Pensions and Social Security

Debate between Stephen Lloyd and Stephen Timms

Wednesday 13th February 2013 Commons Chamber

[Stephen Timms]

I think the hon. Gentleman is asking me a question about the administration of the Labour party on which, I am afraid, I am unable to assist him.

It is worth reflecting on the history of the triple lock. In its first year, it was announced but not actually implemented. If it had been implemented, it would have produced, from the Government’s point of view, an embarrassingly small pension increase. The Minister, sensibly, chose to override it and instead apply a larger increase that in that year was in line with RPI. At its first outing, therefore, it failed. In its second year—last year—it was actually implemented, and delivered an increase in line with CPI, along with working-age benefits. This year it is being applied again, and for the first time it is delivering something better than CPI uprating—a point made by the Minister.

The increase in CPI, as measured last September, was 2.2%, and the uprating amount in line with the triple lock is 2.5%. So that is it: in comparison with the CPI uprating, which until recently was the Government’s policy for working-age benefits, the triple lock has delivered a higher pension by a paltry 0.3%. Of course, if it had been applied in the first year, it would have been less than the CPI uprating. The triple lock has delivered a higher pension of 0.3% over three years—a rather derisory achievement. It is clear that the triple lock has been something of a damp squib. Of course, if it was something other than a damp squib, the Chancellor would have vetoed it long ago.

[Stephen Lloyd]

I have a lot of respect for the right hon. Gentleman’s honesty generally, and in particular in this area. Will he therefore agree with me that it is unfortunate that the Government in which he served as a Minister did not have a triple lock, otherwise pensioners all those years ago would not have received an uprate of only 75p?

[Stephen Timms]

Had the previous uprating RPI mechanism been in place, there would have been a larger pension increase this year and last year than has been delivered. I am grateful for the hon. Gentleman’s comments about my honesty, so let me pay a tribute to him. As a man who is also frank, he will recognise that the last Government did an enormous amount, particularly through the introduction of pension credits, to reduce the extent of pensioner poverty. In the past, pensioners were always more likely to be poor than the population as a whole, but that ceased to be the case under the policies of the last Government. Indeed, pensioner poverty was halved, as my hon. Friends have said.

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[Stephen Timms]

My hon. Friend is right. There was dramatic progress on reducing child poverty but, as I shall explain in a moment, all that ground will sadly be lost under the current Government’s policies. Those policies are hitting the disabled because, as the Minister said, although disability living allowance is being raised in line with the consumer prices index, employment and support allowance is not. On Second Reading of the Welfare Benefits Up-rating Bill the Secretary of State said that he was protecting people in the ESA support group. In fact he is not and, as the Minister confirmed, their benefit will be uprated by less than inflation—I know the hon. Member for Eastbourne has taken a close interest in that matter. Those people will see their income rise by less than inflation; they will have a real-terms cut.

As we have discussed, child poverty will rocket. The Institute for Fiscal Studies, where the Minister once had the task of compiling the statistics on child poverty, was already predicting on the basis of Government policies an increase in child poverty of 400,000 by 2015 and 800,000 by 2020.

[Stephen Lloyd]

I appreciate the right hon. Gentleman’s generosity in giving way. He mentioned the Institute for Fiscal Studies. Does he agree with its director, Paul Johnson, who said that

“the 1% uprating of welfare would start to put benefits back in line with earnings after welfare has grown twice as much as wages in recent years.”?

[Stephen Timms]

It would be particularly interesting to see a revised child poverty forecast from the Institute of Fiscal Studies, which I expect to appear before the Budget. We now know—as I say, these figures had to be dragged out of reluctant Ministers—that this order plus the Welfare Benefits Up-rating Bill will increase the number of children growing up below the poverty line by 200,000, including 100,000 in working families.

[Stephen Timms]

My hon. Friend is absolutely right, and we are talking about a large group of people. Indeed, the hon. Member for Eastbourne and I were on the radio together when somebody rang in whose total income was £71 a week. She was going to get an increase of 70p a week as a result of this order and she asked, “How am I supposed to manage?” To their credit, the hon. Gentleman and his friend from the Conservative party, the hon. Member for Camborne and Redruth (George Eustice), could not give her an answer.

[Stephen Lloyd]

I recollect that radio programme. I am sure the right hon. Gentleman will accept that the point was that surviving on £70 a week is a challenge for anyone in any circumstances, with or without a benefit uprate.

[Stephen Timms]

The hon. Gentleman is absolutely right, but what was clear from that contributor was the despair at the prospect of a rise of only 70p a week. At a time when inflation is running at more than 2% and is likely to increase, according to the Bank of England inflation report published today, that is a very alarming prospect indeed.

