Social Security

Jane Ellison Excerpts

Thursday 17th February 2011 Commons Chamber

[Stephen Timms]

I was familiar with the call often made when I was in the Minister’s office to release occupational funds from the constraints under which they had long operated, and RPI uprating was one of them. However, the question that has to be asked is whether it is right to change the rules at this stage, effectively to undermine the accrued rights that people have always believed they would benefit from in retirement, and to shift the goalposts. I will come to that very point in a moment. However, I suggest to the hon. Gentleman that this change raises a very serious question about fairness.

Of course, we need to get the economy back on track, but that will take some time. The coalition is doing it too fast. Why do they want pensioners, the armed forces and those on the lowest incomes and least able to bear the burden to continue to lose out even long after the deficit has gone? On average, RPI is between 0.5% and 0.75% higher than CPI, as the Minister pointed out, so in any given year, benefits linked to CPI will give people a lower income by that amount. The CPI for the year to September 2010 is 3.1%, and the RPI figure is 4.6%. At 1.5%, that is a very big percentage point difference. The Minister has decided, perhaps because of the scale of that difference, to use RPI and overrule his triple lock in its first year. However, if the Government intend, as they clearly do, to make CPI indexation permanent and apply that across the pension system, experts estimate that it could cost pensioners 15% of the income that they expect in retirement.

[Jane Ellison (Battersea) (Con)]

We are weeks away from the point when the Opposition, had they won the election, would have commenced their own deficit reduction plan. Given the enormous sum that the welfare bill represents within the public finances, it is inconceivable that the right hon. Gentleman could intend to go through this debate without addressing some serious long-term issues regarding his own policy on deficit reduction.

[Stephen Timms]

I am grateful to the hon. Lady, because that is exactly the point that I have been making. If this was about deficit reduction, there would be a worthwhile point to debate. However, the Government are saying that they want this change to be permanent and lower uprating to be a feature of the pensions and benefit system not just while we are reducing the deficit—I agree with her that there would be an argument for doing it during that period—but long after and into the indefinite future.

[Jane Ellison]

In part, Government Members are talking about addressing the much longer term problems that this country faces, of structural deficits building up and having to be addressed. The right hon. Gentleman has only to look around the world, at the problems in California and all sorts of places where enormous long-term structural problems have built up, particularly in relation to pensions. It is inconceivable that he cannot take a long-term view on this issue.

[Stephen Timms]

The hon. Lady makes an interesting argument. I have to say, however, that before the election I did not hear from her and her hon. Friends the argument that the structural deficit required a reduction in the incomes of the least well-off people in the land. That is the implication of what she is putting to the House. The real key to reducing the deficit is to secure new growth, new investment and new jobs in the economy. As we saw yesterday in the new unemployment figures, however, that is what the Government’s policies are signally failing to produce.

--- Later in debate ---

[Stephen Timms]

There is a persuasive case for making a change to CPI uprating for a period of time while we are tackling the deficit. However, I do not agree that that should be a permanent change. That aspect of the Government’s proposal is very damaging.

[Jane Ellison]

Does that mean that in the Labour manifesto for the next general election, the Labour party will commit itself to reverting to RPI?

[Stephen Timms]

The whole country eagerly awaits the next Labour party manifesto, but I must urge the hon. Lady to be patient on that front.

We welcome the 4.6% increase in the basic state pension this year, for which the order provides, in line with RPI for next year, not the triple lock or the lower CPI. But this is something of a smokescreen to cover up the true nature of the Government’s intentions, which we have been able to smoke out a little in this debate.

Why does the Minister think that CPI would be a better measure of inflation for pensioners than RPI? I am yet to be convinced of that. For pensioners and low-income families, a strong argument can be made that average inflation is more than either RPI or CPI, because of fuel and food. That point was certainly made in the representations that many of us will have received in recent weeks. In opening the debate, the Minister mentioned the views of the Royal Statistical Society. In its letter to my hon. Friend the Member for Leeds West, it said:

“while the consumer price index (CPI) is acceptable for macroeconomic purposes and for international comparisons within the EU we do not believe its coverage is generally appropriate for inflation compensation purposes”.

