Pensions and Social Security

Stephen Timms Excerpts

Thursday 23rd February 2012 Commons Chamber

[Steve Webb]

My hon. Friend is right that when the uprating was considered, there was speculation that a different month, or a rolling average or something like that, might be used. It was decided to continue the practice of using the September CPI, but I would stress that that is not a one-month figure, but a figure published in one month about the past 12 months. Although as it happened 5.2% was the peak—I think I am right in saying that it was lower in the month before and the month after—each 12 months joins on to another 12 months, so in another year, the September figure could be the lowest. We took the view that that was the established practice, and that changing it could leave it open to manipulation. Although in a particular year it can stand out, when we take one year with the next, it will sometimes be lower and sometimes higher.

As hon. Members know, using the CPI measure of inflation was an important part of this Government’s plans for uprating pensions and benefits. I am delighted that we will have a debate on that very subject next Thursday afternoon—I look forward to being here at the same time and the same place next week. In addition to being the headline measure of inflation in the UK and the internationally recognised target measure of inflation used by the Bank of England, we believe the CPI is a superior measure of inflation when it comes to uprating benefits and pensions, first because the CPI basket of goods is a better match for the spending patterns of pensioners, and secondly because it takes better account of how households respond to price changes.

Last year, the High Court upheld the Government’s decision that the CPI can be used for pensions and benefits uprating and we have robustly defended our case in the Court of Appeal.

[Stephen Timms (East Ham) (Lab)]

As the Minister knows, the UK Statistics Authority has said that CPI should be used for that purpose only if it incorporates a measure of housing costs. I know some work is being done to incorporate such costs in the CPI measure, but is it the Government’s intention to use that modified measure when it is available?

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[Steve Webb]

The hon. Lady may not have been in the Chamber when I referred to next week’s debate, when we will debate such issues at greater length. I was not aware that it was Labour party policy to revert to RPI—its view for now is that CPI is appropriate. She might want to raise that with the right hon. Member for East Ham (Stephen Timms), who is on the Opposition Front Bench. For the reasons I have given, our judgment is that the CPI basket of goods matches the spending patterns of pensioners. The Institute for Fiscal Studies has confirmed that modelling and people’s response to price changes is better with CPI than in RPI. No index is perfect, but there is a good case for using CPI.

Funnily enough, when I attended a National Pensioners Convention event in the House a few months ago, the people there all demanded CPI, which shows how the debate has moved on. I am sure the hon. Lady has a press release saying that more is being demanded, but the tenor of the debate was that there was speculation that we would not honour our triple-lock promise. They said: “Minister, will you guarantee us the triple lock—prices, earnings or 2.5%? Will it be the 5.2% that we have just seen?” That was commendable realism on the part of the National Pensioners Convention—that is its role in life—but things may have moved on now it has banked the 5.2% in the current environment. In fact, 5.2% is the biggest cash increase ever and one of the biggest real-terms increases in a long time. I am proud to stand by that figure.

Restoring the earnings link for the basic state pension was an early action by this coalition Government, putting an end to 30 years of deterioration in the value of the foundation of retirement income relative to average earnings. Better than that, we went one further with our triple guarantee to pay the highest of the growth in earnings, prices or 2.5%, so that even in times of slow earnings growth, we will not see a repeat of the small rises, such as the 75p rise in 2000, presided over by the Labour party.

In line with the triple guarantee, the new rate for the basic state pension, received by more than 11 million people in this country, will be £107.45 a week for a single person, an increase of £5.30 a week. My hon. Friends in the coalition may be interested to know that that means that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, which is a higher share of average earnings than in any year of the previous Labour Government from 1997.

[Stephen Timms]

A minute or two ago, the Minister said that this was the highest ever real-terms increase to the state pension.

[Steve Webb]

No.

[Stephen Timms]

I thought that was what the Minister said. Perhaps he can clarify that point, because by definition it cannot be a real-terms increase.

[Steve Webb]

It is the highest cash increase ever and the highest real-terms increase for about 10 years.

[Stephen Timms]

Given that the increase is purely in line with inflation, how can the Minister describe it as a real-terms increase?

