Pensions and Benefits Uprating

Gregg McClymont Excerpts

Tuesday 25th February 2014 Commons Chamber

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

I do not intend to detain the House for too long. I begin by thanking my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) for a powerful speech. The final point that she made is an important one, and it is worth the House’s reflecting on it, because often when we discuss these kinds of issues there is a tendency to caricature the record of the last Labour Government, but anyone who looks closely at their changes to and improvements in social security will see a record of quite substantial progress. Of course, social progress often comes slowly; it is measured in inches as well as feet, and in centimetres as well as metres. However, there was significant social progress and that is part of the context within which this debate should be understood.

[Mr Reid]

The hon. Gentleman referred to enormous social progress, but why did the last Labour Government not increase pensions in line with earnings, as will now happen over the long term thanks to the triple lock?

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[Gregg McClymont]

I am pleased that the hon. Gentleman made that point, because to some degree it illuminates the difference between him and Labour; because what he discounts entirely by asking that question is the impact of pension credit. I do not know how aware he is of pension credit, but it took 1.3 million pensioners out of poverty. Is that not something that he welcomes? It reduced pensioner poverty in Scotland by two thirds, taking 200,000 pensioners out of poverty.

[Mr Reid]

rose—

[Gregg McClymont]

I will give way to the hon. Gentleman again, but I hope he will recognise that achievement.

[Mr Reid]

The defect of the pension credit arrangements, when compared with the new pension arrangements that my hon. Friend the Minister has introduced, was that people had to apply for pension credit, and a lot of people were unaware that they had to do that, whereas under the new pension arrangements everyone will get the single-tier pension.

[Gregg McClymont]

I am afraid to say to the hon. Gentleman that, although I understand where he is coming from, it is not the case that everyone will receive the single-tier pension; people must have made contributions for 35 years. He should speak to his colleague, the Minister, who everyone recognises is an expert on the state pension. There will be poor pensioners who will not receive the new pension, and they will depend on pension credit.

I asked the hon. Member for Argyll and Bute (Mr Reid) to reflect on the reality of the difference that pension credit made, particularly in a period after 1997 when there was genuine absolute pensioner poverty.

[Sheila Gilmore (Edinburgh East) (Lab)]

Is it not the case that if it had not been for the framework that was set up by the last Labour Government—particularly the introduction of pension credit, which is clearly already accounted for in budgets—it would have been far more difficult to move to the form of pension that the Minister has proposed?

[Gregg McClymont]

My hon. Friend makes an important point. The level at which the Minister appears set to place the new flat-rate state pension is just above pension credit. It is that framework, which was set for the poorest pensioners to ensure they would no longer live in poverty, that is so important. My argument is not that the hon. Member for Argyll and Bute is entirely wrong; it is that he must take account of the difference that pension credit made to the poorest pensioners in his constituency, my constituency and around the country.

That brings me to the question that I wanted to ask the Minister, which is about pension credit. Of course it is welcome that the basic state pension is rising by £2.95, and he was very clear that pension credit will also rise by £2.95, but of course as a percentage rise, the rise for pension credit is less. The danger is that those on pension credit will fall behind relative to those on the basic state pension.

The term that the Minister used was over-indexation. A little alarm goes off in my head when Ministers resort to using such terms. A more straightforward way to put things is to say that pension credit, which the poorest pensioners rely on, is not being uprated by the same percentage as the basic state pension. There may be an excellent reason for that, but I would like to hear it.

There is also a more fundamental point about the new pension system that the Minister and the Government are introducing, which relates to the point that my hon. Friend the Member for Edinburgh East (Sheila Gilmore) made. It is that, as the Pensions Bill proceeds, the new flat-rate state pension—as I understand it—is being set just above pension credit. If pension credit loses its value relative to the basic state pension in the run-up to the introduction of the new system, there is a danger that the flat-rate state pension will be pegged at a lower rate than would otherwise be the case. We must be clear not only about the implications for the poorest pensioners of a lag in the uprating of pension credit, but about the implications for the flat-rate state pension system for which the hon. Member for Argyll and Bute is such an enthusiast. We must ask these legitimate questions. If we are to have a reasonable debate, we need to recognise the progress that was made over the past decade—certainly until 2010—and consider how that will interact with the flat-rate state pension system that the Minister is so keen on creating.

