Pensions and Social Security

Eilidh Whiteford Excerpts

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

The right hon. Gentleman rightly says that the consumer prices advisory committee is looking at how owner-occupiers’ housing costs can be included in CPI—as he will appreciate, rent is already included in CPI. The committee has rejected the retail prices index approach in respect of mortgage interest and is looking at a range of alternatives. I understand that it is due to report in early 2013. I have said consistently that we will look at what it comes up with. Each year, as he knows, the Secretary of State must take a view on the general increase in prices, and will certainly have regard to the work of the committee in doing so.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I am grateful to the Minister for addressing one issue that I wanted to raise with him, but I am also concerned that pensioners’ and disabled people’s experience of inflation is dependent on their heating costs, which was one of the main drivers of inflation last year. My concern is that CPI is not a good measure of people’s experience of inflation, because those people experience higher inflation than the rest of us, who go out during the day.

[Steve Webb]

The hon. Lady is right that any single inflation measure will not capture the full diversity of circumstances. One of the main differences between RPI and CPI is that RPI includes mortgage interest, which is largely irrelevant to most pensioners. By excluding mortgage interest from its basket of goods, the CPI gives more weight to the things on which pensioners spend their money. Other things being equal, CPI will therefore tend to be a better fit with the spending patterns of pensioners.

The hon. Lady is right that rising fuel prices are an important issue. That is one reason why instead of simply doing our legal duty by the poorest pensioners, which was to uprate the pension credit by earnings only, which was 2.8%, we chose to do a full pass-through of the £5.30 basic state pension rise to the poorest pensioner on pension credit precisely because they have faced the pressures she describes. We are aware of that point and have sought to do something in this uprating measure to address it.

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[Stephen Timms]

The hon. Gentleman is absolutely right. People will feel that loss to a significant extent.

Those big figures, £70 billion or £80 billion, are a direct hit on the incomes of pensioners. They have paid into a pension, in many cases throughout their entire working lives, on the understanding that it would be indexed in a particular way. The Civil Service Pensioners Alliance notes that many of them will have

“entered into particular financial arrangements such as the purchase of added years, the conversion of lump sums into pensions and acceptance of moves to other employers on TUPE terms on the basis that future indexation will be linked to RPI”.

That contributory deal, understood and signed up to by pensioners, is being broken for good—permanently. KPMG has estimated that the total cost of the move to CPI uprating across the pensions system to public sector and private sector pensioners over the next 40 years will be £250 billion. The Government tell us—Conservative Members have just attempted to make this point as well—that pensioners will appreciate the stability. I have to say that they would appreciate even more having an income that kept pace with their costs.

I want to ask the Minister one specific question. The UK Statistics Authority has made the case that

“CPI should become the primary measure of consumer price inflation, but only when the inclusion in the index of owner occupiers’ housing costs has been achieved.”

I am grateful to the Minister for explaining the timetable he envisages for a change to the CPI mechanism possibly being introduced. He has not committed the Government to introducing such a change, but he has indicated when they expect to be in a position to do so. However, does he acknowledge the UK Statistics Authority’s point that, as things stand, the CPI is not an adequate measure, because of the exclusion from it of important elements of housing costs?

[Dr Whiteford]

The right hon. Gentleman has advocated a temporary use of CPI, but will he clarify whether he is advocating a return to the use of RPI at some future date? If so, when that would be?

[Stephen Timms]

I am simply making the point that if the Government had proposed a temporary switch to CPI uprating, perhaps for three years, that would have been a reasonable proposition for us to consider. As it is, we have this permanent switch, which we oppose. As to what we will do when elected to government, I will have to ask the hon. Lady to wait until the publication of our manifesto ahead of the next election, which she and many others will be eagerly awaiting.

Will the Minister say more about what will happen once this revised formula for CPI has been drawn up and published by the UK Statistics Authority? Can he provide any encouragement that the Government will in fact use what will almost certainly be a higher rate resulting from that, or will they wish to stick with the current, lower CPI figure—the one being used for the coming year?

