnings link, for all the reasons she and others have so eloquently outlined. But the fact remains that the figures quoted from the Office for National Statistics have no official status and have been taken from a blog that the ONS published, alongside the usual earnings statistics, first in July this year and then in subsequent months.

The key reason why the Government cannot accept this amendment is that the ONS figures are just not robust enough to form the basis for an uprating decision. This is best demonstrated by two quotes from the ONS:

“The blog explains that there are a number of ways you can try to strip out these base effects, but there is no single method everyone would agree on. We have tried a couple of simple approaches. Neither approach is perfect … Our calculations of an underlying rate are there to help users understand base and compositional effects, but there remains a lot of uncertainty about how best to control for these effects, so they need to be treated with caution.”


Using a range of possible estimates based on a method that cannot be agreed on does not provide a sufficiently robust basis for making critical decisions about billions of pounds-worth of expenditure.

A further point is that the ONS has calculated its range of adjusted underlying earnings growth for a measure of regular pay. The usual measure of earnings used for uprating is total pay, which is regular pay plus bonuses, because this gives a more complete picture of earnings, as bonuses can play an important part in earnings. There are no such problems with CPI inflation, which is a robust national statistic and provides a clear and sound basis for this year’s uprating, with no need for any complex adjustments.

I must remind the House that this Bill is for one year only. From 2023-24, the legislation will revert to the existing requirement to uprate by at least earnings growth, and the Government’s triple lock manifesto commitment remains in place.

Finally, I point out that, if a percentage of 3.1% or more is applied in 2022-23 to the current rate of the basic state pension, this would mean that the full yearly rate will have increased since 2010 by £570 more than if it had been uprated by prices; that is over £2,300 pounds more in cash terms. In addition, people over state pension age are entitled to free winter fuel payments worth £2 billion every year, free eye tests and NHS prescriptions worth around £900 million every year, and free bus passes worth £1 billion every year.

My noble friend Lady Altmann talked about the cost-of-living crisis in relation to energy and inflation. Ofgem’s energy price cap has protected consumers from the recent fluctuations in wholesale gas prices. Millions of low-income households will be supported with the cost of essentials through the £500 million household support fund. This builds on the £140 warm homes discount, which helps 2.2 million low-income households with their energy costs, and the winter fuel payment, which provides £200 toward energy bills for households with a member at or above state pension age and £300 for households with a member at or above 80 years old.

The noble Baroness, Lady Lister, talked about not receiving a letter. I am assured that the letters have gone out. If, by the end of this debate, she still has not received one, I hope she will let me know and I will make sure this is rectified. I say the same to everybody in the House: I am sure that those letters have been sent. In the light of my remarks, I ask the noble Baroness to withdraw her amendment.

[Baroness Altmann (Con)]

My Lords, I thank my noble friend for her response and all noble Lords who have spoken in this debate. I totally agree with the noble Baroness, Lady Sherlock, that this is a matter of principle. The noble Baroness, Lady Janke, and my noble friend Lady Wheatcroft talked about inflation pressures, which have risen significantly, making 3.1% clearly a real-terms cut in the state pension. The noble Baronesses, Lady Greengross and Lady Lister, talked about the historic precedent of removing the earnings link and the danger of setting that precedent to the rise in pensioner poverty. The noble Lord, Lord Davies, spoke about lack of trust. The noble Baroness, Lady Ritchie, talked about poverty, particularly for older women, and the impact in Northern Ireland.

The response to this is that we would be running an unacceptable level of risk in producing adjusted figures. The Minister is being asked to tell the House that there is no method that everyone could agree on; that no method is perfect, and therefore we will not do anything at all. That is not required for us to send this legislation back or to avert a legal challenge. Indeed, Amendment 4 explicitly tries to deal with that.

The state pension will always be a call on younger taxpayers and, with an aging population, it will always be a tempting target to raid. But the state pension is the basis of the majority of pensioners’ income in retirement, and it is part of the social contract in our welfare state, on which our society is based. It underpins the national insurance system. If we break that contract, even supposedly for just one year, I believe it will be setting a seriously dangerous precedent. Pensioners are not a cash machine for Chancellors to take money from when wanting to fund other projects or tax cuts elsewhere, especially not in the eye of a cost-of-living storm. I apologise to my noble friend, but I do not accept the responses that she has been asked to give us. I therefore want to test the opinion of the House.

