Lord Browne of Ladyton
Main Page: Lord Browne of Ladyton (Labour - Life peer)Department Debates - View all Lord Browne of Ladyton's debates with the Department for Work and Pensions
(10 years, 8 months ago)
Grand CommitteeMy Lords, I speak briefly in support of my noble friends and the thrust of this amendment. I should like to ask one or two questions. As I understand it, there is currently a class 1 credit going to people in this service category, which helps to build up not only pensions but access to contributory benefits such as JSA and ESA. In respect of the latter, there is also an easement that was introduced in 2011 in respect of the first contribution condition, because for contributory ESA and JSA you need both to pay an amount in a certain period of time and to have sufficient credit. My first question is whether that credit arrangement is going to continue under the new regime and whether the easement will be continued, because that is important, too.
Of course, the credit has to be claimed; it is not automatic. I wonder whether we could do something to address that issue, because we have a group of people here who would qualify only under certain clear conditions, and one would have thought that arrangements for these individuals could somehow be organised centrally, or perhaps by the separate Armed Forces, so that the information goes in directly and there is an automatic credit, rather than people having to claim. I understand that the take-up is limited at the moment, with only 601 applications in 2012-13, or maybe in the previous year. That is not as many as one might have expected. Perhaps we could also have clarification as to who is treated as a member of the Armed Forces for these purposes. I am not sure that the TA or reserves will be included within this.
This issue draws a wider question about crediting national insurance contributions. My understanding, based on some helpful information from the Bill team this morning, is that if, at the moment, you are in a category of benefit or activity that gave rise to a class 1 credit, that would continue post-April 2016. If you are receiving a class 3 benefit for a particular activity or being in a particular position, that would become a class 3 contribution credit also, under the new regime. So nothing has changed in that respect. These things are important, because a class 3 contribution builds up entitlement only to the state pension and bereavement benefits, not to contributory benefits. This gives rise to the broader question of universal credit. At the moment, if you are on JSA or ESA, you would get a class 1 credit. In the world of universal credit, my understanding is that you would get a class 3 credit, which means that you do not build up entitlement thereby to contributory JSA and ESA, which sit outside universal credit.
I apologise for this rather convoluted series of questions, but this very important issue prompts them, and it would be useful to have clarification on them either today or later by correspondence.
My Lords, I am grateful to my noble friend Lady Hollis for tabling the amendment, for the very reason that it allows your Lordships’ Committee to engage in this important issue. As we have already heard, successive Governments have committed to end any disadvantage that armed service causes members of the Armed Forces and their families—a group of people who have come to be known in these circumstances as the service community.
In July 2008, the Government set out to put flesh on the bones of that commitment in a command paper entitled, A Nation's Commitment: Cross-Government Support to our Armed Forces, their Families and Veterans. In pursuit of the ambition of that document, the DWP announced and introduced on 6 April 2010 new rules that allow spouses and civil partners accompanying service personnel serving overseas outside the United Kingdom to be eligible to claim class 1 national insurance credits during such periods.
In certain circumstances, spouses and civil partners may get credits on their national insurance contribution record for state benefit purposes, and as my noble friend Lord McKenzie pointed out, that helps protect their eligibility to a state pension and contribution-based benefits. Application for the credit is made at the end of each accompanied assignment outside the United Kingdom, but there are complications about that. My noble friend is right to say that it has to be claimed. I understood that the services had in place default arrangements to ensure that everyone who could be entitled to make such an application was advised fully of that. Can the Minister elucidate the current situation?
I do not think that one need go into the complications that service abroad generates for service families, but one can imagine that service abroad may mean that the family is split up. For example, some of our troops are based in Germany, or the families may be there but the service member might be serving somewhere else overseas. All of these complications are accommodated. Indeed, circumstances may arise where there is a need to make an application part way through an assignment, and provision is made in the regulations to facilitate that. There is helpfully discretion—and the DWP is to be commended for this—as to the time that an application can be made. It is already provided for to accommodate the lifestyle of the armed services community. Importantly, however, this improved benefit was not made retrospective.
We have already heard from my noble friend Lady Dean’s experience of her engagement with the service community the sort of circumstances that can lead to the need for this provision. At the heart of it, there is a clear and good reason why we need this. Members of our Armed Forces are commanded to work in overseas environments. If they stay in the services, they have no choice where they work, and often they are there for extended tours. Often their spouses and civil partners are unable to accrue a full national insurance contribution record because of that. Fairness demands that they not be disadvantaged by that service in so far as is possible.
