Social Security Benefits Up-rating Order 2022

Lord Sikka Excerpts

Wednesday 23rd March 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, this debate has been a little time coming but I make no apology for making sure it takes place. Unfortunately, I was unable to take part when the order came before Grand Committee as I was active in the Chamber at the same time. However, I was happy to adopt the Government Whips’ idea of this separate debate on the regret Motion.

In the event, this has the advantage that we now know a lot more about where we are with the increase in social security benefits that will take place in two weeks’ time. The new information is not good. Inflation in February was higher than expected, at 6.2%, and is certain to be even higher at the beginning of April when the benefit increase comes into effect. The effect is spelled out—this is why it is good to have the debate today—in today’s economic and fiscal outlook from the OBR. This states that, because of lags in the CPI uprating of welfare benefits, benefits will fall by almost 5% in real terms. To be clear, the poorest in our society are facing a 5% reduction in their income when they are already in poverty.

Further, the OBR report states that £12 billion is being taken away from poor people and that it will take up to 18 months fully to catch up with that reduction. I could speak at length about what this means for individuals in human terms, but I will simply refer the Minister to the heartfelt contributions made in the Opposition day debate in the Commons yesterday. I urge her to take the time to read that debate if she has not already done so. That is the human cost.

I want to make three additional points, to which I invite the Minister to respond. I shall not dwell too much on the Labour Party’s position on the uprating—I look forward to my noble friend’s contribution from the Front Bench.

First, does the Minister recognise that it is no consolation to people who are already in poverty and suffering a further cut in their real income to be told that it all averages out over time? We are told, in effect, that the loss of income they are facing, and from which they will suffer in the coming year, is not that important because at some point in the future—the OBR estimates it to be in 18 months’ time—they will receive an increase that will make good the shortfall. They are already in poverty, and they will have to endure 18 months of even greater poverty because of a defect in our benefits system. For people in poverty that is simply not good enough. Eighteen months is too late, as even in the subsequent better year they will remain in poverty. They have already suffered the effect of poverty on their lives and they simply lack the resources to even out their income over the years.

The question is what can be done about it. The Minister told the Grand Committee that

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


But she also told the Committee that

“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 recall discussing this with the relevant department back in the 1970s. I find this less than impressive. Seven months is too long when inflation can change so rapidly. Despite all the advances there have been in handling and processing data in the past 35 years, it appears that we still cannot do any better.

I quite understand the department’s resistance to making any change, but faced with the suffering caused for the poorest in our society, we must find some way to achieve a closer alignment of increases in prices and benefits. For sure the index we use could be more up to date, and I refuse to believe that this cannot be done through greater use of modern technology. The department simply needs to invest more in computerising its records. I also suggest, more radically, that where an increase falls short, an adjustment should be made during the course of the year when it becomes apparent, plus provision for back pay to cover the gap that has arisen because of the shortfall increase.

My second point is that the resources are there in the National Insurance Fund to pay higher pension increases. We have the advantage on this occasion of the welcome report by the Government Actuary that is attached to the draft order. This tells us that, for the next five fiscal years, the balance in the National Insurance Fund will increase from £53 billion at present to £76 billion in 2027. In percentage terms, that is an increase when expressed as a percentage of benefit outgo from 48% to 55%. It is worth comparing those figures with the 16.7% that the Government Actuary recommends as the minimum fund balance. It is also worth emphasising that that is without allowing for the possible Treasury grant, which is an integral part of national insurance as originally conceived. This can amount to 17% of benefit payments. It is simply untrue to say that the money is not available. It is not that the money is not there; it is that there is a political choice not to pay.

I had the benefit of a letter this morning from the Treasury Minister, the noble Baroness, Lady Scott of Bybrook—the other Baroness Scott—referring to the Government Actuary’s quinquennial review, which was presented to Parliament last week. In her letter, she states:

“Increasing spending on today’s pensioners would pass the costs onto future generations of taxpayers.”


Well, I would welcome an opportunity to discuss the quinquennial review, and perhaps the Government Whips would provide the time. However, given the limited time available this evening, I say simply that the review, while commendable, tells us only part of the story. Taking the figures from the OBR, along with those from the Government Actuary, there will be the resources available in 2085 for everyone to be better off, even if national insurance contributions reach the level suggested in the Government Actuary’s report.

My final point relates to the triple lock. How much credence can we give to the Government’s repeated promises to keep to the triple lock for the basic state pension and the new state pension? On Monday in the Commons, after some confusion on the part of the Secretary of State, she said:

“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 back in 2020, and subsequently broke the promise. The Minister here made a similar commitment in Grand Committee. The truth is that we already know that this Government are prepared to break their promise to maintain the triple lock, which was given voluntarily in the election manifesto and subsequently repeated by the Prime Minister.