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, this clause requires the Secretary of State to review the rates of the basic state pension, the new state pension up to the full rate, the standard minimum guarantee in pension credit and survivors’ benefits in industrial death benefit by reference to the general level of prices in Great Britain. This is in contrast to, and in place of, the provisions of the Social Security Administration Act 1992, which require a review by reference to the general level of earnings.

Under the clause, if the relevant benefit rates have not kept pace with the increase in prices the Secretary of State is required to increase them at least in line with that increase or at least by 2.5%, whichever is the higher. If there has been no increase in the general level of prices, the increase in the benefit rates must be at least 2.5%. The requirement will apply for one tax year only, after which we will revert to the existing legislation and the link with the general level of earnings will be re-established.

As this is a two-clause Bill, if the noble Lords, Lord Sikka and Lord Davies, and the noble Baroness, Lady Bennett, successfully oppose Clause 1, the Bill will fall. As a result, these pension rates will increase by 8.3%, which is the average weekly earnings index for the year to May-July 2021. That means that, if the Bill does not achieve Royal Assent in good time, there will be an increased cost to the Exchequer of between £4 billion and £5 billion.

The noble Lord, Lord Sikka, raised the issue of the state pension and government content being so low. The Government have a proven track record of helping people to plan for their retirement. We have reformed the state pension system, introducing the new state pension to be simpler, clearer and a sustainable foundation for private saving to address the fact that millions of people were not saving enough for their retirement. Automatic enrolment into a workplace pension was created to help them with their long-term pension savings. Together, the new state pension and automatic enrolment into workplace savings provide a robust system for retirement provision for decades to come. Last month the UK pensions system ranked ninth in a report by Mercer that looked at the systems of 43 countries. It measured adequacy, sustainability and integrity, and the UK Government were grouped with countries such as Sweden, Finland and Germany.

In taking into account the points that I have raised, I ask the noble Lord to withdraw his amendment.

[Lord Sikka (Lab)]

My Lords, I thank the Minister and all noble Lords who have participated in the debate. I shall pick up some of the points.

Earlier, the Minister referred to how pensioners can get winter fuel payments. Thousands of pensioners are tuned in and watching, and while the Minister has been talking some of them have sent me information to say that the winter fuel payment was last fixed in 2011. If it had increased in line with inflation, it would be around £159. The Government have once again chosen to hurt retirees, because there has been no increase in line with price level changes.

I have also been sent information about the Christmas bonus of £10, which was introduced in 1972. It is still £10. Pensioners would be lucky to get a plate of egg and chips and a cup of tea with that. If the bonus had been kept in line with inflation, it would now be £140—another example of how pensioners have been short-changed.

The Minister said that, from 2023 onwards, we will revert to the triple lock, but no commitment is given that the amount lost will be restored to pensioners. As I said, over the next five years, £30.5 billion will disappear. The Minister has not said that even a penny of that will be restored, so pensioners will remain on low pensions—not only current but future pensioners.

The Minister referred to the extra cost. I have suggested numerous ways by which the extra cost could be met, and they must have been evident to the Chancellor when he gave a £4 billion cut to banks. Obviously, the Government’s priority is the banks, rather than our senior citizens, who are struggling to heat their houses and eat sufficient food. The Minister talks about the new pension arrangements, but the point remains that, if you earn little and put away something, it will still bring you little. The issue of pensioner poverty is not really tackled.

My noble friend Lady Sherlock said that this clause was passed in the Commons, as many clauses are passed in the Commons before Bills arrive in this House. This House’s duty is to scrutinise legislation, give its opinion and urge the Commons and the Government to rethink, as my noble friend Lord Davies of Brixton said.

There is no invisible hand of fate which condemns our retirees to a life of poverty and misery. It is the invisible hand of political institutions that has condemned millions to a life of poverty and early death. This House should not be willing to be a part of that invisible hand, which will bring more misery to not only current but future generations.