When my noble friend Lady Hollis introduced this amendment she described it as simple, but it has become slightly more complicated in the debate. I am not seeking to complicate it because it is a relatively simple policy issue, although it may have complex consequences. She implied that the trend would suffer regression as a consequence of implementation of the Bill. My noble friend Lady Dean specifically said that the Bill would have a consequence of regression in relation to the position of service wives in particular. It is important for the Minister to address that position. If it is indeed the case that the direction of travel is being regressed as a consequence of the Bill, that needs to be identified. I am sure that all parties, including the coalition parties in the Government, would wish to deal with that situation in the context of this Bill. I do not think that there will be any division, in terms of policy, in relation to ambition here.
Unfortunately, when the change was made in 2010, it was realised that this was a “start”. My noble friend Lord McKenzie has identified, with his characteristic care in these matters, that there has already been a minor change in relation to this provision to improve it. Indeed, the coalition Government are to be congratulated: they have built on the work of the previous Government in pursuing the commitment of “no disadvantage” which is at the heart of the military covenant. In May 2011 they published the Armed Forces covenant. In paragraph 5 on page 7, under the heading “Scope of Covenant”, it states:
“Members of the Armed Forces community should have the same access to benefits as any UK citizen”.
Page 33 of the guidance document that accompanies the covenant, The Armed Forces Covenant: Today and Tomorrow, states that,
“the Government has no plans to make further adjustments”,
to the benefits rules. Importantly, however, it goes on to say that they will,
“keep this issue under review”.
I will be in a much better position to explain the difficulties in a little while. So, rather than presuming on this, I would say that we are considering it. It is difficult, and I am sure that we will have the opportunity to return to it on Report.
I am extremely grateful to the Minister for giving way at this stage, and I am not ungrateful to him for his undertaking to consider this and report back. That is the most that we could have expected. However, I ask him to consider two things. First, there is certainty that the Ministry of Defence will have records—there is no question about that. Secondly, I direct his attention back to the provision in the guidance note issued on the covenant, in which the Government promised to keep the issue of access to benefits under review. It might be helpful if the Minister explored why that promise was made and what was in mind at that time. Clearly some consideration was given to it, which instructed that promise. Surely it was not just a cosmetic promise, with nobody having any idea what could possibly be offered in the future.
Let me take the two issues there. It is not necessarily the case that the MoD will have records on this, especially of an accompanying partner. That is clearly one of the issues. I think what was envisaged was exactly to look at this kind of thing and other benefits, which is exactly what we are doing. We are, as I say, treating it very seriously, but that is not the same as being able to say that there is a ready solution. We will come back to this issue.
Can the Minister also confirm whether the Bill, if it becomes law as drafted, will have a regressive effect on the position of service spouses or civil partners, as is believed to be the case by at least one of my noble friends and suspected by another, and whether that will in fact be the case when the review is conducted?
I will not answer what could in practice be a huge review of everything to make a hard statement on that, but I will write on that point. Having finished, I hope, all the questions asked, I ask the noble Baroness to withdraw her amendment.
My Lords, perhaps I may raise a point about the level of the single-tier pension, and couple it with a reference to passported benefits in the impact assessment. I looked at the assessment again this morning and there was a point that I had not identified, or did not understand before. This is to do with the interaction with the guarantee credit. This passage is about passported benefits, but it says:
“Receipt of Guarantee Credit passports pensioners to the full amount of Housing Benefit and Council Tax Benefit, if the pensioner is eligible for these benefits. There is little reduction in Guarantee Credit eligibility resulting from the single tier”—
about 1%. I thought that the whole thrust of this simplicity as a base for people to be able to make judgments about saving was that, in a sense, it floated people at a level which was above the guarantee credit. Here we are saying that only 1% of people who get STP will not be affected by guarantee credit in the future. Can the Minister explain that to me, please?
My Lords, by tabling and moving these two amendments my noble friends have done the Committee in general and the Minister in particular a favour by creating an opportunity for him to expand on what his right honourable friend the Pensions Minister was able to tell the House of Commons about Clause 3. Despite the fact that my noble friend Lady Turner’s amendment is to Clause 2, I think that most of the issues raised can be dealt with within the context of Clause 3.
The provisions of Clause 3 set out a mechanism for calculating the full rate and the reduced rate of the single-tier pension for those whose contribution record commences post 6 April 2016. As we have already established, that does not actually set out in monetary terms the full rate; and as much of Monday’s debate made clear, that is at the root of some nervousness, not to say anxiety—or, on the other side, a possibly optimistic expectation—on the part of future pensioners, a state which, rightly, we anticipate will heighten as we approach these provisions’ implementation date.
