Social Security Benefits Up-rating Order 2014

Lord German Excerpts

Monday 3rd March 2014 Grand Committee

[Lord Bates (Con)]

My Lords, the Guaranteed Minimum Pensions Increase Order 2014 and the Social Security Benefits Up-rating Order 2014 were laid before the House on 27 January 2014 and I am satisfied that they are compatible with the European Convention on Human Rights.

I start by touching briefly on the Guaranteed Minimum Pensions Increase Order, which provides for contracted-out defined benefits schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.7%, which is in line with inflation as at September 2013. As noble Lords will be aware, we are not here to discuss the Welfare Benefits Up-rating Order 2014, which was made on 24 January. The rates increased by 1% in that order were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.

Turning to the Social Security Benefits Up-rating Order, I would like to start with the increase in the basic state pension. One of this Government’s first acts was to restore the earnings link to the basic state pension. Indeed, we went a step further and secured a triple lock for pensioners—a commitment from the Government to increase the basic state pension each year by earnings, prices or 2.5%, whichever is the highest. This year, as prices were greater than average earnings and 2.5%, the basic state pension will increase by CPI at 2.7%. The new rate of basic state pension will be £113.10 a week for a single person, an increase of £2.95 from last year. This means that from April 2014 the basic state pension is forecast to be around 18% of average earnings, a higher share of average earnings than at any time since 1992. Our triple lock commitment means that someone on a full basic state pension can expect to receive £440 a year more than if it had been up-rated by earnings since the start of this Parliament.

On pension credit, we have taken an important decision to ensure that the poorest pensioners are able to benefit from the effects of our triple lock. That means that, rather than rising in line with earnings at 1.2%—the minimum required by legislation—the standard minimum guarantee credit in pension credit will be increased by 2% so that the poorest pensioners benefit from the full cash value of the increase in basic state pension. Single people will receive an increase of £2.95 a week while couples will receive an increase of £4.45 a week. Consistent with our approach last year, the resources needed to pay for that above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase.

I can confirm that additional state pensions will rise in line with inflation at 2.7% in 2014-15. That means that the total state pension increase for someone with a full basic pension and average additional pension will be around £196 a year. The decisions we have taken on pensioners reflect the Government’s belief that even in difficult economic times it is important to protect those who are less able to increase their spending power.

That belief is reflected in our decision to ensure that those benefits that reflect additional costs because of disability will be protected and will be increased by the full value of CPI at 2.7%. These include the personal independence payment, disability living allowance, attendance allowance, incapacity benefit, disability premiums in working-age benefits, the support component of the employment and support allowance, and the limited capability for work and work-related activity element of universal credit. That is also true of the carer’s allowance and the carer premium, both of which will be uprated in line with inflation.

In conclusion, I ask your Lordships to note that at a time when the nation’s finances remains under real pressure, the Government will be spending an extra £3.3 billion in 2014-15. Of that, about £2.7 billion is for the state pension and over £600 million will go to people of working age, with nearly £600 million of those increases going to disabled people and their carers.

The uprating commitment I have outlined today will give real support to the poorest and most vulnerable in society, ensuring that people who are least able to change their incomes are protected against increases in the cost of living. On that basis, I commend the orders to the Committee, and I beg to move.

[Lord German (LD)]

My Lords, I have a number of questions. First, I welcome the triple lock. This is the first time that we have seen prices as the lock that has come into play, which means that pensioners will always benefit from the best of the three options. This is the first time we have seen one of the three locks.

I will spend a few moments on the rationale behind the 1%, 2% and 0.7% for the pensions and other matters. This is really about what is contained in the Government Actuary’s report. For the first time, we see from the Government Actuary what the state of the fund is—the fund from which these benefits will be paid—not just for this year but through to 2018-19. I believe that this is the first time we have been able to have those projections. The report clearly shows that there are a number of difficult years to come, in particular 2015-16. Next year the actuary projects that the Government will have to put in £8 billion extra in order to keep the fund at its one-sixth level of what goes in and what comes out, and what is left in the fund. However, the last table of the Government Actuary’s report shows that the following year will be even more difficult. Can we have some comparison for benefits’ sake?

I will be quite happy if my noble friend wishes to send me information about this or to write to me about it. As we are projecting forward six years to 2018-19, can we have the figures showing how much has had to be contributed in the past 10 years, say, so that each year we can see what the graph or the direction of travel is? Quite clearly, it is not the usual case that the Government have to top up the fund to achieve that one-sixth balance. It might be useful to know how often that happens and what the projections are for the future.

I have just two short questions, one of which relates to the implementation dates in the order. I should probably know the answer to this question, but I would be very grateful if the Minister could answer it, although it is a question similar to, “Why do we always have elections on a Thursday?”. For the dates of implementation, which are contained within this order, we have 1, 7, 9 and 10 April. I know that it does not mean very much if someone has to wait a week longer for their benefit to come through, but why is it not possible to have a single implementation date at the beginning of the financial year, or is there some administrative reason for that?

My second and final question relates to the investments in the national insurance fund. I noticed that the projection from the Government Actuary is that they will fall from £127 million to £90 million. If the investments made £127 million last year, which obviously supported the amount of money that could be put into benefits without having to top them up from the Treasury, why do we see a lower projection in the coming year when all the signs are that investment opportunities are greater in the coming year than they were in the past year? I should be grateful for some explanation, but I will be perfectly happy if my noble friend wants to do that for me in writing.