Social Security

Kate Green Excerpts

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

I shall deal briefly with the Guaranteed Minimum Pensions Increase Order 2011. The order provides for contracted-out defined benefits schemes to increase by 3% their members’ guaranteed minimum pensions that accrued between 1988 and 1997. Increases are capped at this level when price inflation exceeds 3%. This is a technical matter that is attended to on an annual basis, and I suspect that it will not be the focus of our discussions.

The broader uprating of social security benefits this year is a landmark event for two reasons. First, it enshrines the restoration of the earnings link for the basic state pension. Secondly, it introduces a clear and consistent approach to price measurement through the move from the retail prices index to the consumer prices index. I suspect that a lot of our debate will focus on that issue, but I want to turn first to pensions and pensioners. It is more than 30 years since the link between the basic state pension and earnings was broken. Although Labour Members talked a good game towards the end of their time in office, they had 13 years in which to restore that link, and they failed every year to do so.

The coalition Government said that they would restore the earnings link for the basic pension, and that is precisely what we have done. Indeed, we have gone one better with the introduction of our triple guarantee, which means that the basic pension will be increased by whichever is highest of earnings, prices or 2.5%. We estimate that the average person retiring on a full basic pension this year will receive more than £15,000 extra in basic state pension income over their retirement than they would have done under the old prices link. This important change will be a benefit to existing and future pensioners. It will provide a more generous basic state pension, giving a solid financial foundation from the state. So from this April, the standard rate for the basic state pension will rise by £4.50 a week, taking it from £97.65 to £102.15 a week. The introduction of this triple guarantee will finally halt the decline in the value of the basic state pension for current and future pensions. It will also mean that even in times of slow earnings growth, we will never again see a repeat of derisory increases such as the 75p rise presided over by the previous Government in 2000.

In addition to restoring the earnings link, we have taken action to ensure that the poorest pensioners do not see the increase to their basic state pension clawed back in the pension credit. This has been done by linking the minimum increase for the pension credit to the cash increase for the basic state pension this year. Therefore, from April 2011, single people on pension credit will receive an above-earnings increase to their standard minimum guarantee of £4.75, which will take their weekly income to £137.35. Of course, as you will be well aware, Madam Deputy Speaker, this is in addition to the key support for pensioners that the coalition protected in the spending review: free NHS eye tests; free NHS prescription charges; free bus passes; free TV licences for over-75s; and winter fuel payments exactly as budgeted for by the previous Government. In addition, we have reversed a planned cut—one of Labour’s many ticking time bombs that I discovered in my in-box. The previous Administration had planned to reduce the cold weather payment from the pre-election—I use that phrase deliberately—rate of £25 a week to just £8.50 a week. We took the view that despite money being tight, helping elderly people on a low income to heat their homes in winter was vital and a priority for the coalition. I can update the House by saying that we have paid slightly more than we thought—an estimated 17.2 million payments worth an estimated £430 million, which we believe is money well spent.

[Kate Green (Stretford and Urmston) (Lab)]

Naturally, elderly people will be relieved by the news about the winter fuel and cold weather payments. However, is not the Minister concerned that in the longer run the cut in funding for Warm Front will mean that those pensioners have higher fuel bills?

[Steve Webb]

The hon. Lady is absolutely right that home insulation is an important part of this: it is not just about helping people to pay their fuel bills, but about improving the insulation standards of their homes. Our colleagues at the Department of Energy and Climate Change are working on the issue and will shortly introduce proposals that will build on the energy rebate scheme, which took place in 2010, whereby low-income pensioners and others—the most vulnerable households—received direct payments. I understand that a further scheme will shortly be brought forward that will benefit exactly the people she talks about.

Despite the pressure on public expenditure, the coalition, through these orders, will spend an extra £4.3 billion in 2011-12 to ensure that people are protected against cost of living increases, and, of that, fully £3.4 billion will be spent on pensioners.

Let me move on to the second landmark change—the move to the consumer prices index. At one stage, the House thought that it might have a jolly three hours on price indices after an all-night sitting, so we are probably all relieved that we got a bit more sleep before entering this territory. The purpose of the annual uprating exercise is to ensure that the purchasing power of social security benefits is protected against inflation. We view the CPI as the most appropriate measure of price inflation for this purpose, although we would acknowledge no single index is perfect. 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, as in America and the euro area, it takes better account of consumers substituting cheaper for more expensive goods.”—[Official Report, 10 December 2003; Vol. 415, c. 1063.]

They are not my words, but those of the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). I could not agree more. Increases in line with the growth in the CPI maintain benefit and pension value. The CPI is the country’s headline measure of inflation, forming the target for the Bank of England’s Monetary Policy Committee. I remind the House that the legislation under which this order is made requires that we reflect the “general level of prices”.