That looks like a strong criticism by the society.

--- Later in debate ---

[Stephen Timms]

Yes, there are some serious problems here, and I hope we will hear responses to them. I pay tribute to my hon. Friend for the work that he has done on this subject, and I hope that the Government will think again.

The Welfare Reform Bill, which was published this morning, touches on a number of the points that the Social Security Benefits Up-rating Order also touches on. One of the Government’s original proposals, which Opposition Members strongly opposed, was to cut housing benefit by 10% for people in receipt of jobseeker’s allowance for one year. We were all absolutely delighted this morning to hear the Secretary of State say that the Government have reconsidered their position and will not implement that draconian cut. We understand from newspaper reports that the change was brought about as a result of pressure from the leader of the Pensions Minister’s party. The Minister himself may well have had a hand in bringing about that change. If so, I—and many of us—would want to join in congratulating him on his success against the views of the members of the other coalition party, particularly, perhaps, the views of those serving in the Treasury.

As the Minister is on a bit of roll, may I suggest that he go further in changing the Government’s proposals? Under the existing system, most out-of-work benefits are subject to savings limits—currently £16,000, but the Government intend to extend that threshold to in-work benefits as part of the universal credit, and I notice that that threshold is not uprated in the order before us. Under the proposed limit, in future anyone in work who would be entitled to tax credits but has savings of more than £6,000 will have their payment reduced. Those who have savings of more than £16,000 will lose their entitlement to tax credits altogether.

According to calculations by the Social Market Foundation, 400,000 families with children, who are now in receipt of tax credits, would be punished for having £16,000 in the bank by losing all their tax credits. For example, anyone saving up for a deposit to buy a home would suddenly find that they had lost all their tax credits as a punishment for having £16,000 in the bank. Such families would have been doing the right thing, working and saving their money, perhaps to put down a deposit on a house. For many such families, putting down a deposit will be made not only difficult but impossible. The Opposition cannot possibly support the proposed change, and I cannot imagine that many Government Members would want to see such an extraordinary assault on family savings either. I hope that we shall see another initiative by Liberal Democrat Ministers—we saw the benefits of such an initiative this morning—to persuade the Government to abandon that policy as well.

I hope the Government will also scrap the proposal to remove eligibility for the mobility component of disability living allowance for those in residential care. The order does uprate disability living allowance, and my hon. Friend the Member for Glasgow East (Margaret Curran), who is on the Front Bench today, has been making powerful arguments to the Government about the iniquity of removing that benefit from people simply because they are in residential care. I hope the Government will think again about that, and I am delighted that the Under-Secretary of State for Work and Pensions, the hon. Member for Basingstoke (Maria Miller), who is responsible for that part of the policy, is on the Government Front Bench today.

The Government are signalling today that they intend a permanent shift from RPI to CPI as the inflation measure for uprating benefits and pensions. The Opposition do not support that. It is not right to continue to reduce the incomes of pensioners, widows and those on low incomes long after the deficit has gone. [Interruption.] From a sedentary position, the Minister says that we will not vote against the order, but that is because it uprates the basic state pension next year by RPI. Therefore, it does not do what the Government have told us they want to do in perpetuity. The order overrides the policy that he set out today, and no Labour Member would object to uprating the basic state pension by RPI, as that was always the practice under the previous Government—and quite right, too. As the Minister rightly pointed out, pension credit, which has done an enormous amount to reduce pensioner poverty in the UK since its introduction, will also be uprated accordingly, and we support that as well.

[Jane Ellison]

As the right hon. Gentleman has opened up the debate about other welfare payments, I shall have one more go at my question before he concludes his remarks. Given the scale of the welfare bill and the fact that we are weeks away from when the Opposition’s deficit reduction plan would have commenced, will he please comment on how he would reduce that bill if he were running affairs?

[Stephen Timms]

On a number of occasions during the debate I have made the point that there is a case for temporary lower uprating to contribute to reducing the deficit. My objection is to the permanent character of what is being proposed, and I hope the House will not support it.