[Steve Webb]

Because the point at which the money is paid is not the point at which inflation is measured, so when people actually get the money it will be substantially more than the inflation since the last increase.

[Stephen Timms]

This takes us back to the point raised by the hon. Member for Bury St Edmunds (Mr Ruffley). The Minister is making a virtue out of a timing point rather than a substantial point. He is a modest man, and I am sure he will accept that the Government cannot claim credit for inflation being slightly lower now than it was last September.

[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.

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[Stephen Timms (East Ham) (Lab)]

The Minister has helpfully explained that we are dealing with three separate orders, aspects of which are welcome but others of which are decidedly unwelcome. I shall make it clear where we do not support the Government.

The Pensions Act 2008 (Amendment) Order—to give it a rather briefer title than the one the Minister used—makes minor amendments to protected rights over payments of defined contributions contracted-out pension schemes. As he said, the underpinning legislation is the Pensions Act 2008. I accept that the order is necessary to clarify a following order, and I have no objection to it.

The most substantial of the orders—the one that I am sure this debate will focus on—is the Social Security Benefits Up-rating Order 2012, which, as the Minister said, uprates most out-of-work benefits and the basic state pension in line with the consumer prices index. For most out-of-work benefits, this will be the second year that CPI has been used rather than RPI, but for the basic state pension it is the first year. Members might recall that, like this year, last year the Government trumpeted their triple lock on the basic state pension.

I recall that in the debate last year the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), who unfortunately is not with us today, congratulated his hon. Friend the Minister on his success in introducing the triple lock—only, the Government did not, in fact, apply it last year. Under the triple lock, the basic state pension would have been uprated by CPI, which was a long way below RPI last year, so the Minister—prudently, I think—decided to overrule his triple lock on its first outing and instead operate the old mechanism, uprating the basic state pension by the higher rate, RPI. In doing so, he exposed to public view the weakness of his triple lock. He had to override it in the first year it was due to be applied. Advertised as a safeguard for pensioners, the triple lock in fact undermines pensions uprating.

The Government have told us that the switch from RPI to CPI is not simply a deficit reduction measure. Instead, the justification for the switch is that, as the Minister said again today, CPI is a more accurate measure of changes in the cost of living for pensioners. Last year the Minister told us that he viewed CPI as

“the most appropriate measure of price inflation for this purpose,”

and that he saw

“no reason to change it in the future.”—[Official Report, 17 February 2011; Vol. 523, c. 1174-77.]

However, the view that RPI, let alone CPI, is an adequate measure of pensioner inflation is one on which many pensioners would take issue with him, as the hon. Member for Banff and Buchan (Dr Whiteford) suggested a few minutes ago. I was interested in the Minister’s view that the National Pensioners Convention is happy with CPI uprating. However, as the Civil Service Pensioners Alliance, among others, has pointed out in its briefing:

“The Royal Statistical Society…has said that CPI fails to reflect the spending patterns of pensioners and the rising costs they face. The Institute for Fiscal Studies”—

to which the Minister referred—

“has shown that most pensioner households are not shielded from many of the costs excluded from CPI. The UK Statistics Authority…has said that they do not believe the CPI should become the primary measure of data inflation until housing costs are included,”

which is a point that he touched on in response to my intervention.

The Minister has tried to paint the change as simply a sensible bureaucratic change, not one that is ideologically motivated or that represents a cut in the income of pensioners, but in reality that is not the case. As the UK Statistics Authority put it last year:

“Questions about compensation, who to compensate and what for, are straightforwardly political questions, not for statisticians.”

In other words, this is a matter for political decision. Let us be frank with people: the Government have chosen to uprate benefits and pensions permanently in a way that, in the case of benefits, will usually be meaner than the method used before and, in the case of pensions, was meaner this year and last year, which is why the Government overrode it last year and used the old method instead.

[George Hollingbery (Meon Valley) (Con)]

I seem to recall some embarrassment in the Labour party back in 2000 when the low rate of 1.1% was used to uprate pensions, the result of which was a 75p increase. Does the right hon. Gentleman agree that, under this Government, the triple lock will ensure that 2.5% is the minimum that can be paid?