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[Stephen Timms]

I will give the hon. Gentleman the answer I gave a few moments ago. We think there would have been a reasonable case for the Government to make a temporary change to the uprating methodology, from RPI—the previous methodology—to CPI, but unfortunately they did not do that. They came up with a proposal for a permanent change to the methodology, using CPI only, but now they are not even sticking to that and have reduced the figure further to 1%.

What if inflation rises sharply in the next few years? The Governor-designate of the Bank of England has suggested that there should be greater flexibility in the inflation target used by the Monetary Policy Committee. If inflation rises sharply, the consequences for working families—for strivers, struggling to get by at the moment and lumbered with a 1% rise hard-wired into law for next year and the following two years—do not bear thinking about. The Bank of England inflation report published today places a probability of 39% on inflation being over 3% before the end of this year. The fan chart shows possible figures of 5%. What would the consequences be for people who will see a 1% rise in their incomes for the next three years if inflation rose in that way?

Why are the Government doing this? Why have the siren voices won this year? It is because the Government’s economic policy has failed. Let us look at the three years covered by this order and the Welfare Benefits Up-rating Bill. Compare the spending on unemployment benefits over those three years, which was predicted in the Budget last year, with the spending predicted in the autumn statement, just a few months later. The forecast spending on unemployment benefits over those three years went up, just between the Budget and the autumn statement, by the same amount that this order and the Bill will save over those three years. That is what is happening—the Government are clawing back the increase in unemployment benefits resulting from the failure of their policies from those who receive those benefits.

[Stephen Lloyd]

The right hon. Gentleman talks about the failure of the Government’s economic policies. Does he accept two absolute facts—that this is the worst economic recession since the great depression, and that since the general election the coalition Government have generated 1 million extra private sector jobs?

[Stephen Timms]

The hon. Gentleman is undoubtedly right that this is a very serious financial crisis, although I do not remember Government Members making that point before the election. I ask him to justify to the House why, on the very day that these measures will take effect, millionaires will all get a tax cut averaging more than £2,000 a week.

[Stephen Lloyd]

Under the coalition Government, people on higher incomes will pay more tax than they did during the entire 13 years—except for 30 days—of the Labour Government, during one of the strongest and most powerful booms we had had for 40 years. Can the right hon. Gentleman defend that record?

[Stephen Timms]

What would the hon. Gentleman say to the woman we spoke to on the radio, who will get a 70p per week rise as a result of this order? How would he defend to her the fact that the Government whom he supports will give a tax cut of £2,000 a week to everybody who earns more than £1 million a year? For me, that is completely indefensible, although he may have a defence—

[Stephen Lloyd]

Does the right hon. Gentleman accept that the IFS and other bodies have said that under the coalition’s tax policies the wealthier will actually pay more tax than they did before?

[Stephen Timms]

It is the people at the bottom who are being clobbered by this measure, and that is clear from the analysis. The hon. Gentleman has not defended the tax cut—I do not blame him as I do not think it can be defended that millionaires should get this enormous tax cut on the very day that people such as the woman on the phone to us on Radio 5 Live will get a 70p per week rise.

Pensions and Social Security

Debate between Stephen Lloyd and Stephen Timms

Thursday 23rd February 2012 Commons Chamber

[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.

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[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.

Welfare Reform Bill

Debate between Stephen Lloyd and Stephen Timms

Tuesday 21st February 2012 Commons Chamber

[Stephen Timms]

I agree with the points that the hon. Gentleman is making. Just to take him back to foster children for a moment, as I understand it, they do not count towards the housing benefit bedroom entitlement, whether they are there are not. Therefore, not only is there a problem when there are no children; there is a problem when there are children.

[Stephen Lloyd]

I would welcome a response from the Minister on that issue.

To go back to disabled people and adjustments to their homes, I would like some detail from the Government as to exactly how they will meet that challenge, because clearly it makes no sense to move someone out after their home has been adapted to the tune of thousands of pounds.

Thirdly, what steps are the Government taking to ensure that there is enough housing stock when 2013 comes around? We have a year before that happens, so I would be interested to hear the Government’s plan. Last but not least, what plans are the coalition Government making, prior to implementation, to work with local authorities and housing associations in advance of April 2013 to ensure that the changes are made in a sensible and productive manner? I look forward to hearing the Minister’s reassurances in response to those four important questions.

Pensions Bill [Lords]

Debate between Stephen Lloyd and Stephen Timms

Tuesday 18th October 2011 Commons Chamber

[Stephen Timms]

I could not have wished for a more effective endorsement of the case that I have put to the House. I am grateful to my hon. Friend.

The Government’s waiting period would incur significant costs through lost contributions for 500,000 employees at any one time and amounting to 7% of an average worker’s fund over a lifetime. Those losses undermine the principle of auto-enrolment and substantially outweigh the benefit from the small reduction in the annual costs to employers.