The order does not uprate the basic state pension by CPI or by the triple lock; it overrides that, and increases the payment by RPI. I do not expect Labour Members to object to that, but the move to commit to CPI uprating and to make the change permanent, not just while the deficit is being reduced but in perpetuity, is what we object to, and we will be working hard in the months ahead to try to persuade the Government that their policy on that is wrong.

--- Later in debate ---

[Katy Clark (North Ayrshire and Arran) (Lab)]

My contribution will be brief, but I want to speak because we are taking a momentous decision today. It is very sad, on the day when we are passing legislation that will reinstate the link between earnings and pensions—for which I and many Labour Members have campaigned over many years, and which Government Members have been able to get their Ministers to deliver on—that we are also probably going to pass legislation that will make a very significant, and probably a very long-term, change to the way in which we uprate pensions and benefits.

Today’s debate has made it very clear that these proposals are being made not just because of the current economic situation or because of the Government’s policy of deficit reduction, but because of the belief on the Government Benches that this is a more appropriate means of uprating. I have always taken the view—the trade union view—that pensions are deferred pay. It is very important that people have certainty in arrangements for their retirement. The decision we are making today will have implications for many of the lowest-income people, who are dependent on benefits, and some of the poorest pensioners.

I have been lobbied by a considerable number of constituents on this issue, but that number is a very small fraction of the number of people who will be affected by these changes and, I suspect, will be very angry when they realise the impact that the changes will have on them. I have also been lobbied by several of the trade unions that represent the affected individuals.

My hon. Friend the Member for Aberdeen South (Dame Anne Begg) mentioned women in the local government pension scheme, who have an average pension of approximately £2,600 per annum and will be worse off by £40 this year if the changes go ahead. They would have been £40 better off if the RPI link had been maintained. According to the trade union Unison, the average person who receives a pension from the local government pension scheme receives £4,100 per annum, and they will be £62 worse off in the coming year if the change goes ahead. A woman who works in the national health service receives, on average, a pension of £3,500; these are not people on high incomes, by any stretch of the imagination, and they will be £53 worse off this year if the change goes ahead.

If we pass the order today, it is likely that next year a similar order will be proposed, and the same approach will be taken for decades. The cumulative effect on the pensions of individuals will be very substantial indeed. Reference was made to figures released by the PCS trade union showing the impact that it thinks the change will have on its members.

These are very considerable public policy issues, about the extent to which we feel it is important as a society—

[Jane Ellison]

I must press the hon. Lady. She refers to the impact on pensioners, but does she give regard to the impact for the taxpayer of an aspect mentioned by my hon. Friend the Member for Finchley and Golders Green (Mike Freer)—the long-term lack of viability of major pension funds in the public sector?

[Katy Clark]

The matter under discussion has long-term and considerable public policy implications. Indeed, the Fire Brigades Union informs me that part of Lord Hutton’s interim report states that pay freezes and work force reductions will reduce future pension costs. Further, the gross cost of paying unfunded public service pensions is expected to fall from 1.9% of GDP in 2011 to 1.4% of GDP by 2060. If the long-term effect is that we pay less as a society towards pension funds, that will have significant implications for the individuals concerned, who will have less income, but also for the public purse. If people do not have adequate pension provision for their retirement, the state will have to pick up the cost, perhaps in greater benefit bills.

If public policy does not develop in such a way that people employed in the private and public sectors have pensions constructed and funded to be their main source of income in retirement, that will have substantial implications. If the changes go ahead, constituents of Members on both sides of the House will be worse off. No Member should take that lightly, given that inflation is rising and people are facing difficulties. I say to the hon. Lady and to other Members who support the decision that we as a society need to find the funds collectively. We need a public policy that encourages individuals to save for their retirement, but that also puts provision in place to ensure that they have adequate pensions in retirement.

In the emergency Budget in June last year, the Chancellor announced that the change would result in a saving of more than £6 billion a year by the end of this Parliament. There is no doubt, therefore, that the proposal is cost driven. My submission is that, as an ageing society, we need to find ways, collectively and individually, to put more aside for our retirement. We need pensions that are at a reasonable level for people to live on in retirement. If the change goes ahead, fewer people will have pensions that allow them an adequate standard of living in retirement.