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.