[Stephen Timms]

Of course, that is indeed the effect of the mechanism that the Government have chosen. I would simply point out to the hon. Gentleman that if the previous method was still in place, there would be a higher increase in the basic state pension than the Minister has announced today.

[Ian Paisley]

The right hon. Gentleman has mentioned the triple lock, which interests me and which applies only to the basic state pension. A number of charities, such as Age Concern and others, have contacted me about this issue. They argue that the Government should apply the triple guarantee to other elements of the state pension, including the additional pension allowance. Does he agree that that would make good sense?

[Stephen Timms]

That is a matter that the Minister may well want to comment on in his response to this debate. In my view, the triple lock is certainly not the wonderful device that the Government maintain it is. As I have said, it is leading to a lower uprating of the basic state pension in the year ahead than if the RPI mechanism was still being used.

[Oliver Heald]

Does the right hon. Gentleman agree that we need to exercise judgment about what the increase should be? One of the faults of the last Government was to be too rigid. My hon. Friend the Member for Meon Valley (George Hollingbery) has already mentioned the 75p increase, but there was also the freezing of the additional pension, which, again, was considered a mean act. Is it not right for the Government to take a judgment and—on pension credit, for example—to make increases well above the rate that they have to use, which is earnings, and instead use a higher measure, in order to be fair?

[Stephen Timms]

The hon. Gentleman’s argument is a different one from the Minister’s. The Minister says that because of the triple lock, pensioners are safeguarded and need not worry about what future judgments Ministers will make. In a way, I am rather more with the hon. Gentleman on this than with the application of the formula. Again, however, I would point out that last year—the first year that this supposedly wonderful mechanism was in place—the Government overrode it. I am therefore not quite sure what certainty pensioners would have for the future about whether, in the event of siren voices being heard—we heard about those earlier—the triple lock might be overrode in the other direction, if someone judges that to be appropriate.

[Steve Webb]

Will the right hon. Gentleman confirm that the statutory position that his Government left—and which was the basis of the spending plans for 2012 that they published for us—was based not on the higher of either prices or earnings but on earnings alone, and that the pension rise that his party pencilled in for 2012 was not five-and-a-bit per cent., but more like 2.5%?

[Stephen Timms]

As the Minister well knows, the basic state pension was uprated over a long period in line with RPI. My point is simply that if that mechanism was still in place, there would be a greater increase in the current year than the Minister has incorporated in the order before us today.

[Steve Webb]

But if the right hon. Gentleman thought that in the event of prices being higher than earnings he would choose prices, why did he make it the statutory position that just earnings would be used, therefore pencilling in an earnings-only increase for 2012, which meant that we had to find extra money to do better than just earnings this year?

[Stephen Timms]

It is probably the case that the Government’s poor performance on inflation—to go back to a point the Minister made earlier—and the resulting high level of inflation have been a surprise. I do not think anyone expected inflation to rise so rapidly. However, I want to underline the point, which the Minister has not acknowledged yet, that if RPI was still in place for the coming year, the increase for pensioners would be higher than the order in question sets out.

The judgment to adopt this approach of using a permanently meaner version of uprating than was in place before is one that we oppose. Of course there is a pressing need to reduce the deficit. We know, as does the International Monetary Fund—and, it would seem, the credit rating agencies and, this week, the former Defence Secretary—that reducing the deficit requires economic growth, which is strikingly absent at the moment. With the economy not creating enough new jobs and so many people out of work, not paying taxes but instead claiming benefits, targets for reducing the deficit will just keep being pushed back further and further. We heard in the autumn statement that we will be borrowing £158 billion more over the lifetime of this Parliament than on the last estimate, because the Government’s economic policy has failed to deliver growth and the economy has flatlined. If, instead of the permanent switch to CPI uprating, a temporary switch had been proposed—with the aim of contributing to deficit reduction over a short period—that might, in our view, have been justified, but we do not support the Government’s policy of a permanent switch to meaner uprating.