This order also provides for an increase in the standard minimum guarantee element of the pension credit—3.9%, as the Minister said, which is above the increase in earnings to which it would be statutorily tied. It is not clear to me how the 3.9% figure has been arrived at; can the Minister shed some light on that? I do not intend to object to it. As the Minister also said, to pay for the increase, the threshold for the savings credit element, which rewards those who have made their own provision for retirement, has been increased by 8.4%—quite a large amount. The maximum savings credit payable has been reduced by about £2 a week. The reduction in eligibility was made clear when this policy was announced, but the reduction in the maximum amount was not announced at that time.

How many people does the Minister expect to be affected by those changes, and what financial savings will each of them realise for the Exchequer towards the cost of the slightly higher uprating of the minimum guarantee element of the pension credit? We need to recognise that what is happening here is that money is being taken away from slightly better-off pensioners who are still receiving pension credit in order to give to those who are dependent on the guarantee element.

Let me press the Minister on one specific question about CPI uprating. The Government are freezing local housing allowance rates from April in preparation for the linking of the benefit to CPI. To put it politely, that has not been well publicised. One might almost think that the Government would prefer it if people were not made aware of it. When the policy was originally announced, the impact assessment said:

“Some savings are assumed in 2012/13, on the assumption that LHA rates will be fixed at some point ahead of the first uprating.”

It did not say that it would be fixed for the entire year, which is what the Government are now saying. What is the Minister’s justification for doing that?

Local housing allowance rates will be calculated annually as either the lower of the rent at the 30th percentile of local rents or the previous year’s allowance uprated by CPI. That is my understanding; perhaps the Minister will confirm whether I am right. What that means, of course, is that LHA rates will fall over time below the 30th percentile of local rents. Surely Ministers should commit to ensuring, as they seem to have indicated, that at least 30% of local rented housing supply will be affordable to tenants on LHA; otherwise, there is no clear definition of what Ministers expect the LHA to deliver in each local area. Let me ask the Minister directly: what proportion of the local housing market do Ministers think should be affordable for tenants on housing benefit? When will they step in, and how far does the proportion have to fall before they will step in to uprate the LHA level back up to, hopefully, the 30th percentile point?

I have another query about housing benefit. In paragraph 4 of part 20 on page 14 of the order, the maximum deductions from benefit in respect of heating, cooking, hot water and lighting, when those costs are included in the rent and paid to the landlord, are being raised substantially by 18%. Will the Minister say a few words about why those deductions from benefit have been increased so much?

The Guaranteed Minimum Pensions Increase Order requires occupational pension schemes to uprate their guaranteed minimum pensions by their 3% share of CPI, with the state meeting the remainder of the costs. These provide an important floor to defined benefit schemes so that individuals do not get less than they would if they had remained on the state second pension. The 3% increase would have occurred under either CPI or RPI uprating, so it is not objectionable in itself.

This year we are debating these orders as proceedings on the Welfare Reform Bill seem to be drawing to a close.

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[Sarah Newton (Truro and Falmouth) (Con)]

It is a great pleasure to be able to speak in the debate, and it saddens me that I to have to begin my speech with the comments that I am about to make.

During yesterday’s debate—I sat through most of it, and have read the Hansard report—we were subjected to hours and hours of party political point scoring, with barely a mention of patients. Today, too, we have heard very partisan comments. Rather than constructive opposition or suggestions of what the Opposition might do to help the Government tackle the difficult issues that we face, we have simply heard opposition for opposition’s sake. A great many criticisms and partisan points have been made, but we have been given no real indication of what the Opposition would do.

That is not just saddening for me, but very annoying and upsetting for the hundreds of thousands of people who sent us here, and sent us here at a time when our great nation is in great peril. We have inherited a dreadful economic legacy, and we are facing huge changes in the way the world is operating. All that requires a Government with terrific purpose, who are able to govern for the common good and deliver the huge changes that we need now and in the future.

