Social Security Benefits Up-rating Order 2023

Lord Davies of Brixton Excerpts

Wednesday 22nd February 2023 Grand Committee

“The cost of living has strangled us. Stopped us from living normal, healthy lives … Nothing is affordable. Our children are hungry. Schools report ‘short concentration’ and ‘unmanageable moods’. They have lost their childhood … we are sick with anxiety, drowning in financial doom. And the government has offered nothing but a flimsy life jacket. We need more … Perhaps you don’t see desperation unless you have lived it? Well learn from us. Because we are living it.”

[Lord Davies of Brixton (Lab)]

My Lords, I, too, welcome the noble Viscount to our deliberations. He was possibly here as a Whip last year. I took the opportunity to look again at what I said then and, in fact, it would be possible for me to repeat what I said for the benefit of the new Minister, but I have amended it slightly and added some detailed comments on GMPs, which I am sure the Minister will look forward to.

There is no doubt that because of the lag in carrying out a pension increase the poorest in our society lose out. A figure has been calculated, which I was given by the researchers who work for the parliamentary party, that it is of the order of £520. That is the cash loss that they have incurred this year because of last year’s inadequate increase.

The important point is that it is no consolation to those who have lost that money to be told, “Okay, you’ll catch up next year” or, in the Minister’s words, “the fluctuations even out”. We are talking about the poorest people here; they are in no position to even out their income, as they have no savings worth addressing. The year of plenty when they are nudged marginally higher within the range of poverty does not ameliorate in any way at all the loss they incurred in the year that they fell behind. We are talking about pensioners in poverty. Let us not pretend that there are not millions of pensioners still in poverty. For them, this is simply not good enough; they suffer the effects in the current year.

The question is: what can be done about it? Last year, the Minister said that

“it is not possible to undertake the uprating exercise any later than currently timetabled.”

But she gave the game away a bit by also telling the Grand Committee:

“All benefit uprating since April 1987 has been based on the increase in the relevant price inflation index in the 12 months to the previous September.”—[Official Report, 9/3/22; col. GC 484.]


In truth, the seven-month delay goes back even longer. I can recall being in discussions with officials in the relevant department on this topic in the early 1970s, so we are going back on a system that has existed for 50 years. I find that less than impressive. Seven months is too long when inflation can change so rapidly. Given all the changes there have been in handling and processing data in the past 35 or 40 years, it is amazing that we cannot do any better.

I quite understand why officials tell the Minister “It has to be that way” but, really, with modern systems of handling data, it is simply untrue to say that nothing can be done and that we cannot move to a system that more closely aligns increases in prices with increases in benefits. Even if it were not possible—which I do not accept—could we not move to a system where the increase allows some provision for back-payment to make good the shortfall that people have suffered in the seven-month interim? I really do not accept the department’s line that nothing can be done about the delay in the increase.

My second point is about the triple lock. Last year, I asked how much credence we could give the Government’s repeated promises to keep the triple lock for the basic state pension and new state pension. The Secretary of State said last year:

“I am again happy to put on record that the triple lock will be honoured in the future.”—[Official Report, Commons, 21/3/22; col. 99.]


but she said the same thing in 2020 when she went on to break the triple lock. We know that the Government are prepared to break the triple lock—that is a fact—but we do not know what they count as the exceptional circumstances in which they are prepared to break it. The important thing about the Government trying to justify it last year is that they quoted exceptional circumstances, but those are not unique circumstances.

I was very pleased that the Minister, in his introductory remarks, reaffirmed the commitment to the triple lock. It is perhaps unfortunate that the Minister in the Commons, when introducing the same order, failed to refer to the triple lock at all even though it was mentioned several times in the debate. I was going to ask the Minister to give a commitment, but he has already done so.

It is worth stressing again the importance of the triple lock in this current period. Views differ, I know that, but I am totally committed to it so long as and until the state pension reaches an adequate level. When we compare it with the figures quoted by the Joseph Rowntree Foundation about what constitutes an adequate retirement income, we still have some way to go. If and when we reach that sort of level, we can have a debate about the triple lock but, at the moment, it is important that people receive the benefit.

I will just explain the triple lock a bit more. People refer to pensioners’ incomes but it only partly affects those. Pensioners who depend on the state pension, who by definition are on very low incomes, get the full triple lock. The people a bit above that level, who are not on massive incomes but whose additional income is from a personal or an occupational pension, are not getting triple-lock increases on those pensions; their overall increase is somewhat less. So long as we have this unequal and inadequate benefit system, the triple lock retains its justification.

I will make two more points. First, this is about taxation. I am sorry that the noble Baroness, Lady Penn, has left because this is really a Treasury point. It is important for the department to understand the implications of the decision to freeze the personal allowance until 2028. People have not realised how significant that is in terms of running the social security system. The state pension is not subject to PAYE. That works as a system where almost everyone has a state pension below the personal allowance, so they pay the tax on any income they get over the state pension. But we are heading towards the personal allowance being the same as the new state pension in 2028. Any income a person receives from the state over that level—and many do, because of retained rights from the state earnings-related pension scheme—has to be taxed from their other income. They may not have any other income, so in the following year, they will start receiving the brown envelopes saying, “You owe the tax system and HMRC significant sums of money”, which will have to be paid as a lump sum.

This situation needs to be addressed at some stage but I have seen no indication by the Government that they understand this problem coming down the tracks. The most appropriate way would be to include PAYE to cover the state pension. It is a historic anomaly that it does not. I hope that the Minister, who may not accept all my arguments, will agree that this needs to be looked at now, and that we do not need to wait until 2028 before it is resolved.

Finally, I come to my point on the GMP. I think I have said previously in this Room that if I was ever on “Mastermind”, my specialist subject would be the GMP.

[Baroness Lister of Burtersett (Lab)]

There would not be much competition for that.

[Lord Davies of Brixton (Lab)]

Yes, I agree. In the Commons, the Pensions Minister said:

“Under the Guaranteed Minimum Pensions Increase Order 2023, there will be an increase of 3% paid by occupational pension schemes, which means that that part of the GMP will increase by 3% from April 2023.”


The important bit is this:

“The 3% cap strikes a balance, I suggest, between providing members with some protection against inflation and not increasing scheme costs beyond what can be afforded.”—[Official Report, Commons, 6/2/23; col. 681.]


This is rewriting history. That is not in any way, shape or form why that 3% is there. It is to relieve strain not on the pension schemes but on the state pension, because it was the state pension scheme that was meant to be paying for any increases required over that 3%. I listened carefully to what the Minister said in his speech today, and it was a bit more nuanced than what the Minister said in the Commons the week before last.

This fiction is given a bit of support in the Explanatory Memorandum on the GMP increase order which says, in words very similar to those of the Minister:

“Guaranteed Minimum Pensions are increased yearly to help ensure that the value of a member’s pension has some protection against the effects of inflation”.


It is only “some protection” because the state was meant to be paying the excess over the 3%. The issue is complicated because, in some ways, people with GMPs got favourable treatment from the new state pension. That was reflected in some of the Minister’s words, but we need to be clear that we should not let the Government get away with the idea that it is only 3% because we do not want to put the burden on the schemes. It is only 3% because the Government previously promised to pay that excess, so perhaps the Minister could clarify that and tell me that I have got all the points from my “Mastermind” entry.