In the debate last year, the Minister attempted to make something of the fact that, for five of the past 20 years, RPI had been lower than CPI. Well, it was not lower last year, and it is not lower this year. RPI has generally been higher. Since 1989, the gap between RPI and RPI minus X and the CPI measure has been 0.7% on average. The Office for Budget Responsibility’s November economic and fiscal outlook suggests that the long-run difference between RPI and CPI is likely to be a good deal more, at about 1.4 percentage points. That is twice as much as that historic average, so the OBR thinks that the gap between RPI uprating and the CPI uprating that the Government want to apply in perpetuity is going to get bigger, not narrower.

[George Hollingbery]

I think I understood the right hon. Gentleman to say that he has made a commitment that, had a Labour Government been in power now, they would have uprated pensions using RPI. Has he calculated how much that might cost, and is that a spending commitment that he is prepared to make here today? Secondly, if he is arguing for RPI uprating in future, does he have any idea of the long-term commitment that that might involve for the Government?

[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.

[Sarah Newton (Truro and Falmouth) (Con)]

I acknowledge the right hon. Gentleman’s deep knowledge of this subject, but he is not giving the House an entirely accurate picture. For the longest period, the state pension was linked to average earnings, but it suits his argument today to make a comparison with RPI. The huge benefit of the triple lock is that it provides a choice. Average earnings could be taken into account, for example, and if they grew between 6% and 7%, so would pensions. Also, there is always the floor of 2.5%, which would prevent a repeat of the disgrace of giving pensioners 75p, as happened under the last Government.

[Stephen Timms]

I thank the hon. Lady for her generous remark. There is some merit in having an earnings underpin to the system, but I say again that, for the year ahead, RPI would give a higher increase than the triple lock has delivered. That was the case last year as well, which is why the Government set the triple lock aside in the first year it was supposed to be in place. This year, the difference is much smaller, at 0.4%, and the Government must be hoping that people will not notice that the triple lock is delivering less than an RPI uprating would have done. However, in principle, having an earnings underpin as well is entirely helpful.

[Sarah Newton]

But does the right hon. Gentleman not see the benefit for pensioners and the wider economy of the certainty provided by the triple lock? People can now plan for their retirement, and the Exchequer can plan for the economy.

[Stephen Timms]

It is not clear what the degree of certainty is. As I have said, the triple lock was overridden last year because it would have given such a low rate of uprating. This year, it has been applied because there is not much difference between RPI and the triple lock. So no, I do not think that any kind of rock-solid certainty has been introduced; the triple lock was waived the first time it was supposed to be put in place.

[Andrew Bingham (High Peak) (Con)]

The right hon. Gentleman talks about certainty, but will he acknowledge that the triple lock will give pensioners the certainty that they will no longer get the derisory 75p they got when his party was in government?

[Stephen Timms]

As I have said, in the first year that the triple lock was due to be put in place, it was overridden, so I am not sure about the certainty to which the hon. Gentleman refers.

[Oliver Heald]

The right hon. Gentleman is being a bit naughty. It is a general provision in many pension schemes that there is a method of indexation, and it is often permissible to exceed it. To exceed the triple lock is not to break it; it is simply to be more generous. I do not think that “overridden” is the right word to use.

[Stephen Timms]

I deny being naughty. I am simply making the point that the Government have been telling pensioners that they are now in a wonderful new era, thanks to the triple lock, yet it had to be overridden in the first year it was supposed to be in place because it was not delivering an adequate increase. I am not persuaded that the degree of confidence that Conservative Members believe to have been bestowed on pensioners is a reality.

[Ian Paisley]

Far be it from me to encourage the right hon. Gentleman to be naughty, but is there not a certainty that pensioners—those over 80 in particular—are now going to be £50 a year worse off because of the loss of the winter fuel allowance additional payment?

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[Stephen Timms]

The hon. Gentleman is absolutely right. People will feel that loss to a significant extent.

Those big figures, £70 billion or £80 billion, are a direct hit on the incomes of pensioners. They have paid into a pension, in many cases throughout their entire working lives, on the understanding that it would be indexed in a particular way. The Civil Service Pensioners Alliance notes that many of them will have

“entered into particular financial arrangements such as the purchase of added years, the conversion of lump sums into pensions and acceptance of moves to other employers on TUPE terms on the basis that future indexation will be linked to RPI”.

