Social Security Benefits Up-rating Order 2011

Lord Lea of Crondall Excerpts

Monday 14th March 2011 Lords Chamber

Finally—and I agree that this is a bit of a cheap shot—the Public Accounts Committee report of 10 March points out yet again that the DWP’s annual accounts have been qualified for 22 years because of the amount of error and fraud. Of course, the Government have a strategy, which I welcome. It was set out in October 2010 and has put some money—£400 million or so between now and 2015—into reducing the cost of overpayments. Although that is important work, so is the £1.3 billion underpayment identified by the Public Accounts Committee year after year. Of course, this is a measure of complexity. If we get the benefit that we hope for from the universal credit moves proposed in the Welfare Reform Bill, that will perhaps lead to simplicity, which, as my noble friend said, would be welcome. However, surely we must do something about the recognised £1.3 billion underpayment. I know that my noble friend is on the case and is deeply, personally concerned about fraud, but will he give us an assurance that he will use his best offices to get that underpayment down just as fast as he wants to get the overpayments down between now and 2015? If he does that, certainly I for one would rest happy in my bed at night.

[Lord Lea of Crondall]

Perhaps I may say how interesting I find the noble Lord’s analysis of the difference between the RPI and the CPI. Some 30 years ago, I was a member of the RPI advisory committee when it had a great row with the Treasury about mortgage interest payments. The philosophical argument was that you cannot have the cost of money as a factor in the national income. I respect that that was always the Treasury position. It might be slightly provocative to say this, but perhaps an organisation such as the Office for National Statistics or the new Office for Budget Responsibility could objectively set out the pros and cons for the different purposes. Whether one is dealing with national accounts or the cost of bus fares, one has to disaggregate the RPI. This issue arises all the time. Therefore, it would be useful if the Cabinet Office or somewhere else could produce a paper on the strengths and weaknesses for different purposes of the RPI and the CPI, including European standardised statistics and all the rest of it.

[Lord Kirkwood of Kirkhope]

I certainly think that that is a good idea and I would support it.

--- Later in debate ---

The noble Lord, Lord German, asked about the RPI. It is impossible to be ruder about the RPI than I have been in explaining why the difference between the RPI and the CPI is less here than elsewhere. The reason one could potentially be rude is that the RPI incorporates something called the “average of relatives” as its way of calculating the arithmetic mean—to the extent of 38 per cent of the total. That creates a bounce effect and that is why that particular index has been banned for international comparison. If you wanted to have a posse against the RPI, that is where the suspicions are likely to lie.

[Lord Lea of Crondall]

Can I just point out that that is by no means the whole argument about the merits of the RPI?

[Lord Freud]

It is an attempt to find an explanation for why our RPI is so different from the CPI compared with other countries. I was just looking for a clue to answer the rather potent question asked by my noble friend. It was not a complete answer, but I tried to give a more complete answer earlier.

My noble friend Lord Kirkwood asked about the child poverty strategy, which we are aiming to publish shortly. The strategy will set out our plan to transform the lives of children in poverty now and in the future. It will be a step change from previous approaches, which focused solely on income poverty, to a more sustainable and effective approach that addresses the root causes of poverty rather than the symptoms.

On the National Insurance Fund, I am sure that my noble friend Lord Kirkwood, has had this answer back many times and I almost do not want to say it again. The formal answer is that there is no fund in the sense normally meant; there is no pot of money to hand out. But I shall not go into that.

There may be one or two other items that I have not covered, but if there are I shall write and clear up all other points—otherwise I shall be here all night.

I shall try to wrap this up. We are taking an approach that seeks to balance the interests of benefit and pension recipients and the interests of the taxpayer. The CPI is an appropriate measure of inflation and one that helps to put the welfare system on a sustainable footing. The CPI is a legitimate measure for price inflation; it increases in line with real world prices and protects purchasing power. As such, there are good reasons for concluding that it is more appropriate than the RPI for our purposes. Despite the fact the nation’s finances remain under severe pressure, this Government will spend an extra £4.3 billion in 2011-12 to ensure that people are protected against the cost of living increases. Through the restoration of the earnings link and the triple guarantee for the basic state pension, the increase to pension credit and the continued protection of benefit and pension value, we are fulfilling our commitment to ensure that no one is left behind. I commend the orders to the House.