Social Security

Sheila Gilmore Excerpts

Thursday 17th February 2011 Commons Chamber

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the Government give the House a time scale in which it will consider these matters to do with CPI? Obviously, council tax also has to be taken into account.

[Steve Webb]

I am grateful to the hon. Lady for raising that point. We are, of course, driven by the Office for National Statistics, so we are not cobbling together our own index. It is undertaking careful work over the next two years. We will then look at its findings and consider whether it is appropriate to use a CPIH-type measure. We are governed by the ONS’s time scales.

I will comment briefly on benefits for people of working age. Unfortunately, last year the Government got themselves into a bit of a mess over uprating. As I have said, RPI was showing negative inflation, mainly as a result of falling mortgage interest. As a result, benefits such as additional state pensions did not increase at all. They would have done under CPI. Other benefits, mainly the disability and carers’ benefits, were the subject of what my notes call a bewildering fudge—I think that roughly sums it up. In the end, disability and carers’ benefits last year were increased by 1.5%, but on the proviso that the pre-election—sorry, that word slipped out again—increase in 2010 would be clawed back in 2011. In other words, that would have happened this year in this order. [Interruption.] The Secretary of State says that we had to decide whether to pick up the ticking time bomb of that 1.5% clawback as well.

Members will be pleased to know that the 2011 uprating order before the House today contains no such sleight of hand. It is based on the straightforward proposition that, aside from increases in the basic pension and pension credit that have already been explained, the other mainstream social security benefits and statutory payments will increase by 3.1%, in line with the annual growth in RPI. There will be no attempt to recoup the value of the 1.5% fudge that we inherited from the previous Government.[Official Report, 7 March 2011, Vol. 524, c. 3MC.]

Finally, I will touch on occupational pensions. Such pensions are not directly the subject of the orders. The changes that relate to the revaluation and indexation of most occupational pensions were the subject of the revaluation order that was tabled before Christmas. However, because of the close link in all pensions matters—everything is connected to everything else—I ought to say a word about this matter. CPI is being used for all social security benefits and additional state pensions, and through statutory linkage, CPI applies to public sector pensions. We had to decide what to do for private sector pensions. I stress that the role of Government is to set the floor for increases to private sector pensions and we had to make a judgment on that. We took the view that the Secretary of State could not decide that inflation was CPI for things that we pay out, but RPI for things that other people pay out. As far as we are concerned, inflation is inflation and we have to be consistent. CPI is therefore the right floor for occupational pensions. However, I stress the word “floor”. Schemes are entirely at liberty to make more generous increases if they wish. This statutory requirement increases only in respect of service after 1997, whereas some schemes index service before that.

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[Jenny Willott]

Like the hon. Gentleman, I was not a Member of Parliament at the time, but I would have expressed my disagreement with those views. Pensioners are among those in society with the lowest incomes, so they are most in need of protection. Anything that prevents them from falling even further behind, as they have over the past few decades, is a good thing. Since the link to earnings was taken away under the previous Conservative Government, pensioners’ incomes have fallen significantly behind. Pensioner poverty is still at a disgraceful rate. I am glad to see measures being put in place today that will start to tackle that problem and stop pensioners falling further behind the rest of society.

[Sheila Gilmore]

Does the hon. Lady not accept that pensioner poverty was substantially tackled by the Labour Government, as pensioners were among 1 million people lifted out of poverty by their policies?

[Jenny Willott]

I absolutely accept that the previous Labour Government tried to tackle pensioner poverty by introducing pension credit, guarantee credit and so forth. However, the system they introduced has had a number of unintended consequences. It was so complicated that millions, or at least hundreds of thousands, of pensioners did not apply for the benefits to which they are entitled. The system is so degrading and complicated that they do not receive the benefits due to them. These are people living below the poverty line who are among the most vulnerable in our society.

Another unintended consequence of the system is that when people are working, they do not know whether they will end up better off when they retire. The system acts as a disincentive for people on low incomes to save. With auto-enrolment into pension schemes, I would like to see the means-testing taken out of the system so that people know that every penny they save when they are working and earning low incomes will benefit them in retirement. That is preferable to ending up being trapped, as a number of people are, in the pocket between those able to get means-tested benefits and those who are not. Although a lot was done under the Labour Government, the unintended consequences have, I feel, been quite damaging as well. The Office for National Statistics says that more than 2 million pensioners live in poverty; for me, that is far too many and I would like to see the problem tackled further.