[Dame Anne Begg (Aberdeen South) (Lab)]

Following its pre-legislative scrutiny of the draft Pensions Bill, my Work and Pensions Committee thought that there should be a larger gap between the flat-rate state pension and pension credit to ensure that there would be a cut in means-testing, which the Government claim will be the effect of the flat-rate pension’s introduction. However, that will not happen if the two are kept together, or if one is lower than the other.

[Gregg McClymont]

My hon. Friend is widely acknowledged as an expert in this area, and questions arise when pension credit is not uprated by the same percentage as the basic state pension. As I said, I start to get worried when I hear the phrase “over-indexation” because the Minister is actually saying, “We have decided that pension credit will be uprated by earnings unless we decide otherwise, and we have decided otherwise, so it will be uprated by the cash equivalent of the uprating to the basic state pension.” However, that represents a smaller percentage increase, so we need to be aware of the wider implications of that.

I made it clear that I would not detain the House for too long. My right hon. Friend the Member for East Ham (Stephen Timms) asked the Minister a number of important questions, to which I shall add my own. First, does the Minister agree that pension credit made a real difference to millions of poor pensioners in this country? Secondly, does he agree that it provides the basis on which the flat-rate state pension will be pegged under his new system? If that is the case, it is important that we debate the lesser uprating of pension credit, and I hope that the Minister accepts that I ask my questions in the spirit of co-operation and inquiry.

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[Steve Webb]

No one is suggesting that nothing has changed. The global economic downturn was far deeper than was originally thought, and we have had to recover from that. We had to make changes to the benefits system to try to balance the books, which the previous Government failed to do.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said that he felt uncomfortable when I talked about over-indexation. Let me make it clear that under the pensions legislation that the Labour Government put in force, there is a legal duty to uprate pension credit by earnings, but we are doing more than that. The hon. Gentleman implied that we were doing less and that we were somehow putting in place a worse increase, but we are paying a £2.95 increase on the basic state pension, and we do not want to follow Labour’s approach of making an earnings increase to the guarantee credit because that would give the poorest pensioners less than £2.95. In our jargon, we are passing through the full £2.95. Far from paying less than the law requires, we are paying more, because we put the biggest priority on the poorest pensioners.

[Gregg McClymont]

The Minister is well aware that earnings have been in decline, so setting out the Government’s approach as some sort of virtue is a bit like the argument that was made when he had to override the triple lock on its first day because it would have produced so little. However, does the Minister not accept that the situation has implications for the level at which the flat-rate state pension will be set?

[Steve Webb]

I would like to suggest that the colleague who just whispered in my ear was saying how much he was enjoying our debate on welfare and urging me to keep it going, but that may not have been the tenor of his remarks. What we are trying to do is ensure that we do the right thing by the poorest pensioners. Had we simply done what Labour required us to do by law, which was to index in line with the growth in average earnings—it was Labour’s law, not ours—the poorest pensioners would now be getting less. I assume that the hon. Gentleman is not suggesting that we should do that. We have therefore overridden Labour’s law and been more generous to the poorest pensioners. I do not know whether that is socialist enough for him, but it is what I think is the right thing to do.

[Gregg McClymont]

Let us be very clear that pension credit has been uprated by less than the basic state pension. That is a judgment the Minister can make, but let us be clear about what it means for the poorest pensioners: they are not getting the same increase as other pensioners. That is a judgment the Government can make, but they should at least be clear about what is happening.

[Steve Webb]

The hon. Gentleman is completely wrong, because they are getting exactly the same increase—£2.95—as in the basic state pension. He seems to want it both ways. If he is saying that the increase in pension credit should have been the 2.7% on the basic state pension, can he tell us where he would get the money from?

[Gregg McClymont]

The Minister is an intelligent man, and my point is a simple one: an increase of 2% is less than an increase of 2.7%. I think that we can all agree on that.

