Pensions and Benefits Uprating

Debate between Eilidh Whiteford and Stephen Timms

Tuesday 25th February 2014 Commons Chamber

[Stephen Timms]

If the arrangements in place before the last election had been maintained, the increases would have been at RPI. If they had been at RPI, we would be debating today a higher value for the basic state pension than the one in the order in front of us.

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

When we have debated such issues in the past, I have been quick to highlight the fact that both CPI and RPI are not particularly good methods of measuring inflation, especially its impact on low-income groups, including pensioners. Does the right hon. Gentleman agree that the real issue at stake here is that energy prices have increased by 37% in the past 10 years and that food inflation has grown ahead of inflation every year for the past eight years? We should be talking about the impact of inflation on low-income groups and not the technical measure. We should be finding technical measures that reflect that impact of inflation.

[Stephen Timms]

The hon. Lady makes an important point. I hope she will support Labour’s energy price freeze, which will have an important benefit for people on low incomes. She is also right to draw attention to the particular difficulties of pensioners on low incomes. It is for that reason that pension credit is so important. Pension credit, which is in the order in front of us—I believe that my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) will say more about that when he responds to the debate later—is being uprated at a significantly lower rate in percentage terms than the basic state pension.

I was talking about the history of the triple lock. In the first year, it was overridden, so it failed. In its second year, it was implemented and delivered an increase in line with CPI, along with working age benefits. Last year, it was applied again and, for the first time, it delivered something better than CPI, but that was only by 0.3 percentage points. This year, the Government propose to uprate the basic state pension by CPI, which, as of September last year, was 2.7%. That is only a 0.2 percentage point increase on the absolute bare minimum that would be possible under the triple lock. Had the previous uprating RPI mechanism been in place, there would have been a larger pension increase this year, and in the last two years, than has been delivered.

It was in 2011 that the Government first uprated pensions by CPI rather than RPI. In the debate then I pointed out that this was a direct hit on the income of pensioners, and it still is. In 2011, a contributory deal, understood and signed up to by pensioners, was broken. That was compounded last year, and the Government want to do it again this year. On the other side of the coin, it is worth noting that RPI will continue to be used for the uprating of a great many other things. The Minister has correctly quoted my comments on that in the past. There could well have been a case to uprate by CPI as a deficit reducing measure for a period. However, we do not accept that Ministers should have tied themselves to CPI indefinitely, and that remains our view.

As announced in 2010, the Government have also made a permanent switch to CPI uprating. Thanks to the Welfare Benefits Up-rating Act 2013, most working age benefits were capped at 1%, with provisions for them also to be capped at 1% for the following two years, and so are outside the scope of this order. As we have said in previous years, there would have been a reasonable case for the Government to make a temporary change to the methodology, but unfortunately they went further.

Pensions and Social Security

Debate between Eilidh Whiteford and Stephen Timms

Thursday 23rd February 2012 Commons Chamber

[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.

Welfare Reform Bill

Debate between Eilidh Whiteford and Stephen Timms

Wednesday 1st February 2012 Commons Chamber

[Stephen Timms]

My right hon. Friend is prompting the Minister with the answer. We will look carefully at the detail of the proposals. Presumably, they are going to appear in regulations; they are certainly not in the Bill. It is helpful that the Minister has told us that, however.

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

Concerns have been expressed to me by parents who have tried to save for their disabled children. They have put money aside for them, but the proposals will affect them because the money will be in their children’s names.

[Stephen Timms]

The Minister has told us that someone who receives an inheritance should lose all their support from the state. Those could be similar circumstances to those that the hon. Lady has just mentioned.