The explanation given by the Minister here when this was discussed in Grand Committee was that

“setting aside the earnings link in the state pension triple lock for the year 2022-23 … was in response to exceptional circumstances”.—[Official Report, 9/3/22; col. GC 475.]

The problem is that we do not know what counts as the exceptional circumstances in which this Government will break their promise again. On this occasion, with the current uprating that we are talking about, we are told that the exceptional circumstances are the effect that coming out of the Covid measures has had on the earnings index.

So the question is not whether the Government will break their promise. We know that they are capable of breaking their promises. What we do not know about is the possibility that they will break their promise for further exceptional circumstances.

We simply cannot rule out the possibility that, come next November, when a decision is taken on next year’s uprating, it will be decided that this coming September’s CPI index is exceptional or anomalous. To be honest, with the prospect of it being more than 8%, according to the OBR, I hope that it is exceptional. I return to the OBR report and the nice graph—I cannot show it to noble Lords because that is against the conventions of the House—in which there is a leap up to the September figure, when it could be in excess of 9%, which is exceptional. What promise can the Government give that they will not say that these are again exceptional circumstances?

To conclude, can the Minister give us an unequivocal commitment, now, that whatever the CPI increase in September—8% or 9%—this will be applied to the 2023 increases?

[Lord Sikka (Lab)]

My Lords, it is a pleasure to follow my noble friend Lord Davies of Brixton, who spoke with great passion and eloquence to put the Government to shame for the plight of our senior citizens, who continue to be treated very badly.

The state pension is the main or only source of income for the majority of our senior citizens—they rely upon it. The Government introduced the triple lock but, despite it, pensioner poverty has actually increased; it has not decreased. The statistics show that many of our pensioners continue to suffer. From next month, the pension will rise by 3.1%. Pensioners and others face RPI, not CPI: try buying broadband and you will be told that the price will increase by RPI-plus, not CPI. People face increases in line with RPI, which is already about 8%. Last October’s Treasury Red Book showed that by suspending the triple lock the Government were denying retirees £30.5 billion over the next five years. That is a vast sum. They will never be able to catch up or make good the lost purchasing power.

The Government do not treat our senior citizens with any equity or respect. The winter fuel payment has been unchanged since 2011. Even before the current rises that are coming our way, the winter fuel payment would have had to double simply to cope with price rises and rates of inflation—the Government never increased it. A Christmas bonus was the grand sum of £10 in 1972. If it had kept pace with inflation, it be about £150; it is still exactly £10. The Government removed the free TV licence from the over-75s. It is no good saying that there are some who will still qualify for it if they negotiate the bureaucratic maze; many will simply not be able to and will either pay or volunteer to go to prison, because the Government want to criminalise avoidance of the TV licence fee. At least some of our senior citizens will get warmth and some food there, and some may well take up that particular option.

The Government still do not like people getting old. There are no prescription charges in Scotland, but the Government here are raising the free prescription age from 60 to 66. Why England has to be an outlier, I do not know.

In the last Budget, the Government handed £4 billion of tax cuts to banks. They took money away from pensioners and instead gave it to banks, which are absolutely awash with cash. Banks offer you a measly 1% interest on your savings and charge you 40% on your overdraft, but they are bailed out by the state, which acts as a lender of last resort. If that were not enough, it also handed £895 billion of quantitative easing to speculators, including banks, which made vast profits from that. But the Government do not want to pay our senior citizens a decent pension. That is a huge wealth transfer, which tells us something about the Government’s value system.

--- Later in debate ---

Separately, our internal management information suggests that the number of new claims for pension credit was 30% higher in 2021 than 2019. This is an encouraging development, although the impact of these claim volumes on successful awards and pension credit take-up will take longer to establish. We have more to do to encourage people to take up pension credit—

[Lord Sikka (Lab)]

I raised a point about equality, although perhaps the Minister was coming to it; I am not sure. The Government have equalised the state pension age for men and women, but women’s state pension languishes behind men’s. Why is it not equalised? Can she undertake to give a date by which that will happen?

[Baroness Stedman-Scott (Con)]

I cannot undertake to say if and when that will happen, but I will write to the noble Lord and place a copy in the Library with any updated information that I can glean.

The noble Lords, Lord Sikka and Lord Shipley, raised a point about pensioner poverty. Absolute pensioner poverty, both before and after housing costs, has fallen by 200,000 since 2009.