I am not convinced by the Minister’s explanation and I should like to test the House’s opinion.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I normally think my job is basically to help the House by offering an idiot’s guide to how things work, but I think it is beyond me this evening. My noble friend has asked so many questions that I want to add only a couple.

First, I want to see whether I can understand what the Minister was saying in her letter on 25 October. I think she was saying that the national insurance scheme is financed on a pay-as-you-go basis, with contribution rates set broadly at a level necessary to meet the likely cost of contributing benefits and pensions in that year, taking into account any other payments and receipts and the need to maintain a working balance, which seems to be targeted at 16.7% of benefit expenditure. That is an oddly precise figure, whose basis completely eluded me, but maybe she can enlighten me.

The Minister’s response said the fund may be in surplus now but it was forecast to be in deficit next year so there would not be a surplus to draw on. I think her case is that the context of surplus is not meaningful, because the fund is designed to wash its face, and therefore, if income is lower or expenditure higher than expected, the Treasury tops it up and reverses those ships back out again. Is my idiot’s guide right—have I understood the Minister’s case? If so, can she answer some questions?

If there is a surplus of £37 billion, why is it so high this year? What is the projected deficit for next year, and why is it projected as that? I think my noble friend addressed my next question on the hypothecation of funds for the NHS. When the Secretary of State makes her statutory decisions on uprating, is any reference made to the state of the National Insurance Fund?

Finally, on a slightly tangential point, anyone who has ever knocked on doors during elections will know that a certain proportion of voters is still convinced that the National Insurance Fund is hypothecated at the level of the individual: “There is a savings account somewhere in the Treasury with my name on it; my national insurance contributions go into that and pay my benefits and pension when I retire.” I think that is one of the reasons why so many people are outraged when they find their state pension age pushed back or, after years of paying contributions, they finally claim benefits and find they are incredibly low—far lower than the tabloid coverage had led them for many years to believe was being offered in largesse to the poor.

In practice it is a pool system, not an individual one, and today’s workers pay for today’s pensions, not their own pension. Given that, does the Minister think there is enough transparency on the way the National Insurance Fund works? People are now paying 20% standard rate tax and 12.5% NI, so most workers are going to be paying 32.5%; and NI kicks in at a lower threshold. Does she think the Government are sufficiently accountable for all that and the way it is spent? I would be interested in her comments.

[Baroness Stedman-Scott (Con)]

My Lords, out of courtesy to the noble Lord, Lord Sikka, and the noble Baroness, Lady Sherlock, for the points that she has made, and to bring some clarity to the questions raised, I hope that the House will agree that I sent the letter in good faith, and will allow me to take it back to officials with the points that have been raised and come back with, I hope, the re-emphasis that is needed to clarify the position on the fund. However, I am advised that the first point raised by the noble Baroness, Lady Sherlock, in her summing up, is correct.

As the noble Lord, Lord Sikka, will be aware, there is an existing statutory requirement under the Social Security Administration Act 1992 for a GAD report on the likely effect on the national insurance fund of the draft Social Security Benefits Up-rating Order and the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations. There is no equivalent statutory requirement for this Bill, and GAD will conduct its assessment in the round based on the draft uprating order, which will include all benefits paid out of the national insurance fund, not just the ones covered by this Bill.

With respect to an assessment of the impact on the fund if this legislation is not passed, it is important that the working balance of the national insurance fund remains positive, as this ensures that there are always enough funds to pay for these benefits and allows the Government to deal with short-term fluctuations in spending or receipts. If the balance of the fund is expected to fall below one-sixth of forecast annual benefit expenditure, the Government will transfer a Treasury grant, paid from general taxation, into the fund. This ensures that benefits such as the state pension can always be paid as necessary.

I know that several noble Lords have suggested that, when in surplus, the fund can be used to increase expenditure beyond the level originally planned, but I am afraid that that is a misconception. The balance of the national insurance fund is managed as part of the Government’s overall management of public finances and reduces the need for it to borrow from elsewhere. Therefore, any additional spending from the national insurance fund would represent an increase in overall government spending and, without cuts in other areas of spend or additional taxes, an increase in government borrowing.