The fact that our two parties have come together in a coalition has prompted many sneers and giggles from the very few Opposition Members who are present to take part in this important debate; but we have come together, and we are facing up to those challenges. It is true that we must make some very difficult decisions, but I believe that those decisions are underpinned by exactly the right principles of fairness. We as a Government are trying to live within our means, and not to spend more public money than we take in taxes. It is necessary for us to make decisions about who is to receive the money that we have, and we are clear about the fact that we want the most vulnerable people in our society—those who need it most—to receive that money.

Like every other Member in the Chamber, I know that many hard-working families in both the public and the private sector are suffering a terrific squeeze in their incomes. There are people who have experienced pay freezes, if not pay cuts, and people who are losing benefits. I know that the difficult decisions that we have had to make will affect a large number of those hard-working families, but I also know that they have elderly relatives and neighbours and want to see a Government who will do the right thing for the elderly people in our society. Tough choices are having to be made—awful decisions about child benefit, child tax credit and working tax credit—but I believe that those families will be pleased that we are standing up for our principles, and ensuring that people living with disabilities and that elderly relatives are given a decent rise in their pensions.

I agree with some of the comments that have been made. I am not doing cartwheels. People living on a state pension, even those receiving pension tax credits, are not living in the lap of luxury; that is a modest income for many people. However, I am proud to be part of a Government who are increasing benefits in a way that will enable people to enjoy a decent standard of living.

We have discussed changes relating to the cost of heating homes. I have a great deal of sympathy with the Members representing parts of Northern Ireland who have spoken today. Like Cornwall and other rural parts of the United Kingdom, Northern Ireland contains a huge number of people who are off grid. Nevertheless, there is a constant and very upsetting misrepresentation of the Government’s policies on dealing with the important issue of fuel poverty and the excess winter deaths that go with it. With your indulgence, Madam Deputy Speaker, I will tackle that, because such comments—which have been made persistently today—engender a huge amount of fear among the many pensioners and their families who listen to our debates.

It is true that there have been changes in the winter fuel allowance, but there is also the warm home bonus of £120. The Government have made money available for innovative projects, and I want to spend a bit of time telling the House about a project in Cornwall, the healthy living programme, for which the Department of Health has provided money this winter. Members of housing authorities, Cornwall council and social services departments, GPs, Age UK and a range of other charities are working in partnership, targeting the families—many of them elderly—who are at the greatest risk of suffering badly as a result of the cold weather this winter, and making sure that all available help is provided.

As we all know from our constituency work, hundreds of millions of pounds of benefits are out there for the most vulnerable people, but those are often the people who are least likely to avail themselves of benefits, whether they take the form of actual cash benefits from the Department for Work and Pensions, free insulation, or advice and information. The members of that group in Cornwall are doing highly effective work to ensure that now, this winter, the help that is available is reaching those who need it. I am very pleased that Ministers from the Department are coming down to Cornwall to meet them, and to observe at first hand the way in which, with the assistance of relatively modest sums—our grant was £140,000—team work, thinking outside the box and doing things differently is saving people’s lives and contributing to the quality of life this winter.

[Dr Whiteford]

Obviously I cannot speak for the Northern Ireland Member who raised the issue pertaining to his constituents, but as I represent a rural constituency in which people pay excess prices for their fuel and often have no access to social tariffs, I am very concerned about that as well.

The underlying issue, which I raised with the Minister, is that older people and people with disabilities who spend a lot of time in their houses are increasingly more affected by inflation than those of us who spend most of our day outside our homes. Both the Office for National Statistics and the Institute for Fiscal Studies have pointed out that older people experience inflation at a higher rate than the rest of us, as do people on low incomes. The evidence is there. What concerns me is that CPI does not measure accurately the actual experience of people’s costs, which are higher than either CPI or RPI—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I remind the hon. Lady that she is making an intervention, not a speech—yet.

Before the hon. Member for Truro and Falmouth (Sarah Newton) resumes her own speech, may I point out to her that we are discussing uprating orders, not projects in Cornwall, however fantastic they are. She must make her speech relevant to the uprating orders, not to future grant applications for very worthy projects in her constituency.