It would be remiss of me not to thank the Leader of the Opposition for his support for our position on this issue. When Laura Kuenssberg of the BBC challenged him at a press conference on 11 January, saying,

“You’ve said time and time again that you will not oppose every cut; but four months into the job, the list of cuts that you will support remains pretty short,”

the Leader of the Opposition said:

“Let me just say on the cuts, I listed four cuts that we had not opposed, but it’s not just four cuts...from Employment Support Allowance to some of the changes to Disability Living Allowance, to the changes to the Consumer Price Index and RPI, to a range of other measures, we’re not opposing all the cuts.”

I am very grateful to him for his support.

--- Later in debate ---

[Steve Webb]

Yes. For all the reasons I have been giving, we regard CPI as a more stable and appropriate measure for uprating pensions and benefits. We see no reason to change it in the future. The arguments that I am advancing, it seems to me, will stand the test of time.

There is an issue with the treatment of housing costs. One of the reasons why CPI is more appropriate than RPI for pensioners is that only 7% of pensioners have a mortgage. Mortgage interest fluctuations dominate the changes in RPI, sometimes swooping it up and sometimes swooping it down. The year in which RPI went negative, it happened because mortgage rates slumped. Not only was that of no benefit to the vast majority of pensioners; it was a penalty to the vast majority of pensioners because their savings rate fell. Just at the point when pensioners were suffering through low interest rates, RPI came along—to humanise it once again—and kicked them in the teeth and said, “Oh, inflation is falling so you don’t need a benefit rise.” I do not see how that can be right.

[Kate Green]

I am interested in the Minister’s argument for making CPI permanent. Will he comment on Lord Freud’s response to the Select Committee on Work and Pensions on the indexation of housing benefit, in which he suggested that it would be for this Parliament only?

[Steve Webb]

To be clear, my noble Friend was talking about the indexation of the housing benefit limit of the 30th percentile to CPI. We have said specifically that that will be looked at after two years, so that is a quite separate point. The fundamental point I am making is that the more one looks at the argument for using CPI for pensioners, the more powerful it gets.

There is an issue about the role of owner-occupier housing costs, as CPI includes rents and certain housing costs. The CPI advisory committee has said that the ONS should consider whether owner-occupier housing costs should be included. We are entirely open to that proposition and do not rule it out. It is interesting that the CPI advisory committee has already ruled out doing so by lumping in mortgage interest payments in the same way as in RPI. It accepts that putting that into CPI in the way it is put into RPI would not be a good way of doing it. We will obviously consider what the committee comes up with.

--- Later in debate ---

[Jenny Willott]

I thank the hon. Lady for her comment. The issue is likely to be taken up by the Minister in his summing-up because, from his comments from a sedentary position, he seemed to disagree with similar comments by the shadow Minister. I do not have a copy of the whole quote in front of me, but I am sure that he will be able to fill the House in on that and respond to her question later.

[Kate Green]

Does the hon. Lady accept that CPI is not a good measure for most working-age households precisely because of its exclusion of housing costs?

[Jenny Willott]

As I understand the way in which that relates to working-age households, people who are on benefits are much more likely to be living in social housing and so will not face large fluctuations in mortgage costs. For those of working age who are on benefits and do have mortgage costs, there is a lot of assistance from the state. They are not bearing the full brunt of mortgage interest fluctuations because a lot of that is borne by the state. Therefore, I believe that CPI relates appropriately to that group, too.

The financial implications, over this Parliament and beyond, for the Government of the difference between CPI and RPI have been discussed a lot today. We are in very difficult financial circumstances and the Government have had to make some extremely difficult financial decisions. The Minister has laid out why the Government believe that CPI is the right measure to use, but the financial benefits of that for the Government coffers are significant. By introducing the triple lock, the Government are protecting the most vulnerable pensioners. The people potentially most penalised are being protected, while the amount of money saved is quite significant and will help the economy to grow in future.

The shadow Minister, the right hon. Member for East Ham (Stephen Timms), eventually made it clear that the Opposition will not vote against the orders and will support the changes and the uprating, which seems to suggest that they understand the logic and agree with the overall decision. Whether it be for the moment, for three years or until the next Parliament, I am not entirely sure, but it is good to see it when occasionally agreement breaks out across the House. It is also good and quite a novelty to see Labour Members finally supporting measures that will save the Treasury some money. If they plan to return to RPI in the future, I look forward to seeing how they plan to find the billions of pounds that will be necessary to implement it.

I congratulate the Government on introducing the triple lock for pensioners, which is a significant step forward. It is also pleasing for me as a Liberal Democrat to see a manifesto commitment implemented.