[Sheila Gilmore]

Do I take it from the hon. Lady that she would support the raising of the basic state pension to the level of pension credit for everyone? Does she accept the consequential decisions that we would have to take as a society about the level of taxation appropriate to support such a change?

[Jenny Willott]

As the hon. Lady might well be aware, as a Liberal Democrat I stood on a manifesto that said we would like to introduce a citizen’s pension, which would result in the basic state pension being lifted to the level of pension credit so that everyone who was retired would be living on a decent pension above, or at, the poverty line, rather than people having to go through the demeaning process of applying to the Government to lift their income above the poverty line. That would also remove the disincentive to save. Perhaps the Minister will say in his summation whether he agrees with me that we should introduce such a citizen’s pension.

Given that the Welfare Reform Bill was launched yesterday with proposals to update significantly the system of working-age benefits, will the Minister tell us what the Government will do to update the old-fashioned and outdated system of benefits that go to those of pension age? We seem at present to be able to think imaginatively about changes to benefits and state support, so I hope the Minister will tell us a bit more about what vision the Government might have for older members of our society.

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[Rehman Chishti (Gillingham and Rainham) (Con)]

I very much welcome these initiatives by the Government, as they will help to improve the quality of life of the elderly, who have given so much to our society, and that of the most vulnerable in society. It is absolutely right and proper that we help those who are most vulnerable.

I believe that the Government are right to use one index for uprating additional state pensions, public and private pensions and social security benefits, and that the consumer prices index is a more appropriate measure of changes in the cost of living than the retail prices index. The CPI is the headline measure of inflation in Great Britain, forming the target for the Bank of England’s Monetary Policy Committee. The CPI excludes mortgage interest payments, which are not relevant to the majority of pensioners and benefit recipients. In fact, only 7% of pensioners have a mortgage, and working-age benefit recipients can get help with their housing costs. The methodology used to calculate the CPI takes into account the fact that many people tend to trade down to cheaper goods when prices rise; the RPI does not do that. That comprises a significant portion of the gap between the CPI and the RPI. In terms of population coverage, the RPI excludes the significant group of pensioner households who receive 75% or more of their income from the state; the CPI includes them.

The intention of indexing benefits and pensions is to protect their purchasing power, not to give the highest increase possible. Increases in line with growth in the CPI maintain benefit and pension value and put the system on a more sustainable footing, allowing the Government to focus help where it is needed most.

[Sheila Gilmore]

If the change to the CPI is such a good move, why are the Government running scared of using it as part of the triple lock for the basic state pension this year and picking another figure out of the air in order, presumably, to make pensioners feel better about what is happening?

[Rehman Chishti]

The hon. Lady raises an interesting point, which I think was dealt with by the Minister. She refers to pensioners getting the right deal from the triple lock. It is important that we listen to what people in the third sector, not only politicians, say about how this will affect people. I have here a quote from Age UK’s charity director, Michelle Mitchell:

“We are delighted the Government is introducing a ‘triple guarantee’ to raise the basic state pension from April, and also a matching increase for Pension Credit which will help the poorest in later life.”

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[Hywel Williams]

That is a valid point. Of course, the variation across the country is quite substantial. I refer again to my own constituency, where there has traditionally always been a very high level of owner-occupation. There are older people who own their houses, but in other areas people are still paying off their mortgages. The figure of 7% has been mentioned—that is a lot of people who will be hit.

[Sheila Gilmore]

Does the hon. Gentleman agree that that figure might well grow in future? Given the level of borrowing that many people have made to buy properties, and that a lot of people are buying at a much later age, many more people are likely to move into retirement with a mortgage still to repay.

[Hywel Williams]

That is a very good point. Indeed, I think I might be one of those people. I understand that the average age of the first-time buyer is now 38. These are valid worries that people have.

The arguments on RPI and CPI have been well rehearsed this afternoon so I will not go further into them. I have a great deal of respect for the Minister and I think he would agree with me and many other people that what we need is a bit of calm and consensus on pensions policy—something that has been lacking for 25 or 30 years. I worry that this change will not lead to consensus and that he might have fallen in with a bad lot.