Amendments 19 and 20 would link the earnings trigger for auto-enrolment to the increase in either earnings or the lower earnings limit for national insurance. As the Minister set out earlier in his exchange with my hon. Friend the Member for Aberdeen South, the Bill will link the level of earnings at which people are auto-enrolled to the higher income tax threshold, with the level reviewed in future according to a number of factors. However, like the three-month waiting period, this measure will exclude a significant number of people from auto-enrolment. Those people will by definition be lower-paid workers, who we know already save proportionately less than others. We also know that they are disproportionately likely to be women.

Earlier the Minister touched on the aspiration that the income tax threshold will in due course rise to £10,000. As my hon. Friend said, there would be a worry if all those earning less than £10,000 were in due course excluded from auto-enrolment as a result. The National Association of Pension Funds has pointed out that that would exclude 17% of all employees and 27%—more than a quarter—of women employees. Adrian Beecroft might be pleased about that, but the Minister should not be. Pension contributions would remain payable on earnings above the national insurance threshold under the plans in the Bill. The TUC has pointed out that moving to that scenario would create a big cliff-edge, so that people would get to, say, £10,000 and suddenly find a large chunk of their earnings deducted, having previously not had anything deducted automatically. That would create a significant disincentive, which the Bill ought to avoid, to enrolment.

We have heard about the basis on which the Government intend to raise the earnings trigger. Their worry is that saving will not deliver sufficient benefits in retirement to be worth while for many people earning below the income tax threshold. However, the Government’s own report shows that most people earning around £8,000 to £9,000 a year will not be earning consistently or permanently in that range, as the Minister underlined, but will move up the income scale.

[Stephen Lloyd (Eastbourne) (LD)]

Does the right hon. Gentleman not agree that the danger of starting when incomes are too low is that the amount in the pot might be so risibly low that it would undermine the obvious advantages that auto-enrolment will deliver over the next 20 years or so?

[Stephen Timms]

The hon. Gentleman has a point—the Minister also made that point—which is that if the threshold was down at the national insurance threshold, the amounts involved could be tiny. What I am suggesting in our amendments is that the way in which the higher threshold that has now been agreed is subsequently uprated should be constrained. If it is not, a large number of people could be undesirably excluded from auto-enrolment at a time when it might be very much to their advantage to be included, particularly if the threshold goes up to £10,000.

The Minister will tell us—indeed, he already has —that people whose earnings are between the contribution threshold and the earnings trigger can opt into the scheme if they feel they are missing out. However, people have always been able to opt in; the problem is that they have chosen not to. That is why we have auto-enrolment. The point is that opt-ins have not worked. We need a step change. It is unfair to exclude people on lower wages, because they need to be part of the scheme too.

Our two new clauses would place a duty on the Secretary of State to review allowing transfers into NEST and the contribution limits on the scheme. The limits on transfers in and annual contributions were a factor in creating consensus on auto-enrolment—the Minister was right about that. They were correct at the time, and helped us to focus the scheme on where it was needed.

The Johnson review that the Government commissioned was clear about what ought to happen next. It made the point that the Government needed to review those two areas before the planned 2017 review. Paul Johnson said:

“Government and regulators should review as a matter of some urgency how to ensure that it is more straightforward for people to move their pension pot with them as they move employer, so that by the time of the 2017 review the more general issue of pension transfers has been addressed and NEST is able to receive transfers in and pay transfers out.”

The Minister suggested that to do two reviews would muddle things, but that is precisely what the Johnson review calls for, and I think that it does so with good reason. The report argues that that will be

“critical to the success of the reform”.

If this review does not occur before 2017, savers will spend years with fragmented savings in numerous pots that they are unable to combine. They will lose out on the benefits of being able to purchase an annuity on better terms as a result of having one, larger pot of money rather than several small ones. In some circumstances, they might also lose out due to higher management charges or as a result of deferred member penalties.

The Minister has offered some encouragement on this. I notice that he told a pensions conference last month of his vision that people will end up with what he described as “one big fat pot” instead of lots of little ones. However, no provision to review transfers in before 2017 appears on the face of the Bill, which means that people will continue to have lots of little pots, and his vision will remain unfulfilled.

It is right that contribution limits are in place while NEST is being established, but we should look again at whether those limits are necessary sooner rather than later. The Johnson review recommended that the Government legislate to remove the cap in 2017, which would be difficult if the review were commencing only in that year. The amendment therefore provides for a review in 2014. We remain wholeheartedly on the side of the consensus over auto-enrolment, but we believe that some changes are needed.

I shall also be listening with great interest to the speech of the hon. Member for West Worcestershire (Harriett Baldwin) in favour of her new clause 1. I was pleased that the Minister sounded well disposed towards it, although we shall need to know precisely what is going to happen to make its aims a reality. I hope that we can make progress in that area, as well as in the others that I have mentioned in my speech.