Many are concerned as to what the single rate will be, whether they will be worse off as a consequence of change versus their expectations of the continuation of the status quo, and whether the actual rate will keep the new single-tier pension rate above the level of the pension credit sufficiently for it to prove an incentive to save, which is the relevance of my noble friend Lord McKenzie’s point, based on his characteristically forensic examination of the paperwork that is before us, and picking up this key point which instructed much of the debate in the House of Commons on these matters: the degree to which a prime objective of this policy—that is, to reduce in the longer term dependence on means-testing—will in fact be achieved by the full implementation. In addition, people need some predictability of future pension arrangements to enable them to make appropriate decisions to prepare for their retirement, confident that they will live up to society’s expectations of them now and avoid financial difficulties in life and a life of poverty. My noble friend Lord Whitty described the central issue as whether there could be certainty that this figure would not disappoint people’s expectation to such a point that they would fail to support the policy. By the device of these amendments, my noble friends have created an opportunity for the Minister to engage with these challenges.
My Lords, I shall not detain the Committee long except to give my support to this. It is quite interesting that the changes that HMRC has carried out actually help this particular argument. The situation as it stands is completely counterintuitive to what the Government are trying to achieve, which is that we all save while we are working so that when we retire we have built up a state pension. If people do not have a state pension, they will be reliant on welfare benefits, or whatever the Government of the day decide. So it is a matter of independence.
My noble friend Lady Drake is so right: women find it offensive that they are excluded from contributing when they are able to towards their own pension. I said “women” deliberately, because the nature of work today will change that argument. Since the recession, we have seen more and more men also working part time. So what has been traditionally an argument on equality for women is being diluted by the nature of work in the country today. The argument that we are putting forward is not just for women—it is for citizens who may, by force of circumstance or choice, have more than one job.
The Inland Revenue has no problem in finding solutions to quite complex issues when it comes to collecting tax, and this goes hand in hand with that. Citing the excuse or reason that it is very complex and impossible to do is wearing very thin. Given the remit to do it, I am sure that the Revenue would have to find a way through. The issue is not going to go away; it will be raised at every opportunity, and it is one that runs four-square with what the Bill is trying to achieve, which is for us all to contribute to a state pension while we are working.
My Lords, in engaging with this issue, your Lordships’ Committee has had the benefit of comprehensive speeches by my noble friend Lady Hollis and, despite her reluctance, my noble friend Lady Drake. Between them they have demonstrated a level of adequacy on the detail of this which, for the rest of us, makes her feeling on following our noble friend Lady Hollis pale into insignificance.
In the interest of brevity I intend to ignore a substantial number of the notes that I have before me and engage with just two issues in order to focus the Minister’s mind on them. I shall make these two points because we also have the benefit of the Government’s position. It is summed up in one sentence, which is that addressing this issue by combining hours in some way addresses a problem which is a perception rather than a reality. That is not a direct quote, but it is what the Pensions Minister said in the House of Commons. That argument relies on all those elements that my noble friend Lady Hollis articulated. I have a list of them here which is presented in a slightly different way.
At the heart of them, there are two arguments. The first is that this is a temporary phenomenon, often coming at the end of a working life, and as one will get a pension for 35 years’ contributions over a working life of about 50 years, the better option for most people is not to pay national insurance. It was argued that at present many of these people are not paying insurance and would not thank the Government for requiring them to do so because no one volunteers to pay tax. If that is true, it is a powerful argument.
The other argument is that the Government’s estimate is that only in the order of 50,000 people are in this position, that that number has grown only slightly recently and that, in any event, one in five of them may be on national insurance credits as a result of claiming universal credit. If that is true, that is also a powerful argument. It does not undermine all the arguments that my noble friends have made, but it is powerful.
I want to address both arguments. Of course it is difficult to challenge them because the data do not exist, but we all live in this world. My sense is that large numbers of people working two or more low-earning jobs, many of them on zero-hours contracts, is a phenomenon that is growing throughout the country. That is my experience of living in the United Kingdom and of travelling, because of where I live for parts of the week, across two very distinct communities. I see it growing in both communities that I have contact with.
In fact, I believe that this is a strong and growing characteristic of the modern UK labour market. It is at the heart of the flexibility that has allowed the UK labour market to be able to maintain and grow jobs in circumstances where one would intuitively have expected unemployment to have increased significantly more because of recession. It is a part of the flexibility of the labour market that, in a sense, we celebrate, and spent a period trying to get other countries to follow.
