Social Security (Up-rating of Benefits) Bill

Guy Opperman Excerpts

Consideration of Lords amendments
Monday 15th November 2021 Commons Chamber

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

I beg to move, That this House disagrees with Lords amendment 1.

[Madam Deputy Speaker]

With this it will be convenient to consider the Government motion to disagree with Lords amendment 2.

[Guy Opperman]

The Social Security (Up-rating of Benefits) Bill is a one-year Bill by reason of the pandemic. Last year, as you will be aware, Madam Deputy Speaker, we changed the law for one year to increase state pensions by 2.5% at a time when average earnings had fallen and consumer price inflation had increased by half a percentage point. If we had not taken this action, state pensions would have been frozen.

This year, average earnings growth is estimated to be unusually high, distorted by the cumulative effects of a natural economic reaction to the coronavirus pandemic and the response to the supportive measures introduced by the Government to protect livelihoods. The figure for average weekly earnings from May to July—the measure used for uprating earnings-linked benefits—has grown at 8.3%, which is over two percentage points higher than at any time over the past two decades. Recognising this covid-related distortion, the Government are setting aside the earnings link for one more year, 2022-23, and continuing the double lock of at least inflation or 2.5%. The triple lock will be applied again in the usual way for the basic and new state pensions from the following year.

[Stephen Timms (East Ham) (Lab)]

Of course I understand why the Government have decided not to increase the state pension by 8%, but is it still their intention that the value of the state pension should, over time, at least keep track with earnings?

[Guy Opperman]

The right hon. Gentleman will be aware that we remain committed to the triple lock. This is a one-year-only Bill. This will be a continuation of the policy that the Government introduced as part of the coalition in 2010 and have continued to pursue on an ongoing basis since then. There is no intention to change that.

[Stephen Timms]

rose—

[Guy Opperman]

I will make some progress.

It is right that I address these Lords amendments, Madam Deputy Speaker, because, as you rightly outlined, they engage financial privilege in that they interfere with the financial arrangements made by the elected House of Commons. That alone, I respectfully submit, is sufficient reason to disagree with the Lords amendments. However, it is also right that I address directly the point that was made by the House of Lords that invites the Secretary of State to measure earnings as if they were not actually growing by 8.3%. I assure the House that there is no robust way of calculating them as if they were not.

The independent Office for National Statistics has responsibility for producing economic statistics to the highest possible standards. ONS experts investigated whether it was possible to produce a single robust figure for underlying earnings growth that stripped out impacts from the pandemic, and concluded that it was not possible. Alongside the actual earnings growth figures, the ONS suggested a possible indicative range of 3.6% to 5.1%. These figures do not have national statistics status. Indeed, the ONS itself includes heavy caveats on the issue and advises caution in approaching it. The Bank of England also cast doubt on identifying a figure that could be relied on. The ONS said:

“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.”

It said that the statistics therefore “need to be” treated “with caution”.

We believe it would be reckless in procedure and in law for this or any other Government to set a precedent for uprating benefits or pensions using a methodology that is not robust and for which there is no consensus. That is why the Government have decided to suspend the earnings link in this year of exceptional and anomalous earnings growth. Instead, we decided to apply a double lock underpinned by the established consumer prices index published and approved by the ONS. This approach was also recommended by the Social Market Foundation and other commentators, and very strongly by this House on Second Reading, Report and Third Reading. That is the legislation that this House passed to the Lords, and that is the legislation I would urge this House to send back to the Lords.

I remind the House that over the two years of the pandemic the Government will have ensured that the pensions covered by this Bill will have increased by much more than prices, by reason of the 2.5% increase last year and the link to CPI this year. In those circumstances, I commend this House to reject the House of Lords amendments and agree that we proceed with this one-year Bill by reason of the pandemic.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Whatever else could be said about the House of Lords, it is a place that genuinely contains a great deal of expertise on the subject of pensions. We are fortunate to have that expertise in Parliament and we should be prepared to listen to it. Having studied the exchanges in the Lords, I feel that the Government’s positions on this matter have not held up well under scrutiny, and the debate has moved on considerably since we last discussed it here.

Labour will therefore vote to accept the amendment put forward by the former Conservative Pensions Minister Baroness Altmann, which was well argued and handsomely carried, but which also most closely reflects our own position on these matters. That is to say, we accept, as I have said clearly and repeatedly, the Government’s case that the true figure of earnings growth in the UK is not 8.3%. It would be absurd to maintain that that is what is happening to our constituents’ wages right now. Labour supports the triple lock. We believe the Government’s manifesto commitment should be binding and that the connection to earnings in the uprating decision for this year should remain.