That contributory deal, understood and signed up to by pensioners, is being broken for good—permanently. KPMG has estimated that the total cost of the move to CPI uprating across the pensions system to public sector and private sector pensioners over the next 40 years will be £250 billion. The Government tell us—Conservative Members have just attempted to make this point as well—that pensioners will appreciate the stability. I have to say that they would appreciate even more having an income that kept pace with their costs.

I want to ask the Minister one specific question. The UK Statistics Authority has made the case that

“CPI should become the primary measure of consumer price inflation, but only when the inclusion in the index of owner occupiers’ housing costs has been achieved.”

I am grateful to the Minister for explaining the timetable he envisages for a change to the CPI mechanism possibly being introduced. He has not committed the Government to introducing such a change, but he has indicated when they expect to be in a position to do so. However, does he acknowledge the UK Statistics Authority’s point that, as things stand, the CPI is not an adequate measure, because of the exclusion from it of important elements of housing costs?

[Dr Whiteford]

The right hon. Gentleman has advocated a temporary use of CPI, but will he clarify whether he is advocating a return to the use of RPI at some future date? If so, when that would be?

[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.

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[Steve Webb]

Indeed. If one could obtain pretty robust and independently accepted forecasts—although that prompts at least two questions—there would have to be a decision about whether one used “forecast, forecast, forecast” or “history, history, history”. In terms of the orders, I am concerned with the decision that we had to make about this year. Had we switched from history to forecast just at the point when forecast was helping us, I think that we would have been criticised. With an historian sitting opposite me, I hesitate to say that no one can argue about history, but at least there is some certainty in the past. We now have the Office for Budget Responsibility, and we have the Bank of England, so we could get an objective future figure. However, if we did that and the future started to turn out differently, there would be a lot of pressure with people saying, “You forecast this figure but it is turning out to be more”. There would also be pressure to make in-year corrections, whereas nobody can argue about history, and that gives us a certain amount of certainty. Having said that, I understand my hon. Friend’s comment about the point of indexation being to match the inflation experience.

My hon. Friend talked about in-work and out-of-work benefits and the relative position of pensioners, as did my hon. Friend the Member for Eastbourne (Stephen Lloyd). I remind him that we have different approaches for pensioners and for non-pensioners. The statutory position for non-pensioners is generally CPI or, in some cases, discretionary, while our policy for pensioners is triple lock. We are in very strange times, with CPI, RPI and earnings going all over the place. In more normal times, when earnings rise faster than prices, pensioners will generally get bigger increases.

I entirely agree with my hon. Friend about the burdens on the low-paid. That is why we are keen to raise the tax-free personal allowance, among other measures. Nobody would say that being in a low-paid job is a comfortable place to be, especially with pay freezes. On average, people affected by the tax credits changes are on incomes of some £17,000 a year, but someone who is drawing employment and support allowance is on an income of about £3,500 a year. It is a question of how much scope the person has to accommodate and absorb these inflation shocks, and that was the judgment that we made. Most of the time, earnings rise faster than prices, and the gap between jobseeker’s allowance and low-paid people’s wages is increasing year after year. In the past 20 years, it has probably increased 17 or 18 times. In general, that will be the sort of outcome that we get. Of course, as soon as we introduce universal credit, that will institutionalise the gap between out-of-work and in-work benefits in the way that I think he wants to see.

My hon. Friend the Member for Eastbourne welcomed the 5.2% increase, particularly for working-age disabled people. I am grateful for his representations on that. He is right that we need to protect people who are not able to work. He asked about the evolution of CPI and RPI. Just to be clear, the £13,000 figure was reached by comparing our triple lock, based on OBR-type assumptions, with the RPI policy of the past 30 years. We asked what somebody retiring on a full pension this year would have got had RPI been rolled forward and what they would get under the triple lock according to realistic assumptions about earnings and prices. The difference between the two is a cumulative £13,000. That figure has changed. I used to say that it was £15,000, then the OBR changed its numbers and I said that it was £10,000. We now say that it is £13,000. The figure will change, but over time earnings tend to grow faster than RPI, so the basic pension will tend to grow faster than it would have done. That is something that we need to communicate over the coming years.

