Social Security and Pensions (Statutory Instruments)

Mark Harper Excerpts

Monday 9th February 2015 Commons Chamber

[Steve Webb]

I will come on to the issue of the use of the RPI, because the right hon. Gentleman knows the RPI has fallen into disrepute and no credible Government would have continued with the RPI, so the question does not arise.

The new rate of the state pension will be £115.95 a week for a single person, an increase of £2.85 from last year. We estimate this means the basic state pension will be around 18% of average earnings, and my hon. Friends might be interested to know that, as a share of the national average wage, that is the highest rate of state pension for over two decades. Thanks to the coalition Government’s commitment to the triple lock, a person on a full basic state pension will, as my hon. Friend the Member for Worcester (Mr Walker) said, receive around £560 more in 2015-16 than if the basic state pension had been uprated only by earnings during this Parliament. That commitment means that, since coming into office, this coalition has increased the basic state pension by about £950 a year.

The triple lock applies to the basic state pension, and the question is: what should we do for the poorest pensioners on pension credit? Under the law left to us by the previous Government, we are required to uprate pension credit only in line with earnings. We could therefore have done the legal minimum and put the pension credit up by about 0.6%. However, we thought that that was too little for the poorest pensioners. We wanted to ensure that the very poorest pensioners, those who are dependent exclusively on the guaranteed credit, would benefit in full from the triple lock.

Each year, the standard minimum guarantee must be increased only in line with earnings, which would have equated to 0.6%, but to ensure that the poorest pensioners benefited from the full cash value of the increase in the basic state pension, we decided to increase the value of the standard minimum guarantee by 1.9%, so that single people would receive an increase of £2.85 a week and couples would receive an increase of £4.35 a week. Consistent with our approach last year, the resources needed to pay for this 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 may see less of an increase.

This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 1.2%. Labour froze SERPS pensions in 2010, but this will be the fifth year in a row that the coalition has uprated SERPS by the full value of the consumer prices index.

This year, the coalition will continue to ensure that those people who face additional costs because of their disability, and who may have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of the CPI. So disability living allowance, attendance allowance, carers allowance, incapacity benefit and personal independence payment will all rise by 1.2 % from April 2015. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also rise by 1.2%, as will the employment and support allowance support group rate and the limited capability for work and work-related activity element of universal credit. Pensioner premiums paid with working-age benefits will increase in line with pension credit.

We have been debating the use of the CPI on a more or less annual basis for the past four years. When we first switched to using the CPI, the right hon. Member for East Ham (Stephen Timms) responded to the debate. He rather inventively accused us of being “ideologically driven” in our switch to the consumer prices index from the retail prices index. The choice of a price index for the uprating of benefits is not quite up there alongside the great battle between communism and capitalism, is it? At the time, however, he said:

“Changing permanently from RPI to CPI, other than in this year, and keeping things that way even after the deficit is long gone, is plainly not a deficit reduction measure—it is ideologically driven, and the Opposition do not support it.”—[Official Report, 17 February 2011; Vol. 523, c. 1182.]

Since then, there has been a great deal of analysis of the suitability of different price indices, and his view that we should somehow clear the deficit—I do not know when, under his plan—and then go back to the good old RPI is no longer credible. I hope that he will set out his position on uprating when he responds.

The right hon. Gentleman is sceptical of my views on these matters—he hides it well, but he probably is—so I want to bring forward two witnesses. My first witness is Tim Harford, who presents the BBC’s statistics programme “More or Less”.

[The Minister for Disabled People (Mr Mark Harper)]

Very good!

[Steve Webb]

I know that my hon. Friend listens to nothing other than podcasts of “More or Less”. When Tim Harford was interviewed on the “Today” programme recently, he was asked what his favourite statistic was. The nation waited, agog to hear his reply. He said it was the CPI. So when the BBC’s go-to guy for statistical rigour and reliability was asked to choose from a multiplicity of official statistics, he homed in on the CPI as the epitome of a good statistic. We therefore make no apology for using it.

The national statistician, Sir Andrew Dilnot, commissioned Paul Johnson, the director of the Institute for Fiscal Studies, to carry out a review of price indices. This year, we had four to choose from: RPI, RPIJ, CPIH and CPI. We have opted for CPI. The right hon. Gentleman is seeking to imply that we should use RPI, perhaps because it is bigger, but it is interesting to note what Paul Johnson said about RPI, to which the Opposition are still wedded—or at least they were, the last time I heard. Paul Johnson’s recommendation was:

“ONS and the UK Statistics Authority should re-state its position that the RPI is a flawed statistical measure of inflation which should not be used for new purposes”.

He went on to state:

“Government and regulators should work towards ending the use of the RPI as soon as practicable.”

He made it absolutely clear that RPI was flawed and that we should restate that fact, which I am happy to do. He thought that RPIJ should probably be discontinued and that CPIH needed some methodological work to get it right. So CPI is the only credible index available to us. If the right hon. Gentleman implies in his response that we should use something else, I would like to know his basis. We believe the price index should be chosen on the basis not of whether it is high or low, but whether it is accurate. That has been the policy of this Government.