In her remarks, Baroness Altmann made it clear that she was not proposing a specific uprating figure by proposing this amendment. That is important. It seems to me that all Conservative MPs could vote for this amendment, honour their own manifesto commitment, and still address the problem of how the pandemic has distorted the earnings data. It would just require the Government to effectively make an assessment of whether real wage growth is higher or lower than CPI inflation, and, if higher, use that figure.

When we last held a debate on this in the Commons, the Government said that that would not be legally sound, but the Lords debate knocked that down fairly easily. As Baroness Altmann said, for a judicial review to occur, the figure the Government used would have to be found to have been brought about by the Government acting irrationally. That is something we can never rule out with this Government, but it should be more than possible to avoid that. If I may say so, one of the reasons the Government lost this vote so badly in the Lords was their tendency to rely on short-term, inconsistent arguments to bounce from one day’s headlines to another’s.

[Guy Opperman]

The hon. Gentleman criticises the Government for not coming up with a solution, when he is unable in any way to come up with a solution or figure himself, as are the Office for National Statistics, the Bank of England and all other reputable organisations. In fact, the House of Lords did not come up with a figure, so what, pray, if he would enlighten the House, is the precise figure that he would see pensions increase by?

[Jonathan Reynolds]

I am grateful for the Minister’s intervention. I am about to explain why he has got himself and the Government into this position.

[Guy Opperman]

What figure?

[Jonathan Reynolds]

With respect, the Minister just needs to listen to this point. He stands at the Dispatch Box and, like all Ministers, tells us that black is white. For instance, when the Government reacted to the crisis of their own making—when we saw the pumps run dry and the shelves go sparse—they claimed to the country that this was a secret masterplan towards a high-wage economy that they had had all along. Now, we are having to see the Minister and the Government tie themselves in knots again, because he has been sent here to make the case, which we have heard him put very well, that the figure is too distorted and therefore we need this primary legislation, yet—and this is the problem, Minister—according to the Prime Minister, wages are up, workers have never had it so good and that is why the Government can cut £20 a week from universal credit. They are making two completely opposing arguments. We do not even know whether the Government believe that wages are rising faster than inflation. I politely say to the Minister that they cannot expect to have it both ways.

I will repeat a number of points that colleagues may have heard me say before, but I feel they need to be repeated in light of some of the media comments on the Bill. The uprating of the state pension is relevant to millions of pensioners in this country, but it is wrong to present it as an issue of intergenerational unfairness. That is because these decisions are also fundamentally about how we ensure that the state pension is indexed and retains real value for people who are in work today when they come to retire. This Government have been grossly unfair on people of working age, but frankly that is due to the burden of taxes they have inflicted on workers, rather than through the operation of policies such as the triple lock.

I hope the Minister took on board the comments made about pensioner poverty in this House and the other place. The Government’s use of what they call absolute poverty, which in reality is a measure of poverty relative to a fixed line in 2010, is unsatisfactory because not only does it ignore the statistical evidence, which is that pensioner poverty is now rising after it fell considerably under Labour, it also limits a serious debate on the drivers of that rise. The big picture is that the OBR predicts that as a country we will be spending an extra £6 billion a year, year-on-year, on pension-age benefits every year up until 2024-25. That is the year that the forecasts in the welfare trends report go up to, so it will likely continue to rise after that. Pensioner poverty is going up as spending rises substantially. We should be having a much more substantive debate about that, looking at housing costs, energy prices, food and access to good financial and investment advice. The way in which the Government present their own progress means that any real wage growth over the last decade allows them to claim that poverty has declined, so when the Minister says that 200,000 pensioners have been lifted out of poverty since 2010, the reality is that that is a very poor level of performance compared with all previous Governments. Poverty is always relative, because it is a measure of whether someone has the means to live a fulfilling life in the society of which they are a member. That is not just a left-of-centre viewpoint, but one that until recently was accepted by Conservatives, too.

However, to return to the matter at hand, the House of Lords has sent us an amendment that should genuinely command the support of the whole House. It requires the Government to maintain the earnings link in their manifesto promise, while still making allowance for the pandemic. This Government have dragged politics through the gutter in recent weeks, with stories of sleaze, corruption, contracts for donors and second jobs from Caribbean islands. I could go on, but the point is that public trust in this place matters. When the Government muddy our democracy in the way that they have, they cannot then turn to the public and ask voters to simply take them at their word. For public trust to return, the first step has to be for the Government to keep their promises. Today, Labour will therefore support the amendment that would allow the Government to keep their promise on the pensions triple lock.