Not passing this Bill would not only increase state pension payments from the fund this year by an anomalously high figure of 8.3% but have a long-lasting compounded impact for decades to come as the anomalous figure would be baked into the baseline. The Government do not believe that this would be fair to younger taxpayers. Based on these arguments and the commitment that I have given to review the letter and the questions raised today, I ask the noble Lord to withdraw his amendment.

[Lord Sikka (Lab)]

My Lords, I am very grateful to the Minister for her explanation. I understand and agree that some margin of safety is needed in any account, but this is a £37 billion surplus, out of which only £5 billion is needed to maintain the triple lock—a small proportion. When somebody asserts that accounting numbers are perhaps not serious and I have investigated, I have normally given them the phone number of the Serious Fraud Office and said, “Maybe you’d like the bed-and-breakfast facilities at one of Her Majesty’s establishments”. However, I will not offer that to the Minister, as she has promised to return to the House with an explanation.

We need a fuller investigation and report, bearing in mind the point that my noble friend Lady Sherlock made: why have these surpluses built up? The surpluses have not always been around, but they have built up, and the Treasury’s forecast is for a vast increase for the period in which the Minister’s letter said that we were going to have a deficit. If it was so important, the Chancellor should have said something. It should have been in the Treasury and OBR documents. It is not there. I cannot help feeling that some ex-post rationale is being developed to say that we are not going to maintain the triple lock, and somehow offer an explanation.

However, in view of the Minister’s offer, I beg leave to withdraw my amendment.

Social Security (Up-rating of Benefits) Bill

Baroness Stedman-Scott Excerpts

3rd reading
Monday 8th November 2021 Lords Chamber

Moved by

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott)]

That the Bill do now pass.

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, as this is a two-clause Bill and the main clause was an amendment, I will use this opportunity to thank all noble Lords for the positive engagement and feedback they have provided thus far. We have had some truly wide-ranging debates, and I deeply appreciate the House’s passion for and knowledge of social security and pensions. I am enormously grateful to my noble friend Lady Scott, who has supported me at each stage of the Bill’s progress, both on and off the Floor of the House. I extend my thanks to the noble Baronesses, Lady Sherlock, Lady Janke, Lady Altmann and Lady Stroud, and the noble Lords, Lord Sikka and Lord Davies, for their amendments, ensuring thorough scrutiny of the Bill. I extend my thanks to the countless other noble Lords who have provided an abundance of constructive support and knowledge, and I thank all noble Lords for taking part.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for her remarks and thank all noble Lords who participated in the debate on the Bill. For a short Bill, its impact is quite wide, affecting millions of people. Our debates have raised some crucial issues around approaches to uprating and the government strategy for retirement saving, and especially around the position of pensioners on lower incomes as we enter a season of spiralling prices. Not for the first time, it is possible that our deliberations may have a broader impact in parts of Westminster and Whitehall than perhaps we realise or will ever know—at least until the autobiographies of the future come to be written.

On the matter of memoirs, these proceedings have also been notable for the return to the fray of the former Minister for Welfare Reform, the noble Lord, Lord Freud, whose frank demolition of the Government’s case for social security cuts and policies such as the benefits cap will, I predict, turn out to have a half-life somewhere around that of uranium.

I thank the Minister for her concession on Report, in response to my amendment on pensioner poverty, that an impact assessment should be published. That happened on Friday. I look forward to having the opportunity, if we can, to discuss that with her and her officials in due course. Most importantly, we have amended the Bill to require the Government to find a way to adjust pension uprating and to maintain the earnings link, while making allowance for the pandemic. I urge the Government to take that seriously and to use the time they now have to find a better solution than that offered by the Bill.

Public trust in politics has taken a bit of a hit in recent times. If there were a way of pursuing this objective without dumping a manifesto commitment, we would all want that. In the meantime, I thank the Minister and her officials, colleagues across the House for their thoughtful contributions, and Dan Harris of our staff team for his marvellous support. We send the Bill back to the Commons with our best wishes, hoping that it will embrace it and hold on to it as it is.

