Social Security and Pensions

Justin Tomlinson Excerpts

Tuesday 21st February 2017 Commons Chamber

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

I will start with some general comments on the Guaranteed Minimum Pensions Increase Order 2017 before turning to the Social Security Benefits Up-rating Order 2017.

Clearly we support the uprating of the guaranteed minimum pension in line with prices. However, I wish to touch on issues raised in last year’s National Audit Office report on the guaranteed minimum pension and the new state pension arrangements that came into effect last year. As we have heard, the Guaranteed Minimum Pensions Increase Order provides an annual increase in the guaranteed minimum pension where there has been an increase in the general level of prices during the period under review.

When the additional state pension was introduced in 1978, an option was created under which an individual could contract out into another pension scheme on the basis that that other scheme met certain criteria. In that instance, both the employee and their employer paid a reduced national insurance contribution given that they were forgoing the state pension entitlements. Between 1978 and 1997, schemes that took on such new members were required to provide a guaranteed minimum pension—a new test was applied after 1997. Nevertheless, contracted-out schemes still had to provide a guaranteed minimum pension to scheme members for rights accrued between 1978 and 1997.

In 2016, the introduction of the new state pension ended contracting out by replacing the additional state pension with a single tier. Working-age people will now have their existing state pension entitlement adjusted for previous periods of contracting out and transferred to the new state pension scheme. Occupational pension scheme providers will continue to revalue any guaranteed minimum pensions that people have built up.

For people retiring after 6 April 2016, the Government will no longer take account of inflation increases to guaranteed minimum pensions when uprating people’s new state pension. The changes mean any guaranteed minimum pensions accrued between 1978 and 1988 will not be uprated, and the scheme provider will uprate guaranteed minimum pensions built up between 1988 and 1997 only to a maximum of 3% each year.

The National Audit Office was contacted by people approaching retirement age who had concerns that the new arrangements for a single-tier state pension will leave them worse off than they would have been under the guaranteed minimum pension. People also raised concerns about the lack of notice. Where have we heard that before? The NAO investigated and concluded that there would be some winners and some losers under the new arrangements, depending on the amount of time that people were contracted into a scheme. The NAO also commented that, again, there had been a dearth of information for those new retirees.

The NAO suggested that those who lose under the new rules may be able to build up additional entitlement to the state pension. The report recommended that the Government, via the Department for Work and Pensions, improve their evidence and analysis of the impact of these reforms, and provide much clearer, targeted information to the public about how they will be affected. I would be very grateful if the Minister updated us on how her Department is responding to the findings of the NAO report.

The Social Security Benefits Up-rating Order 2017 provides for the annual uprating of social security entitlements excluded from the Government’s freeze to levels of social security enacted in the Welfare Reform and Work Act 2016. This year, the Secretary of State has decided to uprate social security entitlements by inflation under the consumer prices index measure, which is at 1%. As the Minister explained, that covers attendance allowance, carer’s allowance, disability living allowance, the personal independence payment, industrial injuries disablement benefit, bereavement benefits, incapacity benefit and severe disablement allowance, to name but a few. The Secretary of State has also decided to uprate the new state pension in accordance with the triple lock, and pension credit in line with earnings, at 2.4%.

We would not stand in the way of measures to increase the adequacy of the social security safety net provided by those benefits, especially not after seven years in which the system has been under considerable attack. We will therefore support the uprating order, but I must take this opportunity to expand on my real concerns about the inadequate uprating, particularly in the context of the freezing of many social security payments under last year’s Welfare Reform and Work Act, and the real cuts to some kinds of social security support, such as the employment and support allowance, the support for those in the work-related activity group, the universal credit work allowances, and the widow’s pension allowance, which we discussed yesterday, again to name just a few. This is an erosion of the adequacy of social protection for those who are often the most vulnerable in society.

[Justin Tomlinson (North Swindon) (Con)]

Surely the shadow Minister recognises that our support for those with long-term health conditions and disabilities has increased by £3 billion a year, to a record amount. That shows that we are directing money to the most vulnerable in society—rightly so.

[Debbie Abrahams]

I am grateful to the former Parliamentary Under-Secretary of State for Disabled People. Actually, we know that social security support will have declined by 2020.

[Justin Tomlinson]

indicated dissent.

[Debbie Abrahams]

The former Minister shakes his head, but these are the Government’s own figures. If we look at spending across Europe as a percentage of GDP, we see that we are below the EU average when it comes to social security spending, just as we are on health spending.

Let us start with rising costs. Traditionally, the link between social security and inflation has ensured that some of the most vulnerable households in our country are not made worse off, year on year, by inflation in the cost of basic goods and services. The adequacy of social security has been heavily eroded over the past seven years. Research by the Joseph Rowntree Foundation demonstrates that the price of essentials has risen three times faster than wages over the past 10 years. When that is combined with the coalition’s initial 1% freeze on uprating, introduced in the Welfare Reform Act 2012, and the complete social security freeze put in place in last year’s Act, it means that low-income households have seen a significant deterioration in the adequacy of social security support since 2010.

Clearly, the historic drop in oil prices and subsequent slow-down in inflation of the price of household goods provided some respite to low-income households, but we know that the impact of the EU referendum on, for example, food and fuel prices is only just starting. People on low incomes spend a much larger proportion of their household budgets on the essential goods and services that have been so prone to inflation, so they are likely to have felt the effects of spiralling prices long after they have slowed down.

The costs of basic household items are beginning to rise again, with last month’s official figures showing inflation at a two-year high of 1.8%. I understand that the actual increase in food prices has been approximately 20%, but that has only just started to be passed on to consumers, so it is going to get worse. That puts real pressure on households that are trying to provide for their basic needs. Indeed, last week the Joseph Rowntree Foundation published a report showing that 19 million people are now struggling to make ends meet and get the basics required for a socially acceptable standard of living.

In the context I have set out, a 1% uprating to some social security entitlements is unlikely to do much for those who are struggling to get by. If the Prime Minister is really serious about helping those people, I urge that there be some reconsideration. As a matter of principle, it seems only fair that social security should rise in line with inflation and should apply to all entitlements, not just the ones that the Government have cherry-picked. Although the economic arguments for a freeze may once have been founded on the slow-down in the prices of the basics that every household needs, now that prices are predicted to rise by 10% by 2020 even that weak economic justification no longer stands up. That is before we even get to the social argument for protecting the incomes of the poorest people in our society, whom this Government have set out to punish over the past seven years.

In last year’s inquiry by the all-party group on health into the effect of the Welfare Reform and Work Act 2016 on child poverty and child health, the freeze on social security support payments was singled out as the most damaging. I remind Members that the Institute for Fiscal Studies estimates that child poverty will increase by around 1 million as a direct result of social security and tax changes, and that will impact on those children’s health and futures. I make an impassioned plea to the Government and the Minister: we are approaching April, when several other disability benefits will be cut; I urge the Government to reconsider.

I shall not detain the House any longer. I urge the Government to review the cap before price inflation begins to pick up again. If they really cared about those struggling to make ends meet, that is exactly what they would do. In the meantime, although we regret the limit on the groups who will benefit from the uprating, we will support the order.