The Lords have sent us a very reasonable set of measures, and frankly I see no logical reason not to support them if we want to protect the link between earnings and pensions. If the Government are unable to do so, they should admit what is really going on: they are using the pandemic as a smokescreen to scrap the triple lock and pocket the savings. They should cut the obfuscation, keep their promises and vote for the Lords amendments.

--- Later in debate ---

[Guy Opperman]

rose—

[Stephen Timms]

I will gladly give way to the Minister. Hopefully he will clarify the position.

[Guy Opperman]

I think the right hon. Member misheard or misunderstood me. This is a one-year-only Bill; after that, we revert to the current legislation and state pensions will increase at least in line with earnings. That is what I thought I made clear.

[Stephen Timms]

The Minister did indeed say that in response to my intervention, but that does not answer the question. The question was: do the Government intend the value of the state pension, over time, at least to keep track with earnings? I was hoping that he would reaffirm that. I do not think that is controversial—it is a policy long held by the Labour Government, the coalition Government and this Government—and I hoped that he would say that that was still their intention, even though in the current year, for reasons that we all understand, the value of the state pension will fall significantly behind the increase in earnings.

As I hope I made clear in my intervention, I think it is entirely reasonable not to increase the state pension by 8% this year; I completely understand the case for not doing that. It looks as though we will get an increase of around 3%, in line with CPI. The hon. Member for Glasgow East (David Linden), who spoke for the SNP, talked about the likely rates of inflation, and, depending on increases in prices and earnings next year, it is quite likely that the state pension will never catch up with earnings unless there is a catch-up initiative of some kind. The Lords amendments would provide such a mechanism. If there is not a catch-up at some point, that would be contrary to the Government’s long-held intention that the state pension should at least keep track with earnings. The fact that—as the Minister has now told the House twice—it will get back in line with the triple lock next year does not solve the problem, because there is a significant backwards move this year. Will there be a catch-up initiative at some point? It looks and sounds as though there will not.

Keeping the value of the state pension going up in line with earnings was a key pillar of the new pensions framework set out in the report by Adair Turner and his fellow commissioners John Hills and Jeannie Drake, published in 2005 and 2006. The settlement’s key elements were that the state pension should keep track with the increase in earnings over time, and auto-enrolment. It was accepted by the Government then and by every Government since.

The importance of that needs to be spelled out. It is not just about being more generous to pensioners and helpful to older people. It is important because it ensures a sound foundation for pension saving, so that people auto-enrolled into pension saving through that successful initiative, which we have all celebrated, are not being encouraged by the state into a bad deal. If the value of the state pension will no longer at least keep track over time with earnings, some people will be better off spending their money now, rather than saving into the pension pot that they are being auto-enrolled into, and later relying on the means-tested safety net of pension credit.

If the state pension slips behind earnings, modest pensions accrued through auto-enrolment will become worthless, because those who claim them in due course will not get above the means-tested threshold and they will still have to depend on pension credit for their income in retirement, and the fact that they have saved into a pension will do them no good at all. That will be a growing problem if the level of the state pension is allowed to slip behind the increase in earnings.

If that does happen, people who are looking forward and saving but are going to end up with fairly modest pensions should instead spend the money at the time they earn it, rather than save it in a pension that, in the end, is not going to take them above the means-tested threshold and so will not give them any additional income. That is why what the Minister is arguing for is such a threat to the success of auto-enrolment. Auto-enrolment will no longer be a sound basis for pension saving if the level of the state pension is allowed to drift below the level of earnings.

People must be able to trust in the state pension under the policies of the Government. They have been able to do so up to now, and now they will not. That raises a pretty fundamental question about the future of the Government’s pensions policy. There is a real danger in allowing, almost by sleight of hand albeit for reasons that we all understand and sympathise with, the state pension to fall permanently behind the increase in earnings and weakening the pension framework that, as far as we all know, is still the basis of the Minister’s policy.

We should not allow that to happen. We need either a measure, and the Minister needs to reassure us that there will be, such as a catch-up initiative to make sure that the state pension over time—not this year, but by next year or the year after—will keep track with the increase in earnings, or the House needs to accept the amendment agreed with a significant majority in the other place, because that keeps the pension framework in place and keeps it effective. There is a real worry if there is a significant falling behind. If there is a 3% increase in the state pension at a time when earnings have gone up by 8%, that will be a one-off 5% fall in the state pension behind the level of earnings. Depending on what happens to earnings growth, which will certainly not carry on at 8%, and on inflation rises next year, that fall could well be locked in for good and the pension framework will have been weakened.

I hope that I have made it clear why this is actually quite important. It is not just about whether we are being generous enough to pensioners. The question is: are we keeping in place a robust and reliable framework for pension saving based on which people can plan with confidence for the future?