--- Later in debate ---

[Lord Sikka (Lab)]

My Lords, I echo the words of the previous speakers. I hope that the Government will act on the recommendations of this House. I am also grateful to the Minister for the impact analysis, which I received on Friday night. I should be grateful if in future we could have a better quality of data. For example, it refers to weekly mean benefits, which do not tell us much about the societal impact or distribution. It would be very helpful, for example, to know the median figure and to have some further analysis in the appropriate financial brackets. Table 4 refers to the number of people eligible, pre-2016, for the new state pension but does not tell us how many actually receive the full amount. Once again, could I please request a fuller analysis, which would not only provide greater transparency but enable us to call the Government to account? It could be in the form of a statement of the number of individuals receiving, for example, a pension of less than £100 per week, those receiving between £100 and £120, and so on in other brackets. A better quality of analysis would enrich the debate.

[Baroness Stedman-Scott (Con)]

My Lords, I am grateful for the remarks made by all noble Lords today. Our discussions have been thoughtful and powerful. Above all, they have demonstrated the commitment across your Lordships’ House to protect the income of pensioners and to bear down on pensioner poverty. The Bill now goes to the other place to consider the amendments put forward by this House. I look forward to our consideration of its reasons on the Bill’s return. As always, I note the challenge of the noble Baroness, Lady Sherlock. I will take the observations of the noble Lord, Lord Sikka, on the impact assessment back to the department, as I have done with all the other points he has raised. Finally, I thank all noble Lords who have spoken today and at earlier stages. I also thank the officials who have supported me in our discussions.

Social Security (Up-rating of Benefits) Bill

Baroness Stedman-Scott Excerpts

Consideration of Commons amendments
Tuesday 16th November 2021 Lords Chamber

Moved by

[Baroness Stedman-Scott]

That this House do not insist on its Amendment 1, to which the Commons have disagreed for their Reason 1A.

1A: Because Lords Amendment 1 would alter the financial arrangements made by the Commons and Lords Amendment 2 is consequential on that Amendment; and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, I know it will be a disappointment to my noble friend Lady Altmann and others in this House that the Commons has disagreed with Lords Amendments 1 and 2. I ask that this House does not insist on its amendment for two reasons.

First, we have discussed at length the reason why the Government do not believe that they should set a precedent for uprating benefits or pensions using a methodology that is not robust and for which there is no consensus. That would be the position with an adjusted measure of earnings growth, which is why the Government decided to apply a double lock, underpinned by the established consumer prices index, which is published by the ONS. This approach was also recommended by the Social Market Foundation.

Secondly, Royal Assent is needed by 22 November 2021. This will allow the Secretary of State to conduct her statutory review using the new powers in time for the DWP to meet its hard deadline of 26 November for reprogramming its computer systems. This will ensure that the new rates of benefits and pensions are payable from April 2022. While I welcome the intentions behind the amendment, we cannot accept it. That is why I ask that the House does not insist on Amendments 1 or 2. I beg to move.

[Lord Davies of Brixton (Lab)]

My Lords, it is a matter of real regret that the Commons has not accepted the amendments to the Bill proposed by your Lordships’ House, but it is worth taking this opportunity to stress that not only have the Government broken a freely given promise to the electorate but, as has been clearly explained, they have done so totally unnecessarily. They could have lessened, if not avoided, the concern caused by breaking their promise by taking this opportunity to reaffirm clearly their commitment to the earnings element of the triple lock. It baffles me why they failed to do so.

I will not repeat all the arguments, despite the importance of the issue, but I have one more question for the Minister. The problem is that the Government are trying to have it both ways. On the one hand, they say they remain committed to all three elements of the triple lock—prices as measured by the CPI, average earnings and the 2.5% minimum. They want us to believe that this was an exceptional case that justified special rules being applied, and that they still deserve the electoral kudos that comes from standing by their promises. On the other hand, they have in practice made it clear that there are exceptional circumstances in which they can break the commitment.