[Steve Webb]

I did not hear the hon. Gentleman say where the extra cash would come from—the bankers’ bonus tax, perhaps? Is he saying that it should be 2.7% or not? As a debating point he is saying that it should, but he has no idea where the money would come from. [Interruption.] He says from a sedentary position that he wants me to be straight about this. Being straight with the electorate means that if he stands up in Parliament and says that the increase should be bigger, which he has every right to do, he must say where the money would come from. That is the nature of choice in government.

The right hon. Member for East Ham (Stephen Timms) asked about tax credit. Tax credit rates will be set out in affirmative statutory instruments in the usual way and debated in the usual way, so there is no difference there. He talked about the triple lock, which we are very proud of. In fact, we understand that the Opposition are going to copy it. On one level he was mocking and deriding it, but when the Prime Minister said that he would continue it in the next Parliament if re-elected, the leader of the Labour party said that

“nobody should be in any doubt about our commitment to the triple lock”.

The right hon. Gentleman ought to have a word with his leader, who thinks that the triple lock is really a rather good thing.

I want to respond to the right hon. Gentleman’s attempted demolition job on the triple lock that is now his policy. He implied that had Labour been in office, pensions would have gone up by more. There are two possible ways that could have happened. One is if Labour had continued the RPI link. We all know that the statisticians do not think that RPI is a particularly good measure of inflation, and I refer to what the hon. Member for North Ayrshire and Arran said earlier. I entirely accept that RPI is generally, although not always, bigger than CPI, but we are not trying simply to pick a bigger or smaller number. In having these annual debates, we are trying to compensate for average inflation. If society thinks that benefit rates are too low, we can do something about benefit rates. What we do not do is just pick an inflation measure because it is bigger or smaller.

We chose CPI because it is a robust and internationally standard definition. The statisticians have dropped RPI as a national statistic because they do not think that it is a good measure of inflation. When the Secretary of State looked at the increase in the general price level this year, CPI was the only number he could realistically have used because RPI is no longer regarded as an official statistic and the other new measures have not even been properly implemented yet. It is entirely open to the hon. Member for North Ayrshire and Arran to persuade her Front Benchers that we should tax people more and increase benefits, but that should be done by making a decision, not by using a measure of inflation that even the statisticians no longer think works.

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[Steve Webb]

There are clearly differences in inflation over time and between different groups. We use one number across the board. There will be years when pensioner inflation is higher than the figure we use and years when it is lower. At the moment, there are particular pensioner price indices, but they do not include all pensioners. We simply use one number that, on average and over time, captures inflation, but spending patterns differ. This Government have clearly taken steps to help people at the bottom of the pile. To counter what the hon. Lady said, inequality rose under the previous Labour Government and has fallen under this Government. [Interruption.] She shakes her head because the statistics and the evidence do not fit her presumptions, but the fact is that Labour presided over growing inequality in this country.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East seemed to imply that pensions would be higher if Labour had remained in government, but he knows perfectly well that before the general election the previous Government mooted moving to earnings indexation from 2012. Had they done so, we would now have a lower state pension than we have now. Would they have carried on with a prices index that nobody really thinks is a good measure of inflation? Where would they have found the billions of pounds to do that? He has implied that they would not have done that and that they would have accepted use of CPI for three years, in which case the state pension would not now be higher. There are lots of “what ifs”, but it is fairly clear.

My right hon. Friend the Deputy Prime Minister has suggested that Labour has started to get it on the public finances, but I am afraid that the right hon. Member for East Ham is still in the Brownite mode from when he was in charge of the nation’s spending. People always ask me whether the triple lock is affordable, but it is just not good enough for him. He wants something more generous. I think that we need a dose of realism in this debate. He asked some specific questions, and my right hon. Friend the Secretary of State responded to his questions on universal credit yesterday. Practically every benefit that exists is listed in these orders and we could debate them all, but that is not the focus of this debate. Suffice it to say, universal credit will lift people out of poverty, which is why I am proud to support my right hon. Friend’s plans.