--- Later in debate ---

[Patricia Gibson]

I absolutely agree with my hon. Friend that one of the so-called Union dividends is a pension that is a pithy amount compared with those in other developed nations.

There is genuine fear that this abandonment of the triple lock will lead to permanent and more damaging actions against pensioner incomes. The state pension is by far the largest source of income for millions of UK pensioners, and the triple lock has kept that secure throughout the pandemic. To break it now, as inflation creeps up and the cost of living becomes increasingly challenging, is a shocking attack on pensioner incomes, and it is part of a wider and increasingly obvious narrative from this Government. It is crystal clear, because we have the evidence. We know that women born in the 1950s had their pension age increased with little or no notice; we have seen unacceptable state pension payment delays for new retirees, causing genuine financial hardship and suffering; we have more than 2 million older people living in poverty; and with the triple lock abandoned, many pensioners are set to be £520 less well off next year. All of that will do untold damage to pensioners.

I again urge the Government to stop attacking pensioner incomes and at least keep one of their promises to the electorate by retaining the triple lock and preventing more of our pensioners from suffering hardship in old age. There is an opportunity today to do the right thing. The Government must take this opportunity, and they must take it with good grace.

[Guy Opperman]

I thank all colleagues for their contributions. The factual reality of the situation is that this Government are spending £129 billion on pensioners. That is £105 billion on the state pension and £24 billion extra on the various add-ons for pensioners, including winter fuel; free eye tests; bus passes; free NHS, obviously; pension credit—I could go on in great detail. My hon. Friend the Member for North Norfolk (Duncan Baker) asked whether the triple lock will return. I can assure him that that is the case.

[John McDonnell]

On that point, it is almost as though the state pension is a charitable donation to pensioners. They paid for it, working throughout their lives, through their taxes, their national insurance—their contributions. Some of them served on our behalf in the armed forces. They paid for this; it is not some charitable donation by the Government.

[Guy Opperman]

There is so much that I could reply to; I could genuinely take some considerable time replying to the right hon. Gentleman. Let us start with this. During the last Labour Government, in which time the right hon. Member for East Ham (Stephen Timms), who is a former Pensions Minister, another former Pensions Minister who is in the Chamber, and the right hon. Member for Hayes and Harlington (John McDonnell) were Members, did they in any way link the state pension to earnings? Not on one single occasion over 13 years. It is this Government—the coalition Government and this Conservative Government—who have linked it to earnings.

The right hon. Gentleman talks about the state pension. That is paid for by the working taxpayer on an ongoing basis. The working taxpayer is paying more for the state pension, and it is a larger state pension than ever before; £129 billion is spent—[Interruption.] A hundred and twenty-nine billion. He does not want to hear it, because it is the largest state pension there has ever been. Thirteen years of a Labour Government, and what did they do? They never linked it to earnings. I remember the 75p increase in state pension by Gordon Brown. It is astonishing, the hubris that the right hon. Gentleman comes up with.

The factual reality is that there was never a situation where the Labour Government did anything like the coalition and Conservative Governments did. I asked the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), who represents the Opposition, to come up with a figure. You can search Hansard for as long as you like, Madam Deputy Speaker; answer came there none. There was not a single figure. The factual reality is that the Opposition have no idea how they would approach this, they have not come up with an individual figure, and they are not able to do anything—

[David Linden]

Will the Minister give way?

[Guy Opperman]

I will, for the last time.

[David Linden]

With a view to trying to bring the heat down just a little, let me ask the Minister this. He mentioned the commitment that the triple lock would return next year. Would he be willing to put on the record that, if the triple lock does not return next year, he will resign from ministerial office?

[Guy Opperman]

It is in the Bill that it only lasts for one year. The hon. Gentleman should really read the Bill. It is not that difficult; it only runs to two pages and two clauses.

[Stephen Timms]

Will the Minister give way?

[Guy Opperman]

No. I have given way once already to the right hon. Gentleman, and I have answered his point on two occasions.

The Bill is for one year only. After that, it will revert to the current legislation, and state pension will increase at least in line with earnings. The triple lock will, I confirm, be applied in the usual way for the rest of the Parliament. I would point out to the House that last year, earnings fell by 1% but we still legislated to allow state pensions to be increased by 2.5%. As a result of the triple lock, as I say, the full yearly basic state pension is £875 more than if it had been uprated solely by earnings. The increase is £2,050 in cash terms.

[Stephen Timms]

Will the Minister give way?

[Guy Opperman]

No. This is a two-clause Bill introduced by reason of the pandemic. The law will last for only one year before reverting. I commend the progress made by the Government on this issue, and I invite the House to reject the Lords amendments.

Question put, That this House disagrees with Lords amendment 1.