Benefits Uprating

Jonathan Evans Excerpts

Wednesday 8th December 2010 Commons Chamber

[Steve Webb]

I am grateful to the hon. Lady for her questions. The CPI

“is more reliable because, taking account of spending by all consumers, this consumer prices index gives a better measure than the old RPIX measure of spending patterns. It is more precise because… it takes better account of consumers substituting cheaper for more expensive goods.”—[Official Report, 10 December 2003; Vol. 415, c. 1063.]

How right the previous Prime Minister was when he said those words.

There is a sensible debate to be had about the most appropriate price index. The hon. Lady said that pensioner inflation is always higher. I did not notice the previous Government using a higher inflation measure for pensioners in the 13 years during which they decided these things. In fact, over the past 20 years—not the past five, which Age UK used—the average pensioner inflation and the average non-pensioner inflation were the same. In other words, there are times when it is higher and times when it is lower, as we would expect, but in the long run they are the same. Previous Governments never used pensioner-specific inflation rates; nor do we propose to.

It was good of the hon. Lady to say that she would consider the CPI for this Parliament. Obviously, we are announcing today the benefit rates for next April, so I am assuming that, in the event that the House comes to vote on these matters, she will support the benefit rates that we are proposing. It was not entirely clear to me whether she was for them or against, but I hope that, in due course, it will be clear.

The hon. Lady asked about the use of the RPI and felt, I presume, that it is a better measure of inflation. Does she believe that in the year to September 2009 pensioner inflation was negative? I have never met a pensioner who thought that their inflation was negative. The goal is to use an index that matches inflation experiences, and that is what we have done.

The hon. Lady mentions the IFS and its views on the issue. The main difference between the CPI and the RPI is not the basket of goods but how the two indexes respond to price increases. The IFS found that the substitution effect used in the CPI is a better measure for lower-income households, so its judgment is that, on that key difference, the measure that we are using better fits the inflation experience of lower-income households. I am glad she cited the IFS, because it was right on that point.

The hon. Lady raises the issue of people meeting their fuel bills, and, as my right hon. Friend the Prime Minister said, the cold weather payment is one of Labour’s ticking time bombs. This winter, it was due to fall to £8.50 a week. That was in the spending plans, but my right hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Secretary of State for Work and Pensions agreed that it was not fair—that paying people £8.50 a week this year would not be acceptable. So, we found the money to set it at £25 a week not just this winter, but for the whole Parliament, and pensioners on low incomes are better off as a result.

The hon. Lady asks about the net effect of the changes, glossing over the earnings link, which, mysteriously, was Labour policy but never implemented in 13 years. It is funny how things become implementable in opposition but not when one controls the levers of power. The earnings link on average gives about 2% a year above prices; the CPI change on average gives about 1% a year less than the RPI. So for those with low and modest occupational pensions, the net effect on pensioners of the two taken together will be positive.

We have a package of measures to protect the interests of pensioners. The earnings link over the long run will give a newly retired pensioner an extra £15,000 in state pension over their retirement, compared with the prices indexing that Labour, when it had the levers of power, applied for 13 years. That is what it applied in office for 13 years: the prices link. Within months, we have gone to the earnings link, and pensioners will appreciate what we have done for them.

[Jonathan Evans (Cardiff North) (Con)]

Does my hon. Friend have constituents like mine, who are looking forward to increases in SERPs, and who have looked at what they received last year when the RPI was negative and the CPI was positive? Labour Members back then proposed no increase whatever in those pensions. At the same time, looking over 10 years, is it not a little disingenuous to fail to take into account what has happened to house prices over the past decade? It is unlikely to be replicated in the next decade.

[Steve Webb]

I am grateful to my hon. Friend for that point. Many of the letters that I signed as a new Minister were to people complaining about the April 2010 non-increase in pension rates because they were linked to the RPI, which was negative. One of the worst things about using something that is so heavily affected by mortgage interest rates is that a pensioner with savings not only fails to benefit from falling mortgage rates, but is penalised by falling savings rates, so they get a double whammy. Neither factor will affect the CPI.