Pensions and Social Security

Stephen Lloyd Excerpts

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

On the contrary, let us bear in mind what the Government have done: the Chancellor has taken action on the taxation of petrol, resulting in inflation being lower than it would have been, and we have successively frozen council tax in many parts of the country, which is of huge benefit to many pensioners. There are many things that Governments do that influence inflation. Some factors are global, which is one reason inflation peaked at 5.2%, but measures that the Government have taken have also been one reason prices have been falling. That is entirely to the Government’s credit.

[Stephen Lloyd (Eastbourne) (LD)]

Does my hon. Friend agree that the Government came under considerable pressure not to opt for 5.2% because informed opinion thought that inflation was falling, but with strong urging from the Liberal Democrats in the coalition, the Minister determinedly stuck to the 5.2%, which has made it a real-terms increase?

[Steve Webb]

Indeed. My hon. Friend is right that there were siren voices from some quarters suggesting that we could not afford, or that we should not go for, this inflation figure. He is absolutely right that the coalition parties decided that it was a priority. That is something that I am proud to be associated with.

--- Later in debate ---

[Stephen Timms]

I shall deal with the last point immediately. I have said that if this Government had proposed a temporary switch to CPI uprating in order to contribute to deficit reduction, we would have looked seriously at that argument. It is the permanent downgrading of the uprating method for pensions and all other benefits that we think is wrong.

The DWP impact assessment from July last year told us that the impact on occupational pensions over the next 15 years would be more than £70 billion, and I think the Minister has said that it would be more than £80 billion. It will certainly involve a very large figure indeed. In this coming year, the gap between CPI and RPI—the figure that has been used refers back to last September—is relatively small, at 0.4%. I think the Minister is hoping that pensioners will not notice that his triple lock, which sounds so generous, is in fact delivering a lower increase than the long-established formula used by all Governments until this one. High inflation makes this a substantial cash increase, but, given what the Minister has said about the importance of keeping inflation low, it is not greatly to this Government’s credit that the cash increase is so large.

[Stephen Lloyd]

Does the right hon. Gentleman agree, however, that if the Labour Government had used the triple lock, there would never have been the scandalous scenario of a few years ago when Labour gave pensioners an increase of 75p?

[Stephen Timms]

The point I am making is that if the RPI method were in place for the coming year, the increase would be larger than the one in the order before us today.

--- Later in debate ---

[Stephen Timms]

I am simply making the point that if the Government had proposed a temporary switch to CPI uprating, perhaps for three years, that would have been a reasonable proposition for us to consider. As it is, we have this permanent switch, which we oppose. As to what we will do when elected to government, I will have to ask the hon. Lady to wait until the publication of our manifesto ahead of the next election, which she and many others will be eagerly awaiting.

Will the Minister say more about what will happen once this revised formula for CPI has been drawn up and published by the UK Statistics Authority? Can he provide any encouragement that the Government will in fact use what will almost certainly be a higher rate resulting from that, or will they wish to stick with the current, lower CPI figure—the one being used for the coming year?

This order also provides for an increase in the standard minimum guarantee element of the pension credit—3.9%, as the Minister said, which is above the increase in earnings to which it would be statutorily tied. It is not clear to me how the 3.9% figure has been arrived at; can the Minister shed some light on that? I do not intend to object to it. As the Minister also said, to pay for the increase, the threshold for the savings credit element, which rewards those who have made their own provision for retirement, has been increased by 8.4%—quite a large amount. The maximum savings credit payable has been reduced by about £2 a week. The reduction in eligibility was made clear when this policy was announced, but the reduction in the maximum amount was not announced at that time.

How many people does the Minister expect to be affected by those changes, and what financial savings will each of them realise for the Exchequer towards the cost of the slightly higher uprating of the minimum guarantee element of the pension credit? We need to recognise that what is happening here is that money is being taken away from slightly better-off pensioners who are still receiving pension credit in order to give to those who are dependent on the guarantee element.

Let me press the Minister on one specific question about CPI uprating. The Government are freezing local housing allowance rates from April in preparation for the linking of the benefit to CPI. To put it politely, that has not been well publicised. One might almost think that the Government would prefer it if people were not made aware of it. When the policy was originally announced, the impact assessment said:

“Some savings are assumed in 2012/13, on the assumption that LHA rates will be fixed at some point ahead of the first uprating.”

It did not say that it would be fixed for the entire year, which is what the Government are now saying. What is the Minister’s justification for doing that?