I wrote down a bizarre phrase that was used by the right hon. Member for East Ham (Stephen Timms). He said that the triple lock “undermines pensions uprating”. People can check his speech, but that is what I thought he said. That is nonsense. The triple lock reinforces pensions uprating because it always gives pensioners the best deal between CPI, earnings and 2.5%.

[Stephen Timms]

Will the Minister give way?

[Steve Webb]

I will in a second. Clearly, those numbers all fluctuate relative to each other. Perhaps the right hon. Gentleman can confirm whether he disputes the fact that £13,000 extra compared with the policy that his Government adopted for 13 years is the result of the triple lock?

[Stephen Timms]

I want to focus on the year ahead. Will the Minister confirm that the triple lock will deliver a lower uprating than would RPI?

[Steve Webb]

It is interesting that the Labour party has said that it does not support the orders, which include a CPI increase, and yet is not going to vote against them. I assume that it will not vote against them as there are only about four Labour Members here.

It is unclear what the right hon. Gentleman is saying. He does not think that there should be an RPI increase. Whether RPI is higher than CPI this year could be a debating point. Of course RPI is higher, as he well knows and as we all know. However, he is not in favour of using RPI this year, but favours a temporary move to CPI. I am not sure what debating point he is trying to make.

The right hon. Gentleman and the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) asked about CPIH, which is CPI including the housing costs of owner-occupiers. We are entirely open to looking at that. We are not going to say that we will definitely use it, because we do not know what it is, what it will include or what its properties will be. It would be premature of us to sign up to a prices index that we have not seen and that has not even been invented yet. We are entirely open to considering whether that is the right measure to use when the Secretary of State decides the general increase in the cost of living for September 2013, which is when it will presumably happen. I have said that consistently.

The right hon. Member for East Ham asked why we had increased the standard minimum guarantee by 3.9%. That is the cash pass-through. We have given the basic state pension £5.30. We wanted people on the minimum guarantee to get at least £5.30. It turns out that it will be £5.35. That is 3.9%.

The right hon. Gentleman asked about the savings from the savings credit change. We over-indexed the guarantee credit compared with statute, so it is 3.9% rather than 2.8%. That cost us £200 million, which we have to find by cutting back the savings credit. There is therefore no net saving on pension credit as a whole, but rather redistribution from the savings credit to the guarantee credit. I hope that that answers his question.

The right hon. Gentleman said that the Government had been secretive about the link between the local housing allowance and CPI, and about the freeze in April 2012. I accept that not many people listen to our debates in the House, but I announced that measure from the Dispatch Box on 6 December 2011. I think that he might even have been here. I said:

“As part of the preparation for this change, we need to fix LHA rates, to establish a baseline… As the new cycle for uprating LHA will be annual, we have decided that the baseline should be one year ahead of the first uprating event. Therefore, LHA rates will be fixed from April 2012.”—[Official Report, 6 December 2011; Vol. 537, c. 164.]

The measure was therefore announced before Christmas. Perhaps the right hon. Gentleman had his mind on other things at the time.

The right hon. Gentleman asked why the deductions from heating and so on in the social security order are relatively high. The deductions are linked to the component indices of CPI. Those things have gone up by more than inflation. Each year, we link them to what has actually happened to the cost of those items. Therefore, had the costs been lower, we would have used a lower figure. That is just for consistency.

I stand before the House having just announced £6.6 billion of spending. With due respect to the hon. Members who have attended the debate, it has not received a huge amount of scrutiny, but as was said during the debate, that is because people overwhelmingly think we have done the right thing. We have recognised that pensioners, who will get two thirds of the money, should benefit from the triple lock, that the poorest pensioners should be protected, that disabled people should be protected from inflation and that people who are out of work through no fault of their own should not suffer a cut in their real living standards. It is therefore my great pleasure to commend the orders to the House.

Question put and agreed to.

Resolved,

That the draft Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) (Amendment) Order 2012, which was laid before this House on 30 January, be approved.

Pensions

Resolved,

That the draft Guaranteed Minimum Pensions Increase Order 2012, which was laid before this House on 30 January, be approved.—(Steve Webb.)

Social Security

Resolved,

That the draft Social Security Benefits Up-rating Order 2012, which was laid before this House on 30 January, be approved.—(Steve Webb.)