The right hon. Gentleman asked about ESA. I will not comment on documents that he said have been leaked, but I can say that we are taking action to tackle the backlog in the system. I would have thought that he, when wearing his constituency hat, would want us to do that, but he is welcome to table questions to the Minister of State, my hon. Friend the Member for Wirral West (Esther McVey), for further information.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked about the role of pension credit. He hails pensions credit as some sort of salvation. Let us be clear that pension credit was, primarily, a rebranding. We had national assistance, then we had supplementary benefit, then we had income support, then we had the minimum income guarantee, and then we had guarantee credit. They were all basically the same thing—a line below which people were not meant to fall. Therefore, the guarantee credit bit was, in essence, a Brownite rebranding. The new bit of pension credit was savings credit—one of the most tortuous, complicated and obscure benefits ever created.

[Gregg McClymont]

Will the Minister give way?

[Steve Webb]

In a second; I have not finished my rant yet.

Savings credit is such a lottery that of those entitled to savings credit only, half get it and half do not. I am afraid that I do not regard a system where one tosses a coin and half the people get it and half do not as a firm foundation for security and dignity in retirement. That is why we have introduced the single-tier state pension.

[Gregg McClymont]

I have a simple question for the Minister: is it or is it not the case that pension credit took 1.3 million pensioners out of poverty?

[Steve Webb]

I do not believe that for a minute, because at the same time as pension credit was implemented, other changes were happening. For example, SERPS—the state earnings-related pension scheme—was maturing, so each successive generation of retiring pensioners was getting higher levels of state pension, thereby reducing pensioner poverty, and people had longer service in final-salary pension schemes. A whole raft of long-term trends will lead to a reduction in pensioner poverty, so to say that it was due to pension credit on its own, one would need to know what else would have happened even without it.

Clearly, savings credit is extra money, and I am sure it is very welcome to those who receive it. We have gone on indexing—in fact, as I have said, rebalancing—pension credit to give more to guaranteed credit and less to savings credit, because people claim guaranteed credit. That is why we have focused on the very poorest pensioners.

[Gregg McClymont]

Let me reframe my question. Does the Minister agree that 1.3 million pensioners were taken out of poverty during the time of the previous Labour Government?

[Steve Webb]

The hon. Gentleman will know that the level of pensioner poverty has fallen in the long run because of the factors that I have described. [Interruption.] He says that it has happened since 1997. Had the previous Labour Government done precisely nothing, the level of pensioner poverty might well have fallen anyway because SERPS was maturing. SERPS came in in 1978 and had been running for only 19 years by ’97. In each succeeding year, more and more people have got more and more state pension under SERPS as it matures, so as the oldest pensioners with no SERPS die off, the newly retired pensioners come in with bigger and bigger SERPS. That would be a long-term reason for the change, and real earnings growth would have been another factor. It is complete nonsense to say that it was due solely to pension credit, and he ought to know that.

[Gregg McClymont]

Will the Minister give way?

[Steve Webb]

One last time, because I need to conclude shortly.

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[Gregg McClymont]

The Minister appears to get tense under questioning and uses the words “complete nonsense”. Is he really standing at the Dispatch Box and saying that pension credit did not make a significant difference to pensioner poverty in the UK?

[Steve Webb]

As ever, the hon. Gentleman tries to misrepresent what the record will show that I said. I am not saying that pension credit was irrelevant; I am saying that his claim that pension credit reduced the level of pensioner poverty by 1.3 million is patently false.

Where does that leave us at the end of this debate? We have a set of orders that spend an extra £3.3 billion on benefits and pensions, overwhelmingly on pensioners. This Government will deliver a state pension that represents a bigger share of average earnings than in any year under the previous Labour Government. The point of pensions is to replace lost earnings, so they cannot do their job if they have fallen relative to earnings, as they did in almost every year of the previous Labour Government, most notoriously when they thought that 75p was enough for pensioners. We do not; we think that a £2.95 increase this year is fair and appropriate. We are proud of our record in protecting the most vulnerable and, in particular, in focusing additional spending on pensioners. I commend the orders to the House.

Question put and agreed to.

Resolved,

That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.

Social Security

Resolved,

That the draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.—(Steve Webb.)