Pensions and Benefits Uprating

John Bercow Excerpts

Tuesday 25th February 2014 Commons Chamber

[Mr Speaker]

With the permission of the House, the motions on the draft Guaranteed Minimum Pensions Increase Order 2014 and on the draft Social Security Benefits Up-rating Order 2014 will be debated together.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

I beg to move,

That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.

[Mr Speaker]

With this we shall discuss the following motion, on the draft Social Security Benefits Up-rating Order 2014:

That draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.

[Steve Webb]

Let me deal first with what is an entirely technical matter that we attend to each year, and not one that I imagine we shall need to dwell on today. The Guaranteed Minimum Pensions Increase Order 2014 provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.7%, in line with the increase in the consumer prices index to the previous September.

I should like to turn now to the Social Security Benefits Up-rating Order 2014. As part of his autumn statement, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2014-15, and today we are debating the order that will uprate those social security pensions and benefits for which my Department is responsible. As the House will be aware, we are not here to discuss the Welfare Benefits Up-rating 2014 Order, which was made on 24 January. Those rates increased by 1% under that order, and were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.

Turning to the benefits and pensions in the Social Security Benefits Up-rating Order 2014, I shall deal first with the basic state pension. Despite the current tough fiscal context, this Government remain committed to protecting those who have worked hard all their lives, which is why we have stood by our triple-lock commitment to uprate the basic state pension by whichever is the highest of earnings, prices or 2.5%. This year, as prices were greater than average earnings and greater than 2.5%, the basic state pension will increase by CPI at 2.7%. The new rate of basic state pension will therefore be £113.10 a week for a single person, an increase of £2.95 from last year. That means that the basic state pension is forecast to be around 18% of average earnings from April 2014, 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 uprated by earnings since the start of this Parliament.

On pension credit, we have continued to take steps to ensure that the poorest pensioners will benefit in full from the effect of our triple lock. Each year, the standard minimum guarantee must, by law, be increased at least in line with earnings. That means that the minimum increase this year would be 1.2%. However, to ensure that the poorest pensioners benefit from the full cash value of the increase in the basic state pension, we decided again to increase the value of the standard minimum guarantee credit, in this case by 2%, so that single people will receive an increase of £2.95 a week and couples will receive an increase of £4.45 a week. Again, consistent with our approach last year, the resources needed to pay this above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means those with higher levels of income will see less of an increase.

Let me now deal with additional state pensions. This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 2.7%, which means that the total state pension increase for someone with a full basic state pension and average additional pension will be about £3.75 a week, or just under £200 a year. Unlike under the Labour party, which froze SERPS in 2010, this will be the fourth year in a row that the coalition has uprated SERPS by the full value of CPI.

In these debates, we discuss the most appropriate measure of inflation by which to uprate benefits. I have had the pleasure of such exchanges with the right hon. Member for East Ham (Stephen Timms) several times, and I want to refer him back to something he said three years ago in the corresponding debate. We were using CPI rather than RPI—the retail prices index—and it is CPI which underlies these motions. He described the move to CPI as “ideological”; that is an interesting description of a choice of price index, but he regarded it as an ideological shift. He went further in expressing his distaste for this measure, saying:

“As for the view of my party, I simply refer the Secretary of State to what the leader of my party has said, which is that the suggestion that the change should be made for a period—perhaps up to three years—would be something that we could consider. If that proposition were on the table, we would be happy to consider it.”—[Official Report, 17 February 2011; Vol. 523, c. 1187.]

So his position three years ago was that, perhaps for three years, we might use CPI because it saves a bit of dosh but that the Labour party was committed to RPI.

I therefore hope that when the right hon. Gentleman responds and gives his party’s position on these motions he will clarify whether that is still his position. He will realise, first, that RPI has now been dropped by the Office for National Statistics as an official statistic because of methodological concerns. So I would be surprised if he remained committed to going back to RPI. Perhaps he thinks we should use CPIH, as he complained that we did not have owner-occupier housing costs in the measure that we are using. If that is his position, he would obviously be arguing for a lower increase in benefits this year, because at the moment the level of CPI is above that of CPIH. Given that he was opposed to a permanent switch to CPI, given that RPI has been dropped as an official statistic and given that some of the other measures are lower than the one we are using, I am slightly puzzled by his position—I am sure that by the time we have heard his speech we will no longer be puzzled.

On disability benefits, this year the coalition will ensure that those who face additional costs because of their disability, and who perhaps have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of CPI. So disability living allowance, attendance allowance, carer’s allowance, incapacity benefit and personal independence payment will all rise by the statutory minimum of 2.7% from April 2014. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also increase by 2.7%, as will the employment and support allowance support group, 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.

At a time when the nation’s finances remain under real pressure, this Government will be spending an extra £3.3 billion under these orders, and related orders, in 2014-15. We will thus continue to help support those who are not currently in work, first, by increasing the main rates of working-age benefits by 1%, and by ensuring that pensions, and benefits that are designed to help with the additional costs of disability, are protected against the cost of living. Of that, we will be spending about £2.7 billion extra on state pensions, including an above-inflation increase, and more than £600 million on people of working age. Nearly £600 million will be going to disabled people and their carers. Our decisive action to limit to 1% the increases in the main rates of most working-age benefits is part of our overall economic strategy, which has substantially brought down the deficit.

In this order, we continue: first, to maintain our commitment to the triple lock, meaning that the basic state pension will reach its highest level as a percentage of average earnings for two decades; secondly, to protect our poorest pensioners with an over-indexation of the standard minimum guarantee, so they too will feel the benefit of our triple lock; and, thirdly, to protect the benefits that reflect the additional costs that disabled people face as a result of their disability, through increases to disability living allowance and attendance allowance, carer’s allowance and the main rate of other disability benefits in line with CPI. I have set out our ongoing commitment to ensure that no one is left behind, and I commend these orders to the House.