My sense is that this is much greater, and I shall share this short anecdote because it is instructive about how it is affecting people in the communities in which we live. On my way home from our debates on Monday, I overheard a conversation among three young people in a very quiet overground train. I sometimes find it difficult to estimate age, but they were all in their mid-20s. They were all coming back from employment with one employer, which was a mini-job. From their conversation, it was clear that they had, by my reckoning, seven jobs among them at least. Each of them had at least three jobs. Most importantly, they had all had the benefit of a tertiary level education. I could not guarantee that they were all graduates, but at least two of them were, from what they said, and the third also had the benefit of a tertiary level education. These were not your traditional B&Q employees at the end of their life. They were well educated young people coming into a labour market where that was the expectation. That fundamentally challenges the idea that this is a temporary phenomenon and that it can be dismissed, as it has in the past.
Clearly, under universal credit, there would be a crediting arrangement for everyone within that system anyway, so I accept the point to that extent. I agree with the point on zero hours made by the noble Lord, Lord Browne, in that robust data are currently simply lacking and we are waiting to see the ONS data when they arrive. As I say, the universal credit system that is coming in adapts very elegantly to that kind of flexible labour market.
Before the Minister moves off the question of the data, the fundamental point about the zero-hours contract estimate that I was attempting to make was that that was despite it being part of the Labour Force Survey. There was an apparently robust basis for a figure that turned out to be, potentially, 300% wrong. We are being asked to debate this against an estimate of a figure that every single part of our experience of life suggests to us is grossly wrong—that is, the figure of 50,000.
The previous estimate for zero-hour contracts—which is what we are talking about—was that there were 250,000. Let us see the figures today for those on part-time work. I cannot remember the figure offhand—is it 1.5 million? There is a boundary, therefore, about what proportion of flexible working is formally on the zero-hour contracts. Rather than speculate on what the real figure is, I think that we should wait until the ONS comes out with a figure, if it is going to revise that.
On the pointed questions about self-employment rates raised by the noble Baroness, Lady Drake, rates of national insurance are clearly a matter for HM Treasury. However, we have not assumed that self-employed contributions will increase single-tier cost estimates.
I know that the noble Baroness has been a champion of this group and has genuine concerns about it losing out. As the new systems come into sharp focus—universal credit, RTI, single tier—there will be a chance to look at this issue properly when we know exactly what is happening, where the remaining issues are and then to find a precise way of dealing with it. It is simply too early, right now, to get a clean and elegant solution, but we do intend to look more broadly at crediting arrangements to examine the possibilities of modernising and simplifying the arrangements in that light. So there is a process. Her point is taken: it is just about what is the most efficient and effective way of solving a particular problem. What I do not know and cannot offer now is a timetable. It is something to be looked at some years—not a lot of years—in the future, in terms of exactly what should happen. I think that there will be a solution in the medium term. For those reasons, I ask the noble Baroness to withdraw her amendment.
My Lords, briefly, I commend my noble friend Lord Whitty and the noble Lord, Lord German, on trying to focus on solutions to deal with what seems to be a major problem, particularly in relation to local authorities. My noble friend Lord Whitty said that the annual cost of losing the 3.4% rebate is in the order of £700 million a year. Today, we had the local government finance settlement, which reinforced what was announced in the spending round: a further real terms cut of 2.3% in overall local government expenditure. Sir Merrick Cockell, who is a Conservative and the chairman of the Local Government Association, said that local authorities will have lost one-third of their budget by 2015. He said,
“This is the calm before the storm. We do not know how big the storm will be or how long it will last”.
The Audit Commission last year found that 29% of councils showed some form of financial stress. Council tax increases to cover this, even if they were contemplated at the level that the noble Lord suggested, simply are not on because of the need to have a referendum to go beyond a very small increase. Do the Government see this as a new burden which central government is placing on local authorities and therefore a burden which it should it meet?
My Lords, I am content to join in commending my noble friend Lord Whitty and other noble Lords for bringing and developing this argument. They will forgive me if I do not join in the nostalgia for 1966. The removal of contracting out from April 2016 has significant implications for all occupational pension schemes. I shall make my speech short, given the time. It is bad enough to be between somebody and their dinner; it is impossible to be between somebody and Christmas.