We know they are prepared to break the triple lock, but we do not know under what conditions. We know what they were in this case; Ministers in this House and in the Commons have explained on several occasions the special circumstances which they believe applied. The noble Baroness the Minister said at Second Reading that

“the effects of the Covid-19 pandemic have caused distortions in the labour market, which have been reflected over two years in highly atypical trends in earnings growth.”—[Official Report, 13/10/21; col. 1847.]

We know the Government believe that highly atypical trends in earnings growth are sufficient justification for breaking the earnings link. We do not know how atypical earnings growth needs to be in future before they decide again to break the link. Can the Minister tell us more about what counts as atypical earnings growth? How atypical does it need to be to justify breaking the promise?

However, it is not just earnings growth that might be considered atypical. What counts as atypical growth in prices? This is not a hypothetical issue. Most of us here have become familiar with what many in this House might regard as consistently low rates of inflation, but who knows what is to come, with the unwinding of quantitative easing and other pressures on the economy? How do we know that the Government, when faced with a significantly higher rate of inflation than we have experienced in the last 25 years, will not decide that this too is atypical?

As I say, this is not hypothetical. Based on the OBR forecast for the Budget, it looks likely that the state pension increase in April 2023, which we will discuss next November, will be based on price increases rather than earnings or the fixed 2.5%. The latest Bank of England forecast, released earlier this month, suggests that next September—the relevant month for measuring the CPI—the increase will nudge 5%. Perhaps it will be higher, given this Government’s lack of economic competence. We do not know. In any event, an increase of this order would be significantly higher than the experience of the last few years. Earlier this year, not long ago, the September 2022 increase was expected to be only around 2%—it could be argued that this is more typical. I do not want to put ideas in the Minister’s mind, but I must ask how atypical the CPI increase next September has to be before it too will be considered atypical enough for the Government to decide that it justifies breaking the Conservative Party’s manifesto commitment to the triple lock?

The Minister needs to tell us that this year’s broken promise is truly a one-off and that the commitment to the CPI-linked increase will be adhered to, whatever next September’s increase. If we are not given such a commitment—which I suspect we will not be—then, in truth, we must conclude that we have a return to decisions about increases in the state pension being made on an ad hoc annual basis. History tells us that the inevitable outcome is that pensioners will suffer.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for introducing her Motion and all noble Lords who have spoken. I am going to get a new T-shirt for Christmas: “Proud to Be an Irritant”. Perhaps they should start selling them in the House of Lords gift shop; they might sell quite well. A nice note for the noble Lord, Lord Desai.

I must say that I am disappointed. The House voted by a healthy majority for the amendment in the name of the noble Baroness, Lady Altmann, which would have kept the link between pensions and earnings. It is worth noting that the amendment won support from around the House, whereas the Government were able to persuade only 13 Members who do not take the government Whip to vote against. The reason is clear: the case was unpersuasive.

The Government came to power on the back of a manifesto commitment to the triple lock, which we also supported at the last election, as did the Liberal Democrats and other major parties. The Government now want to ditch it for next year on the grounds that the rise in earnings over the year to last summer was artificially high as a result of Covid. We accept that earnings growth was distorted as a result of the pandemic, but that does not mean that the Government should just ditch their promises. They could and should have found a way to maintain the earnings link in pensions while adjusting for the Covid effect.

I will not relitigate this but, during the passage of the Bill, we looked at lots of ways we could do it, and lots of constructive suggestions emerged, and in the end the House coalesced around a very reasonable amendment in the name of the noble Baroness, Lady Altmann, with cross-party support, which simply said that the Government should use a figure for earnings chosen

“in the light of reasonable adjustments to take account of the impact of the COVID-19 pandemic based on the Office for National Statistics reported earnings figure.”

It could not have been more reasonable, and it left the Government considerable latitude: we were not telling the other place what to do but simply giving them a chance to think again.

But the Government flat out rejected that. The Pensions Minister in the other place did comment on the merits of the amendment, but he caricatured it by saying that it

“invites the Secretary of State to measure earnings as if they were not actually growing by 8.3%.”—[Official Report, Commons, 15/11/21; col. 359.]