Local housing allowance rates will be calculated annually as either the lower of the rent at the 30th percentile of local rents or the previous year’s allowance uprated by CPI. That is my understanding; perhaps the Minister will confirm whether I am right. What that means, of course, is that LHA rates will fall over time below the 30th percentile of local rents. Surely Ministers should commit to ensuring, as they seem to have indicated, that at least 30% of local rented housing supply will be affordable to tenants on LHA; otherwise, there is no clear definition of what Ministers expect the LHA to deliver in each local area. Let me ask the Minister directly: what proportion of the local housing market do Ministers think should be affordable for tenants on housing benefit? When will they step in, and how far does the proportion have to fall before they will step in to uprate the LHA level back up to, hopefully, the 30th percentile point?

I have another query about housing benefit. In paragraph 4 of part 20 on page 14 of the order, the maximum deductions from benefit in respect of heating, cooking, hot water and lighting, when those costs are included in the rent and paid to the landlord, are being raised substantially by 18%. Will the Minister say a few words about why those deductions from benefit have been increased so much?

The Guaranteed Minimum Pensions Increase Order requires occupational pension schemes to uprate their guaranteed minimum pensions by their 3% share of CPI, with the state meeting the remainder of the costs. These provide an important floor to defined benefit schemes so that individuals do not get less than they would if they had remained on the state second pension. The 3% increase would have occurred under either CPI or RPI uprating, so it is not objectionable in itself.

This year we are debating these orders as proceedings on the Welfare Reform Bill seem to be drawing to a close.

[Stephen Lloyd]

I have enjoyed listening to the right hon. Gentleman. In my time in Parliament, I have always appreciated his fairness when he debates various issues. I would like to press him on one matter. He said at the beginning of his speech that he agreed with the Government on some aspects of the uprating. Thus far, however, I have mainly heard about where he disagrees with the Government about the uprating, so I would be grateful if he clarified what he thinks is good about it.

[Stephen Timms]

I am grateful to the hon. Gentleman for not accusing me of being naughty—indeed, rather the reverse. I have drawn attention to a number of points of agreement with the Government. For example, I do not object at all to the Guaranteed Minimum Pensions Increase Order. On its own, the increase in the pension credit guarantee level is welcome. We need to know a little more about how it is going to be funded, but it is a good thing in principle, as I said. I also made it clear that I had no objection to the first order I commented on. I thus hope that I will manage to maintain my reputation for fairness—at least in the hon. Gentleman’s mind.

As the debates on the Welfare Reform Bill come to an end, it is important to place this measure in the context of the Government’s wider changes, which will penalise pensioners and in some cases make it impossible for people of working age to save. Couples with one member drawing near to the state pension age are unaware that, as a result of the Welfare Reform Bill, if the other member is younger they will not qualify for pension credit, so the household will not benefit from the increase in the pension credit guarantee level to which the Minister drew attention—I understand why he did so. Couples who live in council or housing association accommodation and claim housing benefit will face the under-occupation penalty; if one of them is below the age of entitlement for pension credit, it will be applied to them as well.

Families on tax credits do not yet know that they will be punished for saving. If they are trying to save up for a deposit on a house or for a child’s university education, and have managed to save more than £16,000—such people have been and are currently entitled to tax credits—they will not get any universal credit at all. For some, universal credit will make it impossible to save. The Minister made a virtue—again, I understand why he did so—of the 5.2% increase in the level of contributory employment and support allowance in the order. What he did not mention was that 100,000 people will lose out when the time limit on contributory employment support allowance comes into effect. If, against all our efforts, the Welfare Reform Bill achieves Royal Assent in time, those 100,000 people will lose out at the beginning of April and another 100,000 will lose out in the following year as they hit the one-year limit. That is the world that the Welfare Reform Bill is ushering in.

We recognise that there are elements in these orders that are acceptable—some, let me say again for the hon. Member for Eastbourne (Stephen Lloyd), are even welcome. Other elements, however, and in particular the permanent adoption of a lower rate of inflation uprating for pensions and other benefits, we cannot support. For that reason, we will be unable to support the Government in the Lobby.

--- Later in debate ---

[Stephen Lloyd (Eastbourne) (LD)]

It is a pleasure to speak in this debate because, unlike my hon. Friend the Member for Bury St Edmunds (Mr Ruffley), I am extremely proud that despite the chronic economic challenges that we face, the Government have uprated by 5.2%. I am what is termed an orange book Liberal, so I am fairly hawkish on the budget, but clearly not as hawkish as my hon. Friend. To me, when things are so difficult and so many people are being squeezed, including those in work, and when people in the public sector, because of the austerity measures, are not getting their salaries uprated, it is even more important that the coalition Government should stick to their guns and uprate pensions by 5.2%. That is laudable. To me, personally, it is even more important that they uprated the disability living allowance and jobseeker’s allowance by 5.2%. I am utterly supportive of the Work programme to get people back into work, but I am bullish about the fact that it is terribly important that people who receive DLA, JSA and so on should receive the additional uprating. It demonstrates the coalition Government’s commitment, which I believe to be genuinely profound, to try to make this as fair as possible, irrespective of the economic challenges.