It is clear just how significant are the figures quoted by the noble Lord, Lord German. I did not immediately recognise them, but they are in the same ball park as the figure, which I understand to be the Government’s figure, which suggest in excess of £5 billion a year going to the Treasury in extra NI contributions from 2016 when the new state pension scheme begins. Because of the scale of public service pension schemes, the lion’s share of that increase will come from them. It is far from clear, in the complexity of the Bill, how the increased NI contributions in the public sector can be met. Not surprisingly, those who have responsibility for these schemes—bearing in mind that they have just, in many cases, entered into agreements to reform them—are seriously concerned about the impact these changes will have on local authorities, health services, fire and rescue services and policing.
I note that in Committee in the Commons, Oliver Colvile correctly also put the Armed Forces Pension Scheme in the frame in the context of public service pension schemes. If that is correct, if the Minister is minded to accept Amendment 42, the definition of public service pension scheme will include the Armed Forces, which will answer more clearly the question asked by the noble Lord, Lord German, about what is a public service pension scheme. Rightly, Oliver Colvile was concerned that the defence budget should be spent on defending our country and should not be directed back to the Treasury. If it encourages the Minister to engage with this issue in a positive way, I promise not to tell noble and gallant Members of your Lordships’ House that this issue may impinge on that aspect of public policy. If he considers that, I will keep it quiet in the mean time until we see whether we can make some progress on this issue.
The Local Government Association has been in touch with all of us and has advised us that it supports my noble friend Lord Whitty’s amendments, which defer the end of contracting out for public service pension schemes until the tax year beginning 2018, and require the Government to credit public service pension schemes with amounts equivalent to the money lost through the end of contracting out.
It is understandable why it supports them, because, in the absence of an alternative from the Government, the choices they face are extremely unpalatable. They include loss of services or increased council tax, for example, or, as we are advised, the certainty that low-paid workers will leave the schemes or that settlements, including the settlement of the public service pension scheme, would have to be renegotiated. I am also told by those who know that it will mean the renegotiation of a lot of contracts in relation to privatised services, because assumptions were made about commitments in relation to pensions in the TUPE environment that no longer stand true.
It is not unreasonable in those circumstances to ask the Government how they will resolve the additional expenses and how they expect those who run public service schemes to deal with the increased cost and, for that matter, how they expect the individuals affected to deal with the increased costs. Will the Minister address the advice that we have been given and the concerns of those who run these schemes? Does he accept that there will be a perverse incentive unless this is resolved and that low-paid workers may decide to opt out of their public sector pension schemes? Does he accept that there is genuine worry that this will undermine agreements to reform that have already been reached? Does he accept that there is genuine concern that this will impact on existing contracts for provision of services by the private sector?
As a consequence of ending the additional pension for those reaching pension age after 2016, we are ending contracting-out. This means that individuals in defined benefit schemes—public sector and private sector—and their employers will no longer be entitled to pay a lower rate of national insurance contributions by contracting out of the state second pension. At the moment, they receive a rebate of 1.4% for employees and 3.4% for employers on earnings up to £40,000.
The abolition of contracting out will result in additional national insurance revenue for the Exchequer. Of this, about £4 billion is national insurance contributions from public sector employers and employees. That is the money that the noble Lord, Lord Whitty, is most concerned about.
The extra information that I can provide to my noble friend Lord Flight is that the cost of the public sector schemes of paying extra employer national insurance is about £3 billion per annum. We do not have any breakdown of which schemes are at local authority level. I will speak to Her Majesty’s Treasury to find out whether any further information is available.
Noble Lords will know that the Government have not set a fixed spending envelope, nor one for individual departmental budgets, beyond 2015-16, and contracting out is abolished in 2016-17, so is outside the current settlement. Public sector employers will have to absorb the burden, as is always the case with tax changes. Any spending review in the next Parliament will, of course, consider the £4 billion cost in the round. This does not affect our commitments on protecting spending on health and education in this Parliament. Treasury officials have already met with Local Government Association officials concerning the impact on the local government pension scheme. This follows conversations between the Chief Secretary and the Local Government Association, and I would expect similar discussions to take place concerning other schemes when settlements are set.
Turning to the noble Lord’s amendments, I note that he moved back from 1966 to 1963, but then he would, would he not? The amendments would effectively defer the loss of the rebate to public service pension schemes for two years—until April 2018—but in doing so would defer the introduction of the single tier to more than 4 million people.
Amendments 19, 20 and 21 would change Clause 4 by redefining pre and post-commencement qualifying years, so that public service pension scheme members have them counted up to and from 2018 rather than 2016. Amendment 24 would change Schedule 1—the detail of the transition—to bring into account the old scheme and introduce the new scheme two years later for public sector workers, with a tidying-up clause in Amendment 43.