So are the Government now saying that earnings growth actually is 8.3%? If so, why are they ditching the triple lock? And if it is not 8.3%, why did they not take the chance this House afforded them to look at alternatives?

The Minister again mentioned time pressure, so I put to her again a question I put at an earlier stage in the Bill. She told noble Lords there were two reasons why it was so time-critical. The first was that the computers have to be changed by a date—I think it was 26 November, or another date late this month that was the last date that computers could be changed to adjust the rates for next year. She also said that the House will then have to approve the uprating order, which we normally do in the spring. So what happens if they change the computers deep in the bowels of DWP and then the House chooses to reject the uprating order? What happens then?

While we are here, by refusing to look again, we are left with a Bill which will uprate pensions by the CPI inflation rate prevailing last September. Meanwhile, we all know that the costs of things that all pensioners use—food and fuel, for example—are spiralling up. Pensioner poverty is on the rise again. The last Labour Government managed to bring it way down, but it started to rise again in 2012. It is now on the rise and it will get worse yet.

I am sorry to say that this short Bill is a mistake. It steps away from the earnings link and, in walking away from their manifesto commitment for the third time, the Government are breaking trust with the electorate. Why are they so determined to do it? Ministers tell us that it is for one year only. Great, but I worry that their refusal to be creative in finding a way to deal with the fallout from the pandemic raises fears that they really are planning to walk away from this longer term.

My noble friend Lord Rooker is, as always, right. We have done what we can. We have asked the elected House to think again. The Government whipped their people to say that they did not want to do so. I think they are wrong. Pensioners will pay the price for this and they will not likely forget this breach of trust. I hope the Government think it was worth it.

[Baroness Stedman-Scott (Con)]

My Lords, I thank all noble Lords for their contributions. To answer the question put by the noble Lord, Lord Davies, about the Government believing in the long-term earnings link, yes, this Bill is for one year only. After that, it will revert to the current legislation, and state pensions will increase at least in line with earnings. The triple lock will be applied in the usual way for the remainder of the Parliament. We believe that 8.3% is atypical growth, just as we considered minus 1% to be atypical last year, which is why we increased state pensions by 2.5% instead.

Again, to the noble Lord, Lord Davies, inflation is forecast to be higher than 3.1%. Do pensioners not need a higher increase? The uprating order for all benefits will take effect from April 2022 and, last year, pensioners saw an increase of 2.5% when CPI for the uprating review period was 0.5%. Average actual CPI over the first six months of this financial year was lower, at 2.4% at the Budget, and the OBR forecast that CPI would average 4.1% for the second six months of this financial year. If this turns out to be the case in September, the CPI figure will be a good reflection of average inflation over whole of 2021 and 2022.

The noble Lord, Lord Sikka, said that the state pension is the lowest in the developed world and is still below the 1979 level relative to average earnings. This comparison is misleading. There are many factors to take into account: tax systems, healthcare systems, pension ages, cost of living, access to occupational pensions and the availability of other social security benefits, as well as the provision of services and goods free to pensioners or at a concessionary rate. The Government provide considerable additional support for pensioners. People over state pension age are entitled to free winter fuel payments worth £2 billion every year, free eyesight tests, NHS prescriptions worth around £900 million every year, and free bus passes worth £1 billion every year. In addition, the BBC has made provisions so that those aged 75 or over who are in receipt of pension credit are eligible for free TV licences.

To answer the question put by the noble Baroness, Lady Sherlock, if there is no Royal Assent, we need to use the current legislation at 8.3%.

Motion A agreed.

Motion B

[Baroness Stedman-Scott]

Moved by

That this House do not insist on its Amendment 2, to which the Commons have disagreed for their Reason 2A.

2A: Because Lords Amendment 1 would alter the financial arrangements made by the Commons and Lords Amendment 2 is consequential on that Amendment; and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

[Baroness Stedman-Scott (Con)]

My Lords, I have already spoken to Motion B:

“That this House do not insist on its Amendment 2, to which the Commons have disagreed for their Reason 2A.”


I beg to move.

Motion B agreed.