To be in a position in which we can say that we have uprated pensions by the highest ever figure in, frankly, the worst economic crisis since the great depression, let alone the second world war, is something of which I am very proud and of which the coalition Government should be very proud.

[Mr Ruffley]

Let me be clear: although we all welcome the generous uprating for pensioners, does my hon. Friend, like me, draw a distinction between the uplift for pensioners, which we welcome, and the fact that there has also been a commensurate over-compensation for non-pension benefit recipients relative to the working poor?

[Stephen Lloyd]

I thank my hon. Friend for that question, but I disagree as I think that it is even more important that people in receipt of JSA and DLA at this time, when things are so difficult, are seen, shown and proven by the Government to be in a difficult position through no fault of their own. We want to show that they are entitled to that extra uprate. I appreciate that my hon. Friend and I might differ ideologically on that, but I hope that he accepts that my belief, although it is different, is profound.

On pensions and the £5.30, I remember canvassing in Eastbourne a few years ago when the then Chancellor of the Exchequer had just introduced the 75p rise. Not only were the pensioners I spoke to absolutely incandescent with rage but they did not understand. A lot of the people I spoke to genuinely believed, rightly or wrongly, that the then Chancellor was on their side—I respect that totally—and that is what shocked them. They just could not believe that such a derisory payment could be made. It is therefore very encouraging that at this time, in such an economic crisis, we are sticking to the triple lock and CPI, and doing it at an uprate of £5.30, which is about £21.80 or whatever a month, compared with what it was before.

However, I have some frustrations, which are shared by the hon. Member for Truro and Falmouth (Sarah Newton). It is very hard for the coalition Government to get the information out there about the uprate on disability living allowance. My hon. Friend the Minister knows that I have lobbied fiercely to him personally that that uprate should happen, but as hon. Friends have mentioned today, one would not think from the overwhelming response we have had in our inboxes that we had stuck to our guns on that. I pay tribute to the coalition Government on this issue: they have done the right thing.

On CPI and RPI, I have a lot of time for the right hon. Member for East Ham (Stephen Timms) on pensions generally. He brings a very good and forensic brain to this whole area, and I listened carefully to what he said. To be honest, I think he made some good points. There will be years when the challenge concerning the swapping from RPI to CPI will be greater, but equally there will be years when it is lesser. I know that the Government’s figures are for a 20-year period and that, for the average pensioner, the figure will be equal to £13,000 more, over and above what it would have been with RPI. I am getting so many conflicting details and reports on this, and I have sort of decided that, even though I understand where the Government are coming from with CPI change, we should stand back a wee bit and see how the figures develop over the next few years. Certainly, in the Minister’s wind-up I would be grateful for a little more detail about the pluses of CPI and about the £13,000 figure. I would find that very helpful, as, I am sure, would many of my colleagues on the Liberal Democrat Benches. What I do accept about CPI is that it strips out the mortgage side of things. I totally understand that because, certainly in my constituency, most elderly constituents tend to own their own homes, it is a more accurate and stable indicator. However, I would be grateful for a bit more detail on that.

Finally, and I have to be a bit partisan here, I find extraordinary the Opposition’s blanket opposition to CPI, with no caveats at all, because I know that the Labour party is introducing CPI for all its own staff’s pensions. I am a little confused about some of the rationale there. I know that others want to speak, so let me conclude by saying that I am delighted by the move on pensions regarding the triple lock, which the Minister will know was one of the Liberal Democrats’ key manifesto promises at the election. I am equally delighted that we stuck to our guns on that issue. There was quite a lot of battling and lobbying inside Government, as one would expect in a coalition, but it was all done with great courtesy. I am delighted that the 5.2% is not only in relation to pensions but is also for some other benefits, such as DLA, jobseeker’s allowance, carer’s allowance and attendance allowance, as I have already discussed.

We in the coalition are determined to get through this mess with the robust austerity programme. I entirely concur with my hon. Friend the Member for Bury St Edmunds on this. It is the only way we can get through this; otherwise, the bond markets would kill us—we both know that—and that would ramp up interest rates. I am delighted that despite all the challenges, we are trying profoundly, and well and as fairly as we can, to ensure that everyone in the country has to step up to the plate. That means that, yes, we have the Work programme for people who are out of work, but it is also about trying to ensure that people in that situation get a good uprate. That demonstrates that when it comes to the facts, by contrast with the hyperbole one sees in the media, the coalition Government are determined to do things right and fairly.

Thanks to the decision on these upratings, this is one of the times since I have been elected that I have felt genuinely proud to be a Member on the coalition Government side. I really mean that. That decision is entirely commendable and I look forward to hearing the Minister’s response.